Default under Post-Dispute Settlement Deed Not “Operational Debt” Under IBC: NCLT Dismisses Insolvency...

The National Company Law Tribunal (NCLT) in New Delhi dismissed an insolvency petition filed by Silver Collections Pvt. Ltd. against Paragon Knits Ltd. The petition, filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), claimed a default of ₹2.33 crore, citing unpaid yarn supplies and dishonoured cheques. Paragon Knits had entered into a Settlement Deed on 8 January 2025, acknowledging liability and issuing post‑dated cheques, of which only ₹25 lakh was paid. The tribunal held that while the original yarn supply created an operational debt, the subsequent settlement agreement governed the parties’ obligations, and defaults arising under that agreement could not be treated as operational debt under Section 5(21) of the IBC. Citing precedents such as Trafigura India Pvt. Ltd. v. TDT Copper Ltd. and Basant Kumar Upadhyay v. Kuber Shree Construction Co., the bench ruled that once a settlement is entered into, breaches fall outside insolvency proceedings. Consequently, the petition was dismissed with costs, emphasizing that the tribunal is not a recovery forum for settlement‑based defaults.

(Source：Taxscan)