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Breach Of Settlement Agreement Not A Ground To Trigger CIRP: NCLT Delhi Rejects Application For Revival Of Petition

Pallavi Mishra
16 Sep 2022 1:00 PM GMT
Breach Of Settlement Agreement Not A Ground To Trigger CIRP: NCLT Delhi Rejects Application For Revival Of Petition
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The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Dharminder Singh (Judicial Member) and Shri L.N. Gupta (Technical Member), while adjudicating an application filed in Bajaj Rubber Company Pvt. Ltd. v Saraswati Timber Pvt. Ltd., has declined to revive a petition filed under Section 9 of IBC, which was earlier withdrawn due to Settlement Agreement being entered upon between the parties and later settlement had failed. The Bench reiterated that breach of terms and conditions of a Settlement Agreement does not come under the purview of Operational Debt under IBC and the same cannot be a ground to trigger CIRP.

Background Facts

Bajaj Rubber Company Pvt. Ltd. ("Operational Creditor") had filed a petition under Section 9 of the Insolvency and Bankruptcy Act, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Saraswati Timber Pvt. Ltd. ("Corporate Debtor").

However, the Operational Creditor and the Corporate Debtor had entered into Terms of Settlement/ Compromise Deed dated 17.01.2019 pursuant to which post dated cheques were issued to the Operational Creditor by the Corporate Debtor.

In view of the same, the Operational Creditor had withdrawn the petition on the ground of settlement between Parties. The Adjudicating Authority vide an order dated 21.01.2019 had disposed off the petition while observing that the petition is being withdrawn in view of compromise entered between the Parties and liberty was granted to the Operational Creditor to revive the petition in event of default in the terms of settlement.

Thereafter, the Corporate Debtor failed to adhere to the settlement terms and cheques were dishonoured. The Operational Creditor sought revival of the petition.

Decision Of NCLT

The Bench placed reliance on the judgments of NCLT New Delhi in M/s Alhuwalia Contracts (India) Ltd. v M/s Logix Infratech Pvt. Ltd., IB 882/ND/2022, and in Nitin Gupta v International Land Developers Pvt. Ltd., IB 507/ND/2020, wherein it has been held that unpaid installment as per settlement agreement cannot be treated as an operational debt under Section 5(21) of IBC. These judgments were passed post the order of Adjudicating Authority dated 21.01.2019.

The Bench observed that though liberty to revive was granted vide order dated 21.01.2019, however, the subsequent judgments by NCLT held that breach of terms and conditions of payment according to a Settlement Agreement does not come under the purview of Operational Debt and the it cannot be a ground to trigger CIRP.

The Bench declined to revive the petition and rejected the application.

Case Title: Bajaj Rubber Company Pvt. Ltd. v Saraswati Timber Pvt. Ltd.

Case No.: C.P. (IB) 1441 (ND)/2018

Counsel for Applicant: Adv. Shailendra Kumar

Click Here To Read/Download Order

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