Exclusive Supply Agreement Does Not Establish Creditor-Debtor Relationship Under IBC: NCLT [Read Order]

In accordance with Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), the National Company Law Tribunal (NCLT), located in Delhi, has ruled that a petitioner cannot start the Corporate Insolvency Resolution Process (CIRP) if the parties' business arrangement entails profit-sharing and joint participation rather than a simple operational debt. According to the Tribunal, under the IBC, such an arrangement does not create a debtor-creditor relationship.

To start the Corporate Insolvency Resolution Process (CIRP) against M/s Experio Tech Private Limited (Corporate Debtor), M/s Transline Technologies Limited (Operational Creditor) submitted an application. The issue concerned unpaid debts from a number of transactions and agreements that, in the Corporate Debtor's opinion, were a component of a joint venture rather than debt originating from a traditional debtor-creditor relationship. The Tribunal considered whether the relationship was covered by the IBC after reviewing the facts and the agreement.

An Authorized Representative of M/s Transline Technologies Limited filed a company petition against M/s Experio Tech Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016. Originally founded under the Companies Act of 1956, M/s Transline Technologies Limited has its registered office in New Delhi. M/s Experio Tech Private Limited was also incorporated under the same Act and operates its business in Dwarka, South West Delhi. The authorized and paid-up share capitals of the corporate debtor were both Rs. 1,00,000 (Rupees One Lakh) and Rs. 1,00,000 (Rupees One Lakh), respectively.

Get a Copy of Direct Taxes Law and Practices Including Tax Planning with Free E-Book Access, Click Here

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.

Read More: NCLAT uphold Resolution Plan In absence of irregularity in conduct of CIRP Proceedings

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.

A bench of Mahendra Khandelwal, Member (Judicial), and Dr. Sanjeev Ranjan, Member (Technical), held 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. 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.

The tribunal observed that 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.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates