The failure or breach of the settlement agreement cannot be a ground to trigger CIRP against Corporate Debtor - MMJC

• The petition was filed by M/s. Omega Properties Private Limited – the Operational Creditor (OC)  under section 9 of Insolvency and Bankruptcy Code, 2016 (IBC/Code) seeking admission of the petition, initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.
• Prajay Properties Private Limited – Corporate Debtor/Company – had placed a Purchase Order on the OC for supply, erection and installation of eight lifts at their site. It was agreed between the parties that 80% of supply value plus taxes to be paid against supply and balance 20% plus installation charges including taxes on completion of installation. 
• The OC had completed supply and installation of lifts as ordered by Corporate Debtor and raised invoices totalling to Rs.2,30,32,872/-. Out of the said amount, a sum of Rs.1,84,68,413/- was paid. Resultantly, a balance of Rs.45,64,459/- remained outstanding as on 30.10.2018.
• It was submitted that the Corporate Debtor had executed an Agreement to Pay Money dated 30.10.2018, whereby the Corporate Debtor had agreed to pay the amount outstanding, viz. Rs.45,00,109/- by way of 7 post-dated cheques.  First three post ­dated cheques issued by the Corporate Debtor, as per the agreement were honoured. However, the remaining post-dated cheques were dishonoured. Consequently, an amount of Rs.27,64,459/ – has become due, which incur interest on the delay.

Arguments by the Respondent:

• The OC has failed to produce copies of invoices, its acknowledgements and proof of service and completion of installation of lifts.
• Pre-existing dispute between the parties as per e­mail communications        
• Also, pointed out discrepancies in the amount claimed by the Operational Creditor as due and payable
• No case is made out by the OC under the provisions of the Code as neither invoices nor purchase order were attached with the demand notice
• The clause enjoined in the Agreement requires the petitioner to repair, maintain and service the installed lifts from time to time 
• Since the petitioner did not fulfil the said requirement and did not pay heed to e­mail communications voicing grievances of users, the Corporate Debtor had asked the OC to hold fourth cheque onwards.
• However, the OC went on producing the remaining cheques. When such cheques got bounced, the OC had preferred Criminal Case before the Hon’ble Metropolitan Magistrate, Ahmedabad.

Held:

In order to find out whether the petitioner’s claim comes under the definition of “operational debt” – the definition of operational debt, debt and default under the code were referred.

It was noted that petition was filed by the petitioner for initiation of CIRP for default in payment of “amount under the Agreement to pay”.

In order to initiate proceeding u/s 9 of the code, OC is required to establish a default for non-payment of operational debt as defined under section 5(21) of the Code. The Agreement to Pay on the basis of which the present petition was filed by the petitioner does not come under the definition of operational debt.

NCLT referred the matter of M/s Delhi Control Devices (P) Ltd Vs. M/s Fedders Electric and Engineering Ltd  wherein it was held :

“12.  Further, unpaid instalment as per the settlement agreement cannot be treated as operational debt as per section 5(21) of IB Code. The .failure or breach of settlement agreement cannot be a ground to trigger CIRP against Corporate Debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority.”

In light of the, the case of the petitioner – default in payment of instalments according to Agreement to Pay entered into between the parties does not come within the definition of operational debt.

Besides, there was pre-existing dispute on the issue of `maintenance of lifts’ between the parties as seen from the e­mail communications of the users of elevators. 

Simultaneously, parallel proceedings have been initiated for dishonor of cheques under section 138 of the Negotiable Instruments Act.

Hence, the application was rejected