Claim Of Compensation Cannot Become Part Of Operational Debt Until The Liability Is Adjudicated By A Competent Authority: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench, comprising Shri Kuldip Kumar Kareer (Judicial Member) and Smt. Anuradha Sanjay Bhatia (Technical Member), while adjudicating an application under Section 9 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in Chandrashekhar Export Pvt. Ltd vs Babanraoji Shinde Sugar & Allied Industries Ltd. has held that Operational Debt must be crystallized, undisputed and not something which requires adjudication by a competent authority. Background Facts Babanraoji Shinde Sugar & Allied Industries Ltd (“Corporate Debtor”) entered into a Sale Agreement dated 10.10.2017 with Chandrashekhar Export Pvt. Ltd (“Operational Creditor”) to sell Grade “A” Molasses to the Operational Creditor for an advance payment of Rs. 3,00,00,000 made on 16.10.2017. The Sale Agreement stipulated repayment of the advance amount along with compensation and losses in case of failure to supply the goods. The Corporate Debtor failed to supply the goods within the stipulated period even after repeated reminders. It was contended by the Operational Creditor that the Corporate Debtor issued a cheque dated 30.04.2018 to refund the advance amount along with the interest and compensation which was dishonoured. Pursuant to this, the Operational Creditor was constrained to issue a Demand Notice dated 25.04.2019 to the Corporate Debtor. On the Contrary, it was contended by the Corporate Debtor that there was an Arbitration Clause in the Sale Agreement, thus the Tribunal does not have any jurisdiction to entertain the petition. It was further contended that the Corporate Debtor had supplied Rs 90,00,000 worth of goods on 15.11.2017 and further made a repayment of Rs. 96,00,000 against the Advance Payment. Thus the Operational Creditor had rescinded the contract by demanding and accepting the amount of repayment out of advance amount. Findings of the Tribunal The Tribunal observed the Principal Amount of Rs. 2,04,00,000 has already been repaid by the Corporate Debtor on 01.03.2023. The Tribunal further observed that out of the total amount claimed by the Operational Creditor i.e. Rs. 4,42,54,918/-, Rs 1,70,00,000 are claimed towards compensation paid by the Operational Creditor to its client. However, the Tribunal held that the Operational Debt must be crystallized, undisputed and not something which requires adjudication by a competent authority. The claim of compensation cannot become part of Operational Debt until the liability is adjudicated by a competent authority. It was further held that the Sale Agreement did not provide for payment of interest on the advance amount and the entire advance amount of Rs. 3 crores has been repaid by the Corporate Debtor. With the aforesaid observation, the Tribunal dismissed the petition. Case: Chandrashekhar Export Pvt. Ltd vs Babanraoji Shinde Sugar & Allied Industries Ltd.. Case No. C.P. No. 3667/IBC/MB/2019 Counsels for the Applicants;Adv. Yuvraj Narvankar Counsel for the Respondent ;Adv. Ashish Kamat a/w Adv. Prakhar Tandon i/b Adv. Agam H Maloo Click Here To Read/Download Order

Claim Of Compensation Cannot Become Part Of Operational Debt Until The Liability Is Adjudicated By A Competent Authority: NCLT Mumbai

Udai Yashvir Singh

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