2021 (3) TMI 206 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt - existence of debt and dispute or not - HELD THAT - The claim of the applicant is based on settlement agreement and on the basis of that the petitioner claimed that since the respondent violated the terms and conditions of settlement and there is default in payment of the settlement amount, therefore, the petitioner filed the present application for initiation of CIRP for default in payment of operational debt. Whether the terms and condition of settlement agreement comes under the definition of operational debt? - HELD THAT - As per the settlement agreement cheques were given to the petitioner which is mentioned at page Nos. 96 and 97 of the paper book and when the petitioner presented the cheque, the two cheques were dishonoured. Thereafter, the petitioner sent a demand notice under section 8(1) of the IBC and then filed this application. 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 is an operational debt and only default in respect of that operational debt a person can initiate CIRP under section 9 of the IBC - It is also found that 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 default of instalment of settlement agreement does not come within the definition of operational debt - application dismissed.

Summary

Issues:
1. Whether the petition under section 9 of the Insolvency and Bankruptcy Code, 2016 is valid for initiation of corporate insolvency resolution process against the respondent/corporate debtor.
2. Whether the terms and conditions of the settlement agreement constitute operational debt as per the definition under the IBC.
3. Whether default in payment of the settlement amount falls under the definition of operational debt for initiating CIRP.

Analysis:
1. The petition was filed by the operational creditor under section 9 of the IBC seeking initiation of the corporate insolvency resolution process against the corporate debtor. The operational creditor had entered into retainership arrangements with the corporate debtor for legal advisory services. Despite various attempts by the operational creditor to settle the outstanding dues, the corporate debtor failed to make payments as per the settlement agreement, leading to the filing of the petition.

2. The Tribunal analyzed whether the terms and conditions of the settlement agreement between the parties could be classified as operational debt as defined under the IBC. The definition of operational debt includes claims related to goods or services provided, and the default in payment of such debt triggers the initiation of CIRP. The Tribunal referred to a previous decision where it was held that unpaid instalments under a settlement agreement do not qualify as operational debt under the IBC.

3. Considering the facts of the case and the legal provisions, the Tribunal concluded that the default in payment of instalments under the settlement agreement did not fall within the scope of operational debt. Citing the previous decision, the Tribunal held that a breach of a settlement agreement cannot be a ground for initiating CIRP against a corporate debtor under the IBC. Therefore, the Tribunal rejected the application, stating that the default of instalments from the settlement agreement did not meet the criteria for operational debt, leading to the dismissal of the applicant's prayer.