Breach of payment terms under a Settlement Agreement does not come under the purview of the Operational Debt-NCLT, New Delhi Bench

The above issue became relevant due to conflicting judgments made by various National Company Law Tribunals (“NCLTs“) regarding the question of whether a petition for Corporate Insolvency Resolution Process (“CIRP“) filed against a Corporate Debtor that was withdrawn in accordance with Section 12A of the I&B Code can be revived in the event the Corporate Debtor breaches the provisions of the said Settlement Agreement. 

In the recent case of Bajaj Rubber Company Pvt. Ltd. v. Saraswati Timber Pvt. Ltd., the Applicant being the Operational Creditor (Bajaj Rubber Company Pvt. Ltd.) filed an Application for reviving its company petition filed under section 9 of the I&B Code which was withdrawn pursuant to the settlement between the parties, and an order in this regard was passed granting liberty to revive the petition in the event of default. In the said facts and circumstances, the Hon’ble NCLT, New Delhi Bench observed that:

•An unpaid installment as per the settlement agreement cannot be treated as an operational debt as per Section 5(21) of I&B Code, 2016 as it is not a claim in respect of the provision of goods or services etc.

•Therefore, the failure or breach of the terms and conditions of the settlement agreement cannot be a ground to trigger CIRP against  the Corporate Debtor under the provision of I&B Code.

•The remedy may lie elsewhere not necessarily before the Adjudicating Authority (NCLT).

The bench thus, rejected and thereof dismissed the said Application.