NCLT Kolkata Dismisses Insolvency Petition Against Simplex Infrastructures, Affirms Breach of Settlement Not Operational Debt

Tribunal rules breach of settlement agreement does not revive original operational debt under IBC, 2016; petition dismissed.

In a significant ruling, the National Company Law Tribunal (NCLT) Kolkata Bench has dismissed the insolvency petition filed by Laxmidhar Mohanty against M/s. Simplex Infrastructures Limited, citing that a breach of settlement agreement does not constitute operational debt under Section 5(21) of the Insolvency and Bankruptcy Code (IBC), 2016.

The case, filed under C.P (IB) No. 255/KB of 2023, saw the tribunal deliberating over whether the breach of a settlement agreement could trigger the Corporate Insolvency Resolution Process (CIRP). Laxmidhar Mohanty, the Operational Creditor, sought to initiate CIRP against Simplex Infrastructures, the Corporate Debtor, following a default on a settlement agreement dated October 7, 2022.

The Operational Creditor had initially filed a complaint for unpaid invoices amounting to Rs. 9,55,28,392, including interest, which led to a settlement agreement where Simplex agreed to pay Rs. 5,75,00,000 in instalments. However, Simplex failed to adhere to the payment schedule, leaving Rs. 6,37,44,476 unpaid, prompting Mohanty to file a fresh petition.

The tribunal, presided by Smt. Bidisha Banerjee, Member (Judicial) and CMDE. Siddharth Mishra, Member (Technical), ruled that the breach of the settlement does not revive the original operational debt, as the settlement agreement represented full and final satisfaction of claims between the parties.

The judgment emphasized that the liberty to claim unpaid dues as stipulated in the settlement agreement only pertained to the unpaid portion of the settlement amount and not the entirety of the original operational debt. The tribunal also noted that the Corporate Debtor had paid the full settlement amount, albeit not within the agreed timeframe, thus extinguishing further liability.

Moreover, the tribunal underscored that pursuing CIRP solely for recovery of interest constitutes malicious intent and is not for the resolution of insolvency. The order further stated that a matter withdrawn without express liberty cannot be revived or filed afresh.

This ruling aligns with precedents set by the National Company Law Appellate Tribunal (NCLAT), which holds that breach of settlement agreements loses the characteristics of operational debt and cannot trigger CIRP. The decision reinforces the tribunal's stance that the I&B Code is not a mechanism for debt recovery but rather for resolving insolvency.

The judgment highlights the importance of settlement agreements in insolvency proceedings, emphasizing that once a settlement amount is agreed upon and paid, even if delayed, it nullifies the revival of original claims unless explicitly provided for in the withdrawal order.

As the case concludes, the tribunal's decision sets a precedent in corporate insolvency disputes, emphasizing the binding nature of settlement agreements and the limitations of using insolvency proceedings for recovering interest or enforcing breached settlements.

Bottom Line:

Breach of settlement agreement does not constitute operational debt under Section 5(21) of Insolvency and Bankruptcy Code, 2016, and cannot trigger Corporate Insolvency Resolution Process.

Statutory provision(s): Section 5(21), Section 9 of the Insolvency and Bankruptcy Code, 2016.

Laxmidhar Mohanty v. M/s. Simplex Infrastructures Limited, (NCLT)(Kolkata) : Law Finder Doc Id # 2811128