NCLT Cuttack Holds Third-Party Part Payment Does Not Extinguish Corporate Debtor’s Liability Under IBC
NCLT Cuttack Holds Third-Party Part Payment Does Not Extinguish Corporate Debtor’s Liability Under IBC
Introduction
The National Company Law Tribunal (NCLT), Cuttack Bench, has held that part payment made by a third party does not discharge or substitute the liability of the corporate debtor under the Insolvency and Bankruptcy Code, 2016 (IBC). A Bench comprising Acting President Deep Chandra Joshi and Technical Member Banwari Lal Meena made this observation while allowing an insolvency application filed by Patnaik Steel International Ltd against SSAB Energy and Minerals Ltd.
Factual Background
The operational creditor, Patnaik Steel International Ltd, supplied iron ore fines to the corporate debtor pursuant to a purchase order dated December 31, 2021. The supplies were made through invoices dated January 17, 2022, aggregating to approximately ₹2.86 crore. The corporate debtor made partial payments amounting to ₹1.55 crore, leaving an outstanding balance of ₹1.31 crore.
Procedural Background
Upon default in payment of the remaining amount, the operational creditor initiated proceedings under the IBC seeking commencement of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The corporate debtor opposed the application, disputing its liability and attributing payment responsibility to a third party.
Issues
1. Whether part payment made by a third party can discharge or substitute the liability of the corporate debtor.
2. Whether internal arrangements between the corporate debtor and a third party can defeat the claim of an operational creditor under the IBC.
3. Whether the existence of such arrangements constitutes a pre-existing dispute.
Contentions of the Parties
The operational creditor contended that a valid contractual relationship existed directly with the corporate debtor, evidenced by the purchase order, invoices, and partial payments made by the debtor itself. It argued that the outstanding dues constituted an operational debt, and default was clearly established.
The corporate debtor contended that under a Memorandum of Understanding dated December 31, 2021, a third party—Gleancore Minerals—was responsible for procurement of raw materials and settlement of supplier dues. It was argued that payments made by the third party altered or shifted liability.
Reasoning and Analysis
The Tribunal examined the documentary evidence and found that the contractual relationship was directly between the operational creditor and the corporate debtor. The purchase orders, invoices, and payment records clearly established privity of contract. The Bench emphasised that the corporate debtor itself had made substantial part payments, thereby acknowledging the debt. It held that acceptance of a solitary part payment from a third party cannot be construed as substitution of the debtor for the entire liability.
The Tribunal further observed that internal arrangements between the corporate debtor and third parties cannot absolve the debtor of its legal obligations towards creditors. Such arrangements are irrelevant to the creditor’s right to recover dues. The Bench also found that there was no genuine pre-existing dispute, as the liability was supported by clear documentary evidence and partial acknowledgment through payments.
Decision
The NCLT admitted the insolvency application and initiated CIRP against the corporate debtor.
It appointed Suresh Chandra Pattnayak as the Interim Resolution Professional.
In this case the appellant was represented by Advocates Saswat K. Acharya, Sushree Phoglu, Abhijeet Agarwal, Subham Agrawal, Jaish Joshi, Krutibash Mohapatra. Meanwhile the respondent was represented by Advocate Supriyo Gole.
