The National Company Law Tribunal (“NCLT”), New Delhi Bench, on August 11, 2022 in the matter of Bajaj Rubber Company Pvt. Ltd. v. Saraswati Timber Pvt. Ltd. held that breach of terms and conditions of a Settlement Agreement does not come under the purview of Operational Debt under Insolvency and Bankruptcy Code, 2016 (“IBC”) and the same cannot be a ground to trigger Corporate Insolvency Resolution Process (“CIRP”).

In the instant matter Bajaj Rubber Company Private Limited (“Operational Creditor / Applicant”) had withdrawn an application filed under Section 9 of the IBC for initiation of CIRP against Ace Footmark Private Limited (“Corporate Debtor”) on the ground of settlement between the parties pursuant to which post-dated cheques were issued to the Applicant by the Corporate Debtor and the same failed to adhere to the terms of the Settlement Deed, as many cheques got dishonoured. The Bench 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 placed reliance on the judgments of NCLT New Delhi in the matter of Alhuwalia Contracts Ltd. v. Logix Infratech Pvt. Ltd and Nitin Gupta v. International Land Developers Pvt. Ltd. wherein it was held that unpaid installment as per settlement agreement cannot be treated as an Operational debt under Section 5(21) of IBC. It was further observed that:

“Operational Debt means a claim in respect of provision of goods or services including employment. Now we consider the case of the Applicant and we observe, the claim of the applicant does not fall either under the category of the supply of the goods or service rendered by the Corporate Debtor. Rather the claim of the Applicant is based on the breach of terms and conditions of the settlement agreement, on the basis of which the Applicant has claimed that there is default in payment of the amount as referred to part IV of the application. And the second part of the Operational Debt says a debt in respect of payment dues arising under any law for the time being enforce.”

Thus, the Bench declined to revive the petition and rejected the application.