Corporate debtor remains liable for operational debt despite insurance company's third-party liability payment under section 9

NCLAT dismissed corporate debtor's appeal against section 9 application admission. The tribunal held that insurance company's payment to operational creditor under third-party liability did not absolve corporate debtor from its operational debt obligations. Corporate debtor remained liable despite insurance settlement, as the insurance contract was separate and had been communicated to debtor. The court rejected corporate debtor's pre-existing dispute defense, finding it dishonest since debtor had acknowledged dues and provided payment assurances for two years before raising frivolous defenses only after demand notice. Section 9 application was maintainable.

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Issues Involved:
1. Whether the Operational Creditor's receipt of insurance payment extinguishes the Corporate Debtor's liability.
2. Whether there was a pre-existing dispute between the parties.
3. Whether the Section 9 Application is maintainable.

Summary:

Issue 1: Insurance Payment and Corporate Debtor's Liability
The Appellant argued that since the Operational Creditor received payment from the Insurer, there was no debt due on the Corporate Debtor, and this fact was suppressed, constituting fraud. The Tribunal held that the insurance payment does not absolve the Corporate Debtor from its liability. The Operational Creditor had communicated to the Corporate Debtor that it would lodge a claim with the Insurance Company if payments were not made. The Tribunal referenced the insurance policy clause stating that any amounts received should be remitted to the insurer. The Tribunal cited several judgments, including *Economic Transport Organisation v. Oriental Insurance Company Limited* and *Rojee-tasha Stampings Pvt. Ltd. v. POSCO-India Pune Processing Centre Pvt. Ltd.*, supporting the position that the debtor remains liable even if the creditor received an insurance claim. The Tribunal concluded that the Section 9 Application is maintainable, and the Corporate Debtor's liability persists.

Issue 2: Pre-existing Dispute
The Appellant claimed a pre-existing dispute regarding the quality of goods. The Tribunal found that for two years, the Corporate Debtor acknowledged the debt and assured payment without raising any issues about the goods' quality. The dispute was raised only after the Demand Notice was received, which the Tribunal deemed a dishonest and moonshine plea. The Tribunal upheld the finding of the Adjudicating Authority that there was no pre-existing dispute.

Issue 3: Maintainability of Section 9 Application
The Tribunal addressed the Appellant's claim that the Operational Creditor's non-disclosure of the insurance payment constituted fraud. The Tribunal distinguished the case from precedents like *S.P. Chengalvaraya Naidu v. Jagannath & Ors.*, noting that the insurance contract was a third-party contract and the Corporate Debtor was informed about the potential insurance claim. The Tribunal reiterated that the Corporate Debtor's liability remains, and the Operational Creditor's obligation to return the insurance money does not affect the maintainability of the Section 9 Application.

Conclusion:
The Tribunal dismissed the appeal, allowing the Corporate Debtor 30 days to pay the outstanding amount with interest to the Operational Creditor. If the payment is made, the Adjudicating Authority may close the Section 9 Application. If not, the Authority will proceed with the Corporate Insolvency Resolution Process.

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