Excessive Amount Mistakenly Paid Can’t Be Operational Debt, It’s Quasi Contract: NCLT Hyderabad

The National Company Law Tribunal (“NCLT”), Hyderabad Bench, comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Mr. Satya Ranjan Prasad (Technical Member), while adjudicating a petition filed in M/s. Sandvik Mining & Construction Tools AB v M/s TA Hydraulics Pvt. Ltd., has held that if an Operational Creditor mistakenly pays excess sum to the Corporate Debtor, then the excess amount would not be categorized as an operational debt, if the claim is entirely based on a Quasi Contract and not on concerned purchase orders and commercial invoices in respect to supply of goods and services. The Bench observed that under IBC, the NCLT cannot investigate the sufficiency of pleadings or proof in respect of a claim arising from Quasi Contracts as given under Section 72 of Indian Contract Act. An application filed for recovery under Quasi Contract and not for resolution of Corporate Debtor is not maintainable under IBC. Background Facts M/s TA Hydraulics Pvt. Ltd (“Corporate Debtor”) supplied goods to M/s. Sandvik Mining & Construction Tools AB (“Operational Creditor”) and raised invoices amounting to Rs. 4,30,110/-. When the Operational Creditor paid the Corporate Debtor, the payment was inadvertently made in US Dollars (USD) instead of Indian Rupees (INR). Thus, the Operational Creditor paid Rs.3,03,44,260/- to the Corporate Debtor in place of Rs. 4,30,110/-. The excess payment mistakenly made to the Corporate Debtor stood at Rs. 2,99,14,150/-. The Corporate Debtor failed to refund the excess payment received to the Operational Creditor. Consequently, on 15.05.2020 the Operational Creditor issued a Demand Notice to the Corporate Debtor under Section 8 of Insolvency and Bankruptcy Code, 2016 (“IBC”). The Corporate Debtor responded to the Demand Notice and raised dispute with regard to the claim amount. Thereafter, the Operational creditor filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. Issue Whether an excess sum paid mistakenly by the Operational Creditor to the Corporate Debtor is in the nature of an operational debt qua purchase orders issued and commercial invoices raised, especially when the Applicant traced operational debt under a quasi-contract? Relevant Law Section 72 of the Indian Contract Act, 1872 “Liability of person to whom money is paid, or thing delivered, by mistake or under coercion. — A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. Illustrations (a) A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B. (a) A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B. (b) A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegal and excessive. (b) A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegal and excessive." NCLT Verdict Quasi Contracts and IBC The Bench observed that under a quasi-contract the opposite party is required to pay or restore to the suitor, the amount/benefit that has been paid or parted with under a mistake or coercion, even when no such contract exists between the parties. In other words, a quasi-contract is an obligation created by an implied contract in order to prevent unjust enrichment rather than under an agreement between the parties. Reliance was placed on the Andhra Pradesh High Court judgment in N.V. Ramaiah vs State Of Andhra Pradesh and Ors., 1988 (35) ALT 38 AP, wherein it was held that the party seeking benefit of Section 72 of Indian Contract Act would have to prove the injury/loss suffered and that equitable relief of restitution is required to offset such loss. The Court presumes that in ordinary course of business every manufacturer passes on the burden of what he has paid for the raw material, to the consumer of his product. Similarly, every dealer who resells such product to another, equally recovers the same from his purchaser. The Bench observed that under IBC the NCLT cannot investigate the sufficiency of pleadings or proof in respect of a claim arising from Section 72 of Indian Contract Act. A mere plea that the Corporate Debtor failed to return the excess money it received unjustly, by itself is not sufficient to grant the...

Excessive Amount Mistakenly Paid Can’t Be Operational Debt, It’s Quasi Contract: NCLT Hyderabad

Pallavi Mishra

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