NCLAT Delhi: Corporate Debtor Can't Evade Liability By Claiming To Be Merely An Agent of Principal

NCLAT Delhi: Corporate Debtor Can't Evade Liability By Claiming To Be Merely An Agent of Principal

The National Company Law Appellate Tribunal ('NCLAT') in Delhi, led by Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member), determined that the corporate debtor cannot evade responsibility by claiming to be solely an agent and by seeking recourse under Section 230 of the Indian Contract Act, 1872.

Topaki Media Private Limited (TMPL), the corporate debtor, operated as an advertising services provider, acting as an intermediary for its clients. Videocon Industries Limited (VIL) availed of TMPL's services, and TMPL, in turn, engaged Rajasthan Patrika Private Limited (respondent) to publish the advertisements in its newspapers.

Because of payment delays from VIL, an arrangement was established for VIL to settle its debts directly with the respondent through a barter system, exchanging appliances for the outstanding amounts. As the outstanding amount remained unpaid, the respondent requested payment from TMPL and initiated a Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC.

Mukul Rajhans (Appellant), the Suspended Director of the Corporate Debtor, filled an appeal against NCLT Mumbai's Order dated 10.08.2023, which admitted the CIRP application by the Respondent. The appeal argued that the corporate debtor was merely an agent of VIL and thus not responsible for repaying the outstanding amounts to the respondent.

The respondent contended that the corporate debtor acknowledged the unpaid invoices and outstanding dues without dispute. Moreover, it issued purchase orders on its letterhead, and all invoices were addressed to TMPL without any objection. Hence, TMPL is accountable for the outstanding debt.

Additionally, TMPL itself orchestrated the arrangement to settle payments through VIL's appliances and products. TMPL consistently managed and facilitated these payments. An email dated September 18, 2017 from TMPL to the respondent highlighted its inability to provide equipment in exchange for barter due to GST implications, demonstrating TMPL's proactive involvement.

The NCLAT Delhi rejected the appeal and ruled that the corporate debtor cannot evade responsibility by claiming to be solely an agent and seeking recourse under Section 230 of the Indian Contract Act, 1872.

The Appellate Tribunal observed that TMPL issued the purchase orders on its letterhead, indicating its responsibility for settling the outstanding dues. Additionally, the barter agreement demonstrates TMPL's active participation in the payment arrangement.

Moreover, TMPL suggested resolving the accounts through barter rather than immediate payment and consistently managed the payments to the respondent until complications arose with the new Goods and Services Tax (GST) regime. Consequently, with the discontinuation of the barter arrangement, the repayment obligation solely rested on TMPL, and it cannot absolve itself of liability by attempting to transfer it to VIL.

The NCLAT also highlighted that subsequent to the insolvency admission orders against VIL, TMPL submitted a claim of Rs. 23.35 crores as an operational creditor with VIL's Interim Resolution Professional, which was fully acknowledged by VIL's Resolution Professional. Therefore, TMPL cannot now shift its liability to VIL.

NCLAT also placed reliance on Section 230 of the Indian Contract Act, 1872.

The Appellate Tribunal noted that TMPL cannot invoke Section 230 of the Indian Contract Act, as the IBC proceedings are self-contained and regulate actions in such circumstances. Therefore, TMPL cannot avoid liability by asserting that it was merely an agent, as an agent cannot personally enforce or be bound by contracts made on behalf of a principal. Consequently, TMPL cannot shift its liability to VIL.

In conclusion, the NCLAT observed that there is no tripartite agreement on record outlining the payment responsibilities and methods. In the absence of such an agreement, the obligation to repay the outstanding dues lies with TMPL. Hence, NCLT Mumbai rightly admitted the CIRP petition against TMPL.