2022 (9) TMI 685 - AT - Insolvency and Bankruptcy

Maintainability of application - Initiation of CIRP u/s 9 of IBC - default of instalment of Settlement Agreement - Operational debt or not - HELD THAT - The Adjudicating Authority has considered the Settlement Agreement and rightly come to the conclusion that default of instalment of Settlement Agreement does not come within the definition of operational debt as it does not fall within the definition of additional debt as per Section 5(21) of the IBC and further prayer made by the Corporate Debtor that the matter be referred to the Arbitration under Section 8 of the Arbitration and Conciliation Act, the Adjudicating Authority has also rightly held that the role of National Company Law Tribunal is very limited while exercising its power under Section 7, 9 and 10 of the IBC, 2016, it is beyond the scope of Section 9 of the IBC. The Adjudicating Authority has taken note of the submissions of Corporate Debtor that the Commercial Civil Suit No. 2/2020 is pending for consideration before the Court of competent jurisdiction and rightly rejected the claim of the Appellant. The impugned order passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench Court-V) is hereby affirmed. The Appeal is hereby dismissed.

Issues Involved:
1. Whether the default under the Settlement Agreement constitutes 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Whether the matter should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act.
3. Whether the National Company Law Tribunal (NCLT) has a limited role under Sections 7, 9, and 10 of the IBC.
4. Whether the Commercial Civil Suit No. 2/2020 pending before the competent court affects the proceedings.

Detailed Analysis:

1. Default under the Settlement Agreement Constituting 'Operational Debt':
The Appellant argued that the default under the Settlement Agreement dated 20.11.2018 should be considered as 'operational debt' under Section 5(21) of the IBC. The Appellant contended that the Settlement Agreement was merely an acknowledgment of the liability arising from the Master Sale Agreement (MSA) for the supply of copper cathodes, and thus, the debt should retain its character as 'operational debt.'

The Respondent countered that the Section 9 Application was based on claims arising from the Settlement Agreement and not the MSA. The Respondent argued that the Settlement Agreement did not schedule payments for outstanding amounts under the MSA but rather aimed to reduce exposure and execute future supply contracts. Therefore, the claims under the Settlement Agreement do not constitute 'operational debt.'

The Tribunal found that the default under the Settlement Agreement does not fall within the definition of 'operational debt' as per Section 5(21) of the IBC. The Tribunal affirmed that the Settlement Agreement did not transform the nature of the debt into an operational debt.

2. Referral to Arbitration:
The Corporate Debtor requested that the matter be referred to arbitration under Section 8 of the Arbitration and Conciliation Act. The Adjudicating Authority stated that its role is limited while exercising powers under Sections 7, 9, and 10 of the IBC. It is required to determine if there is a default in payment of debt or if any dispute has been raised by the Corporate Debtor. Thus, referring the matter to arbitration is beyond the scope of Section 9 of the IBC.

The Tribunal upheld this view, stating that the National Company Law Tribunal's role is indeed limited and does not extend to referring matters to arbitration under the given sections of the IBC.

3. Limited Role of NCLT under Sections 7, 9, and 10 of the IBC:
The Tribunal emphasized that the NCLT's role is confined to determining the existence of default and disputes under Sections 7, 9, and 10 of the IBC. The Tribunal found that the Adjudicating Authority correctly exercised its limited jurisdiction by focusing on whether the default constituted 'operational debt' and did not overstep by referring the matter to arbitration.

4. Impact of Commercial Civil Suit No. 2/2020:
The Tribunal noted that the Corporate Debtor had mentioned the pending Commercial Civil Suit No. 2/2020 before a competent court. The Adjudicating Authority considered this and rightly rejected the Appellant's claim, stating that the Corporate Debtor is at liberty to raise the issue before the competent court.

Conclusion:
The Tribunal found no merit in the Appeal and affirmed the impugned order dated 15.07.2020 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench Court-V) in Company Petition (IB) No. 2817/ND/2019. The Appeal was dismissed, and the findings of the Adjudicating Authority were upheld. The Registry was directed to upload the judgment on the website of the Appellate Tribunal and send a copy to the Adjudicating Authority forthwith.

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