Dismissal of CIRP Application due to Settlement Agreement Default

The Tribunal dismissed the application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency & Bankruptcy Code (IBC) as the default of instalments under the Settlement Agreement did not meet the definition of operational debt. The Tribunal found that the claim based on the Settlement Agreement dated 15.06.2018 was not enforceable as operational debt, leading to the dismissal of the application.

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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 Rs. 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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