Application under Insolvency Code rejected for failure to pay instalment; unpaid amount not operational debt

The Tribunal held that the application under section 9 of the Insolvency and Bankruptcy Code was not maintainable in the present case. It was concluded that the failure to pay the second instalment under the settlement agreement did not warrant initiating the corporate insolvency resolution process against the debtor, as the unpaid amount did not qualify as operational debt. The Tribunal emphasized the importance of adhering to legal provisions and criteria outlined in the Insolvency and Bankruptcy Code for initiating insolvency resolution processes and classifying debts. The application was rejected, with no order as to costs.

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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 Rs. 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 The Tribunal noted that the reliance on the withdrawn demand notice to trigger CIRP was not valid as per the Insolvency and Bankruptcy Code, 2016.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.

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