Corporate debtor cannot escape insolvency proceedings after breaching settlement agreement under Section 9 IBC

The NCLAT dismissed an appeal challenging admission of an operational creditor's application under Section 9 of IBC, 2016. The corporate debtor had admitted debt and default by entering a settlement agreement, made partial payment, but failed to pay the remaining amount despite repeated communications. The Tribunal held that settlement amounts constitute operational debt, rejecting the appellant's argument that such amounts cannot be claimed as operational debt. The NCLAT noted that corporate debtors frequently adopt this practice of entering settlements, making partial payments, then breaching agreements and raising various defenses to deny operational creditors' rights.

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Issues:
- Admittance of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
- Settlement agreement between parties and subsequent breach of terms by the Corporate Debtor.
- Application for restoration of the main company petition.
- Admissibility of the application under Section 9 of the Code.
- Challenge to the restoration of the petition by the Appellant.
- Forfeiture of right to file reply by the Corporate Debtor.
- Legal implications of settlement agreements in insolvency cases.

Analysis:

The judgment pertains to an appeal filed by the Suspended Director of the Corporate Debtor against the order admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Operational Creditor had filed the application seeking resolution of an amount of Rs. 2,30,57,100/-, leading to a settlement agreement between the parties. However, the Corporate Debtor failed to adhere to the terms of the settlement, prompting the Operational Creditor to file an application for restoration of the main company petition, which was subsequently allowed on the grounds of default in payment schedule.

The Tribunal found that the Corporate Debtor had only paid a partial amount of the agreed settlement despite repeated reminders and requests. The Corporate Debtor's failure to pay the remaining amount led to the restoration of the main petition, and the Corporate Debtor forfeited the right to file a reply. The Tribunal admitted the application under Section 9 of the Code, as the debt and default were admitted by the Corporate Debtor through the settlement agreement, and there was no pre-existing dispute between the parties.

The Appellant contested the admissibility of the application under Section 9, arguing that the settlement amount could not be claimed as operational debt. However, the Tribunal dismissed this argument, citing precedents such as IDBI Trusteeship Services Limited Vs. Nirmal Lifestyle Limited. The judgment highlighted a trend where Corporate Debtors enter into settlements with Operational Creditors, make partial payments, and then raise objections to avoid resolution of dues, referencing cases like Desh Bhushan Jain Vs. Abhay Kumar and Finsbury Global FZE Vs. Uttam Sucrotech International Pvt. Ltd.

Ultimately, the Tribunal found no merit in the appeal and dismissed it without costs, emphasizing the importance of honoring settlement agreements and upholding the rights of Operational Creditors in insolvency cases.

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