2019 (5) TMI 1854 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - unpaid amount in settlement agreement - operational debt or not - second instalment not paid in settlement agreement - outstanding due to trigger CIRP or not - existence of debt and dispute or not - HELD THAT - The case on hand is that the applicant relied on same demand notice dated April 6, 2018 which he has already withdrawn as per above mentioned clause of the settlement and now there is no demand notice, which is mandated as per the IBC, 2016 to trigger CIRP against the corporate debtor. Further, the unpaid instalment as per the settlement agreement cannot be treated as operational debt as per section 5(21) of the IB Code. The failure or breach of settlement agreement cannot be a ground to trigger CIRP against the corporate debtor under the provision of the IBC, 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority. This application under section 9 of the IBC is liable to be rejected - Application dismissed.

Summary

Issues:
1. Initiation of corporate insolvency resolution process under section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Determination of outstanding debt in a settlement agreement as operational debt triggering CIRP.

Analysis:
1. The applicant, an operational creditor, filed a petition under section 9 of the Insolvency and Bankruptcy Code, 2016 against the respondent, a corporate debtor, seeking initiation of the corporate insolvency resolution process. The operational creditor, engaged in the business of electricity distribution, supplied goods to the corporate debtor as per a purchase order. Despite multiple notices and a settlement agreement for payment of outstanding dues, the corporate debtor failed to pay the second instalment of the agreed amount, leading to a claim of unpaid debt amounting to ?22,41,034.

2. The Tribunal analyzed the settlement agreement and the circumstances surrounding the unpaid instalment. It was observed that the settlement agreement included a clause where the operational creditor agreed to withdraw the demand notice dated April 6, 2018, upon signing the agreement. The Tribunal noted that the reliance on the withdrawn demand notice to trigger CIRP was not valid as per the Insolvency and Bankruptcy Code, 2016. Additionally, the Tribunal determined that the unpaid instalment under the settlement agreement did not qualify as operational debt under section 5(21) of the IB Code. It was concluded that the failure to pay the second instalment as per the settlement agreement did not warrant initiating CIRP against the corporate debtor, and the remedy for such breach lay elsewhere, not before the Adjudicating Authority.

3. Therefore, the Tribunal held that the application under section 9 of the IBC was not maintainable in the present case and consequently rejected the application, stating no order as to costs. The judgment emphasized the importance of adhering to the legal provisions and criteria outlined in the Insolvency and Bankruptcy Code, 2016, for the initiation of corporate insolvency resolution processes and the classification of debts as operational debts triggering CIRP.