The Bench comprising of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) of Hon’ble National Company Law Appellant Tribunal,New Delhi recently in the matter of Milan Aggarwal VS Saudi Basic Industries Corporation (SABIC), Company Appeal (AT)(Ins) – 231/ND/2023 held that by payment of insurance company to the Operational Creditor of its claim, the Corporate Debtor cannot be absolved from its liability to discharge its Operational Debt and cannot be a ground to reject IBC Section 9 application.

Saudi Bais Industries Corporation (SABIC) was represented by Shwetabh Sinha and his team: Sidhant Pandita and Vatsala Pandey from Clasis Law.

 Brief Facts

This Appeal was filed before National Company Law Appellant Tribunal (“NCLAT”) challenging the order dated 22.02.2023 passed by National Company Law Tribunal, Jaipur Bench (“Adjudicating Authority”) whereby the Section 9 Application under Insolvency and Bankruptcy Code (“IBC”) filed by Saudi Basic Industries Corporation (“Operational Creditor/ Respondent No.1”) for initiating CIRP proceedings against Prayag Polytech Private Limited (“Corporate Debtor”) was admitted.

The Corporate Debtor had entered into a Sales Agreement with the Operational Creditor for the purchase of certain goods. Thereafter, the goods were delivered and an invoice for an amount of USD 403, 920 was issued by the Operational Creditor in favour of the Corporate Debtor. The Corporate Debtor made part payment of USD 276,580, leaving a balance of USD 127,340 as unpaid.

Subsequently, several correspondences were exchanged between the parties wherein the Corporate Debtor acknowledged its debt and gave assurances to repay the entire debt amount to the Operational Creditor.

After no amount was received by the Operational Creditor, a Demand Notice under Section 8 was issued. In response to the said Notice, the Corporate Debtor, issued its reply denying its liability to pay the outstanding amount. Thereafter, the Operational Creditor, filed the Section 9 Application. The Corporate Debtor objected to the application essentially on the ground that the Operational Creditor has received the claim amount from the Insurance Company and thus there was no debt due and pending against the Operational Creditor. The Adjudicating Authority admitted the Section 9 Application and observed that the insurance policy does not absolve the Corporate Debtor from its liability and the Operational Creditor was obliged to initiate legal proceeding against the Corporate Debtor for dues which were liable to be paid to the insurer.  Aggrieved, the Corporate Debtor filed the Appeal before the NCLAT.

NCLAT’s Judgment:

The NCLAT dismissed the Appeal and held that payment by the insurance company to the operational creditor does not absolve the Corporate Debtor from its liability of discharge its Operational Debt.

The NCLAT further observed that Operational Creditor is under an obligation to take action to recover its dues and handover the amount to the Insurance Company and when Operational Creditor has filed Section 9 Application, it is not open for the Corporate Debtor to submit that Application deserves to be rejected, since the amount has been received by the Operational Creditor from the Insurance Company.

Authors: Shwetabh Sinha, Partner, Sidhant Pandita, Associate Partner, Vatsala Pandey, Associate

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