NCLAT upholds rejection of Section 7 IBC application due to absence of financial creditor-debtor relationship

NCLAT dismissed appeal challenging rejection of Section 7 application under IBC 2016. Appellants advanced loan to PHPL, not to respondent corporate debtor, establishing no privity of contract between parties. Sale deed clause 35 indicated vendee should pay confirming party, but appellants alleged non-payment by vendor. NCLAT held no financial creditor-debtor relationship existed to trigger CIRP under Section 7. Tribunal correctly dismissed application as case fell outside IBC provisions. Appellants granted liberty to pursue alternative recovery remedies. Appeal dismissed for lack of merit.

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Issues involved:
The judgment involves the dismissal of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the National Company Law Tribunal due to the absence of a relationship of financial creditor and corporate debtor, lack of transaction in the nature of financial debt, and the need for the appellants to pursue other remedies.

Details of the Judgment:

1. The application filed by Financial Creditors under Section 7 of the IBC against the Corporate Debtor was dismissed by the Tribunal due to the absence of a financial relationship between the parties and the lack of a financial debt transaction. The Tribunal granted liberty to the appellants to seek other remedies if advised by law.

2. The appellants had advanced a loan to Proplarity Group, which later entered into a sale deed with the Corporate Debtor. The Tribunal noted that the confirming party (appellants) was mentioned in the sale deed, but it did not establish a privity of contract between the Financial Creditors and the Corporate Debtor.

3. Despite claims by the appellants that the money was not repaid, the Tribunal found that there was no legal obligation on the part of the Corporate Debtor to repay the loan disbursed to the vendor. The Tribunal highlighted the lack of evidence supporting the money given as a loan, leading to the dismissal of the application under Section 7 of the IBC.

4. The Respondent argued that there was no privity of contract between the parties, and the loan was advanced to another entity, not the Corporate Debtor. The Tribunal upheld this argument and emphasized the need for the existence of a debt owed by the Corporate Debtor to establish a financial relationship under the IBC.

5. The Tribunal concluded that the case did not fall within the provisions of the IBC to initiate Corporate Insolvency Resolution Process (CIRP) under Section 7. The dismissal of the application was justified, and the appellants were directed to pursue other remedies for recovery. The Tribunal also imposed costs on the appellants for unnecessarily involving the Respondent in the litigation.

6. The judgment highlighted the distinction between financial debt owed by the Corporate Debtor and the lack of privity of contract between the parties. It emphasized the need for a clear debt relationship to trigger the provisions of the IBC and the importance of pursuing resolution rather than mere recovery under the Code.

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