The Kolkata bench of the National Company Law Tribunal ( NCLT )has held that the breach of the settlement agreement between the operational creditor and the corporate debtor does not fall within the ambit of “Operational Debt” as per Section 5 (21) of the Insolvency Bankruptcy Code ( IBC ), 2016.
M/s. Simplex Infrastructure Limited, the Corporate Debtor approached M/s. Amrik Cranes and Infrastructure, the Operational Creditor for crane services issued a work order. Although the Operational Creditor provided the requested services, the Corporate Debtor failed to pay the full amount due, resulting in an outstanding debt of Rs. 3,29,01,959. The Operational Creditor initiated proceedings under Section 9 of the I&B Code against the Corporate Debtor, who was unable to settle its operational debt.
During the proceedings, the Corporate Debtor proposed a settlement to the Operational Creditor. According to a Settlement Agreement, the Corporate Debtor agreed to pay Rs. 2,86,27,594/- in six monthly instalments of Rs. 47,70,000/-.
The Petitioner claimed that after the first instalment was paid, the Corporate Debtor failed to make further payments, thus breaching the Settlement Agreement. The Operational Creditor filed a petition in the NCLT to initiate the Corporate Insolvency Resolution Process under Section 9 of IBC.
The Operational Creditor argued that a demand notice was issued to the Corporate Debtor under Section 8 of IBC, requesting the payment of the outstanding Rs. 2,81,31,959 plus interest. Despite delivery via email and Speed Post, the Corporate Debtor neither responded nor made the payment.
On the other hand, the Respondent contended that the default under the settlement agreement did not qualify as operational debt. The Corporate Debtor claimed that Rs. 2,29,23,085 had already been paid under the settlement agreement, with only Rs. 57,04,509 remaining due to a GST mismatch.
Two member bench of D. Arvind (Technical Member) and Bidisha Banerjee (Judicial Member) observed that the claimed default was based on the non-payment of instalments under the settlement agreement.
It was observed that Section 5(21) of the IBC defines “operational debt” as a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. While dismissing the petition, the NCLT held that the breach of a settlement agreement does not constitute “Operational Debt” under Section 5(21) of the Code
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