NCLAT Overturns NCLT's Order on CIRP Initiation Against Nayati Healthcare
Tribunal finds absence of privity of contract between Operational Creditor and Corporate Debtor, nullifying insolvency proceedings.
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has overturned the National Company Law Tribunal's (NCLT) decision to initiate Corporate Insolvency Resolution Process (CIRP) against Nayati Healthcare & Research NCR Pvt. Ltd., the Corporate Debtor. The appellate tribunal emphasized the absence of a direct contractual relationship between the Operational Creditor, M/s. Healthians Research Centre Pvt. Ltd., and the Corporate Debtor, leading to the dismissal of the insolvency proceedings.
The judgment, delivered by Justice Yogesh Khanna and Mr. Ajai Das Mehrotra, Member (Technical), clarified that the claim did not meet the definition of 'operational debt' as outlined in Section 5(21) of the Insolvency and Bankruptcy Code (IBC), 2016. The Operational Creditor had provided services under an agreement with Vimhans Nayati Super Speciality Hospital, a trust, and not directly to the Corporate Debtor, Nayati Healthcare. Despite Nayati Healthcare issuing cheques on behalf of the Trust, the tribunal ruled that this did not establish a privity of contract or operational debt between Nayati Healthcare and Healthians Research Centre.
The NCLAT also addressed the legality of simultaneous proceedings under Section 138 of the Negotiable Instruments Act, 1881, and the IBC. It reaffirmed that the criminal nature of proceedings under the NI Act does not conflict with the civil nature of insolvency proceedings, allowing them to be pursued concurrently.
The case stemmed from the dishonouring of cheques issued by Nayati Healthcare to Healthians Research Centre, intended to settle dues for services provided to the hospital. The NCLT had initially admitted the application under Section 9 of the IBC, prompting the CIRP, but the NCLAT found this admission erroneous due to the lack of direct service provision by Healthians to Nayati Healthcare.
The tribunal cited previous judgments, including those by the Supreme Court, to underscore that mere issuance of cheques does not suffice as an acknowledgment of debt absent a direct contractual obligation. The tribunal's decision highlights the importance of establishing clear contractual relationships in insolvency proceedings, ensuring that only legitimate claims meeting statutory definitions are admitted.
Bottom Line:
Insolvency and Bankruptcy Code - Absence of privity of contract between Operational Creditor and Corporate Debtor bars initiation of CIRP against the Corporate Debtor under Section 9 of IBC.
Statutory provisions: Insolvency and Bankruptcy Code, 2016 Sections 5(21), 9; Negotiable Instruments Act, 1881 Section 138
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