The NCLAT has ruled that advances for the supply of goods constitute operational debt under the consortium agreement, setting aside the prior rejection of a Section 9 application and restoring it for admission.
NCLAT Decision on Operational Debt
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has held that an advance for the supply of goods qualifies as an operational debt under the provisions of the Insolvency and Bankruptcy Code. The tribunal set aside the rejection of a Section 9 insolvency plea, thereby reviving the application for admission.
The decision arose from a case where the consortium agreement explicitly categorized advances as operational debts. The NCLAT emphasized that the definition of operational debt is broad enough to encompass such agreements, facilitating protection for creditors in the enforcement of their claims.
By restoring the Section 9 application, the NCLAT's ruling underscores the importance of effectively addressing debts related to the supply of goods in insolvency proceedings. This interpretation aligns with the objectives of the Insolvency and Bankruptcy Code to ensure timely resolution of corporate debts.
For practitioners, this judgment highlights the necessity of carefully structuring agreements to clearly define operational debts. It serves as a reminder of the recoverability of debts in cases involving advances for supply arrangements.
Citations
- NCLAT (2026)
