NCLAT Delhi: Corporate Debtor Can't Be Absolved From Liability Just Because Insurance Claim Received By Operational Creditor
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that the Corporate Debtor cannot be absolved from its liability to discharge its Operational debt by the Insurance Company's payment to the Operational Creditor of its claim and the same cannot be a ground to reject the...
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that the Corporate Debtor cannot be absolved from its liability to discharge its Operational debt by the Insurance Company's payment to the Operational Creditor of its claim and the same cannot be a ground to reject the Corporate Insolvency Resolution Process ('CIRP') application under Section 9 of Insolvency and Bankruptcy Code, 2016 ('IBC').
Background Facts
Saudi Basic Industries Corporation ('Operational Creditor') and Prayag Polytech Private Limited ('Corporate Debtor') had entered into a sale consideration of USD 403,920 to be paid within 90 days i.e., by 04.09.2017. However, only part payment of USD 276,580 was made by the Corporate Debtor, leaving a balance of USD 127,340.
On 03.04.2019, post multiple reminders, the Operational Creditor issued a Demand Notice under Section 8 of IBC. In a reply denying any outstanding payments by the Corporate Debtor, the Operational Creditor filed a CIRP application under Section 9 of IBC.
The CIRP application was admitted by NCLT Jaipur's Order dated 22.02.2023 and observed that the Corporate Debtor had repeatedly acknowledged his liability from 15.09.2017 and the Corporate Debtor for the first time tried to raise certain disputes after the receipt of the Demand Notice. Further, it also held that an insurance policy bought by the Operational Creditor does not absolve the Corporate Debtor from its liability, and the Operational Creditor was obliged to initiate legal proceedings against the Corporate Debtor for dues, which the Operational Creditor was obliged to pay back to the Insurer under the terms and conditions of the insurance policy.
The present appeal has been preferred by Mr. Milan Aggarwal ('Appellant'), the Suspended Director of the Corporate Debtor against the NCLT Jaipur's Order dated 22.02.2023.
NCLAT Verdict:
The NCLAT dismissed the appeal and held that the Corporate Debtor cannot be absolved from its liability to discharge its Operational debt by the Insurance Company's payment to the Operational Creditor of its claim and the same cannot be a ground to reject the CIRP application under Section 9 of IBC.
The Appellate Tribunal observed that the contract between the Operational Creditor and the Insurer was a third-party contract with no regard to the Corporate Debtor. Further, the said contract with the Insurer was communicated by the Operational Creditor to the Corporate Debtor. Thus, there was no concealment of the contract and no question of fraudulent conduct by the Operational Creditor in filing the CIRP application against the Corporate Debtor exists.
It highlighted that as per Rojee-Tasha Stampings Private v. Posco-India Pune Processing, the Bombay High Court held that a third party cannot take shelter and disown its liability of a debt payable to the Company on the basis that an insurance transaction has taken place between Respondent and its Insurer.
It pointed out that no benefit can be taken by the Corporate Debtor that the Insurer had paid the claim to the Insured and the Operational Creditor is under obligation to take recourse of legal proceedings to recover its dues and hand over the amount to the Insurance Company as per the Terms and Conditions of the Insurance Contract. Thus, the CIRP application by the Operational Creditor cannot be rejected on the ground that the amount has been received by the Operational Creditor from the Insurance Company.
Concerning the Pre-existing dispute between the parties, NCLAT emphasized that the goods having been received and amounts acknowledged, after two years, the Corporate Debtor cannot be allowed to contend that a pre-existing dispute exists for which there was no communication, even when correspondence exchanged for long two years between the parties.
In conclusion, the NCLAT observed that since the Appellant is in good financial condition now with sufficient turnover to fulfill the outstanding dues, the Appellate Tribunal has allowed some time for the Appellant to liquidate its debt, i.e., principal amount of USD 127,340 + 12% simple interest per annum till payment to the Operational Creditor.
Case Title: Mr. Milan Aggarwal vs. Saudi Basic Industries Corporation and Anr. .
Case No.: Company Appeal (AT) (Insolvency) No.231 of 2023
Counsel for the Appellant: Mr. Virender Ganda, Sr. Advocate with Mr. Abhijeet Sinha, Mr. Vipul Ganda, Mr. Ayandeb Mitra, Amodini Raina, Avnika Mishra, Advocates
Counsel for the Respondent: Mr. Amit Agrawal, Mr. Shwetabh Sinha, Mr. Sidhant Pandith, Ms. Vatsala Pandey, Ms. Radhika Yadav, Advocates for R-1 Mr. Brijesh Kr. Tamber, Mr. Vinay Singh Bist, Mr. Prateek Kushwaha, Mr. Sahas Bhasin, Mr. Yashu Rustagi, Advocates for Canara Bank, Intervener Mr. Nitish Massey, Advocate for PCBL, Intervener