24 June 2024



Sterling And Wilson Private Limited vs. Embassy Energy Private Limited




Sub-Contractor shall not have any contractual relationship with the owner, and shall not be entitled to prefer any claims against the owner

Challenge in present Appeal is against the `Impugned Order' passed by the `Adjudicating Authority', by which Order, the `Adjudicating Authority' has dismissed the Application filed by the `Appellant'/`Operational Creditor' under Section 9 of the Insolvency and Bankruptcy Code, 2016, (IBC).

The brief point that falls for consideration in present Appeal is whether the `Adjudicating Authority' was justified in dismissing the `Application' filed under Section 9 of the IBC on the ground that there was no `Contractual Relationship' between the `Appellant' and the `Respondent'.

IEDCL had sub- Contracted the work to the `Appellant'/`Operational Creditor'. IEDCL is one of the subsidiaries of IL and FS Solar Power Limited (ISPL)/ the main Contractor which had entered into a contract with `Embassy Energy Private Limited'/the `Respondent' herein for operation of the Solar Power Project. It can be seen from the `Agreement for Civil Works and Construction' entered into between Embassy Energy Private Limited/`Respondent', the owner and ISPL that except for Clause 6.1.1 which deals with the name of the sub-Contractor, any `Contractual Obligation' with the `Appellant' is not established by way of any Written Agreement. As per Clause 6.1.4 of this Agreement notwithstanding anything to the contrary contained in this Agreement or any other Project Document, a Sub-Contractor shall not have any contractual relationship with the Owner, and shall not be entitled to prefer any claims against the Owner.

It is clear from the record that, there are no `goods and services' supplied directly by the `Operational Creditor' to the `Respondent' and therefore it cannot be said that there is any `Operational Debt' between the `Operational Creditor' and the `Respondent'. Merely because the `owner' had given a bona fide assurance that if IEDCL fails to pay the amount they would pay the same on their behalf, the amount will not fall within the definition of `Operational Debt' as defined under Section 5(21) of the Code. The Hon'ble Supreme Court in the matter of `Essar Oil Limited' Vs. `Hindustan Shipyard Ltd. & Ors.', has held that, when a `principal employer' grants a contract to a Construction Company the sub-Contractors cannot sue the `principal employer' for any issues, if payable, as there is no `privity of contract' between the sub-Contractors and the `principal employer'.

It is significant to mention that the `Appellant' had filed a `Claim' in the CIRP Proceedings of IL and FS and the RP has admitted their `Claim' to the extent of Rs.99Crs.approximately. The `Respondent' is a commercially solvent Company and the scope and objective of the Code is not to send a commercially `Solvent Company' to `Insolvency' specifically having regard to the facts of the attendant case on hand.Appeal dismissed.

Tags : Contractual relationship Claim Legality

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