Settlement Fixing Payment Terms Doesn't Novate Or Change Debt's Nature: NCLT Mumbai Reaffirms

The National Company Law Tribunal (NCLT) at Mumbai recently reaffirmed that a settlement agreement that merely prescribes the mode and schedule of payment does not extinguish or alter the nature of an operational debt and does not create any pre-existing dispute.

A coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar, while admitting Sparklet Engineers Pvt Ltd, an oil field equipment manufacturing company into insolvency on December 8, 2025, relied on company's own acknowledgments in the Vendor Settlement Agreement (VSA).

The court observed, “The VSA was for consolidations of dues payable by the CD to the Applicant and there was no settlement of dues entered into by way of said VSA.”

It further emphasized, “The Agreement did not alter or novate the underlying operational debt. It merely consolidated the admitted dues and laid down the manner of repayment. The original debt arose from the Work Orders, and the Agreement neither extinguished nor replaced this underlying liability. The nature of the debt thus continues to be operational.”

The case arose from Enquest Petrosolutions Pvt Ltd's services for Sparklet under 2019 work orders for a Halliburton field development project in Barmer. Enquest executed civil works, PMC services, vehicle supply and warehouse operations, and later raised proforma and GST invoices.

Sparklet made only one payment of Rs 49.25 lakh. On 29 March 2022, Sparklet executed the VSA acknowledging liability of Rs 7.20 crore and agreeing to instalment payments until December 2022, none of which were paid.

Sparklet argued that the VSA superseded earlier invoices and work orders and therefore created a fresh commercial obligation outside the definition of operational debt. It said proforma invoices were unenforceable, the VSA was inadequately stamped, payments made by Halliburton to subcontractors discharged its liability, tax invoices had not been raised, and the petition did not meet the Rs 1 crore threshold. It also claimed the dispute ought to be resolved through arbitration.

The tribunal rejected these objections, finding that Sparklet had repeatedly acknowledged its liability and that the VSA expressly recorded dues arising from completed works. It relied on clauses referring to verified work and previously acknowledged amounts, holding that these rendered Sparklet's denials unsustainable. The bench described Sparklet's contentions as illusory.

Referring to the NCLAT ruling in Ahluwalia Contracts (India) Ltd v Jasmine Buildmart Pvt Ltd, the tribunal held that a settlement agreement that only sets out the manner of payment does not change the nature of an operational debt. It also held that objections relating to stamping could not defeat the insolvency process where independent material established debt and default.

On arbitration, the tribunal said the presence of an arbitration clause did not prevent an operational creditor from invoking Section 9.

The tribunal further held that Sparklet's acknowledgment in the VSA made the proforma invoices enforceable and that GST formed part of the consolidated figure agreed between the parties. It found no pre-existing dispute, citing Sparklet's own communications admitting its inability to pay.

Holding that Sparklet had defaulted on an admitted operational debt, the tribunal admitted the company into the Corporate Insolvency Resolution Process, declared a moratorium and appointed Madan Bajarang Lal Vaishnawa as the Interim Resolution Professional.