Agent not liable for default of client of operational creditor: NCLT

The National Company Law Tribunal (NCLT) Mumbai recently dismissed a petition filed by The Hindu Group Publishing Private Limited (TGH), seeking to initiate a Corporate Insolvency Resolution Process (CIRP) against Deadline Advertising Private Limited (DAPL) on the ground that the dues payable by DAPL could not be considered operational debt..A Bench of Judicial Member HV Subba Rao and Technical Member Chandra Bhan Singh reasoned that DAPL was an agent of TGH and the dues were owed from TGH's client who came through DAPL.“Agent could not be held liable for default on the part of the client of the Operational Creditor," the NCLT held.Further, the tribunal also noted that THG never claimed that DAPL did not act in good faith while working as an agent.In view of the above, the Bench concluded that the amount claimed by THG, publishers of the Hindu newspaper among others, of ₹9,23,160 did not qualify as operational debt or default under provisions of the Insolvency and Bankruptcy Code..The factual matrix was that DAPL gave a release order to a subsidiary of THG for publishing advertisements, for which the group was supposed to receive ₹8,16,000.THG only received an amount of ₹2,09,554 and hence issued two demand notices to DAPL.DAPL, on the other hand, claimed that it acted in the capacity of an agent for THG which was the principal, and received compensation on a commission basis.They further submitted that a company Avanse Financial Services Private Limited had became THG’s client through them and the default in the dues payable was from Avanse and not DAPL. Hence, THG ought to have raised the demand against Avanse, it was contended.DAPL also pointed out that THG continued business with Avanse through another agent..The NCLT agreed with DAPL's contention that THG could have initiated appropriated legal proceedings against Avanse to recover its dues.It noted that the arrangement between THG and DAPL was of principal-agent and not of operational creditor and respondent.Having established the relationship, the Bench then referred to the provisions on the relationship under the Indian Contract Act.In view of this, the Bench reasoned that THG, being a principal, was always under an obligation to recover money from the client and not the agent, unless the latter had failed to perform a duty, which was not shown in the present case.Consequently, the petition was dismissed..Advocates Abhishek Tila, Aboli Mandik and Shivani Sanghavi instructed by DMD Advocates appeared for THG.Advocates Nausher Kohli, Munaf Virjee and Akash Agarwal instructed by ABH Law LLP appeared for DAPL.[Read Order]