Mere Obligation To Pay Under Compromise Deed Does Not Amount To Financial Debt: NCLT New Delhi

The National Company Law Tribunal (NCLT) at New Delhi has recently held that a mere breach of an agreement, resulting in an obligation to pay under a compromise deed, does not by itself qualify as a financial debt under the Insolvency and Bankruptcy Code (IBC), 2016. 

The order was passed by a bench comprising Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi while dismissing the Section 7 application filed by Samridhi Realty Homes Private Ltd., seeking to initiate insolvency proceedings against Nexgen Infracon Pvt. Ltd.

The tribunal observed that in the absence of a disbursement against the time value of money, a mere breach of a compromise deed would not constitute a financial debt.

It further stated, “For a debt to qualify as a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, it must involve disbursement against consideration for the time value of money. A mere breach of the terms of an agreement, including a Settlement or Compromise Deed under which payment becomes due, would not constitute a financial debt in the absence of such disbursement.”

In the present case, Samridhi Realty Homes, the financial creditor, had disbursed a loan of Rs. 1 crore to Nexgen Infracon, the corporate debtor. The corporate debtor repaid Rs. 30 lakh, which was adjusted against the outstanding liability. When Nexgen Infracon failed to make further repayments, Samridhi Realty Homes issued a demand notice dated February 14, 2025, for Rs. 1.07 Crores. 

A compromise deed dated April 11, 2025, was subsequently executed, under which Nexgen Infracon agreed to repay the dues in five installments. The deed also stipulated that default in any installment would render the entire sum of Rs. 1,07,61,455 immediately due, with interest at 16% per annum from February 12, 2025.

Following the default, Samridhi Realty issued a loan recall notice and filed the CIRP application seeking initiation of the corporate insolvency resolution process.

The tribunal clarified that a compromise deed or settlement arrangement with a mere obligation to pay does not qualify as financial debt under Section 5(8) of the IBC. It also noted the absence of supporting documents, including the financial creditor's balance sheet to substantiate the claimed default and debt.

Accordingly, the NCLT dismissed the Section 7 application and held that the debt claimed by Samridhi Realty Homes does not fall within the definition of financial debt under Section 5(8) of the IBC. The tribunal, however, granted the financial creditor the liberty to pursue remedies under other applicable laws.