Phanindhar Chivukula vs CEVA Logistics India Pvt. Ltd. & Anr.

Per: Justice Rakesh Kumar Jain:

This appeal has been filed by the suspended director of M/s Sapura Engineering & Constructions (India) Pvt. Ltd. (Corporate Debtor), being aggrieved against the order dated 23.02.2024 passed by the National Company Law Tribunal, Mumbai Bench (in short ‘Tribunal’) by which an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) bearing CP (IB) No. 519/MB/2022 by CEVA Logistics India Pvt. Ltd. (Operational Creditor) has been admitted and Uday Kumar Bhaskar Bhat has been appointed as the Interim Resolution Professional (IRP).

In this appeal, notice was issued on 07.03.2024 and it was ordered that “in the meantime, no further steps shall be taken in pursuance of the impugned order”.

M/s Sapura Engineering & Constructions (India) Pvt. Ltd. (Sapura India) is wholly owned subsidiary of M/s Sapura Fabrication SDN BHD incorporated in Malaysia (Sapura Malaysia/Holding Company).

Sapura Malaysia placed seven service orders with the OC/Respondent No. 1. The Respondent No. 1 raised 13 invoices from 28.09.2020 to 27.08.2021 to Sapura Malaysia but the amount in the said invoice remains unpaid despite reminders.

On 07.12.2021 the Respondent No. 1 issued a demand notice upon Sapura Malaysia for payment of unpaid operational debt of Rs. 2,03,03,161/-.

The Respondent No. 1 also filed an application under Section 9 of the Code on 05.02.2022 bearing transaction reference no. 0502220005923 against Sapura Malaysia but it was not registered by the Tribunal because Respondent No. 1 failed to provide the CIN Number of Sapura Malaysia.

Thereafter, Respondent No.1 issued another demand notice to Sapura India for the same amount on 18.02.2022 and then filed an application under Section 9 of the code on 11.04.2022.

The Appellant did not reply to the demand notice because it has nothing to do with the claim of Respondent No. 1 as there was no privity of contract between them because orders were placed by Sapura Malaysia and the invoices were also raised to the said company but reply was filed to the petition filed under Section 9 by the Appellant on 15.12.2022 in which it has been alleged that there exists no privity of contract between them because the Appellant is merely a subsidiary of the Sapura Malaysia/holding Company.

The Tribunal, however, though held that transaction is between the holding company and the OC but since the Appellant is subsidiary company of Sapura Malaysia and that Paresh Naik of the Appellant has digitally signed bill of lading and service orders of the holding company, therefore, the Appellant has been held liable holding that there was privity of contract between the Appellant and Respondent No. 1.

Counsel for the Appellant has argued that service orders clearly designate Sapura Malaysia as the buyer and the clauses in the GT & C stipulates issuance of invoice and payment related query directly to Sapura Malaysia. It is further submitted that clause of GCS stipulates Malaysian law as the governing law and the place of arbitration to be at Kuala Lumpur, makes it evident that the buyer is Sapura Malaysia. He has further submitted that invoices were issued to Sapura Malaysia and not to the Appellant and the Appellant was not a party to the bill of lading which explicitly designated Sapura Malaysia as the consignee. It is further submitted that service order were also placed by the buyer i.e. Sapura Malaysia which is different from buyer group as has been highlighted by the Tribunal. It is further submitted that Respondent No. 1 had rightly filed the first petition under Section 9 of the code against Sapura Malaysia before the Tribunal but the said petition was not registered in the absence of CIN Number, therefore, Respondent no. 1 diverted its legal action against the Appellant by issuing notice under Section 8 of the code and filing the petition under Section 9 knowing fully well that there has been no privity of contract between them as neither the order was placed by the Appellant nor invoices were raised upon the Appellant by the Respondent No. 1. In this regard, he has relied upon a decision of this Court in the case of Mr. Harrish Khurana Vs. M/s One World Realtech Pvt. Ltd., CA (AT) (Ins) No. 1100 of 2019 decided on 30.11.2021 to contend that the Operational Creditor can only raise a claim in respect of provision of goods and services and such a claim should be based on a contract duly entered into between the CD and OC. Counsel for the Appellant has also submitted that the Appellant is a distinct legal entity and cannot be held liable for any alleged act or omission or liabilities of its holding company. In this regard, he has referred to a decision of the Hon’ble Supreme Court in the case of Vodafone International Holding BV Vs. Union of India, (2012) 6 SCC 613 in which it has been held that holding company and a wholly owned subsidiary are two distinct legal person and the holding company does not own the assets of the subsidiary and in law the management of the business of subsidiary also vests in the board of directors. He has also relied upon a decision of the Delhi High Court in the case of SARE Public Company Ltd. Vs. Avon Infracon Pvt. Ltd. & Ors. 2020 SCC OnLine Del 17 in which the same proposition has been laid down that holding company and the wholly owned subsidiary are two distinct legal entities and that the holding company does not own the assets of the subsidiary. It is further submitted that the recovery proceedings cannot be initiated under the IBC but Respondent No. 1 has sought to recover its dues in the garb of CIRP that too from the Appellant with whom it has no privity of contract. In the end, it is submitted that Paresh Naik, who is the employee of the Appellant was authorized by the Sapura Malaysia for acting on its behalf when he signed the service orders and bill of lading on the basis of which it cannot be held that the Appellant and Respondent No. 1 had the trade ties on the basis of which the application has been filed for pushing the Appellant into CIRP.

Counsel for Respondent No. 1 has admitted that attempt to file petition under Section 9 on 05.02.2022 against Sapura Malaysia failed for want of CIN Number. It is further submitted the application has been filed for the amount of Rs. 2,03,03,161/-with interest @ 19% p.a. and for the realization of the aggregate amount of Rs. 22,37,546.31. It is further submitted that Respondent No. 1 served demand notice in terms of Section 8 which was not replied by the Appellant. It is further submitted that Paresh Naik has signed the bill of lading and service orders and has also time and again sought the details of the outstanding amount due and payable by Sapura Malaysia which is an admission of the debt by the Appellant on behalf of the holding company. It is further submitted that the Appellant is a group company of the holding company i.e. Sapura Malaysia, therefore, there is no error in the order passed by the Tribunal.

Counsel for Respondent No. 2 (IRP) has submitted that after the admission of the application, he took charge of the CD including its bank accounts and issued a public announcement in the newspaper on 28.02.2024.

From the aforesaid submissions, the issue which arises for consideration is as to whether Respondent No. 1 could have filed the application under Section 9 against the Appellant despite the fact that it has no contract of service with it and admittedly had the contract with its holding company i.e. Sapura Malaysia upon which the invoices were also raised or in other words the application filed by Respondent No. 1 under Section 9 against the Appellant can be maintained in the absence of privity of contract between the parties?

It has come on record from the voluminous evidence that service of Respondent No. 1 were availed by Sapura Malaysia (Holding company as a buyer) and that invoices by Respondent No. 1 were also raised upon Sapura Malaysia. It is also not in dispute that at the first instance, Respondent No. 1 tried to file application under Section 9 against the Sapura Malaysia but due to some technical default on the part of the Respondent No. 1, the said application was not registered by the Tribunal. Thereafter, the Respondent No. 1 file the application against the Appellant (Subsidiary) of its holding company, namely, Sapura Malaysia in which the stand taken by the Appellant throughout is that it has no privity of contract with Respondent No. 1, therefore, it has no liability against it for discharging its debt. The Tribunal has though noted the aforesaid clearly but held that privity of contract between the Appellant and Respondent No. 1 exist because one Paresh Naik, employee of the Appellant, had digitally signed the documents. It has been brought on record by the Appellant that Paresh Naik was instructed by Sapura Malaysia to work on its behalf for the purpose of signing bill of lading and service orders etc., therefore, it could not be made the sole ground for establishing the relationship between the Appellant and Respondent No. 1, of the buyer and the seller, to allow the application filed under Section 9 and pushing the Appellant in the CIRP. The Hon’ble Supreme Court in the case of Vodafone International Holdings BV (Supra) has held that “the legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT AIR 1955 SC 74, this Court held that shareholders only right is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders' meeting. Refer also to Carew and Company Ltd. v. Union of India (1975) 2 SCC 791 and Carrasco Investments Ltd. v. Special Director, Enforcement”

Similarly, in the case of SARE Public Company Ltd. (Supra) the Delhi High Court had held that “clearly, the settled legal position is that the holding company and the wholly owned subsidiary are two distinct legal entities. The holding company does not own the assets of the subsidiary.”

Thus, in view of the aforesaid facts and circumstances, it is clearly established that the Appellant is a separate legal entity who has no privity of contract with Respondent No. 1 and is thus not liable to discharge the debt of its holding company i.e. Sapura Malaysia.

In view of the aforesaid discussion, the present appeal is thus found to be meritorious and hence allowed. The impugned order is set aside.

I.As., if any, pending are hereby closed.