NCLT Mumbai Dismisses Application U/S 9, IBC On The Ground Of Existence Of A Principal-Agent Relationship Between The Parties

The Operational Creditor filed an application for initiation of CIRP against the Respondent, Deadline Advertising Pvt. Ltd. for resolution of an Operational Debt.

The Respondent contended that the Operational Creditor and the Respondent have shared a relationship of Principal-Agent, wherein the Operational Creditor acted as the Principal who in turn appointed the Respondent as an agent on a commission basis in order to increase the Operational Creditor's business revenue by attracting and engaging customers who are desirous of publishing their advertisement with the Operational Creditor. It was also contended that a dispute regarding repayment never arose between the Operational Creditor and Respondent. The client of the Respondent, M/s Avanse Financial Services Pvt. Ltd., through an agent approached the Respondent and wanted to publish its advertisement in the newspaper of the of the Operational Creditor.

The Bench accepted the contentions put forward by the Respondent, that there existed a relationship of 'Principal-Agent' between the parties. The Tribunal noted that since the client of the Respondent, M/s Avanse Financial Services Pvt. Ltd. approached the Respondent via an intermediate agency to get its advertisement published in the Operational Creditor's newspaper, and the client did not pay the amount to the Respondent, due to which he could not further pay the Operational Creditor, the Operational Creditor could have initiated other appropriate legal remedies and could have initiated legal proceedings against M/s. Avanse Financial Services Pvt. Ltd. to recover the amount due to it. The Tribunal dismissed the application, as the debt of the Operational Creditor did not qualify as an Operational Debt u/s 5(8) and is not a default u/s 3(12) of the IBC.

Regarding the issue- if it is a principal-agent relationship, whether the Respondent is not liable to pay any dues arising from default, the Bench referred to Section 182 of the Contract Act, which defines Principal and Agent.

It was held that the Operational Creditor, being the principal is always under an obligation to recover money from the client and not from its agent, unless the agent has failed to perform its duties. The agent cannot be held liable for the default of the client in the present case.

Case Title: THG Publishing Pvt. Ltd. v. Deadline Advertising Pvt. Ltd.

Counsel for the Operational Creditor: Mr. Abhishek Tila a/w Aboli Mandik and Adv. Shivani Sanghavi i/b DMD

Counsel for the Respondent: Mr. Nausher Kohli a/w Munaf Virjee and Akash Agarwal i/b ABH Law LLP

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