C.S Construction Co. Pvt. Ltd. Vs Chanakya Academy for Education and Training Pvt. Ltd. (NCLT Delhi)
The National Company Law Tribunal (NCLT), Delhi Bench, considered an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the Operational Creditor seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for an alleged default of ₹1,41,64,007.88 as on 30.09.2024. The Corporate Debtor was operating coaching and training institutes, while the Operational Creditor was the owner of premises situated at Felicity Tower, Shankar Marg, Jaipur, Rajasthan. Between 2016 and 2019, the parties executed three registered lease deeds in respect of different portions of the premises. Under these lease deeds, the Corporate Debtor was required to pay monthly rent but allegedly defaulted in payment of rental dues, with the defaults continuing up to January 2021.
In early 2021, the Corporate Debtor sought termination of the lease agreements and introduced another entity, Sampoorn IAS Academy, as a prospective tenant. On 26.02.2021, the parties executed a Memorandum of Understanding (MoU) to settle rental arrears accumulated from February 2020 to February 2021. Under the MoU, the Operational Creditor agreed to accept ₹65,91,363 in full and final settlement of the actual outstanding rental dues of ₹1,01,03,318, subject to compliance with the payment terms. The MoU further provided that upon default, the Operational Creditor would be entitled to recover the full outstanding amount together with applicable interest from the Corporate Debtor and Sampoorn IAS Academy jointly and severally. The Corporate Debtor also issued post-dated cheques towards the settlement amount. According to the applicant, the Corporate Debtor paid only ₹18,50,000 in instalments, despite repeated reminders and a legal notice dated 05.02.2024. A demand notice under Section 8 of the IBC dated 22.10.2024 was thereafter served, but no response or payment was received.
The Tribunal noted the procedural history of the proceedings, including directions issued for service of notice and filing of a reply by the Corporate Debtor. Although opportunities were granted, including a final opportunity, no reply was filed by the Corporate Debtor. On examining Part IV of Form 5 and the documents placed on record, the Tribunal observed that the outstanding amount claimed arose from the lease agreements but had subsequently become the subject matter of the settlement embodied in the MoU dated 26.02.2021.
The Tribunal examined whether the debt claimed qualified as an “operational debt” under Section 5(21) of the IBC. It held that the default alleged under Section 9 arose from obligations under the settlement agreement and did not satisfy the statutory requirements of an operational debt. In reaching this conclusion, the Tribunal relied upon Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. Ltd., wherein the NCLT, Indore Bench held that an amount arising out of a settlement agreement cannot be treated as an operational debt under Section 5(21) of the IBC. The Tribunal further noted that this decision had been upheld by the National Company Law Appellate Tribunal, which also referred to the Supreme Court’s judgment in Swiss Ribbon Pvt. Ltd. Vs. Union of India, observing that the IBC is not a recovery proceeding and that an application filed solely for recovery of money cannot be treated as one for insolvency resolution.
The Tribunal also referred to the order of the NCLT, Allahabad Bench in M/s. Delhi Control Devices (P) Limited vs Fedders Electric and Engineering Limited, wherein unpaid instalments under a settlement agreement were held not to constitute operational debt under Section 5(21) of the IBC. It further referred to the order of the New Delhi Bench in Bajaj Rubber Company Private Limited vs Saraswati Tumber Private Limited, which held that breach of payment terms under a settlement agreement does not fall within the definition of operational debt and cannot form the basis for initiation of CIRP.
Based on these findings, the Tribunal concluded that the amount claimed under the settlement agreement dated 26.02.2021 did not constitute an operational debt within the meaning of Section 5(21) of the IBC. Consequently, it held that the petition filed under Section 9 did not satisfy the statutory requirement for initiation of CIRP and dismissed Company Petition C.P. IB (IBC)/82 (ND)2025. The Tribunal clarified that the order would not preclude the applicant from pursuing any other remedies available under applicable laws and made no order as to costs.
Cases Discussed
- Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. Ltd. (NCLAT), C.A. (AT) (Ins.) No.:36 of 2023
- Bajaj Rubber Company Private Limited vs Saraswati Tumber Private Limited (NCLT New Delhi), I.A. No. 3247 of 2022 in C.P. (IB) No. 1441/ND/2018
- Swiss Ribbon Pvt. Ltd. Vs. Union of India (SC), (2019) 4 SCC 17
- M/s. Delhi Control Devices (P) Limited vs Fedders Electric and Engineering Limited (NCLT Allahabad), C.P.(IB) No. 343/ALD/2018, order dated 14.05.2019
- Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. Ltd., C.P(IB) No. 668 of 2019
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. This instant application was filed by M/s C.S Construction Co. Pvt. Ltd. (hereinafter referred as ‘Applicant’/ ‘Operational Creditor’) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘the Code’) with a prayer to initiate Corporate Insolvency Resolution Process in respect of Chanakya Academy for Education and Training Pvt. Ltd. (hereinafter referred as ‘Respondent’ or ‘Corporate Debtor’) for defaulting the payment of total amounting to Rs. 1,41,64,007.88 (Indian Rupees One Crore Forty One Lakhs Sixty Four Thousand Seven and Eighty Eight paise only) as on 30.09.2024.
2. The Respondent Company Chanakya Academy for Education and Training Pvt. Ltd. having CIN: U80301DL2005PTC137044, incorporated on 01.06.2005 under the provisions of the Companies Act, 1956, is having its registered office situated at 123-124, Satya Niketan, South Delhi, New Delhi, India, 110021. Since the registered office of the Respondent/ Corporate Debtor is in New Delhi, this Tribunal having jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under sub-section (1) of Section 60 of the Code.
3. Briefly stated the facts of the present case as averred by the Applicant/ Operational Creditor are: –
a) The Applicant has submitted that the Corporate Debtor, Chanakya IAS Academy for Education and Training Pvt. Ltd., is engaged in the business of operating coaching and training institutes across India, primarily focused on preparing and guiding students for the UPSC Civil Services Examination. The Operational Creditor, C.S. Construction Co. Pvt. Ltd., is the lawful and undisputed owner of the premises situated on the 1st and 2nd floors of Felicity Tower, located at Shankar Marg, Jaipur, Rajasthan (hereinafter referred to as the “Tenanted Premises”). The title and ownership of the Operational Creditor over the Tenanted Premises are not under challenge or dispute.
b) That between the years 2016 and 2019, the Operational Creditor, S. Construction Co. Pvt. Ltd., entered into the following duly registered Lease Deeds with the Corporate Debtor, Chanakya IAS Academy for Education and Training Pvt. Ltd., in respect of various portions of the Tenanted Premises owned by the Operational Creditor, situated at Felicity Tower, Shankar Marg, Jaipur, Rajasthan:
i. Lease Deed dated 17.08.2016, in respect of the 1st Floor of the Tenanted Premises;
ii. Lease Deed dated 02.08.2017, in respect of a portion of the 2nd Floor of the Tenanted Premises;
iii. Lease Deed dated 04.09.2019, in respect of another portion of the 2nd Floor of the Tenanted Premises.
c) Under the terms of the aforesaid Lease Deeds, the Corporate Debtor was obligated to pay monthly rental amounts as consideration for the lawful use and occupation of the leased premises. However, the Corporate Debtor committed persistent defaults in payment of the agreed rental amounts, thereby breaching the terms of the lease agreements. Despite repeated requests and demands made by the Operational Creditor, the Corporate Debtor failed and neglected to regularize the outstanding rental dues. The said default in payment of operational dues continued up to January 2021.
d. In early 2021, the Corporate Debtor approached the Operational Creditor seeking termination of the three Lease Agreements and introduced Sampoorn IAS Academy as a prospective tenant for the Tenanted Premises. Subsequently, on 26.02.2021, the parties executed a Memorandum of Understanding (MoU) to address the outstanding rental dues for the period from February 2020 to February 2021 under the aforementioned Lease Agreements. Under the MoU, the Corporate Debtor expressly acknowledged its default and admitted its liability to pay the outstanding rental dues to the Operational Creditor.
e. Under the MoU dated 26.02.2021, the Operational Creditor agreed to accept a settlement amount of ₹65,91,363 (Rupees Sixty-Five Lakhs Ninety-One Thousand Three Hundred Sixty-Three only) in full and final settlement of the actual due amount of ₹1,01,03,318 (Rupees One Crore One Lakh Three Thousand Three Hundred Eighteen only), representing rental arrears for the Tenanted Premises, subject to strict adherence to the payment terms set out in the MoU. The MoU further stipulated that in the event of default in payment of the settlement amount, the Operational Creditor would be entitled to recover the full actual due amount along with applicable interest, from both the Corporate Debtor and Sampoorn IAS Academy, jointly and severally. The Corporate Debtor also issued post-dated cheques towards discharge of the settlement amount.
f) That the Corporate Debtor defaulted in payment of the Settlement Amount under the MoU and has, to date, paid only ₹18,50,000/-in a piecemeal manner on various dates. Despite repeated reminders and a Legal Notice dated 05.02.2024, the Corporate Debtor has failed to discharge the remaining liability. The Corporate Debtor has, through multiple communications, was admitted its liability but has not made full payment. In light of the Corporate Debtor’s continued default, the Operational Creditor was constrained to issue a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, dated 22.10.2024. Although the Demand Notice was duly served, the Corporate Debtor neither responded nor remitted the outstanding dues and accrued interest.
4. We have heard the Learned Counsels for the Applicant and Respondent and perused the records made available by the parties.
5. The matter was taken up on 06.02.2025, when this Adjudicating Authority directed the Applicant to serve notice in Form-5 under the NCLT Rules through all permissible modes, returnable by 03.03.2025, and to file proof of service by way of affidavit before the next date of hearing. On 03.03.2025, the Learned Counsel appeared and took notice on behalf of the Respondent. Further, on 24.03.2025, this Authority noted that, as per the order dated 03.03.2025, the Respondent was required to file a reply within ten days. However, the said direction was not complied with. On the said date, the Learned Counsel for the Respondent sought further time to file the reply. In the interest of justice, as a last and final opportunity, one week’s time was granted, failing which appropriate orders were to be passed. However, no reply has been filed by the Respondent.
6. On a perusal of Part-IV of Form 5 giving particulars of the operational debt claimed by the applicant in the instant we notice that the applicant has claimed a sum of INR 1,41,64,007.88 (Indian Rupees One Crore Forty-One Lakhs Sixty Four Thousand Seven and Eighty Eight paise only) as on 30.09.2024. to be paid by the Corporate Debtor.
7. The total outstanding debt of INR 1,41,64,007.88 (as of 30.09.2024) has arisen pursuant to the Lease Agreements dated 17.08.2016, 02.08.2017, and 04.09.2019. It is on record that the parties entered into the binding Memorandum of Understanding (“MoU”) dated 26.02.2021 with respect to rental arrears accrued from February 2020 to February 2021 under the aforementioned three Lease Agreements. Under the terms of the MoU, the Operational Creditor agreed to accept a reduced sum of Rs. 65,91,363/- (Rupees Sixty-Five Lakhs Ninety-One Thousand Three Hundred Sixty-Three only) in lieu of the total outstanding amount of Rs. 1,01,03,318/- (Rupees One Crore One Lakh Three Thousand Three Hundred Eighteen only) towards rental dues for the tenanted premises, subject to strict adherence to the payment terms stipulated in the MoU.
8. In accordance with the information provided to the Adjudicating Authority concerning the instant application, the debt that has been termed as ‘default’ under Section 9 of the Code hereof, cannot be considered as ‘operational debt’ due to the basis of the said debt not falling under the aforementioned pre-requisite conditions.
9. In the judgment passed by Ld. National Company Law Tribunal, Indore Bench in the matter of Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. Ltd.; C.P(IB) No. 668 of 2019, it was held that any amount outstanding arising out a settlement agreement can not be said to be ‘operational debt’ in accordance with Section 5(21) of the Code. The germane excerpt from the said judgement is reproduced hereinbelow—
“8. At the outset, we note that this application is filed by the Operational Creditor for execution of terms of settlement agreement dated 07.11.2017. In our considered opinion, the amount arising out of some settlement agreement cannot be termed as operational debt within the meaning of Section 5(21) of the IBC, 2016.”
10. It is pertinent to mention herein that the aforementioned judgement was been upheld by the Hon’ble National Company Law Appellate Tribunal, New Delhi in the matter of Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. Ltd.; C.A. (AT) (Ins.) No.:36 of 2023. The Hon’ble Appellate Authority has further formed a view that such an attempt can be viewed as a recovery tool as well. The germane excerpt from the judgment is mentioned hereinbelow—
“5. …we are of the view that Adjudicating Authority did not commit any error in rejecting Section 9 Application. It has been laid down by the Hon’ble Supreme Court in “Swiss Ribbon Pvt. Ltd. Vs. Union of India” ((2019) 4 SCC 17), IBC is not a recovery proceeding and the Application which has been filed by the appellant in the present case is only the application for recovery of balance amount of the interest and application was not filed for resolution of any insolvency of the Corporate Debtor…”
11. Further, in the order dated 14.05.2019 passed by the Ld. NCLT, Allahabad Bench in C.P.(IB) No. 343/ALD/2018 between M/s. Delhi Control Devices (P) Limited vs Fedders Electric and Engineering Limited, similarly it was held that unpaid instalment cannot be treated as operational debt as per section 5(21) of IBC, 2016; and the breach of said agreement due to not paying the instalments cannot be ground to trigger CIRP against the Corporate Debtor. Further, in another order dated 11.08.2022 passed by the co-ordinate Bench of New Delhi in I.A. No. 3247 of 2022 in C.P. (IB) No. 1441/ND/2018 in the matter of Bajaj Rubber Company Private Limited vs Saraswati Tumber Private Limited it was held that breach of the terms and conditions of payment according to a settlement agreement does not come under the purview of the operational debt as defined under the IBC, 2016 and it cannot be ground to trigger CIRP against the Corporate Debtor.
12. Therefore, considering the above discussion, the amount related to the unpaid under the settlement agreement dated 26.02.2021 would not constitute the term ‘operational debt’ defined under Section 5(21) of the IBC, 2016.
13. Accordingly, we are of the considered view that the outstanding debt claimed as per the petition filed under Form No. 5 under section 9 of the IBC, 2016 does not fall under the definition of operational debt as defined under section 5(21) of the Code. Resultantly, C.P. IB (IBC)/82 (ND)2025 is hereby dismissed.
14. However, this order shall not preclude the Applicant from seeking remedies, if so advised, under other laws that may be applicable in the facts of the case. There shall be no order as to costs.
