Introduction
The National Company Law Tribunal Bengaluru Bench (‘NCLT’), in the matter of the Board of Control for Cricket in India (‘BCCI’) v. Think & Learn Private Limited[i], decided a dispute between the operational creditor (‘OC’) and a corporate debtor (‘CD’), wherein the issues before it included determining whether the Petitioner qualifies as an OC, whether there was a valid contractual agreement indicating the existence of ‘operational debt’ ('OD'), whether the CD defaulted on its payment obligations, and whether there was any pre-existing dispute between the parties.
Facts
The OC and CD entered a ‘Team Sponsor Agreement’ dated 25.07.2019, for which the CD paid a fee to the OC as consideration.
The term of the agreement lasted until 31.03.2022. However, the CD and the OC agreed to continue this arrangement in relation to sponsorship service for a period up until 31.03.2023.
The CD made full payment for only one invoice for the financial year (FY) 2022-23 and failed to pay the remaining invoices. They requested an extension for payment via emails in April and May.
The CD, via its email dated 06.01.2023, consented to the OC to encashing the bank guarantee (‘BG’) for dues; however, the amount was insufficient to cover the entire amount due.
The OC sent a demand notice dated 19.07.2023 to the CD to pay the default amount of Rs. 1,58,90,92,400 along with interest. The CD sent a reply dated 29.07.2023 to the demand notice, contending that no contract was in force and the claim did not constitute an OD.
The OC had thus filed an application under s. 9 of the IBC to initiate the corporate insolvency resolution process (‘CIRP’) against the CD for the default amount.
Issues
Whether the Petitioner is an OC?
Was there any contractual agreement between the parties evidencing the existence of OD?
Whether there is a default by the CD?
Was there any pre-existing dispute between the parties?
Held
The NCLT admitted the application by the OC under s. 9 of the IBC against the CD. It held that the Petitioner is an OC and is owed an amount by the Respondent since the provision of Sponsorship Right for a ‘Right Fee’ is the provision of service as the agreement specified that the fees were subject to GST. Thus, the amount of debt owed is OD.
The NCLT noted that the Respondent could not dispute the lack of a proper agreement when such services were availed. An OC can substantiate their claim with contracts or invoices and email exchanges acknowledging the debt.
It opined that the emails and part-payment of invoices raised after 31.03.2022 for FY 2022-23 acknowledged the debt. The consent for encashment of the BG to recover dues also amounted to the acknowledgement of debt.
The NCLT observed that the reply to the demand notice dated 29.07.2023 did not contest the existence of any debt or raise any dispute and is only with respect to the maintainability of the demand notice. There was no document furnished by the Respondent to show that there was a pre-existing dispute.
Our Analysis
The NCLT’s order to admit the application for CIRP needed to address various contentions of the Respondent, including the provision of services as per GST. It had to prove that the Petitioner is an OC eligible to file this application and that an OD exists. The order interpreted situations that may amount to an acknowledgement of debt, including email replies, approving the encashment of a BG, and partial payment of debt.
Although the amount of debt under the demand notice pertained to an agreement not yet finalised, certain acknowledgements of debt made the amount actionable for recovery. This order paves the way for other creditors who may not have contractual agreements but have invoices and debt acknowledgement that can be actionable for recovery.
End Note
[i] 2024] 164 taxmann.com 390 (NCLT-Beng.)[16-07-2024].
Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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