The National Company Law Appellate Tribunal (NCLAT) in New Delhi, chaired by Justice Ashok Bhushan and Technical Member Mr. Barun Mitra, has ruled that a Corporate Debtor remains liable for discharging its operational debt, even if an insurance claim has been settled with the Operational Creditor. The decision clarifies that the insurance payment to the Operational Creditor cannot serve as grounds for dismissing a Corporate Insolvency Resolution Process (CIRP) application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
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The case involved a transaction between Saudi Basic Industries Corporation (Operational Creditor) and Prayag Polytech Private Limited (Corporate Debtor). Although a sale consideration was agreed upon, the Corporate Debtor only partially fulfilled the payment obligations. After issuing a Demand Notice under Section 8 of the IBC in April 2019, the Operational Creditor filed a CIRP application when the Corporate Debtor denied any outstanding payments.
NCLT Jaipur admitted the CIRP application in February 2023, emphasizing that the Corporate Debtor had acknowledged its liability before attempting to dispute it post the Demand Notice. The tribunal further clarified that an insurance payout to the Operational Creditor does not absolve the Corporate Debtor from its financial obligations. The Operational Creditor is still obliged to pursue legal action against the Corporate Debtor for the dues, as per the insurance policy’s terms and conditions.
