NCLT New Delhi-V (22.07.2020) in M/s Brand Realty Services Ltd. vs. M/s Sir John Bakeries India Pvt. Ltd. [(IB) 1677(ND)/2019 ] held that; therefore, we are of the considered view that default of instalment of settlement agreement does not come within the definition of operational debt, hence
Excerpts of the order;
# 3. The brief facts leading to filing of the instant application are as under:
i. The Operational Creditor is a consultant cum investor with the Corporate Debtor and also provided advisory services on various matters of Business promotions, Marketing, Store Layouts, General Working etc.
ii. The Corporate Debtor approached the Operational Creditor asking for investment and consultancy services pertaining to setting up a brand new retail outlet at GF-28, 29 & 30, Eros Market Place Mall, Shakti Khand II, Indirapuram, U.P. Accordingly, the Operational Creditor invested some amount and also supplied the consultancy services including efforts for overall planning, etc. in setting up a new retail outlet of the Corporate Debtor at GF-28, 29 & 30, Eros Market Place Mall, Shakti Khand II, Indirapuram, U.P.
iii. Hereinafter, the Operational Creditor and the Corporate Debtor entered into an Agreement dated 28.11.2014 that was further ratified vide an Account Settlement Agreement dated 15.06.2018.
iv. As per Clause 2 of the Account Settlement Agreement dated 15.06.2018, the Corporate Debtor agreed to pay the remaining commission to be cleared amounting to the tune of Rs.33,94,000/ vide Post Dated Cheques (hereinafter referred to as "PDCs"). However, before presentation of the said cheques, the Corporate Debtor approached the Operational Creditor and requested the Operational Creditor to hold the presentation of the cheques before the banker of the Operational Creditor and further agreed to do RTGS instead of Post Dated Cheques. Acting on the representation made by the Corporate Debtor, the Operational Creditor held the cheques and did not present the same. It is pertinent to mention that the Corporate Debtor has neither taken steps to transfer the amount via RTGS nor replace the cheques till date.
v. It was further agreed in Clause 3 of the Account Settlement Agreement dated 15.06.2018 that the Corporate Debtor will pay a fixed commission of Rs.56,500/-per month w.e.f. April 2018 for a period of 66 months and accordingly issued 66 Post Dated Cheques to the Operational Creditor. vi. It was assured by the Corporate Debtor that the PDCs will be honoured as and when the same shall be presented by the Operational Creditor, inter alia, the Corporate Debtor has the financial capability to honour the said cheque and there arises no question of default in making payments.
vii. It is pertinent to mention that the default occurred when the cheques bearing no.001711,001712 and 001713 dated 15.02.2019,15.03.2019 and 15.04.2019 respectively for Rs.56,000 each in terms of Clause 3 of the Account Settlement Agreement dated 15.06.2018 drawn on HDFC Bank have returned unpaid to the Operational Creditor on 18.04.2019 due to reason of “Stop Payment and the Corporate Debtor has taken no steps to make the payment.
viii. Under the circumstances, the OC through its counsel served a legal notice dated 30.04.2019 asking them to comply with the terms of the Account Settlement Agreement dated 15.06.2018. However, the CD did not respond to the legal notice served to them on 30.04.2019.
ix. The Operational Creditor was constrained to send a demand notice dated 30.04.2019 under the provisions of IBC, 2016 demanding payment in respect of unpaid operational debt which was duly served on the Corporate Debtor by speed post as well as by e-mail. The Corporate Debtor replied to the demand notice on 25.05.2019 that was outside the stipulated period of 10 days.
x. The Operational Creditor submits that no part of the claim is barred by the law of limitation. The cause of action arose in favour of the Operational Creditor and against the Corporate Debtor to pay the above-mentioned amount on the April, 2018 when the operational debt became due and payable. Further, the cause of action arose in February, 2019 when the cheques bearing no. 001711, 001712 and 001713 dated 15.02.2019, 15.03.2019 & 15.04.2019 respectively were dishonoured. The cause of action is a continuing one and subsists as long as the debt amount payable by the Corporate Debtor to the Operational Creditor is not paid.
xi. In light of the foregoing facts and circumstances, the Operational Creditor, therefore, hereby prays that the insolvency proceedings may be initiated against the Corporate Debtor under the provisions of the IBC, 2016 in light of failure on part of the Corporate Debtor in light of failure on part of the Corporate Debtor to make payment of the operational debt to the tune of Rs. 54,94,874/- as elucidated in the working sheet.
# 9. …….. In the light of the aforesaid submissions, we have gone through the averments made in the application, reply, rejoinder as well as documents enclosed with the application and we find that it is admitted case of the applicant that the present application is filed for the breach of the terms and conditions of the settlement agreement entered in between the parties on 15.06.2018. We further find that this settlement agreement is to settle the amount which according to the case of the applicant was due in terms of the agreement dated 28.11.2014. Therefore, it can be said that the present application is not against the invoices raised in terms of the agreement dated 28.11.2014 rather it is a breach of terms and conditions of the account settlement agreement dated 15.06.2018. We further find that before filing this application, the applicant sent a Demand Notice dated 30.04.2019 and it is the case of the applicant that the said Demand Notice was delivered to the CD/Respondent on 04.05.2019 which would be evident from the tracking report enclosed at page no. 116 of the paper book and we further find that the respondent sent a reply to the demand notice on 25.05.2019, which would be evident from the page no. 117 of the paper book.
From the perusal of the reply to the Demand Notice, we find that the CD in the reference to the reply to the Demand Notice mentioned that CD has received the Demand Notice on 17.05.2019 but in support of that no document has been produced by the applicant to show that the CD has received the Demand Notice on 17.05.2019 and not on 04.05.2019, as per the tracking report, therefore, we have no option but to hold that the reply to the Demand Notice was not sent within the time prescribed under Section 8 (2) of the IBC which shows that “The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor, existence of a dispute, if any or repayment of unpaid operational debt" therefore, we are of the considered view that the CD has failed to raise the dispute within the time prescribed under Section 8 (2) of the IBC, therefore, we find, force in the contention raised on behalf of the OC that the CD has not raised the dispute under Section 8 (2) of the IBC within the time prescribed under law.
# 10. Now, coming to the next question as we have already considered in the aforementioned para that the claim of the applicant is based not on the basis of the agreement dated 28.11.2014 by which the OC has raised the invoices rather the claim is based upon the account settlement agreement dated 15.06.2018 and on the basis of that, Ld. Counsel for the OC submitted that there is a violation of terms and conditions of the settlement agreement dated 15.06.2018 and so there is default in the payment of amount and for that the applicant has filed the present application for initiation of CIRP for default in payment of OC, therefore, we would like to consider whether the terms and conditions of the settlement agreement comes under the definition of Operational Debt or not? Therefore, we would like to refer the definition of Operational Debt, Default and Debt and the same are quoted below:
Section 5 (21) “operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
Section 3 (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes
Section 3 (12) "default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1[paid] by the debtor or the corporate debtor, as the case may be;
# 11. When we shall read all three definition together then it can be said that definition of debt as defined under the IBC does not mean the operational debt only rather it includes financial debt as well as liability or obligation in respect of a claim which is due from any person and default means non payment of debt, but in order to trigger Section 9 of IBC an Operational Creditor is required to establish a default for non payment of Operational debt as defined in Section 5(21) of IBC, which means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and if a person fails to establish that, then they can not initiate CIRP under Section 9 of the IBC.
# 12. Now it is the settled principle of law that National Company Law Tribunal is not recovery court rather when a default of either financial debt or operational debt occurred in that case, financial creditor or operational creditor may file an application for initiating corporate insolvency resolution process u/s 7 or section 9 respectively.
# 13. In the light of that facts, when we shall consider the case in hand then we find that the settlement agreement on the basis of which the present application is filed by the applicant does not come under the definition of operational debt. At this juncture, we would also like to refer a decision of NCLT Allahabad Bench in “Company Petition (IB) No. 343/ALD/2018 in the matter of M/s Delhi Control Devices (P) Limited Vs. M/s Fedders Electric and Engineering Ltd.” decided on 14.05.2019, in which the NCLT Allahabad bench held that “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 Corporate Debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority". and similar view is followed by this Bench in IB No. 507/ND/2020 In The Matter of Nitin Gupta and also in Company Petition (IB) No.2817 /ND/2019 In the matter of Trafigura India Private Limited Versus TDT Copper Limited
# 14. In the light of that decisions and provisions which we have referred in the aforementioned para, when we shall consider the case in hand then we are of the considered view that the case of the applicant is covered with the aforesaid decisions, therefore, we are of the considered view that default of instalment of settlement agreement does not come within the definition of operational debt, hence, we are not inclined to admit the application rather we are of the view the present application is liable to be dismissed.
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