Safiya Malik

The National Company Law Tribunal (NCLT), New Delhi Bench, dismissed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed by Akshay Kumar Bhatia against Cue Learn Private Limited. The application sought to initiate the Corporate Insolvency Resolution Process (CIRP) for an alleged default of ₹4,83,24,201, arising from a commercial endorsement agreement. The Tribunal determined that the claim did not qualify as an operational debt under the IBC.

The petition was based on an endorsement agreement dated March 8, 2021, between the petitioner and the respondent. Under the agreement, the petitioner was engaged to provide endorsement services, including participation in television commercials, photoshoots, and other promotional activities. The agreement stipulated payment in two installments, with the second installment due on April 15, 2022.

The petitioner alleged that the respondent failed to pay the second installment of ₹4,05,00,000 plus GST, despite the due date passing and reminders being issued, including a statutory demand notice under Section 8 of the IBC. He contended that the respondent had utilized deliverables from the first day of services and that the payment was not contingent on the utilization of the second day, as per Clause 5.1.2 of the agreement.

The respondent denied the allegations, arguing that the petitioner failed to fulfill obligations outlined in Clause 3.2 of the agreement, which required him to be available for a second day of services upon scheduling. The respondent further contended that the claim, if any, was for liquidated damages under Clause 7.2(c) of the agreement and did not meet the criteria for operational debt under the IBC.

The petitioner submitted that the agreement explicitly provided for unconditional payment of the second installment. He argued that the respondent’s failure to release the payment constituted a breach of the agreement and a default under the IBC.

The petitioner relied on Clause 5.1.2 of the agreement, asserting that the payment became due regardless of whether the second day of service was utilized. It was also argued that the deliverables from the first day of service, which were used by the respondent, further validated the petitioner’s entitlement to the payment.

The respondent maintained that the petitioner’s obligations under Clause 3.2 of the agreement were not fulfilled. It was argued that there was no evidence of any request or scheduling for the second day of services, nor any documentation to demonstrate that the petitioner made himself available as required.

The respondent submitted that the claim related to liquidated damages for alleged non-performance and was governed by Clause 7.2(c) of the agreement. According to the respondent, such claims are not operational debts under Section 5(21) of the IBC. It was argued that the dispute pertained to a contractual breach and should be adjudicated in a civil court.

The Tribunal examined the submissions and reviewed the provisions of the endorsement agreement. It noted that operational debt under Section 5(21) of the IBC includes claims arising from the provision of goods or services, or debts related to employment or statutory dues.

The Tribunal observed: “The petitioner’s obligation to render services on the second day was contingent upon the respondent’s compliance with the conditions specified in Clause 3.2 of the agreement, including the payment of the agreed consideration.”

It recorded that there was no evidence to suggest that the petitioner made himself available for the second day or that the respondent scheduled it. The Tribunal also noted that Clause 7.2(c) provided for liquidated damages in the event of non-performance, which placed the claim outside the scope of operational debt.

The Tribunal stated: “Claims for liquidated damages do not qualify as operational debt under the Insolvency and Bankruptcy Code, 2016.”

The Tribunal held that the petitioner’s reliance on the unconditional nature of the second payment was contradicted by the terms of the agreement, which linked the payment to the petitioner’s availability and the respondent’s compliance with scheduling requirements.

Based on its findings, the Tribunal dismissed the application under Section 9 of the IBC. It concluded that the claim did not meet the statutory requirements for operational debt and could not be admitted for CIRP proceedings.

The order stated: “In light of the above facts and circumstances, we conclude that the Application bearing CP No.: IB 572(ND)/2022 & IA 5437/ND/2023 filed by the Applicant/Operational Creditor, under Section 9 of the Code, is not maintainable and stands dismissed.”

Case Title: Akshay Kumar Bhatia v. Cue Learn Private Limited
Case Number: CP No.: IB 572(ND)/2022 & IA 5437/ND/2023
Bench: Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member)

[Read/Download order]