2021 (3) TMI 996 - Tri - IBC

Tribunal Dismisses Application for Non-fulfillment of Statutory Requirements Due to Lack of Privity and Operational Debt.

The NCLT dismissed the application IBA/38/KOB/2020 under Section 9 of the I&B Code, 2016, due to non-fulfillment of statutory requirements. The Tribunal ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor or not - privity of contract - High Seas Sales - HELD THAT:- It is noticed that the High Sea Sale Contract dated 31.05.2017 is entered between the Corporate Debtor and M/s. Thankam Cashew Factory on 31.05.2017 but not with the Operational Creditor. Since Thankam Cashew Factory was not having the required funds, in order to pay an advance amount for the purchase of goods the Operational Creditor paid an amount of ₹ 1,15,00,000/- to the Corporate Debtor. There is no privity of contract between the Operational Creditor and the Corporate Debtor. A stranger to a contract cannot come before a court of Law as held in the matter Dunlop Pneumatic [1915 (4) TMI 2 - HOUSE OF LORDS] and that the Applicant Operational Creditor does not come under the definition of Operational Creditor as defined under Section 5(20) of the I&B Code, 2016 - It is evident that the cheques issued on the earlier dates were cancelled by the Corporate Debtor and issued another 4 cheques bearing Nos. 10055508, 10055509, 10055510 in favour of M/s. Thankam Cashew Factory and cheque bearing No. 10055511 in favour of the Applicant herein for an amount of ₹ 1,16,96,603/-. Whether the debt falls within the purview of Operational Debt under Section 5 (21) of the I&B Code,2016? - HELD THAT:- Any amount claimed as due by a person representing as ‘Operational Creditor’ should demonstrate firstly that the said amount in default falls within the definition of ‘claim’ as defined in Section 3(6). Such a claim, secondly should be capable of being treated as a ‘debt’ as defined under Section 3(11) of I&B Code, 2016 and finally the ‘debt’ should fall within the confines of Section 5(21) of I&B Code, 2016 (i.e.) it should be capable of being treated as an ‘Operational Debt’ and such an operational debt must be owed by the Corporate Debtor to a creditor who can then be considered as an Operational Creditor as defined under Section 5(20) of IBC, 2016 - The claim of the Operational Creditor is not based on an operational debt, because no goods/services were to be rendered by the Corporate Debtor. The Operational Creditor is not relating to the goods/services including employment or the debt in respect of the repayment of the dues, but it is related to non-payment of the advance money paid to the Corporate Debtor on behalf of M/s. Thankam Cashew Factory. Therefore, the same is not covered under the definition of the “Operational Debt” as provided under Section 5(21) of the Code. This is not a fit case for admission and order Corporate Insolvency Resolution Process against the Corporate Debtor - application dismissed. Issues Involved:1. Existence of an operational debt exceeding Rs. 1 crore.2. Whether the debt is due and payable and has not been paid.3. Existence of a dispute or pending suit/arbitration before the receipt of the demand notice.4. Privity of contract between the Operational Creditor and the Corporate Debtor.5. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.Detailed Analysis:1. Existence of an Operational Debt Exceeding Rs. 1 Crore:The Operational Creditor claimed that the Corporate Debtor failed to supply the agreed quantity of raw cashew nuts and issued a cheque for Rs. 1,16,96,603, which was dishonored due to insufficient funds. The Corporate Debtor admitted to receiving Rs. 1,15,00,000 from the Operational Creditor and issued a cheque that was dishonored. This established the first condition of having an operational debt exceeding Rs. 1 crore.2. Whether the Debt is Due and Payable and Has Not Been Paid:The Operational Creditor issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, to which the Corporate Debtor did not respond. A certificate from a Chartered Accountant confirmed that no payments were received from the Corporate Debtor since 19.10.2007 until 17.09.2020. Hence, it was proved that the debt was due and payable and had not yet been paid.3. Existence of a Dispute or Pending Suit/Arbitration Before the Receipt of the Demand Notice:The Corporate Debtor did not raise any pre-existing dispute before the issuance of the demand notice. Any notice of dispute issued after the demand notice cannot be considered as a pre-existing dispute within the purview of the I&B Code, 2016. Therefore, there was no pre-existing dispute between the parties.4. Privity of Contract Between the Operational Creditor and the Corporate Debtor:The Corporate Debtor argued that the contract was between M/s. Thankam Cashew Factory and the Corporate Debtor, and the Operational Creditor was a stranger to the contract. The Tribunal noted that there was no privity of contract between the Operational Creditor and the Corporate Debtor. The Operational Creditor does not come under the definition of Operational Creditor as defined under Section 5(20) of the I&B Code, 2016.5. Maintainability of the Application Under Section 9 of the Insolvency and Bankruptcy Code, 2016:The Tribunal referred to the judgment in Jindal Steel and Power Limited v. DCM International Limited, which held that the amount claimed should fall within the definition of 'claim' under Section 3(6) and 'debt' under Section 3(11) of the I&B Code, 2016. The Tribunal found that the claim of the Operational Creditor was not based on an operational debt as it was related to the non-payment of advance money paid on behalf of M/s. Thankam Cashew Factory. Therefore, it did not fall under the definition of 'Operational Debt' as provided under Section 5(21) of the Code.Conclusion:The Tribunal concluded that the conditions for admitting the application under Section 9 of the I&B Code, 2016, were not met. The application IBA/38/KOB/2020 was dismissed without costs.