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2025 Supreme(Online)(NCLT) 5658
NATIONAL COMPANY LAW TRIBUNAL
Mahendra Khandelwal, Judicial Member, Anu Jagmohan Singh, Technical Member
Unique Tobacoo Company – Appellant
Versus
Pelican Tobacco (India) Private Limited – Respondent
C.P. (IB) NO.: 860/ND/2024
For the Appellants/Petitioners: Sumeet Verma, Rachit Ranjan, Mahinder Pratap Singh, Charu Verma
For the Respondents: Sanjeev Bindal
For a claim to qualify as 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, the debt must have a direct nexus or co-relation with the provision of goods or services; a security deposit held as collateral does not satisfy this requirement.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - S. 4, S. 5(21), S. 9 - Operational Debt - Definition - Requirement of nexus - Claim amount must have a direct connection with the provision of goods or services - Security deposit pertained to performance of agreement and not supply of goods - Interest on such deposit does not qualify as operational debt - Total claim excluding security amount was below threshold under S. 4.
Facts of the case:
The applicant, an operational creditor, filed a petition under Section 9 of the Code against the respondent, alleging a default of Rs. 2,36,20,939/-, which included a security deposit of Rs. 31,00,000/- plus interest, and an amount of Rs. 26,64,939/- for unpaid invoices. The respondent contended that the security deposit did not constitute 'operational debt' and the remaining amount was below the minimum threshold.
Findings of Court:
The Tribunal examined the Manufacturing Agreement and determined that the security deposit served as collateral to secure performance obligations, lacking any direct nexus to the supply of goods or services. Consequently, the claim regarding the security deposit and interest was rejected, leaving only the invoice amount, which fell below the statutory threshold of Rs. 1 Crore.
Issues: Whether a refund claim of a security deposit under a manufacturing agreement constitutes an 'operational debt' under Section 5(21) of the Code, and whether the total default meets the threshold requirement under Section 4.
Ratio Decidendi: A debt to be classified as 'operational' under Section 5(21) must have a demonstrable nexus with the provision of goods or services. As the security deposit was held as collateral and not as consideration for supplies, it does not qualify as operational debt. Without this amount, the remaining debt failed to reach the statutory threshold.
Result: Petition dismissed as not maintainable.
| Table of Content |
|---|
| 1. overview of the petition, the nature of the alleged operational debt, and the arguments presented by both parties regarding the debt classification and threshold. (Para 1 , 2 , 3 , 4) |
| 2. establishing the test for determining 'operational debt' under section 5(21) of the code, emphasizing the requirement of a 'direct nexus' between the debt and the service provided. (Para 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12) |
| 3. applying the legal test to the specific facts, finding that the security deposit is not an operational debt, and dismissing the petition due to the total debt failing the statutory threshold requirement. (Para 13 , 14 , 15 , 16 , 17) |
ORDER
1. The instant Petition has been filed by the Applicant/Operational Creditor herein, namely, M/s Unique Tobacoo Company in accordance with Section 9 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as ‘Code’) read with Rule 6 of the Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016 against M/s Pelican Tobacco (India) Private Limited, being the Respondent/Corporate Debtor for initiating the Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’), declaring moratorium and appointment of an Interim Resolution Professional on the ground that the Corporate Debtor has defaulted in clearing the outstanding amount of Rs. 2,36,20,939/- (Rupees Two Crore Thirty-six Lakh Twenty Thousand Nine Hundred and Thirty-nine only).
Contentions of the Operational Creditor:
2. The facts and submissions as averred by the Applicant/Operational Creditor in the instant application for seeking the initiation of CIRP are mentioned hereinbelow—
2.1. The Corporate Debtor approached the Applicant in the year 2021 for the purpose of executing a Manufacturing Agreement between the parties with following objective clauses—
“Pelican shall, during the Term of this Agreement, manufacture the Products under the respective brand names of the principal and supply the same on an basis to UTC in accordance with the terms and conditions as specified under this Agreement.
Pelican shall manufacture and deliver the Products to UTC in consideration for the price of the Products in accordance with the Order(s) from UTC.
Pelican shall not directly acknowledge and agree that all transactions, arrangements and other agreements between the Parties pursuant to this Agreement shall be made, in accordance with the Applicable laws.”
2.2. The aforementioned Manufacturing Agreement was agreed upon and executed on 10.07.2021 between the parties. In effect, the said Agreement was executed for the manufacture as well as delivery of the product (cigarettes of a certain brand name with which the Corporate Debtor has a separate agreement with). The Agreement expressly stated the payment schedule, duration of the agreement along with mode of communication in the event of dispute.
2.3. The clause 7.4 of the said Agreement provides that the Operational Creditor shall provide with a ‘security amount’ of Rs.31,00,000/- (Rupees Thirty Lakh only) against the execution of delivery of the products. For better clarity, the said clause has been reproduced hereinbelow—
“UTC shall provide Pelican with a fixed security amount of Rs.31,00,000/- (Rupees Thirty Lakh only) through Cheque No.:153551 dated 10.07.2021 drawn on South Bank, Nirman Vihar Branch, Delhi as agreed by and between the parties for the purpose of execution of such delivery. The security amount shall be refunded to the UTC within 15 days of termination of the agreement. After that 18% interest will be charged per month till the amount is paid.”
2.4. In addition to the aforementioned advance amount paid for the purpose of execution of delivery, the Operational Creditor also made advance payments for the orders made by the Applicant as per the clause 7.5 of the said Agreement. It has been further submitted that the Applicant made advance payments from time to time and as such, there is total amount of Rs.
