NCLT Allahabad (14.05.2019) in M/s Delhi Control Devices(P) Limited Vs M/s Fedders Electric and Engineering Ltd [CP NO.(IB) 343/ALD/2018] held that; 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 can't 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.
Excerpts of the order;
# 1. The present petition is filed under Section 9 of Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 by the Applicant / operational creditor i.e. M/s Delhi Control Device(P) Ltd for initiation of Corporate Insolvency Resolution Process against the respondent/ corporate debtor company "M/s Fedders Electric and Engineering Ltd".
# 5. Brief facts related to petition are as follows:
i). The operational creditor is engaged in business of electricity distribution and control apparatus [electrical apparatus for switching or protecting electrical circuits
ii). Operational Creditor stated that Corporate Debtor had placed a purchase order on 12.12.2015 with the operational creditor for supply of 9KVAR Capacitors for 25KVA transformers and meter boxes for 25 kva 3 Phase/ 16 KVA 1 Phase and stated that goods were supplied as per purchase order. Purchase order and various invoices are annexed as annexure I and II of the application.
iii) Applicant stated that they addressed the invoice on 10.06.2016 to the corporate debtor, despite which the corporate debtor has failed and neglected to make payment. Hence they served Demand notice dated 11.04.2018 for as per Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules 2016) for which there was no reply on behalf of the corporate debtor.
iv) Applicant stated that again a reminder notice dated 04.05.2018 was also served by the them and on receipt of such the officials of the corporate debtor contacted the director of the Applicant for the settlement and accordingly a settlement agreement was executed between the parties on 25.05.2018, wherein the corporate debtor has agreed to pay the Principal amount of Rs 42,41,034/- to the operational creditor by way of the two Installment. Applicant stated that in accordance with MOU, the Corporate Debtor had paid the first instalment of Rs.20,00,000/- on 31.05.2018 but there has been default in making the second payment of Rs.22,41,0341
vi) Hence, Total Amount Claimed to be in default is Rs.22,41,034/-and date of default is 10.06.2016.
# 6. It is matter of record that this Authority has served notice to the Corporate Debtor and granted many opportunities but corporate debtor has not filed any reply.
# 7. Heard the Ld. counsel for the applicant and perused the record available.
# 8. A perusal of record shows that Corporate Debtor has put Purchase order for supply of 9 KVAR capacitors for 25KVA transformers and meter boxes for 25 KVA 3 Phases/ 16 KVA 1 Phase to operational creditor and operational creditor has supplied the product and raised various invoices to the tune of Rs 42,41,034 and it is when Corporate Debtor failed to repay the outstanding demand, Applicant send demand notice dated 06.04.2018 and thereafter both the parties agreed to the settlement and in accordance signed settlement agreement dated 25.05.2018, whereby corporate debtor agreed to to pay full payment in two installment one of Rs 20,00,000 on or before 31.05.2018 and second of Rs. 22.41,034/- on or before 30th June, 2018. As per Applicant, corporate debtor paid first installment but failed to pay the the second installment as per agreement, hence by this insolvency petition they have claimed outstanding debt of second unpaid installment amount i.e Rs.22,41,034/
# 9. Hence, question for consideration in this application is that whether unpaid amount in settlement agreement amounts to operational debt or not and second installment not paid in settlement agreement in this application can be treated as outstanding due to trigger CIRP
# 10. It is relevant to reproduce one of the clauses of the settlement agreement which has direct impact on the final outcome of this insolvency petition.
"That the Party of the Second part has agreed that it will withdraw with prejudice and without any costs, immediately on signing of this agreement the demand notice dated 6/4/2018 along with the reminder demand notice dated 2/5/2018 issued under rule 5 (1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 claiming an amount of Rs.42,41,034 - (Forty Two Lakhs Forty One Thousand and Thirty Four Only) along with 18% interest per annum from the Party of the First Part."
# 11. The case on hand is that the applicant relied on the same Demand Notice dated 06.04.2018 which he has already withdrawn as per above mentioned clause of the settlement and now there is no demand notice, which is mandated as per IBC,2016 to trigger CIRP against Corporate Debtor.
# 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 can't 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.
# 13. Hence, this application under Section 9 of IBC is liable to be rejected, accordingly rejected, no order as to cost.
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