Non-refund of ‘EMD’ on Rejection of Tender Wouldn’t Amount to Operational Debt; CIRP Rightly Reject | NCLAT

Case Details: Supreme Transport Organization (P.) Ltd. v. Maharashtra Airport Development Company Ltd. - [2023] 155 taxmann.com 362 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • Sonam Sharma & Ms Riddhi Jain, Advs. for the Appellant.

Facts of the Case

In the instant case, the appellant company claimed that it had applied for a tender which was issued by the respondent and along with the tender it had also deposited Earnest Money Deposit (EMD) of Rs. 5 Lakhs and Rs. 2 Lakhs. However, both tenders of the appellant were rejected.

Thereafter, the appellant claimed that its EMD was not refunded and filed an application under section 9 of the IBC before the Adjudicating Authority (NCLT). The NCLT held that the deposit of EMD in pursuance of tender notice was not an operational debt.

The appellant challenged the NCLT’s order on the ground that the appellant had applied in pursuance of tender and in the event tender was accepted, the appellant would have been providing services to the respondent and, therefore, EMD could have been treated as advance payment, which was covered by operational debt.

The NCLAT observed that the appellant was only a tenderer who submitted EMD along with the tender, which tender was admittedly rejected by the respondent.

NCLAT Held

The NCLAT held that EMD payment was not towards any goods or services and submission that in the event tender was accepted, the appellant would have provided services was far-fetched to accept a claim relating to goods and services and, therefore, no error had been committed by the NCLT in rejecting section 9 application.

List of Cases Reviewed

• • Supreme Transport Organization (P.) Ltd. v. Maharashtra Airport Development Co. (P.) Ltd. [2023] 155 taxmann.com 361 (NCLT – Mum.) (para 8) affirmed. [See Annex].
  • Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions (P.) Ltd. [2022] 135 taxmann.com 97/171 SCL 56 (SC) (para 8) distinguished.

List of Cases Referred to

• • Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions (P.) Ltd. [2022] 135 taxmann.com 97/171 SCL 56 (SC) (para 3).