2025 (4) TMI 70 - AT - IBC

NCLAT upholds rejection of Section 9 petition due to lack of contractual privity between parties

NCLAT dismissed the appeal challenging rejection of Section 9 petition. The tribunal found no privity of contract between appellant and respondent ... Dismissal of section 9 petition - dismissal primarily on the ground of no privity of contract between the Appellant and the Respondent-MB Power with respect to the operational debt - HELD THAT:- Initially a Section 8 Notice was issued to the Hindustan Thermal - EPC, which was later on withdrawn and fresh Section 8 and 9 Notices were issued against the Respondent. It is failed to understand that, on one hand the Appellant had raised invoices against Hindustan Thermal - EPC and then later on for unknown reasons it started proceedings under Section 8 against Respondent-MB Power for the same set of invoices. It is inclined to agree with Respondent that it is an afterthought. It is also seen that Hindustan Thermal - EPC vide their letter dated 09.10.2018 and 23.10.2018 had denied the allegations levelled against Hindustan Thermal - EPC and on the contrary claimed that the Appellant is liable to pay an amount of Rs. 20.10 crores (approx.) to Hindustan Thermal - EPC towards compensation in terms of purchase and work orders executed between them. It is found that there was a pre-existing dispute between the Appellant and Hindustan Thermal. Even though there is an issue of pre-existing dispute also, but the AA dismissed the Petition basis mainly on the maintainability of the petition. The Adjudicating has rightly concluded that since the invoices were raised by the Appellant against Hindustan Thermal - EPC, the majority payment was received by the Appellant from Hindustan Thermal - EPC and even the work order was received by the Appellant from Hindustan Thermal - EPC and the reasons for Appellant to file the Application against the Respondent were not understood. AA has also noted that merely because the Respondent tried to reconcile or settle between the Hindustan Thermal - EPC or merely because the work completion was signed by the Respondent, being the owner of the project does not entitle the respondent to be liable for the outstanding amount. Therefore, it did not find any privity of contract between the Appellant and the Respondent. There are no infirmity in the findings and the conclusions of the Adjudicating Authority. Conclusion - The Application filed under Section 9 of the Code is not maintainable for there being no Debtor-Creditor relationship between the Appellant and the CD, the facts and circumstances of the present case clearly establish that no invoices were raised by the Applicant to the CD, also no payments have been made by the CD to Applicant and as such there exists no privity of contract between the parties. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the dismissal of the Section 9 Petition under the Insolvency and Bankruptcy Code, 2016 (the 'Code') by the Adjudicating Authority was correct, specifically focusing on the existence of privity of contract between the Appellant and the Respondent. Additionally, the Tribunal examined whether the Respondent could be held liable for the operational debt claimed by the Appellant despite the involvement of a subsidiary company, Hindustan Thermal - EPC.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involved the interpretation of Sections 3(8), 3(6), 5(20), and 5(21) of the Insolvency and Bankruptcy Code, 2016. The Appellant argued that these sections support the existence of an operational debt and the Respondent's liability as a corporate debtor. The Tribunal also considered the precedent set by the Supreme Court in Arcelormittal India Private Limited vs. Satish Kumar Gupta & Ors., which discusses the lifting of the corporate veil in insolvency cases.Court's Interpretation and ReasoningThe Tribunal concluded that there was no privity of contract between the Appellant and the Respondent. It emphasized that the invoices were raised against Hindustan Thermal - EPC, not the Respondent, and that the majority of payments were received from Hindustan Thermal - EPC. The Tribunal found that the Appellant's attempt to hold the Respondent liable was an afterthought and not supported by the facts.Key Evidence and FindingsThe evidence included various documents such as letters of intent, letters of award, and completion certificates. The Appellant presented these to argue that the Respondent was the ultimate beneficiary of the project. However, the Tribunal noted that these documents indicated transactions primarily with Hindustan Thermal - EPC. The Tribunal also considered the Respondent's balance sheets and the correspondence between the parties, which did not establish a direct contractual relationship with the Respondent.Application of Law to FactsThe Tribunal applied the provisions of the Code to determine the existence of an operational debt and the relationship between the parties. It found that the Appellant failed to establish a debtor-creditor relationship with the Respondent, as required under Section 9 of the Code. The Tribunal also considered the pre-existing dispute between the Appellant and Hindustan Thermal - EPC, which further undermined the Appellant's claim.Treatment of Competing ArgumentsThe Tribunal addressed the Appellant's argument that the Respondent was the ultimate beneficiary and should be liable for the debt. It rejected this argument, noting that the Appellant initially pursued claims against Hindustan Thermal - EPC and only later targeted the Respondent. The Tribunal also dismissed the Appellant's reliance on the corporate veil doctrine, finding no basis to pierce the corporate veil in this case.ConclusionsThe Tribunal concluded that the Appellant's Section 9 Petition was not maintainable due to the lack of privity of contract and the existence of a pre-existing dispute. It dismissed the appeal, allowing the Appellant to pursue other legal remedies.SIGNIFICANT HOLDINGSThe Tribunal held that 'there is no privity of contract between the applicant and the respondent.' It emphasized that the invoices were raised against Hindustan Thermal - EPC, and the payments were made by Hindustan Thermal - EPC. The Tribunal found that the Appellant's attempt to hold the Respondent liable was not justified.The Tribunal also noted that 'merely because the respondent tried to reconcile or settle between the applicant & Hindustan Thermal or merely because the work completion was signed by the respondent being the owner of the project does not entitle the respondent to be liable for the outstanding amount.'The core principle established is that privity of contract is essential for a Section 9 Petition under the Code, and the existence of a pre-existing dispute can bar such proceedings. The Tribunal's final determination was to dismiss the appeal, affirming the Adjudicating Authority's decision.