“Mere Breach of Agreement Does Not Qualify as Operational Debt,” NCLT Sets Aside Adjudicating Authority’s Order
In a landmark decision, the NCLT has set aside the Adjudicating Authority’s order, stating that a “mere breach of terms of any agreement, including a settlement agreement, does not qualify as an operational debt.” The Tribunal has directed the Adjudicating Authority to pass an order of admission and other consequential orders within four weeks from the receipt of this order.
The case revolved around the definition and scope of ‘operational debt.’ The Adjudicating Authority had dismissed a Section 9 Application on the grounds that a mere breach of an agreement does not take the color of an operational debt. The case was dismissed as not maintainable, leading to an appeal.
The Tribunal clarified that the Adjudicating Authority’s reliance on the judgment in “Amrit Kumar Agrawal” was misplaced. “There was no financial debt as there was no disbursement for the time value of money,” the Tribunal observed.
The Tribunal also noted that the Corporate Debtor had entered into a settlement agreement for the payment of the amount during the pendency of the earlier Section 9 Application. “The Memorandum of Understanding between the parties was only regarding the mode and manner of payment,” the Tribunal stated.
The judgment of the Supreme Court in “Ghanshyam Mishra and Sons (P) Ltd.” was cited but found not to be applicable in the present case. “The judgment of the Hon’ble Supreme Court does not help the Appellant in the present case,” the Tribunal noted.
The Tribunal’s decision has set a precedent for future cases involving the definition and scope of ‘operational debt.’ Legal experts believe that this ruling will have significant implications for corporate debtors and operational creditors alike.
Date of Decision: 1st September, 2023
M/s. Ahluwalia Contracts (India) Ltd. VS M/s. Jasmine Buildmart Pvt. Ltd.
