Application u/s 9 of IBC Not allowable against a Solvent Company: NCLAT [Read Order]

The National Company Law Appellate Tribunal(NCLAT) has held that application under section 9 of the Insolvency and Bankruptcy Code, 2016 is not allowable against a solvent company.

The National Company Law Tribunal by which Order, the `Adjudicating Authority’ has dismissed the Application filed by the `Appellant’/`Operational Creditor’, Sterling and Wilson Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016, (`The Code’).

Sr. Counsel Mr E. Om Prakash appeared for the `Appellant’/`Operational Creditor’ and submitted that Embassy Energy Private Limited/`Corporate Debtor’ sought to commission and operate a Solar Photovoltaic Electricity Generation Facility with a minimum capacity of 100MW AC, for which execution, the `Corporate Debtor’ entered into a contract with IL&FS Solar Limited (ISPL), who in turn entered into a contract with IL&FS Energy Development Company Limited (IEDCL), who in turn appointed M/s. Sterling & Wilson Private Limited/the `Operational Creditor’ as the sub-Contractor.

The Operational Creditor and IEDCL entered into several Contracts for the works of the Project and several invoices were raised for the period 21.12.2017 till 24.11.2018. It is submitted that IEDCL consistently defaulted in the payments of various invoices amounting to Rs.99,75,88,940/- and despite several requests did not make any payments, on account of which, the `Operational Creditor’ issued a letter dated 04.10.2018 suspending the works about the Project.

Mr Om Prakash strenuously contended that the `Respondent’ had requested the `Appellant’ to kindly revoke the suspension and continue to provide the services and that they would pay the amounts `due and payable’ as of 15.01.2019 and sought for revocation of the Suspension Notice immediately.

It was submitted that on account of the `Promise’, the `Corporate Debtor’ had stepped into the shoes of IEDCL in terms of their `promise to pay’. It was submitted that this letter evidences that the `Corporate Debtor’ had assured that the amounts owed to the `Appellant’ would be paid on an immediate basis.

The `Respondent’s submitted that there is no `privity of contract’ between the `Appellant’ and `Respondent’; that no invoices were raised by the `Appellant’ on the `Respondent’; there is no `debt’ `due and payable’ nor is there any `acknowledgement of debt’ by the `Respondent’ towards the `Appellant’ that the `Petition’ under Section 9 of the Code is not maintainable as there were `Pre-Existing Disputes’ and more so in the absence of any `Contractual Obligations’, merely because the `letter of comfort’ was issued on 17.10.2018, to stop the `revocation of contract’, it cannot be said that the `Respondent’ is liable to pay all the amounts which are to be paid by the Contractor to the sub-Contractor.

A two-member bench comprising Justice M. Venugopal, Member (Judicial) and Ms Shreesha Merla Member (Technical) observed that the `Agreement for Civil Works and Construction’ entered into between Embassy Energy Private Limited and ISPL specified that the sub-Contractor, would not have any contractual relationship with the owner and would not be entitled to prefer any `Claims’ against the owner, these amounts claimed cannot fall within the definition of `acknowledgement of debt’ in the absence of any contractual relationship between the `Operational Creditor’ and the Respondent.

“It was evident that the `Appellant’ had filed a `Claim’ in the CIRP Proceedings of IL&FS and the RP has admitted their `Claim’ to the extent of Rs.99Crs./- approximately. We are also conscious of the fact that the `Respondent’ is a commercially solvent Company and the scope and objective of the Code is not to send a commercially `Solvent Company’ to `Insolvency’ specifically having regard to the facts of the attendant case on hand.”, the NCLAT held.

To Read the full text of the Order CLICK HERE

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