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1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether there was privity of contract between the operational creditor and the corporate debtor so as to give rise to any liability of the corporate debtor for the dues claimed.
1.2 Whether the claim of the operational creditor, arising from services admittedly rendered to a third party (Trust/Hospital), could be treated as an "operational debt" owed by the corporate debtor under Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
1.3 Whether issuance of cheques by the corporate debtor on behalf of the Trust/Hospital, and some invoices bearing the corporate debtor's GSTIN, created or evidenced an operational debt and direct liability of the corporate debtor to the operational creditor, sufficient for admission of an application under Section 9 of the Code.
1.4 Whether the Adjudicating Authority erred in admitting the application under Section 9 of the Code and initiating the corporate insolvency resolution process against the corporate debtor in the absence of such privity and operational debt.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Privity of contract between operational creditor and corporate debtor
Legal framework (as discussed)
2.1.1 The Tribunal referred to the concept of "privity of contract" as applied in earlier decisions, including reliance on the Supreme Court's decision in the matter concerning Essar Oil Limited v. Hindustan Shipyard Ltd., and its own earlier decision in EBPL Ventures Pvt. Ltd. v. Sarguja Rail Corridor Pvt. Ltd., as well as other NCLAT decisions following Essar Oil.
Interpretation and reasoning
2.1.2 It was noted that the Trust (which runs the Hospital) entered into three separate agreements with the corporate debtor whereby the corporate debtor was to operate and manage OPD, IPD, diagnostics and related services at the Hospital. These agreements expressly provided that the parties were independent, that no agency or partnership or separate legal entity was created, and specifically restrained the corporate debtor from sub-granting the management of the facilities.
2.1.3 Separately, the operational creditor entered into its own Service Agreement dated 07.04.2022 with the Trust/Hospital (Vimhans Nayati) on a "principal to principal" basis; the corporate debtor was not mentioned anywhere in that agreement.
2.1.4 The subsequent Closure of Service Agreement dated 31.08.2022 was also entered solely between the operational creditor and the Trust/Hospital, again without any reference to the corporate debtor. Both agreements were signed by representatives of the Trust/Hospital and the operational creditor only.
2.1.5 The Tribunal found that both the corporate debtor and the operational creditor had independent, separate contractual relationships with the Trust/Hospital, and there was no direct contract between the corporate debtor and the operational creditor.
2.1.6 Relying on Essar Oil and the earlier EBPL Ventures and other NCLAT decisions, the Tribunal reiterated that mere payments or assurances by a third party (such as a principal employer or another contracting party) to a subcontractor or another service provider do not, by themselves, establish privity of contract or transfer of liability, unless there is a clear agreement to that effect.
Conclusions
2.1.7 The Tribunal held that there was no privity of contract between the corporate debtor and the operational creditor, and it could not be said that the corporate debtor had taken over the liability of the Trust/Hospital in any manner.
2.2 Whether the claim against the corporate debtor was an "operational debt" under Section 5(21) IBC
Legal framework (as discussed)
2.2.1 The Tribunal reproduced Section 5(21) of the Code defining "operational debt" as a claim in respect of provision of goods or services, including employment, or certain statutory dues payable to governmental authorities.
Interpretation and reasoning
2.2.2 The Tribunal found that all services of the operational creditor were rendered to the Trust/Hospital under the Service Agreement dated 07.04.2022 and Closure Agreement dated 31.08.2022. No services were provided to the corporate debtor.
2.2.3 Given the absence of any contract or direct engagement for services between the operational creditor and the corporate debtor, and the fact that the corporate debtor was contractually prohibited from sub-granting management of facilities, the Tribunal held that the operational creditor's claim did not arise from any "provision of goods or services" by the operational creditor to the corporate debtor.
Conclusions
2.2.4 The Tribunal concluded that the claim of the operational creditor against the corporate debtor did not satisfy the definition of "operational debt" under Section 5(21) of the Code.
2.3 Effect of cheques issued by the corporate debtor and invoices bearing its GSTIN
Interpretation and reasoning
2.3.1 The Tribunal acknowledged that some invoices were raised in the name of the corporate debtor and that some cheques were issued from the corporate debtor in favour of the operational creditor, including post-dated cheques issued after the Closure Agreement.
2.3.2 However, following the principles laid down in Essar Oil and its own precedent in EBPL Ventures and other similar decisions, the Tribunal held that mere issuance of cheques or making of payments by a third party on behalf of the primary contracting party does not, in itself, create privity of contract or transfer the underlying contractual liability to that third party.
2.3.3 The Tribunal treated the corporate debtor's role as "merely issuing some cheques on behalf of the Trust", emphasizing that such conduct, without a direct contractual obligation or clear undertaking to assume the Trust's liabilities, cannot be treated as creating an independent operational debt owed by the corporate debtor to the operational creditor.
2.3.4 The Tribunal noted that the operational creditor had already availed legal remedies for dishonour of cheques under the Negotiable Instruments Act, 1881, thereby reinforcing that the proper legal recourse lay in that statutory framework rather than in treating the cheques as establishing an operational debt for IBC purposes.
Conclusions
2.3.5 Issuance of cheques by the corporate debtor on behalf of the Trust/Hospital, and the fact that some invoices carried the corporate debtor's GSTIN, did not create or evidence an independent operational debt of the corporate debtor to the operational creditor, in the absence of privity of contract and direct provision of services.
2.4 Propriety of admission of Section 9 application and initiation of CIRP
Interpretation and reasoning
2.4.1 The admission of an application under Section 9 requires the existence of an operational debt due from the corporate debtor, a default in payment of such debt, and absence of a qualifying dispute.
2.4.2 In light of the findings that (a) there was no privity of contract between the corporate debtor and the operational creditor, (b) no services were rendered by the operational creditor to the corporate debtor, and (c) the claim did not fall within the scope of "operational debt" under Section 5(21), the Tribunal held that the foundational requirement of an operational debt owed by the corporate debtor was not met.
Conclusions
2.4.3 The Tribunal concluded that the Adjudicating Authority erred in admitting the application under Section 9 and in initiating the corporate insolvency resolution process against the corporate debtor.
2.4.4 The impugned order admitting the Section 9 application and declaring moratorium was set aside, and the appeal was allowed.
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