NCLAT Delhi held advance payments for brokerage services constitute operational debt, making Section 9 IBC proceedings maintainable.
Advance for Services Is Operational Debt: NCLAT Delhi
The NCLAT, Delhi, ruled that an advance payment made for commission or brokerage services qualifies as operational debt under Section 5(21) of the IBC, 2016, rendering a Section 9 application maintainable.
The appeal arose from a dispute where the service provider received an advance but rendered no or partial services. The tribunal rejected the corporate debtor’s contention of a pre-existing dispute, noting the service obligation was triggered upon receipt of funds. It observed that the obligation to perform or refund creates a debt arising from a transaction.
The ruling expands the scope of operational debt to include unearned advances. Service providers receiving advances should clearly document the scope and timeline. Debtors should ensure timely performance or refund to avoid triggering insolvency proceedings.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 5(21)
