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2020 (9) TMI 399 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - Operational debt or not - existence of debt and dispute or not - time limitation - HELD THAT - It is admitted case of the applicant that the present application is filed for the breach of the terms and conditions of the settlement agreement entered in between the parties on 15.06.2018. We further find that this settlement agreement is to settle the amount which according to the case of the applicant was due in terms of the agreement dated 28.11.2014. Therefore, it can be said that the present application is not against the invoices raised in terms of the agreement dated 28.11.2014 rather it is a breach of terms and conditions of the account settlement agreement dated 15.06.2018. Time Limitation - HELD THAT - The CD has failed to raise the dispute within the time prescribed under Section 8(2) of the IBC, therefore, there are force in the contention raised on behalf of the OC that the CD has not raised the dispute under Section 8(2) of the IBC within the time prescribed under law. Existence of dispute and default or not - HELD THAT - The definition of debt as defined under the IBC does not mean the operational debt only rather it includes financial debt as well as liability or obligation in respect of a claim which is due from any person and default means non payment of debt, but in order to trigger Section 9 of 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 can not initiate CIRP under Section 9 of the IBC - Now it is the settled principle of law that National Company Law Tribunal is not recovery court rather when a default of either financial debt or operational debt occurred in that case, financial creditor or operational creditor may file an application for initiating corporate insolvency resolution process u/s 7 or section 9 respectively. Thus, the settlement agreement on the basis of which the present application is filed by the applicant does not come under the definition of operational debt - the failure or Breach of settlement agreement can't be a ground to trigger CIRP against Corporate Debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority .
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency & Bankruptcy Code (IBC), 2016. 2. Existence of Operational Debt and Default. 3. Validity and enforceability of the Settlement Agreement dated 15.06.2018. 4. Pre-existing dispute between the parties. Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency & Bankruptcy Code (IBC), 2016: The Operational Creditor filed an application against the Corporate Debtor under Section 9 of the IBC, 2016, seeking initiation of CIRP. The application was based on the alleged default in payment of operational debt amounting to ?54,94,874/-. The Operational Creditor claimed that the Corporate Debtor failed to honor post-dated cheques and did not make the payment via RTGS as agreed. 2. Existence of Operational Debt and Default: The Operational Creditor provided consultancy and advisory services to the Corporate Debtor and entered into an Agreement dated 28.11.2014, which was later ratified by an Account Settlement Agreement dated 15.06.2018. The Corporate Debtor agreed to pay a fixed commission and issued post-dated cheques, which were dishonored. The Operational Creditor served a legal notice and a demand notice, but the Corporate Debtor did not respond within the stipulated period. 3. Validity and enforceability of the Settlement Agreement dated 15.06.2018: The Corporate Debtor argued that the Settlement Agreement dated 15.06.2018 was not binding and that there was a prior full and final settlement on 19.12.2017. The Corporate Debtor claimed that the cheques were stolen and that there was a pre-existing dispute. The Tribunal found that the application was based on the breach of the Settlement Agreement dated 15.06.2018 and not on the original agreement dated 28.11.2014. The Tribunal also noted that the Corporate Debtor failed to raise the dispute within the time prescribed under Section 8(2) of the IBC. 4. Pre-existing dispute between the parties: The Corporate Debtor contended that there was a pre-existing dispute and provided evidence of a prior settlement. The Tribunal examined the definitions of "operational debt," "debt," and "default" under the IBC. It concluded that the claim based on the Settlement Agreement dated 15.06.2018 did not constitute an operational debt. The Tribunal referred to previous judgments, including the NCLT Allahabad Bench decision in the matter of M/s Delhi Control Devices (P) Limited Vs. M/s Fedders Electric and Engineering Ltd., which held that unpaid instalments as per a settlement agreement cannot be treated as operational debt. Conclusion: The Tribunal concluded that the default of instalments under the Settlement Agreement did not fall within the definition of operational debt under Section 5(21) of the IBC. Consequently, the application for initiation of CIRP was dismissed. Order: The application is hereby DISMISSED.
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