NCLAT Dismisses Appeal in Insolvency Case Due to Lack of Privity of Contract. Operational Debt Claim Under Section 9 of IBC, 2016 Fails as No Direct Contractual Relationship Exists Between Appellant and Respondent.

Tribunals: National Company Law Appellate Tribunal Bench: CHENNAI

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2026-05-19 01:50:24

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Case Note & Summary

The present appeal was filed by Rahee Jhajharia E to E JV (the Appellant) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order dated 25.09.2024 passed by the National Company Law Tribunal, Indore Bench (Adjudicating Authority) in TP 47 of 2019 [CP(IB) No. 187 of 2019]. The Appellant had filed a petition under Section 9 of the IBC for recovery of an operational debt of Rs. 16,08,00,000 allegedly due from MB Power (Madhya Pradesh) Ltd. (the Respondent) in relation to a railway contract for the Respondent's project in Jaithari, Anuppur District, Madhya Pradesh. The Adjudicating Authority dismissed the petition primarily on the ground that there was no privity of contract between the Appellant and the Respondent. The Appellant contended that there was indeed a direct contractual relationship, as the contract was awarded by the Respondent to the Appellant. However, the NCLAT noted that the contract was originally awarded to Rahee Infratech Ltd., and the Appellant was a joint venture that did not have any direct contract with the Respondent. The NCLAT held that the finding of fact by the Adjudicating Authority regarding lack of privity of contract was not perverse and did not warrant interference in appeal. Consequently, the appeal was dismissed, upholding the dismissal of the Section 9 petition.

Headnote

A) Insolvency Law - Operational Debt - Privity of Contract - Section 9, Insolvency and Bankruptcy Code, 2016 - The appeal challenged the dismissal of a Section 9 petition on the ground of no privity of contract between the Appellant and the Respondent. The Appellant claimed an operational debt of Rs. 16,08,00,000 for a railway contract awarded by the Respondent. The NCLAT upheld the Adjudicating Authority's finding that there was no direct contractual relationship, as the contract was between the Respondent and a third party (Rahee Infratech Ltd.), and the Appellant was a joint venture that did not step into the shoes of the contractor. Held that the finding of fact on privity of contract was not perverse and did not warrant interference (Paras 2-5).

Issue of Consideration

Whether there was privity of contract between the Appellant and the Respondent for the operational debt claimed under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Final Decision

The appeal is dismissed. The impugned order dated 25.09.2024 passed by the Adjudicating Authority is upheld.

Law Points

Privity of contract is essential for maintaining a petition under Section 9 of the IBC
2016
Operational debt must arise from a direct contractual relationship between the parties
The Adjudicating Authority's finding on lack of privity of contract is a finding of fact not to be interfered with in appeal unless perverse.

Case Details

2024 LawText (NCLAT) (01) 142

Company Appeal (AT) (Insolvency) No. 2279 of 2024

2024-09-25

Arun Baroka, Member (Technical)

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

Rahee Jhajharia E to E JV

MB Power (Madhya Pradesh) Ltd.

Nature of Litigation

Appeal against dismissal of Section 9 petition under IBC for recovery of operational debt.

Remedy Sought

Appellant sought to set aside the impugned order and admit the Section 9 petition.

Filing Reason

Appellant claimed operational debt of Rs. 16,08,00,000 for railway contract work.

Previous Decisions

Adjudicating Authority dismissed the Section 9 petition on ground of no privity of contract.

Issues

Whether there was privity of contract between the Appellant and the Respondent for the operational debt claimed under Section 9 of the IBC, 2016.

Submissions/Arguments

Appellant contended that there was privity of contract as the contract was awarded by the Respondent to the Appellant. Respondent argued that the contract was with Rahee Infratech Ltd., not the Appellant, and thus no direct contractual relationship existed.

Ratio Decidendi

The finding of fact by the Adjudicating Authority that there was no privity of contract between the Appellant and the Respondent is not perverse and does not warrant interference in appeal. Therefore, the Section 9 petition was rightly dismissed.

Judgment Excerpts

The petition was dismissed primarily on the ground of no privity of contract between the Appellant and the Respondent with respect to the operational debt. The NCLAT held that the finding of fact by the Adjudicating Authority regarding lack of privity of contract was not perverse and did not warrant interference in appeal.

Procedural History

The Appellant filed a petition under Section 9 of the IBC before the NCLT, Indore Bench, which was dismissed on 25.09.2024. The Appellant then filed the present appeal under Section 61 of the IBC before the NCLAT.