Unpaid instalment as per a settlement agreement not operational debt under IBC: NCLT

The National Company Law Tribunal, Delhi has held that unpaid instalment as per a settlement agreement cannot be treated as operational debt under Section 5(21) of the Insolvency & Bankruptcy Code. (M/S Brand Realty Services Ltd vs M/S Sir John Bakeries India Pvt Ltd).NCLT is not a recovery court, a two-member bench of Member (Judicial) Abni Ranjan Kumar Sinha and Member (Technical) KK Vohra has held..M/S Brand Realty Services Ltd (Operational Creditor) had filed a section 9 IBC plea against M/S Sir John Bakeries India Pvt Ltd (Corporate Debtor)..The Corporate Debtor had approached the Operational Creditor for investment and consultancy services and had entered into an agreement for the same in November 2014..This agreement was further ratified vide an ‘Account Settlement Agreement’ in June 2018..As per the Settlement Agreement, the Corporate Debtor agreed to pay the outstanding dues of over Rs 33 lakh through post-dated cheques..However, before the cheques could be presented, the Corporate Debtor requested the Operational Creditor to hold the cheques and agreed to do RTGS instead..Thereafter, the Corporate Debtor neither transferred the amount through RTGS nor replaced the cheques..A legal notice was sent on April 30, 2019, and a demand notice was also issued on the same date under IBC through email and speed post. .In response, the Corporate Debtor stated that in the absence of any document along with the demand notice, it had no liability to make any payment..Claiming that during the time when cheques were issued, the authorized signatory had stolen the cheques to use them for his own use, it was asserted that there was a pre-existing dispute between the parties regarding the existence of the personal debt..After hearing the parties, the NCLT noted that admittedly, the present proceedings were filed for the breach of the terms and conditions of the Settlement Agreement between the parties and not against the invoices raised in terms of the original agreement between the parties..In view of the above, the NCLT referred to the meaning of the terms Operational Debt, Default and Debt under IBC and said,.“..in order to trigger Section 9 IBC, an Operational Creditor is required to establish a default for non-payment of Operational Debt as defined in Section 5(21) of IBC, which means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and if a person fails to establish that, then they cannot initiate CIRP under Section 9 of the IBC.”.Remarking that NCLT was not a recovery court, the NCLT referred to an order passed by NCLT Allahabad Bench and recorded,.“..the NCLT Allahabad bench held that ‘unpaid instalment as per the settlement agreement cannot be treated as operational debt as per Section 5(21) of IBC. The failure or breach of settlement can’t be ground to trigger CIRP against Corporate Debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority'.”NCLT.In view of the above, the NCLT concluded that the default of settlement agreement does not come within the definition of operational debt..The Section 9 plea was accordingly dismissed..Advocate RS Lakhman appeared for the Operational Creditor..Advocates Nishant Awana, Aprit, Mansi, Sahil appeared for the Corporate Debtor..Read the Order: