The National Company Law Tribunal (NCLT), Hyderabad, on 30 October held that outstanding consideration under a slump sale agreement for the transfer of an entire manufacturing undertaking cannot be treated as “operational debt” under the Insolvency and Bankruptcy Code (IBC), 2016, merely because the undertaking includes plant and machinery.
A Bench of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri dismissed a petition filed by Varahi Pharma Private Limited under Section 9 of the IBC against Aptra Synthesis Private Limited, seeking initiation of the Corporate Insolvency Resolution Process (CIRP). It observed:
“… for an amount to qualify as an operational debt under the Code, it must first constitute a "claim" within the meaning of Section 3(6), giving rise to a "debt" as defined under Section 3(11). Further, such debt must fall within the scope of Section 5(21), namely, a claim arising in respect of (i) the provision of goods or services, including employment; or (ii) statutory dues payable to the Central Government, any State Government or any local authority.”
Varahi Pharma and Aptra Synthesis entered into an agreement in 2023 for the sale of Varahi Pharma's entire undertaking, including land, buildings, plant and machinery, for a total consideration of Rs. 18 crore. Varahi Pharma claimed that Aptra Synthesis had paid only Rs. 14.74 crore, leaving Rs. 3.25 crore unpaid.
Aptra Synthesis, however, contended that it had paid Rs. 16.91 crore towards the agreed consideration, leaving a balance of Rs. 1.08 crore. It submitted that it had withheld the remaining payment due to disputes and alleged breaches of contractual obligations by Varahi Pharma.
The Tribunal examined the definition of “operational debt” under Section 5(21) of the IBC and relied on the Supreme Court's decision in Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd. (2022) ibclaw.in 09 SC and the National Company Law Appellate Tribunal's decision in Pr. Director General of Income Tax (Admn. & TPS) v. Synergies Dooray Automotive Ltd. and Ors. (2019) ibclaw.in 443 NCLAT.
It observed that operational debts arise from transactions undertaken in connection with the operations of an enterprise, ordinarily involving the provision of goods or services necessary for its operational functioning.
Considering the nature of the transaction, the Bench observed that it concerned the acquisition of ownership of an entire manufacturing undertaking rather than the procurement of goods or services for the operational functioning of the corporate debtor.
Further, it noted that there was nothing on record to establish that acquiring the undertaking was necessary for Aptra Synthesis to continue its existing business operations as a going concern. It added:
“…Merely because the undertaking included movable assets such as plant, machinery and equipment, the outstanding consideration under the composite Agreement cannot, by itself, be characterised as operational debt...”
Accordingly, the NCLT held that the outstanding consideration under the slump sale agreement did not qualify as operational debt under the IBC.
For Petitioner/OC: Mr. Krishna Grandhi, Ld. Senior Counsel along with Mr. Maligi Madhusudhana Reddy & Mr. Avinash Alladi, Ld. Counsels.
For Respondent/CD: Mr. S. Rajagopalan, Ld. Counsel