NCLAT resolves whether the advance paid of the Operational Debt to the Operational Creditor before commencement of its CIRP can be adjusted towards the supplies made to the Corporate Debtor during the CIRP of the Operational Creditor?

In the peculiar facts of the case of Ravi Kumar Tomar v. Newgen Speciality Plastics Ltd., the Appellant being the Ex-Director of the Corporate Debtor/Respondent No. 2 (M/s Royal Polyurethane (India) Pvt. Ltd.) filed an appeal against the order of admission passed by NCLT, New Delhi Bench, in the Petition filed under Section 9 of the I&B Code by M/s Newgen Speciality Plastic Ltd. (Operational Creditor/Respondent No. 1).

The Corporate Debtor had placed a purchase order for supply of goods for a sum of Rs. 4,67,98,086/- and paid an advance sum of Rs. 29,51,011/- Allegedly the Operational Creditor supplied the said goods and issued various invoices in respect thereof. The Corporate Debtor accepted the invoices and made part payments and no dispute was raised about the same. Post-delivery of the last order, the Corporate Debtor defaulted payment towards the same and therefore the Operational Creditor issued a notice under section 8 of the I&B Code calling upon the Corporate Debtor to pay a sum of Rs. 27,15,669/-.The Appellant in its reply objected to the said claim for the reason that an advance payment of Rs. 29,51,011/- was made to the Operational Creditor and the goods worth Rs. 27,15,699.11/- only, were supplied by the Operational Creditor under the invoices. Therefore, after adjusting the advance amount of Rs. 29,51,011/- against the invoice of Rs. 27,15,699.11, the Operational Creditor was liable to refund Rs. 2,35,341.89/- but instead of the same, the Operational Creditor sent the said notice alleging outstanding debt of Rs. 27,15,669/- against the Corporate Debtor.

Admittedly, before all the goods under the purchase order could have been supplied by the Operational Creditor, the CIRP proceedings were initiated against the Operational Creditor in a separate proceeding. According to the Appellant the advance payment made by the Corporate Debtor to the Operational Creditor for the supply of goods under the same purchase order could not be invalidated by mere initiation of CIRP against the Operational Creditor.

In view of the above facts and circumstances, the Hon’ble Appellate Tribunal observed and held that post initiation of CIRP against the Operational Creditor, the supplies made by it were for creation of liquidity in order to run the Company and the same couldn’t be adjusted with the advance given before the initiation of CIRP against it since that would be transfer of the asset of the Corporate Debtor on account of an antecedent debt to a creditor (Respondent No. 2/Operational Creditor) which shall be a preferential transaction, that has been frowned upon by the NCLAT in the case of Binani Industries Ltd. Vs. Bank of Baroda & Anr. Moreover, once the moratorium kicks in it does not allow to recover any amount from the Corporate Debtor, nor the Corporate Debtor can appropriate any amount towards its own dues. In view thereof, the Appeal of the Appellant in respect of the Corporate Debtor (Respondent No. 2) was dismissed.