Del Credere Agent Who Bears Buyer Default Risk Is Operational Creditor Under IBC: NCLAT Reaffirms

The National Company Law Appellate Tribunal (NCLAT) at New Delhi on Wednesday reiterated that a Del Credere Agent, an agent who guarantees payment to the supplier and bears the risk if the buyer defaults, is an operational creditor under the Insolvency and Bankruptcy Code and can initiate insolvency proceedings to recover unpaid dues.

A bench of Judicial Member Justice Yogesh Khanna and Technical Member Indevar Pandey dismissed an appeal filed by the suspended director of Kirtiman Cements and Packaging Industries Ltd. The tribunal held that when a Del Credere Agent such as Napin Impex Ltd. takes on financial liability for buyer defaults, it gains an independent right to recover the debt.

“Once the Del Credere Agreement made Napin financially liable to OPAL in the event of the Corporate Debtor's default, the consequent right of Napin to recover these sums falls squarely within the ambit of Section 5(20) and 5(21) of the Code,” the tribunal said.

Napin Impex Ltd. was appointed as a Del Credere Agent by ONGC Petro Additions Ltd. under agreements dated April 11, 2017, for marketing and sale of polymer products. Under this arrangement, Napin guaranteed payment to OPAL even if buyers failed to pay.

At the request of Kirtiman Cements and Packaging Industries Ltd., OPAL registered the company as a customer through Napin. Polymer raw materials were supplied between 2017 and 2019. The corporate debtor received and used the goods and made payments directly to Napin for nearly two years. It later defaulted on dues of about Rs 1.11 crore, which it acknowledged by email.

Napin issued a demand notice and then filed a CIRP application under Section 9 of the IBC. The NCLT admitted the plea and initiated the Corporate Insolvency Resolution Process.

The suspended director challenged the admission order on several grounds. It was argued that Napin was only a commission or collection agent and not the supplier of goods. The appellant pointed out that invoices, GST returns and e-way bills were in OPAL's name.

It was also claimed that the Del Credere Agreement barred Napin from initiating legal proceedings, that the NCLT ignored disputes, and that the resolution professional violated interim court directions by taking possession of the factory.

The appellate tribunal rejected these arguments. It held that the agreement transferred operational responsibility and financial risk to Napin.

“The company through the DCA Agreement has transferred all the operations and related risks to the DCA,” the bench observed.

It noted that for nearly two years all payments were made directly to Napin without objection.

“The Corporate Debtor's consistent dealings with Napin, coupled with its express request for registration through Napin, establish beyond doubt that the Corporate Debtor treated Napin as the party responsible for payment collection and as the entity to whom its liabilities were owed under the Del Credere arrangement." the tribunal said.

The NCLAT also clarified that Napin had filed the insolvency case in its own right, which is permitted under the Code, and that procedural issues such as GST filings could not defeat contractual liability.

"Clause 7 of the DCA clearly makes Napin financially liable for buyer defaults, thereby entitling Napin to recover unpaid amounts from the Corporate Debtor. This Tribunal in Madras Chemicals & Polymers vs. Vijay Aqua Pipes Pvt. Ltd. (supra), had categorically held that where the corporate debtor had failed to pay the principal amount for certain goods to the del credere agent, such an amount would qualify as an operational debt and a CIRP application under Section 9 of the Code would be maintainable", it said.

Finding no merit in the appeal, the tribunal upheld the insolvency proceedings.

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