Status as on- 13/09/2022
In Athena Demwe Power Ltd. v Abir Infrastructure Private Limited & Ors., Company Appeal (AT) (Insolvency) No.158 of 2022 NCLAT while adjudicating the present appeal observed Mobilization Advance is an Operational Debt and not a Financial Debt.
Athena Demwe Power Ltd awarded a contract to Corporate Debtor for the execution of the 1750 MW Demwe Lower Hydroelectric Project, Arunachal Pradesh. Mobilization advance of Rs. 7,48,40,06,136/- was transferred by the Appellant, Athena Demwe Power Ltd to the Corporate Debtor through the Bank Transfer. Further, the Corporate Debtor issued a Corporate Guarantee in favor of the Appellant. CIRP was initiated against the corporate debtor wherein the Appellant filed his claim of Rs. 17,84,99,28,651/- as a Financial Creditor. In lieu of the same, the appellant received a mail from the Resolution Professional dated 21st June 2019 to attend the meeting of CoC. Time and again the Resolution Professional rejected the claims filed as OC, FC, and “other Creditor”. Aggrieved from the continuous rejection of its claim the Appellant filed an application before NCLT. Meanwhile, the Resolution Plan was approved by Adjudicating Authority and the application of Appellant, Athena Demwe Power Ltd, challenging the rejection was dismissed by NCLT vide order dated 12 January 2022.
Aggrieved by the same the appellant filed an appeal before NCLAT wherein the following issues were raised-
- Whether the mobilization advance is given by the Appellant to the Corporate Debtor is a Financial Debt within the meaning of Section 5(8) of the Code;
- Whether the mobilization advance is given by the Appellant to the Corporate Debtor is an Operational Debt within the meaning of Section 5(21) of the Code.
Held by NCLAT
- In the present case “Mobilization advance which was given by the Appellant to the Corporate Debtor was for mobilization of material and workforce on the site. Mobilization advance was not disbursed against the consideration for the time value of money.” Furthermore, the NCLAT held that bare reading of Section 5 (8)(i) makes it clear “that the guarantee referred to in Section 5 (8)(i) relates to any of the items referred to in subclauses (a) to (h) of Section 5(8) of the Code. The mobilization advance is not covered by any of the sub-clauses (a) to (h) of sub-section 8 of Section 5 of the Code hence the provisions of Section 5(8) (i) do not lend any support to the Appellant.” Therefore, Mobilization Advance is not Financial Debt.
- The NCLAT referred to M/S Consolidated Construction Consortium Limited Vs. M/s. Hitro Energy Solutions Private Limited Civil Appeal No. 2839 of 2020 wherein “The Hon’ble Supreme Court held the words “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 view of the law laid down by the Hon’ble Supreme Court in M/s. Consolidated Construction Consortium Limited, the mobilization advance given by the Appellant to the Corporate Debtor is clearly an Operational Debt, and the Adjudicating Authority committed error in rejecting the claim of the Appellant as an Operational Debt.”
The NCLAT held that Mobilization Advance is an Operational Debt and not a Financial Debt referring to the abovementioned Supreme Court Judgement.
Disclaimer- The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at email@example.com