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2023 (6) TMI 1006 - AT - Insolvency and BankruptcyMaintainability of Application for CIRP filed under Section 9 of I B Code - Sub-contractor of the main contractor - Contractual Relationship between the Appellant and the Respondent or not - privity of contact - whether proceedings under IBC can be sustained on the basis of a promissory estoppel? - HELD THAT - IEDCL had sub-Contracted the work to the Appellant / Operational Creditor herein. IEDCL is one of the subsidiaries of IL FS Solar Power Limited (ISPL)/ the main Contractor which had entered into a contract with Embassy Energy Private Limited /the Respondent herein for operation of the Solar Power Project. It can be seen from the Agreement for Civil Works and Construction entered into between Embassy Energy Private Limited/ Respondent , the owner and ISPL that except for Clause 6.1.1 which deals with the name of the sub-Contractor, any Contractual Obligation with the Appellant herein is not established by way of any Written Agreement. From the agreement it is clear that a sub-Contractor shall not have any Contractual Relationship with the owner and shall not be entitled to prefer any Claims against the owner. The material on record establishes that there is no Operational Relationship between the Appellant and the Respondent herein and it is pertinent to mention that the Respondent is not even a party to the Agreements entered into between ISPL and IEDCL and ISPL and the Appellant/Operational Creditor. It is clear from the record that there are no goods and services supplied directly by the Operational Creditor to the Respondent herein and therefore it cannot be said that there is any Operational Debt between the Operational Creditor and the Respondent herein. Merely because the owner had given a bona fide assurance that if IEDCL fails to pay the amount they would pay the same on their behalf, the amount will not fall within the definition of Operational Debt as defined under Section 5(21) of the Code. The Hon ble Supreme Court in the matter of Essar Oil Limited Vs. Hindustan Shipyard Ltd. Ors. 2015 (7) TMI 373 - SUPREME COURT , has held that when a principal employer grants a contract to a Construction Company the sub-Contractors cannot sue the principal employer for any issues, if payable, as there is no privity of contract between the sub-Contractors and the principal employer. This Tribunal is of the considered view that any promise made in the letter dated 17.10.2018, specifically having regard to Clause 6.1.4 of the Agreement for Civil Works and Construction entered into between Embassy Energy Private Limited and ISPL, whereby and whereunder, it was clearly 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 herein. 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 - Appeal dismissed.
Issues Involved:
1. Whether there was an "operational debt" exceeding Rs. 1 lakh. 2. Whether there was a formal contract or agreement between the parties. 3. Whether the letter dated 17.10.2018 constituted an "acknowledgement of debt". 4. Whether the "Application" under Section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable. Summary: Issue 1: Operational Debt The Tribunal examined whether there was an "operational debt" exceeding Rs. 1 lakh, as defined under the Insolvency and Bankruptcy Code, 2016 (IBC). The Hon'ble Supreme Court's decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited was referenced, which requires the adjudicating authority to determine if there is an operational debt, if the debt is due and payable, and if there is any dispute regarding the debt. The Tribunal concluded that the first issue was held against the Petitioner, as no debt could be established against the Corporate Debtor based on promissory estoppel. Issue 2: Formal Contract or Agreement The Tribunal noted that the Petitioner admitted there was no formal contract or agreement with the Respondent-Corporate Debtor. The Petitioner also did not raise any invoices against the Respondent. The Tribunal held that the request by the Respondent to revoke the suspension of work and complete outstanding work did not constitute a binding contract. Therefore, the second issue was also held against the Petitioner. Issue 3: Acknowledgement of Debt The Tribunal assessed the letter dated 17.10.2018, which the Petitioner claimed constituted an "acknowledgement of debt". It was determined that the letter did not establish an operational debt between the parties. The Tribunal emphasized that the definition of "operational debt" under Section 5(21) of the IBC requires the provision of goods or services directly to the Respondent, which was not the case here. The Tribunal referenced the Supreme Court's decision in Essar Oil Limited vs. Hindustan Shipyard Ltd., which held that sub-contractors cannot sue the principal employer due to the lack of privity of contract. Issue 4: Maintainability of Section 9 Application The Tribunal concluded that the application under Section 9 of the IBC was not maintainable due to the absence of a contractual relationship and operational debt between the Petitioner and the Respondent. The Respondent was not a party to the agreements between ISPL and IEDCL, and ISPL and the Petitioner. The Tribunal also noted that the Petitioner had filed a claim in the CIRP proceedings of IL&FS, which was admitted by the Resolution Professional. Conclusion The Tribunal dismissed the appeal, stating that the amounts claimed could not fall within the definition of "acknowledgement of debt" in the absence of any contractual relationship. The appeal was dismissed as devoid of merits, and the connected pending interlocutory applications were closed.
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