Mobilization Advance Is An Operational Debt: NCLAT Delhi

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Athena Demwe Power Ltd. v Abir Infrastructure Private Limited & Ors., has held that a mobilization advance given for mobilization of material and workforce is an operational debt. Background Facts On 24.12.2010, Athena Demwe Power Ltd. ("Appellant") had awarded a contract to Abir Infrastructure Private Limited & Ors. ("Corporate Debtor") for execution of 1750 MW Demwe Lower Hydroelectric Project in Arunachal Pradesh. A mobilization advance of Rs. 7,48,40,06,136/- was transferred by the Appellant to the Corporate Debtor through the Bank Transfer in pursuance of the Contract. On 14.02.2011, Corporate Debtor had issued Corporate Guarantee in favour of the Appellant, which was extended till 23.11.2021. However, the Contract work could not be completed since site was never made available by the owner. Thereafter, NCLT New Delhi Bench ("Adjudicating Authority") had initiated Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor and the Appellant had filed its claim before the Interim Resolution Professional (IRP) for an amount of Rs. 1784,99,28,651/- as a Financial Creditor. The IRP informed the Appellant that his claim falls within operational debt and not financial. Therefore, the Appellant filed his claim as an Operational Creditor, which was yet again rejected by the Resolution Professional on the ground that the claim falls under 'other creditor' head. In the meanwhile, the Adjudicating Authority vide an order dated 28.10.2021 had approved the Resolution Plan submitted by SREI Multiple Asset Investment Trust i.e. Respondent No. 2 for the Corporate Debtor. The Appellant had filed an interim application before the Adjudicating Authority challenging the rejection of its claim, which was dismissed by the Adjudicating Authority on 12.01.2022. The Appellant filed an appeal before the NCLAT against the order dated 12.01.2022. Contentions Of The Appellant Appellant argued that it is a Financial Creditor having advanced an amount of Rs. 7,48,40,06,136/- as a mobilization advance. As the Corporate Debtor had issued a Corporate Guarantee towards the mobilization advance to the Appellant, the provisions of Section 5(8)(i) of Insolvency and Bankruptcy Code, 2016 ("IBC") were attracted making the transaction a Financial Debt. Further, the Resolution Professional has no power to adjudicate the claim filed by the Appellant. Contentions Of The Respondent The Respondent No. 1 argued that mobilization advance is not a loan/borrowing raised and meant to be repaid by the Respondent No.1 and therefore it was not a Financial Debt. The transaction does not come under Section 5(8)(i) of IBC since the Corporate Guarantee has not been provided to support any liability falling under or within the meaning of (a) to (h) clauses of Section 5(8) of the IBC. The Appellant has not rendered any services or delivered any goods to the Corporate Debtor hence the Appellant is not an Operational Creditor. Issues Whether the mobilization advance given by the Appellant to the Corporate Debtor is a Financial Debt within the meaning of Section 5(8) of the IBC? Whether the mobilization advance given by the Appellant to the Corporate Debtor is an Operational Debt within the meaning of Section 5(21) of the IBC? Relevant Laws Section 5(8) of IBC "Section 5(8): "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes– (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; XXX (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument...

Mobilization Advance Is An Operational Debt: NCLAT Delhi

Pallavi Mishra

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