Whether a claim in respect of a settlement agreement can be regarded as “Operational Debt” within the meaning of Section 5(21) of IBC – Suresh Gupta Vs. B.E. Billimoria & Company Ltd. – NCLT Mumbai Bench
January 30, 2024
Hon’ble NCLT Mumbai Bench holds that:
(i) It is the case of the OC that out of the total 6 instalments of payment as agreed in the Settlement Agreement, the CD has not made payment even against one instalment. Hence it is found that the cause of action for the OC against the CD arose out of the Settlement Agreement and the failure of the CD to pay instalments to the OC as agreed between them.
(ii) The moment the parties entered into the Settlement Agreement, the nature of the debt changed. The amount outstanding pursuant to the Settlement Agreement is a settlement amount which can only be construed as a mere debt and does not qualify to be an operational debt as defined under Section 3(11) of the IBC as it lost its character of operational debt. Hence, the claim of the OC as regards existence of operational debt due and payable by the CD fails.
(iii) An application under Section 9 of the IBC cannot be admitted when there exists a cloud of suspicion, especially when the nexus between the OC and CD in their engagement or agreement is not clearly made out. The Settlement Agreement does not offer any credence in establishing the relationship between the parties. Even if it is believable, CIRP cannot be initiated on the failure of the Settlement Agreement.
