NCLT Mumbai Rules Detention Charges As Part Of Operational Debt

NCLT Mumbai Rules Detention Charges As Part Of Operational Debt

The National Company Law Tribunal, Mumbai Bench, comprising Ms. Reeta Kohli (Judicial Member) and Madhu Sinha (Technical Member), ruled on an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) in the case of ABC India Ltd. v. Prabhakar Engineers Pvt. Ltd. It was determined that detention charges are integral to transportation charges and consequently constitute a component of operational debt.

Prabhakar Engineers Pvt. Ltd. (Corporate Debtor) enlisted ABC India Ltd. (Applicant or Operational Creditor) for transporting cargo from Bhosari, Pune, to Indian Oil Corporation, Vadodara. The operational creditor provided the corporate debtor with the complete terms and conditions of the offer, specifying that freight charges would amount to Rs. 9,38,000/-, with the total reaching Rs. 9,50,000/- if detention charges were imposed.

The corporate debtor was granted one day for loading and two days for unloading as detention-free days. Subsequently, in a joint meeting involving the operational creditor, corporate debtor, and Indian Oil Corporation, it was agreed that the corporate debtor would compensate the operational creditor for detention charges, which would then be reimbursed by Indian Oil Corporation. Relying on this agreement, the operational creditor unloaded the goods.

Despite repeated emails requesting payment of detention charges, the corporate debtor failed to make the payment. Consequently, the operational creditor issued a demand notice dated 16.01.2019.

The corporate debtor argued that detention charges fall outside the scope of operational debt as defined under Section 5(21) of the IBC. They asserted that these charges resemble penalties or damages, payable due to a contractual breach or as compensation for a party's loss.

Furthermore, it was contended that there was no contractual agreement between the operational creditor and corporate debtor regarding the payment of detention charges. The charges were not agreed to be paid to the operational creditor prior to their receipt from Indian Oil Corporation. Consequently, the corporate debtor had to pay them to the operational creditor.

The tribunal noted that the corporate debtor had implicitly agreed to pay the detention charges based on the content of the email, which outlined the per-day detention charges for each type of trailer beyond the detention-free day. Additionally, it was observed that there existed an explicit agreement among the three parties, wherein the corporate debtor committed to paying the detention charges and then seeking reimbursement from Indian Oil Corporation.

Therefore, there was no ambiguity, and the primary responsibility for paying the detention charges to the operational creditor lay with the corporate debtor. Furthermore, it was noted that the corporate debtor itself communicated with the operational creditor, requesting its representative to negotiate and collect payment for the detention charges. This demonstrated that the contractual relationship was between the operational creditor and the corporate debtor, not between the operational creditor and the Indian Oil Corporation.

It was held that “detention charges are very much a part of the transportation charges, as the moment transportation services are availed of, any delay on the part of the corporate debtor to load or unload the goods is bound to become part of the order of transportation.”.

The tribunal concluded that there is a clear establishment of debt and corresponding default.

Based on these observations, the tribunal accepted the petition.