Important Decision of NCLAT on relations between Insured-OC & Insurer and third party CD vis-a-vis insurance payment, “debt due”, insolvency proceedings and doctrine of subrogation.

Few facts noted from the said Order dated 13.12.2023 in Company  Appeal (AT) (Insolvency) No.231 of 2023 in the said matter, it is seen that in 2019, the Operational Creditor (Insured) had filed Section 9 IBC application against the Corporate Debtor (third party).

After more than two and half years, the CD filed Application under Section 65 of the IBC for dismissal of Section 9 IBC application on the ground of payment of insurance cover of debt by the Insurer to the Insured-OC, non-existence of “debt due” on the CD and suppression of the same in Section 9 Application.

Section 65 of IBC provides for penalty from Rs.1 lakhs upto Rs.1 crore on a person for fraudulent and malicious initiation of proceedings.

By the Order dated 22.2.2023, the NCLT dismissed the said application.

In Appeal, the NCLAT had noted in para 16 that the OC had duly communicated CD for payment failing which the OC would lodge insurance claim.  Moreover, in paras 17 and 18, it was clearly noted that the offer letter of the Insurer mentioned the buyer’s name of CD and the OC was under obligation to recover loss after payment by the Insurer.   Therefore, there was no concealment.

Moreover, it was held that even if payment under insurance contract between the Insurer and the Insured, was made, still the Insured can initiate insolvency proceedings. On that ground, the CD cannot be absolved of its liability.  Thus, the OC is under obligation to take proceedings for recovery of dues. As a result, in case of subrogation, the rights of assured are not put to an end and the assured can sue wrongdoer for the insurer.   Doctrine of Subrogation entitles the insurer to receive back the ground paid to the insured.