Corporate Debtor Being an Agent Not Responsible For Non-Supply of Materials by Third Party: NCLT

In a significant ruling, the Mumbai bench of the National Company Law Tribunal ( NCLT ) has held that Corporate Debtor being an agent not responsible for non-supply of materials by third parties. The bench dismissed a Corporate Insolvency Resolution Process ( CIRP ) petition filed by JM Steels , Operational Creditor under section 9 of the Insolvency and Bankruptcy Code ( IBC ) against Nirav Metals Pvt. Ltd., Corporate Debtor. The operational creditor filed a petition under section 9 of the IBC for the amount to the tune of Rs. 3.63 crores. The operational creditor paid advance amount to the corporate debtor to supply the materials. The dispute emerged when the corporate debtor failed to deliver the materials. Thereafter, the operational creditor advanced further payment to the corporate debtor on February 5, 2022 despite not receiving the materials as per previous agreements. A criminal complaint was also filed by the operational creditor against the corporate debtor. It was submitted by the operational creditor that amount to the tune of Rs. 3.63 crores was given to the corporate debtor for supply of goods. However, in spite of payment, the corporate debtor failed to deliver the agreed upon goods. It was submitted that multiple reminders were sent to the corporate debtor but no materials was supplied. Transform Your Tax Audit Skills: In-Depth Analysis - Join our live session now Per Contra, It was submitted by the corporate debtor, there was a pre-existing dispute with respect to the claimed amount which was raised subsequent to the demand notice served by the operational creditor. It was further argued that it was not directly responsible for non-supply of materials as the corporate debtor was merely acting an agent between the operational creditor and Orbit Electromech India Pvt., the actual supplier. The Tribunal agreed with the contention of the corporate debtor and observed that it was merely acting as an agent between the operational creditor and the actual supplier. The agreement which was signed on January 27, 2022 clearly showed responsibilities of both the parties including advanced payment to be refunded by the actual supplier in case the materials were not supplied to the operational creditor. The NCLT stated that there was a pre-existing dispute in relation to the debts as concluded by the Hissar Police Authorities after investigating the complaint filed by the operational creditor against the corporate debtor. The Police indicated in its report that this criminal case had to be resolved first before any outstanding debts can be claimed. The Tribunal comprising Justice V.G. Bisht (Judicial Member) and Prabhat Kumar (Technical Member) held that “In view of these facts, we are of considered view that there exists primafacie dispute and this Tribunal can not adjudicate upon such dispute in the present proceedings. Hence, the debt in question can not be said to be undisputed debt. Accordingly, the present petition is not maintainable and liable to be dismissed”. Transform Your Tax Audit Skills: In-Depth Analysis - Join our live session now While dismissing the petition, the bench concluded that the corporate debtor was not responsible for non-supply of materials by a third party. It was merely acting as an agent. In addition to that the tribunal held that there was already a pre-existing dispute over the debts in the form of a criminal case. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Corporate Debtor Being an Agent Not Responsible For Non-Supply of Materials by Third Party: NCLT

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Corporate Debtor Being an Agent Not Responsible For Non-Supply of Materials by Third Party: NCLT

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