NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No. 261 of 2022
(Arising out of Order dated 06.01.2022 by the Adjudicating Authority (National
Company Law Tribunal), New Delhi Bench, Court-III in IB-112/ND/2020)

IN THE MATTER OF:

Chipsan Aviation Private Limited
Through its Director,
234, Vasant Enclave, Vasant Vihar
New Delhi-110057. .... Appellant

Vs

Punj Llyod Aviation Limited

Through its Director,
Punj Llyod House,
17-18, Nehru Place,
New Delhi-110019. .... Respondent

Present:

For Appellant: Mr. Barun Kumar Sinha, Ms. Nidhi Vardhan,

Advocates.

For Respondent: Mr. Karan Luthra and Ms. Aarushi Tiku,

Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by an Operational Creditor has been filed against the

order dated 06.01.2022 passed by National Company Law Tribunal, New

Delhi, Court-III rejecting Section 9 Application filed by the Appellant.

2. Brief facts of the case, necessary for deciding this Appeal are:

(i) The Appellant was engaged in business with the Corporate

Debtor for charter services of aeroplanes and helicopter, hired

on long term basis from non-scheduled operators/ owners

Company Appeal (AT) (Insolvency) No. 261 of 2022 1

 from the Corporate Debtor. On the assurance received from

the Corporate Debtor, the Appellant on 28.03.2016 advanced

an amount of Rs.60 lakhs to the Respondent – Corporate

Debtor for aviation related services, which services were not

provided by the Corporate Debtor nor the advance paid by the

Appellant was refunded. After payment of the advance

amount, there has been several emails correspondence

between the Appellant and the officials of the Corporate

Debtor. The advance payment made by the Appellant to the

Corporate Debtor was reflected in the Balance Sheets of the

Corporate Debtor as on 31.03.2016 under the head current

liabilities. The amount of Rs.60 lakhs was continuously shown

as advance received from the customers during 2015-16,

2016-17 and 2017-18. The Appellant on 08.11.2017 wrote to

the Corporate Debtor to return back the amount at the earliest.

(ii) On 26.03.2019, the Appellant filed a complaint against the

Corporate Debtor with the Registrar of Companies Delhi and

Haryana, where entire sequence of the facts was narrated and

prayer was made to carry on investigation, so the amount of

Rs.60 lakhs be refunded and action be taken against the

Director, agents and officials of the Corporate Debtor.

(iii) On 19.09.2019, a Demand Notice under Section 8 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to

as the “Code”) was issued, which was delivered on Corporate

Company Appeal (AT) (Insolvency) No. 261 of 2022 2

 Debtor on 21.09.2019. Section 9 Application was filed by the

Appellant demanding an amount of Rs.97,40,055/-, out of

which Rs.60 lakhs as principal amount and rest interest.

(iv) A reply was filed by the Corporate Debtor to Section 9

Application refuting the claims of the Appellant. It was pleaded

that there was no privity of contract between the Appellant and

the Corporate Debtor and there is no Operational Debt in

existence under Section 5(21) of the Code. The contract of the

Appellant dated 01.04.2016 was with M/s Buildarch Aviation.

It was further pleaded that Application under Section 9 is

barred by limitation as the advance payment was made on

28.03.2016 and the Application has been filed after expiry of

the three years.

(v) The Adjudicating Authority by the impugned order has rejected

the Section 9 Application holding that advance payment made

by Operational Creditor to the Corporate Debtor does not fall

within the four corners of the Operational Debt.

(vi) Aggrieved by the said order, this Appeal has been filed.

3. The learned Counsel for the Appellant challenging the impugned

order contends that advance payment of Rs.60 lakhs on 28.03.2016 was

made for the purposes of providing aviation services by the Corporate

Debtor. The Draft Agreement was forwarded to the Corporate Debtor,

which was never signed by the Corporate Debtor. The advance amount

Company Appeal (AT) (Insolvency) No. 261 of 2022 3

was towards obtaining goods and services, hence it falls within the

Operational Debt. The Adjudicating Authority committed error in holding

that advance payment does not fall within the definition of Operational

Debt. It is submitted that in the Balance Sheets of the Corporate Debtor,

the amount of Rs.60 lakhs has been shown as “advance received from

customers”, which contains clear acknowledgement of the advance received

for providing goods and services, hence, the view of the Adjudicating

Authority that it is not an Operational Debt is erroneous.

4. The learned Counsel for the Appellant relying on the judgment of the

Hon’ble Supreme Court in Consolidated Construction Consortium

Limited vs. Hitro Energy Solutions Private Limited – (2022) SCC

OnLine SC 142 submits that Hon’ble Supreme Court has held that

advance payment for goods and services is an Operational Debt, hence, the

very foundation of the order of the Adjudicating Authority is knocked out

and the Application under Section 9 was liable to be admitted.

5. The learned Counsel for the Respondent refuting the submission of

learned Counsel for the Appellant contends that there is no evidence on

record to indicate that there is any contract between the Appellant and the

Corporate Debtor. In Section 9 Application, the Appellant has come up

with a case that the amount of Rs.60 lakhs was advanced on the

assurance/ advice of direct dealing with the Corporate Debtor, but in the

Appeal, now the Appellant has improved its case by stating that the amount

of Rs.60 lakhs was advanced under an oral contract with the Corporate

Debtor. It is submitted that there being no privity of contract between the

Company Appeal (AT) (Insolvency) No. 261 of 2022 4

Appellant and the Corporate Debtor, advance payment of Rs.60 lakhs

cannot be held to be an Operational Debt. It is further submitted that

Application filed by the Appellant under Section 9 was barred by limitation

and the submission was raised before the Adjudicating Authority that

Application was barred by limitation, but in the impugned order, there is

no consideration with regard to question of limitation.

6. We have heard learned Counsel for the parties and have perused the

records.

7. From the materials brought on record, it is clear that there is no

contract between the Appellant and the Corporate Debtor for providing an

aviation services. However, the payment of Rs.60 lakhs to the Corporate

Debtor, which is reflected by Bank transaction is not denied. The amount

of Rs.60 lakhs was paid through Bank transfer dated 28.03.2016 to the

Corporate Debtor. The statement Annexure-2 to the Appeal, which is

Statement of Account of HDFC Bank, clearly mentions that:

Date Narration Chq/Ref.No. Value Dt. Withdrawal Deposit Closing

Amt. Amt. Balance
28/03/16 CHQ 000000000 28/03/16 6,000,000.00 12,441,098.17
PAID- 0000600
MICR
CTS-NO-
PUNJ
LLOYD
AVIATION

8. The Balance Sheets of the Corporate Debtor were brought before the

Adjudicating Authority, which are also on the record, mentions the amount

of Rs.60 lakhs as advance received from the customers. The fact that

advance of Rs.60 lakhs reflected in the Balance Sheets dated 2015-16 and

onwards as advance received from customers has not been denied. The

Company Appeal (AT) (Insolvency) No. 261 of 2022 5

case of the Corporate Debtor is that there being no privity of contract

between the Appellant and the Corporate Debtor, the advance amount

cannot be said to be advanced for providing any goods and services.

9. The definition of Operational Debt as contained in Section 5(21) is to

the following effect:

“(21) “operational debt” means a claim in respect

of the provision of goods or services including
employment or a debt in respect of the 2[payment] of
dues arising under any law for the time being in force
and payable to the Central Government, any State
Government or any local authority;

10. The above definition defines Operational Debt as a claim in respect

of the PROVISION OF GOODS AND SERVICES. The expression ‘goods and

services’ is preceded with the word ‘in respect of’. The materials on record

does indicate that advance of Rs.60 lakhs was given by the Operational

Creditor to the Corporate Debtor for availing the aviation services and with

regard to which, however, no contract could be entered into between the

Appellant and the Corporate Debtor. In the complaint, which has been

filed before the Registrar of Companies by the Operational Creditor, details

of correspondence after payment by the Operational Creditor to the

Corporate Debtor has been detailed. The copy of the complaint dated

26.03.2019 was part of Section 9 Application and the same has been filed

as Annexure A-5 to the Appeal. In paragraph 9 of the complaint,

correspondence between Appellant and the Corporate Debtor has been

mentioned. On 13.04.2016, an email was forwarded on behalf of Corporate

Company Appeal (AT) (Insolvency) No. 261 of 2022 6

Debtor to one Shri Sushil Kumar [email protected] contained

following:

“13-04-2016 DAISY CHIPSAN Sushil Please forward me the

Kumar/F&A/ Agreement copy. It may
<daisy@chipsan
Group be noted that the
.com>
<sushilkumar@ Agreement desired by
punjlloyd.com> my client was agreement
with the Respondent
Company.”

11. There has been repeated correspondence as encapsulated in the

complaint, which indicate that there has been correspondence and various

requests from the Operational Creditor to the Corporate Debtor with regard

to goods and services. Thus, the correspondence as encapsulated shows

that an amount of Rs.60 lakhs was advanced for providing goods and

services to the Corporate Debtor. Neither goods and services could be

provided, nor any Agreement could be entered between the Appellant and

the Corporate Debtor as noted above.

12. The Hon’ble Supreme Court in Construction Consortium Limited

(supra) had occasion to consider a case where Application under Section 9

was admitted by the Adjudicating Authority, which order was reversed by

National Company Law Appellate Tribunal. Appeal filed by Operational

Creditor was allowed by the Hon’ble Supreme Court and it was held that

advance payment is covered within the definition of Operational Debt.

Hon’ble Supreme Court came to consider the definition of Operational Debt

as contained in IBC. While analyzing the provisions, the Hon’ble Supreme

Court laid down following:

Company Appeal (AT) (Insolvency) No. 261 of 2022 7

 “49. We have to now consider the “debt” in the present appeal.
According to the appellant, it is the advance payment CMRL
made on their behalf to the proprietary concern, which was
encashed even though the project between CMRL and the
appellant was terminated. On the other hand, the respondent
has attempted to urge that there was no privity of contract
between the appellant and the respondent, and that CMRL had
not transferred the debt to the appellant. We reject both these
submissions. It is amply clear from the facts that the debt arises
from purchase orders between the appellant and the proprietary
concern (which is the underlying contract), regardless of
whether CMRL may have made the payment on behalf of the
appellant. Thus, the ultimate dispute still remains between the
appellant and the proprietary concern, and the debt arises from
that.
50. It is then that we come to the core of the dispute—while the
appellant has argued that the debt is in the nature of an
operational debt which makes them an operational creditor, the
respondent has opposed this submission. The respondent's
submission, which was accepted by NCLAT, seeks to narrowly
define “operational debt” and “operational creditors” under the
IBC to only include those who supply goods or services to a
corporate debtor and exclude those who receive goods or
services from the corporate debtor. For reasons which shall
follow, we reject this argument:
50.1. First, Section 5(21) defines “operational debt” as a
“claim in respect of the provision of goods or services”. The
operative requirement is that the claim must bear some nexus
with a provision of goods or services, without specifying who is
to be the supplier or receiver. Such an interpretation is also
supported by the observations in the BLRC Report, which

Company Appeal (AT) (Insolvency) No. 261 of 2022 8

 specifies that operational debt is in relation to operational
requirements of an entity.
50.2. Second, Section 8(1) IBC read with Rule 5(1) and Form 3
of the 2016 Application Rules makes it abundantly clear that an
operational creditor can issue a notice in relation to an
operational debt either through a demand notice or an invoice.
As such, the presence of an invoice (for having supplied goods
or services) is not a sine qua non, since a demand notice can
also be issued on the basis of other documents which prove the
existence of the debt. This is made even more clear by
Regulations 7(2)(b)(i) and (ii) of the 2016 CIRP Regulations which
provide an operational creditor, seeking to claim an operational
debt in a CIRP, an option between relying on a contract for the
supply of goods and services with the corporate debtor or an
invoice demanding payment for the goods and services supplied
to the corporate debtor. While the latter indicates that the
operational creditor should have supplied goods or services to
the corporate debtor, the former is broad enough to include all
forms of contracts for the supply of goods and services between
the operational creditor and corporate debtor, including ones
where the operational creditor may have been the receiver of
goods or services from the corporate debtor.
50.3. Finally, the judgment of this Court in Pioneer
Urban [Pioneer Urban Land & Infrastructure Ltd. v. Union of
India, (2019) 8 SCC 416 : (2019) 4 SCC (Civ) 1] , in comparing
allottees in real estate projects to operational creditors, has
noted that the latter do not receive any time value for their
money as consideration but only provide it in exchange for goods
or services. Indeed, the decision notes that “[e]xamples given of
advance payments being made for turnkey projects and capital
goods, where customisation and uniqueness of such goods are
important by reason of which advance payments are made, are

Company Appeal (AT) (Insolvency) No. 261 of 2022 9

 wholly inapposite as examples vis-à-vis advance payments
made by allottees”. Hence, this leaves no doubt that a debt
which arises out of advance payment made to a corporate
debtor for supply of goods or services would be considered as
an operational debt.
52. Similarly, in the present case, the phrase “in respect of” in
Section 5(21) has to be interpreted in a broad and purposive
manner in order to include all those who provide or receive
operational services from the corporate debtor, which ultimately
lead to an operational debt. In the present case, the appellant
clearly sought an operational service from the proprietary
concern when it contracted with them for the supply of light
fittings. Further, when the contract was terminated but the
proprietary concern nonetheless encashed the cheque for
advance payment, it gave rise to an operational debt in favour
of the appellant, which now remains unpaid. Hence, the
appellant is an operational creditor under Section 5(20) IBC.
53. In doing so, we are cognizant of the observations of this
Court in judgments such as Swiss Ribbons [Swiss Ribbons (P)
Ltd. v. Union of India, (2019) 4 SCC 17] , that IBC proceedings
should not become recovery proceedings. However, in the
present case, the dispute is not in relation to the quality of the
services provided by the proprietary concern but is entirely
about the repayment of the advance amount paid to them, upon
the cancellation of the underlying project.”

13. The above judgment, thus, clearly laid down that expression ‘in

respect of’ in Section 5(21) has to be interpreted in a broad and purposive

manner. In the facts of the present case, the advance payment of Rs.60

lakhs was clearly an Operational Debt and the Adjudicating Authority

committed error in rejecting Section 9 Application on the above ground.

Company Appeal (AT) (Insolvency) No. 261 of 2022 10

14. The learned Counsel for the Respondent has submitted that there

were other grounds objecting Section 9 Application including the ground of

limitation, which submission although have been noticed by the

Adjudicating Authority, but has not been dealt with. In view of above, we

are of the view that impugned order dated 06.01.2022 rejecting Section 9

Application on the ground that advance payment paid is not an Operational

Debt deserves to be set aside and is hereby set aside.

15. The Section 9 Application being IB-112/ND/2020 is revived before

the Adjudicating Authority to be heard and decided afresh after hearing

both the parties. Looking into the fact that Application pertains to the year

2020, we request the Adjudicating Authority to decide the Application at an

early date, preferably within a period of six months from the date the copy

of this order is produced before the Adjudicating Authority. It goes without

saying that it shall always be open for the parties to enter into settlement

in accordance with law. The Appeal is allowed to the above extent. No

costs.

[Justice Ashok Bhushan]

Chairperson

[Barun Mitra]
Member (Technical)

NEW DELHI

10th November, 2022

Ashwani

Company Appeal (AT) (Insolvency) No. 261 of 2022 11