NCLT Kolkata Rules, Breach of Settlement Instalments Cannot Trigger Insolvency Proceedings
Pranav B Prem
The National Company Law Tribunal (NCLT), Kolkata, has held that a default in instalments under a settlement agreement cannot be treated as an operational debt for initiating the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. A Bench comprising Judicial Member Bidisha Banerjee and Technical Member Siddharth Mishra dismissed a Section 9 application filed by contractor Laxmidhar Mohanty against Simplex Infrastructures Limited, observing that the tribunal is not a forum for recovery of dues arising from breaches of settlement terms.
The dispute originated from work executed by the contractor involving earthwork and supply of construction equipment, for which Simplex had earlier acknowledged liability of over Rs 7.37 crore. After issuing a statutory demand notice in 2021, the contractor filed a Section 9 petition claiming Rs 9.55 crore including interest. During the pendency of those proceedings, the parties entered into a settlement agreement in October 2022, under which Simplex agreed to pay Rs 5.75 crore in full and final settlement, and the earlier insolvency petition was withdrawn on that basis.
The contractor later alleged that Simplex failed to honour the instalment schedule and claimed an outstanding amount of Rs 6.37 crore. He issued a fresh demand notice and filed the present Section 9 petition seeking to revive the dispute. Simplex, however, demonstrated that it had paid the entire Rs 5.75 crore settlement amount — partly in 2022 and the remaining tranches by October 2024 — and the payments had been accepted without protest.
Analysing the terms of the settlement, the tribunal observed that Clause 3 of the agreement clearly recorded that the settlement amount represented “full and final satisfaction of anything and everything” the contractor could claim. Clause 6 permitted the contractor only to recover the “unpaid outstanding dues of the settlement amount along with interest” in the event of default, but it did not allow revival of the original operational debt of Rs 7.37 crore. Thus, even assuming delay in the instalments, the right of recovery was restricted solely to the unpaid portion of the settlement amount, and the settlement had extinguished the earlier debt.
The tribunal relied on the NCLAT’s ruling in Trafigura India Pvt. Ltd. v. TDT Copper Ltd., which held that breach of a settlement agreement does not constitute a default of operational debt since a settlement loses the character of operational debt under Section 5(21) of the IBC. Reference was also made to Maldar Barrels Pvt. Ltd. v. Pearson Drums and Barrels Pvt. Ltd., where the NCLAT affirmed that the NCLT is not a forum to enforce settlement terms. Citing these decisions, the Bench reiterated that the present petition was essentially an attempt “to recover the rest of the amount due and payable in terms of the Settlement Agreement,” which is outside the scope of proceedings under Sections 7, 9, or 10 of the Code.
The tribunal also noted that the earlier petition had been withdrawn without liberty to revive it or file a fresh one. Since the withdrawal order merely recorded that the matter “has been settled out of court” and dismissed the petition, the contractor could not re-agitate the same cause of action through a new insolvency application.
In conclusion, the NCLT held that the entire settlement amount stood paid, the original debt had been extinguished, and breach of instalment terms under a settlement does not create an operational debt capable of triggering CIRP. The petition under Section 9 was therefore dismissed.
Appearance
For the Operational Creditor: Advocates A K Srivastava, Akash Sharma
For the Corporate Debtor: Senior Advocate Joy Saha and Advocates Shaunak Mitra, Snehasish Sen, Mihika Roy
Cause Title: Laxmidhar Mohanty Vs. Simplex Infrastructures Ltd
Case No: C.P (IB) NO. 255/KB/2023
Coram: Judicial Member Bidisha Banerjee, Technical Member Siddharth Mishra
