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Failure or Breach of settlement agreement can't be a ground to CRP under the Insolvency Code

Cause Title : Bajaj Rubber Company Private Limited vs Saraswati Timber Private Limited, Company Petition No. (IB)-1441(ND)/2018, NCLT New Delhi

Date of Judgment/Order : 11.08.2022

Corum : Sh. Dharminder Singh (Judicial), Sh. L. N. Gupta (Technical)

Citied: 

  1. M/s. Alhuwalia Contracts (India) Ltd. vs. M/s. Logix Infratech Private Limited in (IB)882/ND/2022, NCLT New Delhi
  2. M/s Delhi Control Devices (P) Limited Vs. M/s Fedders Electric and Engineering Ltd., Company Petition (IB) No. 343/ALD/2018, NCLT Allahabad Bench
  3. Nitin Gupta vs Internationa Land Developers Private Limited., IB No. 507/ND/2020, NCLT Allahabad Bench

Background

M/s Bajaj Rubber Company Private Limited as the Operational Creditor, had filed an application  for initiation of CIR against the Corporate Debtor M/s. Ace Footmark Private Limited. The Operational Creditor had withdrawn the aforesaid Application on the ground of settlement between the Parties. Pursuant to the settlement post dated cheques were issued to the Applicant by the Corporate Debtor, many cheques got dishonoured. The Applicant has sought revival of the present application on the ground of breach of terms and conditions of the Settlement Agreement.

Judgment

Referring to the above judgments the bench held that as per the definition, Operational Debt means a claim in respect of provision of goods or services including employment. However, unpaid instalment as per the settlement agreement cannot be treated as operational debt as per Section 5 (21) of IBC. The failure or Breach of settlement agreement can't be a ground to trigger CRP against Corporate Debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority.

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