SMS Enterprises Private Limited (Operational Creditor) has filed the present petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 with a prayer to initiate the CIRP against Kaj Tiles Private Limited (Here

The case given in the question is similar to the case decided by the National Company Law Tribunal, New Delhi Bench (Court-II) in SVS Marketing Sanitaryware Pvt. Ltd. (Applicant & Operational Creditor) v. Kajaria Bathware Pvt. Ltd. (Respondent) decided on December 01, 2023. In the aforesaid case, NCLT viewed that the respondent had supplied the Goods and the Applicant had made payments towards the Goods as Distributor of the Respondent. The chain of transaction ends here itself. Moreover, the invoice itself stipulates that "Goods once supplied would not be exchanged or taken back." Further, the letter on which the Applicant has relied is an un-dated one and no particulars are available as to when, and how the letter was sent. Even otherwise, once agreeing to purchase the goods and subsequently, denying the purchase will not constitute an "Operational Debt" since there is neither any flow of goods/services nor any payment of consideration from one party to another in this chain. Hence, we find that there is no existence of any operational debt or default committed by the Respondent towards the so-called unpaid stock. Since no operational debt and default have been proved with respect to unsold stock, the question of going into the "stock interest" component does not arise. In the considered view of NCLT, if the goods have been supplied by the Applicant to its dealers, and if they had not paid the Applicant in time, the Applicant cannot shift the burden of the alleged default by dealers to the Respondent and claim the same as an Operational Debt. At the most, the claim of the Applicant against the Respondent in respect of causing bad debts could be of compensatory in nature, subject to such a Clause existing in the Distributorship Agreement, but it cannot be claimed as an Operational Debt. NCLT examined the various components of the claim of the Applicant and found that there is no operational debt subsisting for which CIRP be initiated against the Respondent. Hence, the Application is misconceived and is accordingly, dismissed. Based on the above, SMS Enterprises Private Limited cannot file an application with NCLT as an Operational Creditor.