Issuing Cheques For Another Entity's Dues Doesn't Create Operational Debt: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently held that a company cannot be pushed into insolvency merely for issuing cheques on behalf of another entity, in the absence of a direct contractual relationship with the creditor.

A coram comprising Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra set aside an order of the National Company Law Tribunal, Delhi that had admitted Nayati Healthcare and Research NCR Pvt. Ltd. into insolvency on a plea filed by Healthians Research Centre Pvt. Ltd over alleged unpaid dues of ₹1.25 crore for diagnostic services provided at Vimhans Nayati Super Speciality Hospital.

The appellate tribunal held that "there is no privity of contract between the Corporate Debtor and the Operational Creditor and it cannot be said that Corporate Debtor had taken over the liability of the Trust/Hospital in any manner. The Corporate Debtor has merely issued some cheques on behalf of the Trust. The legal remedy for dishonour of cheques has already been resorted to by the Operational Creditor"

The dispute arose from diagnostic services provided by Healthians Research Centre to Vimhans Nayati Super Speciality Hospital, which is run by Vidya Sagar Kaushalya Devi Memorial Health Centre, a public charitable trust. Healthians had entered into a service agreement dated April 7, 2022 directly with the hospital trust, followed by a closure agreement on August 31, 2022.

Nayati Healthcare managed certain outpatient and inpatient services at the hospital under separate agreements with the charitable trust and was not a party to Healthians' service or closure agreements. Nevertheless, Nayati issued post dated cheques towards settlement amounts, several of which were dishonoured, prompting Healthians to initiate insolvency proceedings against it.

Before the appellate tribunal, Nayati argued that it had no direct contract with Healthians and that all diagnostic services were provided to the hospital trust. It said its role was limited to managing facilities at the hospital under independent agreements with the trust and that the cheques were issued only on the trust's behalf.

Nayati also pointed out that it shared no common directors or trustees with the trust, was not acting as the trust's agent, and was expressly barred under its agreements from sub granting management rights to third parties.

Healthians countered that Nayati had projected itself as a sister concern of the hospital, that several invoices were raised under Nayati's GST registration, and that the closure agreement was backed by cheques issued by Nayati. It argued that issuance and dishonour of the cheques amounted to acknowledgment of debt and justified insolvency proceedings.

Allowing the appeal, the NCLAT held that both Nayati and Healthians had independent and separate contracts with the hospital trust and that there was no direct agreement between them. The tribunal noted that Nayati was neither an agent of the trust nor authorised to transfer or sub grant management of hospital services.

Relying on earlier rulings, the tribunal reiterated that merely making payments or issuing cheques on behalf of another entity does not create contractual liability in the absence of privity. The tribunal further held that no services were provided by Healthians to Nayati and therefore the claim did not qualify as an operational debt under the Insolvency and Bankruptcy Code. On this basis, the NCLAT set aside the NCLT's order admitting the company into insolvency

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