Breach of Terms of The Settlement Agreement Does Not Come Under The Purview Of Operational Debt: NCLT Delhi

 

The National Company Law Tribunal (NCLT), Delhi Bench comprising of Shri Dharminder Singh (Judicial Member) and Shri L.N. Gupta (Technical Member) while deciding upon an Application (IA 3247 of 2022) under Rule 11 of the NCLT Rules, 2016 filed in the matter Bajaj Rubber Company Pvt. Ltd. v Saraswati Timber Pvt. Ltd. Company Petition No. (IB) 1441(ND)/2018 decided upon the issue whether breach of Settlement Agreement is a ground to trigger Corporate Insolvency Resolution Process (CIRP).

Facts

Bajaj Rubber Company Pvt. Ltd., (the Applicant/Operational Creditor) had previously filed an application under Section 9 of Insolvency and Bankruptcy Code 2016 (IBC 2016) for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. However, on 21.01.2019 the said Application was withdrawn by the Operational Creditor on the ground that the parties have arrived a settlement.  Subsequently, a Compromise/Settlement Deed dated 17.01.2019 was entered into between the parties and post-dated cheques were also issued to the Applicant by the Corporate Debtor. The Tribunal vide an order dated 21.01.2019 had disposed off the petition recording that the petition is being withdrawn in light of a compromise entered between the Parties and liberty was granted to the Operational Creditor to revive the petition in the event of default in the terms of the settlement agreement.

Later the Corporate Debtor did not adhere to the terms of the Settlement Agreement and the post-dated cheques issued got dishonoured. Due to which the Applicant/Operational Creditor filed the present Application seeking revival of the earlier Application under Section 9 of IBC 2016 on the ground of breach of terms and conditions of the Settlement Agreement.

Held

The Bench while deciding the Application for revival of the earlier Application for initiation of CIRP relied upon the judgment of NCLT New Delhi in M/s Alhuwalia Contracts (India) Ltd. v M/s Logix Infratech Pvt. Ltd., IB 882/ND/2022 wherein it was held that the default of payment of settlement agreement do not come under the definition of Operational Debt and failure or breach of settlement agreement cannot be a ground to trigger CIRP under the provisions of IBC 2016 and remedy may be elsewhere not necessarily before the Adjudicating Authority. In M/s Alhuwalia Contracts (India) Ltd. v M/s Logix Infratech Pvt. Ltd., IB 882/ND/2022, the Tribunal had referred decision of NCLT Allahabad Bench in M/s Delhi Control Devices(P) Ltd v. M/s Fedders Electric and Engineering Ltd Company Petition (IB) No. 343/ALD/2018 dated 14.05.2019 and decision of NCLT Delhi Bench in Nitin Gupta v International Land Developers Pvt. Ltd., IB 507/ND/2020.

The bench also observed that even though vide Order dated 21.02.2019, liberty was granted to the Applicant to revive the Application for initiation of CIRP in case of breach of Settlement Agreement the said liberty cannot be granted as after passing of that Order the Tribunal in catena of judgments held that breach of terms of the settlement agreement does not come under the purview of operational debt as defined under the IBC, 2016 and cannot be a ground to trigger CIRP against the Corporate Debtor.

In light of the above, the Application filed by the Applicant was dismissed.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

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