Operational Creditor is under obligation to recover money from its client and not agent: NCLT decides while dismissing a petition filed under S. 9 IBC

National Company Law Tribunal

National Company Law Tribunal, Mumbai Bench: The Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) dismissed a petition filed under Section 9 of the IBC while noting that no operational debt existed under Section 5(8) and expressed that,

Operational Creditor being the Principal was always under obligation to recover the money from the client and not from his agent unless the agent failed to perform his duties.

Present company petition was filed by the THG Publishing Private Limited (Operational Creditor) seeking to initiate the Corporate Insolvency Resolution Process against Deadline Advertising Private Limited (respondent) by invoking provisions of Section 9 Insolvency and Bankruptcy Code, 2016 read with Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for resolution of an operational debt of Rs 9,23,160.

Analysis, Law and Decision

Tribunal noted that during the course of the business, the respondent issued a release order upon the Operational Creditor for publishing advertisement in Business Line Newspaper and The Hindu newspaper which was duly done by the Operational Creditor.

Further, it was observed that the nature of business between the parties was that of a Principal and Agent, where, the Operational Creditor acted as the Principal who in turn appointed the Respondent as an agent on a commission basis in order to increase the Operational Creditor’s business revenue by attracting and engaging customers who are desirous of publishing their advertisement with the Operational Creditor.

The invoices in question had not been raised against the respondent but against M/s Avanse Financial Services Private Limited and it was clear that the client was not respondent but M/s Avanse Financial Services Private Limited who a client of the Operational Creditor through the respondent who was merely an agent to the Operational Creditor.

Since M/s Avanse Financial Services (P) Ltd. failed to remit the due to respondent, the respondent failed to remit the due to the Operational Creditor.

Coram opined that the Operational Creditor could have availed the legal remedies and initiated the appropriate legal proceedings against M/s Avanse Financial Services Private Limited to recover its monies as Avanse was the client of Operational Creditor which was reflected in the invoices raised.

Another point noted by the Coram was that the respondent was engaged by the Operational Creditor as an agent because it was accredited with the Indian Newspaper Society. As per the agreement between INS and the respondent, the respondent shall be entitled to a 15% commission pertaining to advertisement business.

Hence, it was clear that the arrangement was between the parties of principal-agent and not of Operational Creditor and Respondent, which clearly leads to the conclusion that defaulting party was not the agent of Operational Creditor, infact it was the client of Operational Creditor.

Issue: If it was a principal-agent relationship, was the respondent not liable to pay any dues arising from default?

Tribunal firstly referred to Section 182 of the Indian Contract Act, 1872 and further observed that the Operational Creditor being the Principal was always under obligation to recover the money from the client and not from his agent unless the agent failed to perform his duties.

Therefore, since the respondent performed in good faith, the agent could not be held liable for default on the part of client of the Operational Creditor.

Concluding the matter, Tribunal held that the amount claimed did not qualify as an Operational Debt under Section 5(8) of the Code and was not default under Section 3(12) of the Code.

In view of the above discussion, company petition was dismissed. [THG Publishing (P) Ltd. v. Deadline Advertising (P) Ltd., CP No. 1952/IBC/MB/2019, decided on 19-1-2022]


Advocates before the Tribunal:

For the Operational Creditor: Mr. Abhishek Tila a/w Aboli Mandik and Adv. Shivani Sanghavi i/b DMD

For the Respondent: Mr. Nausher Kohli a/w Munaf Virjee and Akash Agarwal i/b ABH Law LLP

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