Business Arrangement Involving Joint Profit-Sharing, Exclusive Supply Agreement Does Not Establish Creditor-Debtor Relationship Under IBC: NCLT

The National Company Law Tribunal (NCLT), Delhi, has held that a petitioner cannot initiate the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) if the business arrangement between the parties involves joint participation and profit-sharing rather than a straightforward operational debt. The Tribunal ruled that such an arrangement does not establish a debtor-creditor relationship under the IBC.

A bench of Mahendra Khandelwal, Member (Judicial), and Dr. Sanjeev Ranjan, Member (Technical), held, "Had there been the relation of the Operational Creditor and the Corporate Debtor between the parties, there would have been no provision for the 'profit sharing' amongst them, as the same is not contemplated as per the definition of the 'Operational Debt' as laid down under Section 5(21) of the Code. Therefore, in view of the observations made hereinbefore, we are of the view that the nature of relation entered into between the Applicant and the Corporate Debtor is that of the 'joint suppliers' and the Applicant herein does not qualify to be considered as the 'Operational Creditor' within the meaning of Section 5(20) of the Code."

According to the factual matrix of the case, an application was filed by M/s Transline Technologies Limited (Operational Creditor) for initiating Corporate Insolvency Resolution Process (CIRP) against M/s Experio Tech Private Limited (Corporate Debtor). The dispute pertained to unpaid dues arising out of various transactions and an agreement which, according to the Corporate Debtor, were part of a joint venture and not in the nature of debt arising from a conventional debtor-creditor relationship. After going through the agreement and the facts, the Tribunal deliberated upon whether the relationship fell within the ambit of the IBC.

A Company Petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an Authorized Representative of M/s Transline Technologies Limited, against M/s Experio Tech Private Limited. M/s Transline Technologies Limited, having its registered office at New Delhi, was originally incorporated under the Companies Act, 1956, and M/s Experio Tech Private Limited was incorporated under the same Act with its place of business at Dwarka, South West Delhi. The Corporate Debtor had an Authorized Share Capital of Rs. 1,00,000 (Rupees One Lakh) and Paid-Up Share Capital of Rs. 1,00,000 (Rupees One Lakh).

This petition has been filed before the Adjudicating Authority by M/s Transline Technologies Limited, Operational Creditor, through its duly authorised representative- Munish Kumar Goyal (appointed as authorised representative through board resolution dated.) authorized to institute CIRP proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016. The total amount due as claimed is Rs. 3,87,90,800/- The date of default is stated to be 30 days from the date of the respective invoices. The latest date of default is 11.01.2022.

It was the contention of the petitioner that the amount due was an "operational debt" within the meaning of Section 5(21) of the IBC and, therefore, entitled to initiate CIRP under Section 9. The Corporate Debtor opposed the said application and contended that agreement between the parties dated September 3, 2021, was not a routine supplier-buyer agreement but an exclusivity agreement where both the entities were joint players. Furthermore, it was argued that the petitioner had not fulfilled its supply obligations as per the agreement itself and hence had led to losses upon the Corporate Debtor.

Upon perusing the agreement and the business relationship between the parties, the Tribunal noted that the petitioner and the respondent had agreed to undertake supplies jointly, share profits equally, and collaborate in tenders. The MoU granted monopoly rights to Transline to supply materials for the projects of Experio Tech, which further strengthened the finding that their relationship was not that of a creditor and debtor.

Referring to the NCLAT's ruling in Prashanth Shekara Shetty Designated Partner of Abmay Health Ventures LLP Vs. Alcuris Healthcare Private Limited [Company Appeal (AT) (Ins.) No. 359 of 2022], the Tribunal held that when two parties engage in a business arrangement involving joint control and shared liabilities, they do not qualify as operational creditor and debtor.

Thus, in the light of the above observations the tribunal opined, "the basic ingredient of the Section 9 of the Code that the Applicant must qualify to be termed as the 'Operational Creditor' in terms of the Section 5(20) of the Code is not met with. Therefore, instant application filed by the Applicant is liable to be dismissed."

Case Title: M/S Transline Technologies Limited v. Experio Tech Private Limited

Case no: CP IB NO. 236/(ND)/2023

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