2021 (12) TMI 11 - AT - Insolvency and Bankruptcy

Appeal dismissed for lack of privity in insolvency case. Prima facie debt needed for CIRP initiation.

The Tribunal dismissed the appeal challenging the lack of privity of contract between the Appellant and the Corporate Debtor under Section 9 of the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - privity of contract between the Appellant and Respondent or not - relationship as Operational Creditor and Corporate Debtor is not established as is required under Section 9 of IBC - HELD THAT:- The Appellant has produced no document in the form of a contract to establish such a relationship. An e-mail dated 21.4.2018 is the first such communication sent by the Appellant to the Respondent, which the Appellant has used to show such a relationship with the Corporate Debtor. This e-mail contains the claim of Appellant that he was engaged to provide services by the Statutory Auditor of Corporate Debtor Mr. Arun Kishore, and on such a request he agreed to provide requisite services to the Corporate Debtor. He has further explained in this email the work carried out by him for the Corporate Debtor and also mentioned raising of four invoices amounting to ₹ 1,81,000/- to the Corporate Debtor on account of services rendered by him. On juxtaposing the definition of ‘Operational Creditor’ and ‘Operational Debt’ as included in IBC with the work relationship as is evidenced in the e-mail dated 21.4.2018 sent by the Appellant to the Respondent and the affidavit of Arun Kishore (supra), we find that the Applicant was employed by Mr. Arun Kishore, Statutory Auditor of Corporate Debtor to provide certain services. Therefore, the Appellant did not have the relationship of Operational Creditor with the Corporate Debtor for provision of any services. The Adjudicating Authority has thus found absence of privity of contract between the Applicant and the Respondent in the Impugned Order. The Appellant has not been able to establish or show evidence of his engagement or employment by the Corporate Debtor - Appeal dismissed. Issues:1. Privity of contract between the Appellant and Corporate Debtor under Section 9 of IBC.2. Relationship as Operational Creditor and Corporate Debtor establishment.3. Dismissal of application under Section 9 of IBC by Adjudicating Authority.4. Examination of invoices raised by the Appellant and denial of receipt by the Respondent.5. Interpretation of relevant definitions in IBC - Corporate Debtor, Operational Creditor, Debt, Operational Debt.Issue 1 - Privity of Contract:The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the Adjudicating Authority's order regarding the lack of privity of contract between the Appellant and the Corporate Debtor. The Appellant claimed to have provided professional services to the Corporate Debtor through its Statutory Auditor, raising invoices that were not paid, leading to the application under Section 9 of IBC. However, the Respondent disputed the existence of a direct contract with the Appellant, emphasizing the role of the Statutory Auditor.Issue 2 - Relationship Establishment:The Appellant argued that the services were rendered to the Corporate Debtor based on engagement by the Statutory Auditor, supported by emails and letters indicating authorization and work details. Conversely, the Respondent contended that no direct engagement existed, and any dispute or liability should be directed towards the Statutory Auditor. The Tribunal examined the evidence presented by both parties to determine the existence of a relationship as Operational Creditor and Corporate Debtor.Issue 3 - Application Dismissal:The Adjudicating Authority dismissed the application under Section 9 of IBC due to the lack of privity of contract between the Appellant and the Respondent, emphasizing the importance of establishing a prima facie debt payable to trigger the Corporate Insolvency Resolution Process (CIRP). The Tribunal reviewed the findings and arguments to assess the validity of the dismissal.Issue 4 - Examination of Invoices:The Tribunal scrutinized the four invoices totaling Rs. 1,81,000 raised by the Appellant, which were denied receipt by the Respondent. The focus was on determining whether a relationship of Operational Creditor and Corporate Debtor existed based on the invoices and the nature of services provided, as per the requirements of operational debt under the IBC.Issue 5 - Interpretation of Relevant Definitions:The Tribunal analyzed the definitions of Corporate Debtor, Operational Creditor, Debt, and Operational Debt under the IBC to ascertain the applicability of operational debt in the case. It was emphasized that for a relationship of Operational Creditor and Corporate Debtor to exist, the debt must be owed by the Corporate Debtor to the Operational Creditor based on a contract for provision of goods or services.In conclusion, the Tribunal found that the Appellant failed to establish a direct engagement with the Corporate Debtor, as evidenced by the lack of a contract and the nature of the services provided through the Statutory Auditor. Therefore, the appeal was dismissed, and the Impugned Order was upheld, highlighting the necessity of privity of contract and operational debt criteria under the IBC for initiating the CIRP.