2024 (9) TMI 569 - AT - IBC

Operational creditor appeal dismissed for lack of documentary evidence and time-barred Section 9 application

M/s Agarwal Foundries Private Limited Versus POSCO E&C India Private Limited

NCLAT Principal Bench dismissed an appeal challenging rejection of Section 9 application by operational creditor seeking initiation of corporate ... Rejection of Section 9 application filed by the Operational Creditor-Appellant seeking initiation of Corporate Insolvency Resolution Process - whether the Appellant is an Operational Creditor of the Respondent and whether the claim of the Appellant is an operational debt qua the Respondent? - Time limitation. HELD THAT:- The Appellant has not placed on record any documentary evidence or agreement between the Appellant, Respondent and Empathy stipulating the terms and conditions of the guarantee of payment allegedly undertaken by the Respondent on behalf of Empathy for the goods supplied to it by the Appellant. It has, however, been canvassed by the Appellant that there is no need for any signed instrument to substantiate a contract of guarantee and that the existence of such a contract can be conclusively established from other correspondences/documents exchanged between the parties in this context. The Adjudicating Authority was not off the mark in observing that the Appellant has failed to produce any documentary evidence/tripartite agreement stipulating the terms and conditions of the guarantee of payment undertaken by the Respondent on behalf of the third party for the goods supplied to it by the Appellant. In the absence of any privity of contract between the parties, the Appellant cannot be treated as the Operational Creditor of the Respondent. It is a well settled legal proposition that the operative requirement of operational debt is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be supplier or receiver. In the present case, the absence of any contractual agreement between the Appellant and the Respondent, defining their business relationship is an admitted fact - in the facts of the present case, it is undisputed that goods were not supplied by the Appellant but supplied by some third parties. It is however the claim of the Appellant that they had supplied the goods through the third parties who were their local distributors. the submission made by the Appellant that the suppliers were their local distributors since there is no agreement or documents placed on record to show that the goods were to be supplied by the Appellant through local distributors and that any such arrangement had been agreed to by Empathy or the Respondent is not impressive. The assertion of Appellant is therefore at best a fanciful proposition bereft of any substance. Since the invoices were raised by third parties and not by the Appellant, basis these invoices, the Appellant cannot justifiably claim any amount as purportedly due to them from the Respondent. When there is no co-relation between the goods supplied by the third parties to Empathy and the claim raised by the Appellant in respect of such goods on the Respondent, the Appellant/Operational Creditor had clearly failed to fulfil the requirements of Rule 5(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 to establish their operational claims. The operative and primary requirements of Section 5(21) not having been met, we are therefore not convinced by the contention of the Appellant of their claim arising out of supply of goods as operational debt. In the absence of operational debt, no liability could be fastened on the Respondent to pay for these goods - thus the precondition for initiation of Section 9 IBC proceedings was non-existent in the facts of the present case. It is, therefore, clear that in the reply to the Section 8 Demand Notice, the Respondent has not only denied their liability to pay the claims raised by the Appellant but also raised question marks on the privity of contract between them. Time Limitation - HELD THAT:- In the present case, the date of default shown in Part IV of Form 5 was 28.08.2015. However, the Section 9 application was filed on 11.02.2019 which was clearly beyond the three years limitation period and hence clearly time barred. The Section 9 application was not filed for the purpose of insolvency resolution but for recovery of money owed to them by Empathy from the Respondent. Such behaviour on the part of the Appellant amounts to misuse of the provisions of the IBC and is strongly deprecated. The Adjudicating Authority has rightly rejected the application of the Appellant filed under Section 9 of IBC - the impugned order does not warrant any interference. There is no merit in the Appeal - Appeal dismissed. Issues Involved:1. Whether the Appellant is an Operational Creditor of the Respondent.2. Whether the claim of the Appellant is an operational debt qua the Respondent.3. Whether the claim of the Appellant is time-barred.4. Whether the Section 9 application was filed for the purpose of CIRP or for recovery of money.Issue-Wise Detailed Analysis:1. Whether the Appellant is an Operational Creditor of the Respondent:The Appellant claimed to be an Operational Creditor based on the assertion that the Respondent had guaranteed payment for goods supplied to Empathy. The Appellant relied on various e-mails to substantiate this claim. The Respondent refuted this, asserting there was no privity of contract and no legally valid contract of guarantee. The Tribunal examined the statutory definitions under Sections 5(20) and 5(21) of the IBC and found no documentary evidence or agreement stipulating the terms of the guarantee. The Tribunal concluded that the Appellant cannot be treated as an Operational Creditor due to the absence of privity of contract.2. Whether the claim of the Appellant is an operational debt qua the Respondent:The Tribunal noted that operational debt must relate to the provision of goods or services. The Appellant failed to provide evidence of a contractual agreement with the Respondent. The invoices attached to the Section 9 application were issued by third parties, not the Appellant, and were directed to Empathy, not the Respondent. The Tribunal held that without a direct supply of goods or services to the Respondent, the Appellant's claim did not constitute an operational debt.3. Whether the claim of the Appellant is time-barred:The Tribunal agreed with the Adjudicating Authority that the claim was time-barred. The limitation period was to be counted from the date of default, which was 28.08.2015. The Section 9 application was filed on 11.02.2019, beyond the three-year limitation period. The Tribunal referenced the Supreme Court's judgment in BK Educational Services Pvt. Ltd. Vs Parag Gupta and Associates, confirming that the proceedings were governed by the Limitation Act, 1963.4. Whether the Section 9 application was filed for the purpose of CIRP or for recovery of money:The Tribunal observed that the Appellant had issued multiple Demand Notices and filed several Section 9 applications, which were subsequently withdrawn, indicating a pattern of behavior aimed at coercing the Respondent. The Tribunal concluded that the application was not for insolvency resolution but for recovering money owed by Empathy. This misuse of IBC provisions was strongly deprecated.Conclusion:The Tribunal upheld the Adjudicating Authority's decision to reject the Section 9 application, finding no merit in the appeal. The appeal was dismissed, and each party was ordered to bear its own costs.