Mr. Phanindhar Chivukula (Suspended ... vs Ceva Logistics India Private Limited & ...

Company Appeal (AT) (Ins) No. 477 of 2024 & I.A. No. 1677, 1678 of 2024

IN THE MATTER OF:

Phanindhar Chivukula, Suspended Director of Sapura Engineering & Constructions (India) Pvt. Ltd. ...Appellant

Versus

CEVA Logistics India Pvt. Ltd. & Anr. ...Respondents

Present:

For Appellant: Mr. Arpan Behl, Mr. Abhishek Kr. Shrivastava, Advocates. For Respondents: Mr. Omprakash Parihar, Mr. Dushyant Tiwari, Advocates for R-1. Mr. Usmangani Patel, Asst. Mgr. Legal. Mr. Uday Kumar B. Bhatt, Mr. Akshay Petkar, Mr. Pranav Shah, for RP/R-2.

JUDGMENT

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).

Company Appeal (AT) (Ins) No. 477 of 2024 2

2. 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".

3. 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).

4. 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.

5. 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/-.

6. 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.

7. 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.

8. 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

Company Appeal (AT) (Ins) No. 477 of 2024 3

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.

9. 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.

10. 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

Company Appeal (AT) (Ins) No. 477 of 2024 4

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

Company Appeal (AT) (Ins) No. 477 of 2024 5

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.

11. 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.

12. Counsel for Respondent No. 2 (IRP) has submitted that after the

admission of the application, he took charge of the CD including its bank

Company Appeal (AT) (Ins) No. 477 of 2024 6

accounts and issued a public announcement in the newspaper on

28.02.2024.

13. 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?

14. 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

Company Appeal (AT) (Ins) No. 477 of 2024 7

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"

15. 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."

16. 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.

Company Appeal (AT) (Ins) No. 477 of 2024 8

17. 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.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

New Delhi 14th May, 2025 Sheetal

Company Appeal (AT) (Ins) No. 477 of 2024