IBC has come into effect in the year of 2016. However, there are several landmark judgments passed by the Hon’ble Supreme Court but the same still needs a crystal clear picture on several aspects of the provisions of IBC. The Hon’ble Supreme Court still requires to give us insight into the aspects of IBC provisions and the manner of its applicability.
Today, we are going to talk about Settlement Agreement entered between the Operational Creditor and Corporate Debtor under Section 9 of IBC.
A financial Creditor is defined under Section 5 (7) of IBC which states that a financial creditor is a creditor to whom financial debt is owed.
An Operational Creditor is defined under Section 5 (20) of IBC which states that an operational creditor is a person who provides supplies to the Corporate Debtor for its daily functioning on the credit basis or may be an employee working under the Corporate Debtor who has not received its salary.
A Corporate Debtor is defined under Section 3 (8) of IBC which states that a corporate debtor means a corporate person who is indebted with the sum of others and is unable to pay of its debt.
When a Corporate Insolvency Resolution Process application is filed by the Financial Creditor or by an Operational Creditor against the Corporate Debtor under Section 7 or 9 of IBC, respectively, then the Corporate Debtor and the Operational Creditor or the financial creditor, respectively, can enter into settlement agreement at any point of time and thereafter an application for withdrawal for withdrawal is filed before the Hon’ble Tribunal.
Now the question arises that in the situation of the failure of the Corporate Debtor abiding by the terms of the Settlement Agreement can the outstanding in Settlement Agreement be termed as a debt under the provisions of IBC ?
There are conflicting judgments passed by the Hon’ble National Company Appellate Law Tribunal in this regard.
The Hon’ble National Company Law Tribunal, New Delhi in Brand Realty Services Limited vs Sir John Bakeries India Private Limited[i] rejected the application on the ground that outstanding debt cannot be regarded as an operational debt. That the Hon’ble National Company Law Appellate Tribunal, New Delhi in the appeal overturned the judgment passed by the Hon’ble NCLT and passed the Judgment made by the Hon’ble NCLT is erroneous.
Whereas the Hon’ble National Company Appellate Law Tribunal, New Delhi in Amrit Kumar Agarwal vs Tempo Appliances Pvt Ltd[ii] wherein an application was filed under Section 7 of IBC has held that the outstanding in settlement agreement does not come within the purview of IBC and hence the same cannot be regarded as debt in the provisions of IBC.
Thus, whether the settlement agreement is a debt or not within the purview of IBC needs a clear picture by the Hon’ble Supreme Court against the conflicting views of the Hon’ble National Company Appellate Law Tribunal.
[i] Company Appeal (AT) (Insolvency) No. 958 of 2020
[ii] Company Appeal (AT) (Insolvency) No. 1005 of 2020
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