Operational debt under IBC requires goods-or-services liability; settlement instalment default alone cannot sustain a section 9 petition.
Unpaid instalments under a settlement agreement do not, by themselves, constitute operational debt under the Insolvency and Bankruptcy Code, 2016. A section 9 petition requires a debt arising from the provision of goods or services and a corresponding default within the statutory definitions of operational debt and default; a mere breach of settlement terms is not enough. The Tribunal reiterated that insolvency proceedings cannot be used as a recovery mechanism for settlement dues unless the claim independently satisfies the Code's operational debt requirements. On that basis, the section 9 application was held not maintainable and corporate insolvency resolution could not be initiated.
Issues: Whether unpaid instalments arising under a settlement agreement constitute operational debt so as to trigger a petition under section 9 of the Insolvency and Bankruptcy Code, 2016.
Analysis: The claim was founded on breach of a settlement agreement rather than on a liability arising from the provision of goods or services. For an application under section 9 to succeed, the creditor must establish an operational debt within the meaning of section 5(21) and a corresponding default within the meaning of section 3(12) of the Insolvency and Bankruptcy Code, 2016. A mere failure to honour settlement instalments does not, by itself, convert the settlement amount into operational debt. The Tribunal also reiterated that it is not a recovery forum and that breach of a settlement arrangement cannot be used as a substitute for proving an operational debt under the Code.
Conclusion: The settlement amount was not treated as operational debt, and the section 9 application was not maintainable.
Final Conclusion: Corporate insolvency resolution process could not be initiated on the basis of non-payment under the settlement agreement, and the petition was declined.
Ratio Decidendi: Unpaid instalments under a settlement agreement do not constitute operational debt unless the claim independently answers the statutory definition of operational debt arising from goods or services.
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