NCLAT: Mere Project Ownership Insufficient to Establish IBC Liability Without Privity of Contract

The NCLAT held that mere ownership of a project is insufficient to establish liability under the IBC in the absence of a privity of contract between the parties.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a company appeal, held that in the absence of privity of contract, issuance of invoices, and direct payments between the Appellant and the Respondent-Corporate Debtor, an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 is not maintainable. The Tribunal further observed that even if the Respondent was the ultimate beneficiary of the project, the existence of a pre-existing dispute with the actual contracting entity precludes the initiation of insolvency proceedings.

The National Company Law Appellate Tribunal dismissed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 challenging the order of the Adjudicating Authority (NCLT, Indore Bench) which had rejected a Section 9 application on the ground of absence of privity of contract between the Appellant–Operational Creditor and the Respondent–Corporate Debtor, MB Power. The Appellant, Rahee Jhajharia E to E JV, had sought initiation of CIRP for an alleged operational debt of ₹16.08 crore, claiming it had executed a railway siding project for the Respondent at its thermal power plant in Madhya Pradesh.

The Appellant contended that despite the contractual documentation being issued by Hindustan Thermal–EPC, the entire project was funded and controlled by MB Power, which was also the ultimate beneficiary. The Appellant relied on bid documents, LOIs, work orders, emails, payment communications, completion certificates, and financial statements of MB Power to establish privity of contract. It was also argued that even without a formal agreement, MB Power was liable under IBC definitions for operational debt and as a corporate debtor.

However, the NCLAT upheld the NCLT’s finding that all invoices, payments, and contractual obligations were between the Appellant and Hindustan Thermal–EPC, a separate legal entity. The Tribunal observed that the Appellant initially issued a demand notice to Hindustan Thermal–EPC, which denied the claims and raised a substantial counter-claim. Subsequently, the Appellant withdrew that notice and filed proceedings against MB Power on the same set of invoices. The Tribunal found this shift to be an afterthought and noted that there was a pre-existing dispute between the Appellant and Hindustan Thermal–EPC, which would also be relevant if any claim was hypothetically raised against MB Power.

The Tribunal rejected the Appellant’s argument to lift the corporate veil and invoke the precedent of Arcelormittal India Private Limited v. Satish Kumar Gupta and Others, REEDLAW 2018 SC 10541. It held that even if there had been some level of involvement or coordination by MB Power, there was no evidence of direct contractual engagement, no invoices issued to MB Power, and no payments made by it. As such, there was no debtor-creditor relationship or privity of contract. Consequently, the appeal was dismissed with liberty to the Appellant to pursue alternate remedies available under applicable law.

Mr. Abhijeet Sinha, Sr. Advocate, with Mr. Rakesh Kumar, Mr. Ankit Sharma and Ms. Preeti Kashyap, Advocates, represented the Appellant.

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