SUPREME COURT HOLDS SUIT TO START AFRESH ON THE RETURN OF A PLAINT

In a recent Judgment passed by the Special Bench of three Judges, the #SupremeCourt of India decided upon whether a #Suit should start afresh in case of return of #Plaint. In the matter of M/S. Exl Careers and Another v. Frankfinn Aviation Services Private Limited CA/2904/2020, decided on 05.08.2020, the Parties had entered into a #FranchiseAgreement and agreed that in the event of any dispute Parties would move to the Courts in #Delhi.

In the said matter, when differences arose between the Petitioner and the Respondents, despite this clause in the Franchise Agreement, the Petitioners Exl Careers and Another filed a Plaint in the Court at Gurgaon. The matter proceeded and was at the stage of #evidence when the Respondents, Frankfinn Aviation Services Pvt Ltd decided to move an Application for return of Plaint under Order 7 Rule 10 and 10A (#CPC) submitting that the #Gurgaon Court did not have jurisdiction in view of clause 16B of the Franchise Agreement.

The Gurgaon District Court after hearing Parties where the present Petitioner pleaded that as the case had reached the advanced stage, it could not start a fresh and the said case should be transferred to the court having jurisdiction at Delhi. This was allowed by the Civil Judge Gurgaon. The Civil Judge Gurgaon also noted in the said Order that the said transfer was a result of the Revision Petition filed by the Appellants where they had sought for a #denovo #trial of the Suit for recovery.

The Delhi High Court was of the view that that the suit at Delhi shall proceed from the stage at which it was pending at Gurgaon before return of the plaint and not de novo. Aggrieved by the Order dated 13.03.2018, the Appellant preferred the present Appeal. Further proceedings were stayed on 13.07.2018 culminating in the order of reference.

The Appeal before the Supreme Court was on a reference by a two Judge Bench opining a perceived conflict between two Division Bench decisions in Joginder Tuli vs. S.L. Bhatia, (1997) 1 SCC 502 and Oil and Natural Gas Corporation Ltd. vs. Modern Construction & Co., (2014) 1 SCC 648. The question of law that was required to be answered by the Supreme Court is that if a plaint is returned under Order VII Rule 10 and 10A CPC for presentation in the court, in which it should have been instituted, whether the suit shall proceed de novo or will it continue from the stage where it was pending before the court at the time of returning of the plaint. The order of reference also sought the opinion of the Supreme Court on whether the conduct of the Appellant disentitles it to any relief notwithstanding the decision on the issue of law.

The Supreme Court observed that Order VII Rule 10-A CPC, as the notes on clauses, indicates was inserted for the following reason:

“New Rule 10-A is being inserted to obviate the necessity of serving summonses on the defendants where the return of plaint is made after the appearance of the defendant in the suit.”

The language of Order VII Rule 10-A CPC is in marked contrast to the language of Section 24(2) and Section 25(3) of the CPC. The statutory scheme is clear post the Amendment. In cases dealing with transfer of proceedings from a Court having jurisdiction to another Court, the discretion vested in the Court by Sections 24(2) and 25(3) of the CPC either to retry the proceedings or proceed from the point at which such proceeding was transferred or withdrawn, is in marked contrast to the scheme under Order VII Rule 10 read with Rule 10-A of the CPC, where no such discretion is given and the proceeding has to commence de novo.

The Supreme Court while addressing the reference of the High Court answered as follows:

In Joginder Tuli (supra) the Original Court lost jurisdiction by reason of the amendment of the plaint. The Trial Court directed it to be returned for presentation before the District Court. The Supreme Court observed as follows:

“5. … Normally, when the plaint is directed to be returned for presentation to the proper court perhaps it has to start from the beginning but in this case, since the evidence was already adduced by the parties, the matter was tried accordingly. The High Court had directed to proceed from that stage at which the suit stood transferred. We find no illegality in the order passed by the High Court warranting interference.”

To our mind, the observations are very clear that the suit has to proceed afresh before the proper court. The directions came to be made more in the peculiar facts of the case in exercise of the discretionary jurisdiction under Article 136 of the Constitution. We may also notice that it does not take into consideration any earlier judgments including Amar Chand Inani vs. The Union of India (supra) by a Bench of three Honourable Judges. There is no discussion of the law either and therefore it has no precedential value as laying down any law.

16. Modern Construction (supra), referred to the consistent position in law by reference to Ramdutt Ramkissen Dass vs. E.D. Sassoon & Co., Amar Chand Inani vs. The Union of India, Hanamanthappa vs. Chandrashekharappa, (1997) 9 SCC 688, Harshad Chimanlal Modi (II) (supra) and after also noticing Joginder Tuli (supra), arrived at the conclusion as follows:

“17. Thus, in view of the above, the law on the issue can be summarised to the effect that if the court where the suit is instituted, is of the view that it has no jurisdiction, the plaint is to be returned in view of the provisions of Order 7 Rule 10 CPC and the plaintiff can present it before the court having competent jurisdiction. In such a factual matrix, the plaintiff is entitled to exclude the period during which he prosecuted the case before the court having no jurisdiction in view of the provisions of Section 14 of the Limitation Act, and may also seek adjustment of court fee paid in that court. However, after presentation before the court of competent jurisdiction, the plaint is to be considered as a fresh plaint and the trial is to be conducted de novo even if it stood concluded before the court having no competence to try the same.” Joginder Tuli (supra) was also noticed in Harshad Chimanlal Modi (II) (supra) but distinguished on its own facts.

17. We find no contradiction in the law as laid down in Modern Construction (supra) pronounced after consideration of the law and precedents requiring reconsideration in view of any conflict with Joginder Tuli (supra). Modern Construction (supra) lays down the correct law. We answer the reference accordingly.

18. We regret our inability to concur with Oriental Insurance Company Ltd. (supra), relied upon by Mr. Patwalia, that in pursuance of the amendment dated 01.02.1977 by reason of insertion of Rule 10A to Order VII, it cannot be said that under all circumstances the return of a plaint for presentation before the appropriate court shall be considered as a fresh filing, distinguishing it from Amar Chand Inani (supra). The attention of the Court does not appear to have been invited to Modern Construction (supra) and the plethora of precedents post the amendment.”

The Supreme Court after hearing both sides was of the opinion that as the Appellant did not raise the objection under clause 16B of the Agreement at the very first opportunity,the first Order of rejection, has become final and the consequent objection of jurisdiction was raised only as an after-thought. It therefore held, that despite the aforesaid law discussed in Joginder Tuli vs. S.L. Bhatia, (1997) 1 SCC 502 and Oil and Natural Gas Corporation Ltd. vs. Modern Construction & Co., (2014) 1 SCC 648, the fact that the pleadings have been completed, evidence led, and that the matter was fixed for final argument on 03.07.2017, the Court concluded that despite having concluded that the Impugned Order is not sustainable in view of the law laid down in the Modern Construction (supra), in exercise of its discretionary jurisdiction under Article 136 of the Constitution and in order to do complete and substantial justice between the Parties under Article 142 of the Constitution the Impugned Order of the High Court dated 13.03.2018 is upheld and the matter cannot be tried de novo.

Sushila Ram

Chief Consultant

The Indian Lawyer

HIGH COURTS ARE DUTY BOUND TO ISSUE WRIT OF MANDAMUS FOR ENFORCEMENT OF A PUBLIC DUTY

The Supreme Court in a recent Judgment dated 07.08.2020 in the case of Hari Krishna Mandir Trust vs. State of Maharashtra (CIVIL APPEAL NO.6156 OF 2013), has directed that #HighCourts are bound to issue a writ of #mandamus for enforcement of a #publicduty.

The facts in the instant case related to a dispute with respect to a Private Road. The Hari Krishna Mandir Trust, who was the owner of the certain Plots, filed a Proposal in which it requested the State of Maharashtra Government to correct the wrong entry in the name of Pune Municipal Corporation being the owner of the said Private Road. The Urban Development Department, Government of Maharashtra rejected the proposal for modification of sanction scheme under the Regional and Town Planning Act, 1966 (the Act). It also held that the Pune Municipal Corporation is the owner in respect of the said Private Road.

Being aggrieved the Appellant i.e., Hari Krishna Mandir Trustfiled the Writ Petition No.904 of 2008 in the Bombay High Court challenging the said Order dated 03.05.2006. The Writ Petition was dismissed. The High Court found that the land in question had been vested, without any encumbrances, in the Pune Municipal Corporation at the time of commencement of the Town Planning Scheme, by virtue of Section 88 of the Act.

When the matter was argued in the Supreme Court the Pune Municipal Corporation stated that they were not the owners of the disputed property as erroneously claimed by the Government of Maharashtra. It was found that the land belongs to the Hari Krishna Mandir Trust and had been taken over by the Government without any authority. The Supreme Court after hearing the matter at length held that the High Courts in exercising their jurisdiction under Article 226 of the Constitution of India, not only have the power to issue a Writ of Mandamus or in the nature of Mandamus, but are duty bound to exercise such power, where the Government or a public authority has failed to exercise or has wrongly exercised discretion conferred upon it by a Statute, or a rule, or a policy decision of the Government or has exercised such discretion malafide, or on irrelevant consideration.

In all such cases, the High Court must issue a Writ of Mandamus and give directions to compel performance in an appropriate and lawful manner of the discretion conferred upon the Government or a public authority.

The Supreme Court further held that the High Court is duty bound to issue a writ of Mandamus for enforcement of a public duty. There can be no doubt that an important requisite for issue of Mandamus is that Mandamus lies to enforce a legal duty. This duty must be shown to exist towards the applicant. A statutory duty must exist before it can be enforced through Mandamus. Unless a statutory duty or right can be read in the provision, Mandamus cannot be issued to enforce the same. Thus, the Court held that in the absence of any proceedings for acquisition or for purchase, no land belonging to the Appellant Trust could have vested in the State. The Appeal was allowed, and the Judgment and Order under Appeal was set aside.

Lakshmi Vishwakarma

Associate

The Indian Lawyer

Bihar Police has no territorial jurisdiction to investigate the case of Sushant Singh Rajput: Dr. Kislay Panday, solicitor Supreme Court of India

Dr. Kislay Panday, Solicitor, Supreme Court of India

That #SushantSinghRajput’s #suicide was tragic and most unexpected is now behind us and what we now witnessing is a dogfight between #Bollywood which seems to have split down the middle. While accusations and counter-accusations continue on the cause and circumstances that led to the young and promising rising star in the Industry, no one for sure knows what exactly led to the suicide.

And we are not talking about the layman who makes his opinion about a high profile case based on media reports. The #Police itself is equally clueless even after six weeks all it has done is to question various people in the industry who had anything to do with Sushant. So every other day director or co-actor is walking into the Mumbai police question room and comes out leaving the police more bewildered than before.

Sushant after his death has become a subject of browbeating and mudslinging amongst the many known people who seem to be using his death as a tool to settle scores. Now if that was not enough it has now become political with Bihar and Maharashtra politics coming into the play. Let’s not forget elections are round the corner and suicide of a Bihari Migrant is an emotional issue. With Bihar police now being asked to investigate the case is unprecedented and defies logic. Nothing happened in Bihar except that Sushant was born there and his father lives there.

He lived in Mumbai, worked in Mumbai, had friends and foes in Mumbai and he died in Mumbai. How Bihar police get the case is beyond reason. Dr. Kislay Panday who has been studying this case says, “Bihar Police has no territorial jurisdiction to investigate the case of Sushant Singh Rajput Even if, the allegations by the Father of Late Sushant Singh Rajput are considered on face value; no part of the alleged offenses have taken place within the local jurisdiction of #Patna Police and as such in the eyes of law no FIR could have been registered on the complainant of the FIR of the deceased at Patna. The steps taken by Bihar police are absolutely against the established principles of Criminal Jurisprudence.”

Equally astonishing is the way the ED came into play and slapped a money laundering case against Rhea Chakraborty. Suddenly the case of suicide of Sushant Singh Rajput has become an economic offense case!

A twist in the story came just a couple of days back when Sushant’s father who was silent for 40 odd days named Rhea Chakraborty, Sushant’s estranged girlfriend and till recently was in a live-in with Sushant to driving him to commit suicide. This suddenly changed the course of the investigations which were so far was based upon the premise that something was really wrong in the Sushant’s career and that a few high and mighty in the Bollywood wanted him finished. They blocked his films and saw to it that he sees no release of his films. They goaded and persuaded the investors, distributors, and filmmakers to treat Sushant as a filmy pariah which eventually led him no choice and noosed himself.

 That might have made a few people in the film industry very nervous and uneasy and perhaps needed a deflection that came with the Sushant’s father’s scathing attack on Rhea. It is not to exonerate anybody but the course of events is indeed interesting. Rhea had left Sushant many days before he committed suicide and wasn’t even talking to him. Secondly, Why was the family not able to make a contact with Sushant perhaps he did not want to talk to them. Sushant was on anti-depression drugs and was in good physical and mental health only a few months back. Equally hilarious is the proposition that Rhea was blackmailing the deceased by saying that she will expose him that he was mentally ill. So many of the celebs are on drugs that we can count of fingers, pushes, and pulls of stardom often play havoc on individuals and taking psychiatric treatment is very normal in Bollywood than an outsider would assume.

So now the case of Suicide of Sushant Singh has lost its course and would be decided not on the merits of the case, but how it suits the interests of certain people in power that be. Rhea Chakrobarty is a black sheep or scapegoat we will never know. Pity!

Dr Kislay Panday

Solicitor,

Supreme Court of India

SUPREME COURT RE-EVALUATES EVIDENCE TO ENSURE PROPER JUSTICE DELIVERY

The #SupremeCourt has recently in Parminder Kaur vs State of Punjab passed a Judgment dated 28-07-2020 and held that as the Trial Court failed to analyse the #evidence and the #defense of the Accused-Appellant properly under Section 313 of the Code of Criminal Procedure 1973 (#CrPC), so the Apex Court had to re-evaluate the evidence to ensure proper #justice delivery.

In this case, it was alleged by the Victim, a minor girl, that she was forced by the Accused-Appellant, Mrs Parminder Kaur, to indulge in illicit intercourse with the Appellant’s Tenant at her house on 19-02-1996 at 6AM. As soon as her father and few other people reached the crime scene, they managed to save the Victim from the clutches of the Tenant, but the Tenant escaped from the crime scene. Thereafter, the Appellant threatened the Victim that she would harm her brother if she informed the matter to anybody. That is when the Victim filed a First Information Report (FIR) with the Police Station against the Accused-Appellant, five days after the incident happened.

During the trial, the Accused-Appellant denied all the allegations and claimed that there was no tenant residing in her house. Further, she alleged that the complaint by the Victim was made with a different motive. The Accused-Appellant had earlier levelled charges of rape against one, Mr Bhola Singh, who worked with the Victim’s father. So, this complaint by the Victim was made with the motive of taking revenge against the Accused-Appellant.

But the Additional Sessions Judge, Barnala (the Trial Court) summarily rejected the defense of the Accused-Appellant on the ground that malicious prosecutions in case of sexual abuses involving minor children are unlikely to happen. Therefore, the Trial Court passed a Judgment dated 27-02-1999 and convicted the Accused-Appellant with three years of rigorous imprisonment along with fine of Rs. 2000/- under Section 366A of the Indian Penal Code 1860 (IPC) and one year of rigorous imprisonment and fine of Rs. 1000/- under Section 506 IPC.

Section 366A IPC penalizes a person who induces and forces a minor girl into illicit intercourse with another person. Whereas, Section 506 IPC penalizes a person who threatens or criminally intimidates another person to cause death or grievous hurt or destruction of property, etc.

Upon appeal, the High Court of Punjab and Haryana (the High Court) observed that there was no proof of enmity shown between the Accused-Appellant and the Victim’s family. Therefore, it was highly improbable that anybody would falsely implicate a woman in such offences. Thus, the High Court passed a Judgment dated 30-11-2009 and upheld the conviction awarded by the Trial Court. Thereafter, the Accused-Appellant filed an appeal before the Supreme Court.

The Apex Court made the following observations in this case:

1- That the Victim’s medical examination was not conducted.

2- That the Trial Court failed to take into consideration that there were glaring differences in the physical descriptions of the Tenant in the Victim’s and her father’s testimonies.

3- That the Trial Court failed to examine important witnesses to the alleged offences.

4- That there is no detail about what happened inside the room when the Victim was locked out.

5- That there was lack of any attempt by the Victim’s father to catch the male Tenant or to trace him later. Further, there was no complaint registered against the said Tenant. This creates a suspicion that the Victim’s story was made up and concocted with different motive.

6- That the police also could not trace the whereabouts of the Tenant or gather any proof that he was residing as a tenant at the Accused-Appellant’s house.

7- That there was a five-day delay in registering the FIR. It is unlikely that a parent would wait for a second incident to happen before approaching the police or panchayat or any social forum. But the Trial Court did not analyse this aspect properly before condoning such delay.  

8- That the Trial Court failed to carefully analyse the defense of the Accused-Appellant under Section 313 CrPC. The Section 313 CrPC provides that the court shall question the accused and give him an opportunity to explain the circumstances appearing in the evidence against him. Such an opportunity is a valuable right of the accused to seek justice and defend oneself.

9- That the Trial Court did not separately analyse the charges of criminal intimidation levelled against the Accused-Appellant before convicting her for the same.

10- That the Trial Court failed to delve into the elements and individual ingredients of Sections 366A and 506 IPC and only focused on negating the defenses put forth by the Accused-Appellant.

11- That although ordinarily the Supreme Court ought not to re-evaluate evidence. But, in an exceptional situation like this, where the lower courts did not assess the evidence properly, the Apex Court had to re-appraise the evidence to ensure justice is delivered properly.

Therefore, the Supreme Court in this case held that the Trial Court failed to delve into the Accused-Appellant’s defense properly and passed a Judgment based on a generalised idea that parents would not ordinarily jeopardize the reputation of their daughter by filing false and malicious cases. Thus, the Apex Court held that as the prosecution failed to prove beyond reasonable doubt that the Accused-Appellant was guilty of #procuringminorgirls and causing #criminalintimidation, so the Accused-Appellant was acquitted.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer

PRODUCT LIABILITY UNDER CONSUMER PROTECTION ACT, 2019

The #Ministry of Consumer Affairs, Food & Public Distribution vide Press Release dated 20.07.2020 notified the provisions of the #ConsumerProtectionAct, 2019 (‘the Act’). The Union Minister said that this new Act will empower #consumers and help them in protecting their rights through its various notified Rules and provisions like Consumer Protection Councils, Consumer Disputes Redressal Commissions, Mediation, Product Liability and punishment for manufacture or sale of products containing adulterant goods. This Article only deals with the provisions related to #Product Liability under the Act.

Prior Position

Earlier, there was no specific Product Liability concept in India. But it is significant to make it evident that there were certain laws in India which protected the interests of the consumers against faulty products. Such claims were guided by the principles of justice, equity and good conscience and founded its basis under the legal regime of the Consumer Protection Act, 1986; The Indian Contracts Act 1872; The Sale of Goods Act 1930; The Drugs and Cosmetics Act, 1945; and The Prevention of Food Adulteration Act, 1954 as repealed by Food Safety and Standards Act, 2006.

Current Position

As none of above mentioned legislations could lay a comprehensive legal framework related to the Product Liability, it was the need of the hour to establish a detailed Product Liability doctrine which would safeguard the interest of the consumers. This has been done through the Act, which introduces the concept of Product Liability, amongst others.

Sections 82 to 87 of the Act deals with the Chapter related to the Product Liability claims of the consumers. Under the Act, Section 2(34) defines Product Liability as the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating thereto.

The impact of Section 82 of the Act is that it is not only the manufacturer who will be liable to compensate a consumer but also the seller if it fulfils the conditions mentioned in the Act. The New Act allows a person to raise a Product Liability action by means of filing a complaint before a District Commission or State Commission or National Commission. Further, the Act clarifies the liabilities of the manufacturer, seller, service providers and exceptions thereof. A gist of the liabilities under the Act are as follows:

  1. Manufacturer’s Liabilities (Section 84)

The Act sets out the following scenarios in which a product manufacturer shall be liable:

  • The product contains a manufacturing defect, or
  • The product has a defective design, or
  • There is a deviation from the manufacturing specifications, or
  • The product does not conform to an express warranty given by the manufacturer (even when the manufacturer proves that it was not negligent or fraudulent in making the express warranty for the product), or
  • The product does not contain adequate instructions or any warning regarding improper or incorrect usage of correct usage to prevent harm.
  1. Service Provider’s Liabilities (Section 85)

Similarly, a service provider shall be liable for:

  • Providing services which were faulty, imperfect, deficient or inadequate, or
  • Proving inadequate instructions and warning to prevent harm, or
  • Providing services which do not conform to the warranty or the terms and conditions mentioned in the contract.
  1. Seller’s Liabilities (Section 86)

The Act even makes a product-seller liable for a product liability claim if:

  • It has exercised substantial control over the designing, testing, manufacturing, packaging or labelling of the product, or
  • It altered or modified the product and such alteration or modification was a substantial factor in causing the harm, or
  • It has made an express warranty which is independent of the warranty made by a manufacturer and such product failed to conform to such express warranty made by the product-seller which caused the harm, or
  • The identity of the manufacturer is not known or if known, the service of notice or process or warrant cannot be affected on the manufacturer or it the manufacturer is not subject to the law which is force in India, or
  • The product seller has failed to exercise reasonable caution in assembling, inspecting or maintaining the product or it did not follow the warnings or instructions for the product provided by the manufacturer while selling such product and such failure was the proximate cause of the harm caused to such product.
  1. Exceptions to a Product Liability Action Claim (Section 87)

The Act envisages certain scenarios where a Product Liability action cannot be brought against the product-seller. No liability will be fastened on the product-seller if at the time of harm, the product was misused altered or modified.

Further, in any product liability action based on the failure to provide adequate warnings or instructions, the product-manufacturer shall not be liable, if-

  • The product was purchased to be used at a workplace and the product-manufacturer had provided warnings to such employer, or
  • The product was sold as a component to be used in another product and necessary instructions and warnings had been given by the manufacturer, and the harm was caused to the complainant from the use of the end product, or
  • The product was one which was legally meant to be used under the supervision of an expert or a class of experts and the product-manufacturer had employed reasonable means to give warnings or instructions for usage to such expert or class of experts, or
  • The complainant was under the influence of alcohol or any prescription drug while using the product which was not prescribed a medical practitioner, or
  • Such instructions or warnings are obvious or commonly known to a user or a consumer of such product or which the consumer should have known, taking into account the characteristics of such product.

Even prior to the Act of 2019, in most product liability actions one or more of the above defenses were taken. These defenses now have statutory recognition under the Consumer Protection Act, 2019.

Lakshmi Vishwakarma

Associate

The Indian Lawyer

NCLT REITERATES THAT UNPAID DUES UNDER SETTLEMENT AGREEMENT CANNOT BE RECOVERED UNDER INSOLVENCY AND BANKRUPTCY CODE

The National Company Law Tribunal (#NCLT) Principal Bench, New Delhi has in a matter of M/S Brand Realty Services Ltd vs M/S Sir John Bakeries India Pvt Ltd passed an Order dated 22-07-2020 and held that NCLT is not a recovery court and that an unpaid #instalment under a #settlement agreement cannot be considered as an #operationaldebt under the Insolvency and Bankruptcy Code 2016 (the Code).

In the present case, M/S Brand Realty Services Ltd (the Operational Creditor) and M/S Sir John Bakeries India Pvt Ltd (the Corporate Debtor) had agreed that the Operational Creditor would provide investment and consultancy services to the Corporate Debtor for setting up a retail outlet in Uttar Pradesh. In this regard, they executed an Agreement dated 28-11-2014 and the Operational Creditor raised invoices thereunder for the said consultancy services.

Thereafter, an Account Settlement Agreement dated 15-06-2018 (the Settlement Agreement) was executed, whereby, the Corporate Debtor had agreed to pay certain commission to the Operational Creditor for the said investment and consultancy services.

According to the said Settlement Agreement, the Corporate Debtor handed over cheques amounting to Rs. 33,94,000.00 to the Operational Creditor. But when the Operational Creditor presented the said cheques in the bank, the cheques were returned unpaid on 18-04-2019. Thereafter, the Corporate Debtor did not make payment of the said amount to the Operational Creditor.

Thus, the Operational Creditor sent a Legal Notice dated 30-04-2019 and later, a Demand Notice under Section 8 of the Code dated 30-04-2019 to the Corporate Debtor, thereby, demanding payment of unpaid operational debt. But as the Corporate Debtor failed to respond to the said Notices, the Operational Creditor filed an Application under Section 9 of the Code to initiate corporate insolvency resolution process (CIRP) against the Corporate Debtor before the NCLT New Delhi Principal Bench.

The NCLT Bench made the following observations in this case:

1- That as per the terms of the Settlement Agreement, the Corporate Debtor had already paid the settlement amount of Rs. 21,66,511.00 to the Operational Creditor. Therefore, they disputed the existence of any further liability or debt of Rs. 33,94,000.00 due and payable to the Operational Creditor.

2- That in order to trigger Section 9 of the Code, the Operational Creditor had to prove default or non-payment of operational debt by the Corporate Debtor. The term “operational debt” has been defined under Section 5 (21) of the Code as a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

3- But in the present case, the claim under Section 9 Application was not based on the Agreement dated 28-11-2014 by which invoices were raised by the Operational Creditor, but was based on the Settlement Agreement, whose terms were alleged to have been breached by the Corporate Debtor.

Based on the aforesaid grounds, the NCLT Bench reiterated that an unpaid instalment as per settlement agreement cannot be treated as “operational debt” under Section 5 (21) of the Code. Thus, the failure or breach of Settlement Agreement cannot be a ground to initiate CIRP process under the Code.

Further, the NCLT Bench reiterated that NCLT is not a recovery court and thus, the Application made for recovery of dues owing to breach of the Settlement Agreement was dismissed.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer