The Chennai NCLT has held that IBC is not a ‘recovery mechanism’.

The ‘Appellant’ vehemently contended that the ‘Adjudicating Authority’ has failed to take into consideration that pursuant to the ‘Settlement Agreement’ dated 01.11.2018, cheques were issued by the Respondent/Corporate Debtor and were ‘dishonoured’. 

The mere fact that cheques were given construes that there is an admission of liability by the Respondent/Corporate Debtor. It is submitted that the Operational Creditor was rendering services of ‘Business Development’ for the Corporate Debtor and the amount of Rs.8,46,32,553/- was due and payable along with a running interest at the rate of 15% per annum on commercial rate of interest basis. 

An original Memorandum of Understanding was entered into on 10.09.2005 with respect to the ‘Business Development’, which Project was duly completed and the Operational Creditor was entitled as per the MOU for its commission at 1% of the Total Project Value.

The Financial Manager of the Operational Creditor had sent an e-mail dated 18.03.2013 seeking the payment of the 1% commission and the letter dated 01.07.2013 was also addressed on the same issue. 

It is submitted that the representatives of the ‘Corporate Debtor’ had induced the ‘Appellant’/‘Operational Creditor’ herein to sign the ‘Settlement Agreement’ on the ground that the ‘Corporate Debtor’ is having serious cash flow problems and it was only after continuous follow-ups with the ‘Operational Creditor’, and left with no other remedy, the ‘Settlement Agreement’ was entered into.

The tribunal Settlement Agreement [even if disputed herein] does not come within the definition of ‘Operational Debt’. Time and again, the Hon’ble Apex Court in a catena of Judgments held that the IBC is not a ‘recovery mechanism’. Even if the Settlement Agreement is taken into consideration, this ‘Tribunal’ is of the earnest view that the claims arising under the ‘MOU’ lost the character of ‘Operational Debt’ and became a debt simpliciter. In respect of’ in the definition of Operational Debt cannot be interpreted widely so as to include any agreement between the parties which does not specifically pertain to the supply of goods or services. A wide interpretation would only defeat the scope and objective of the code. Keeping in view, the spirit of the Code, this ‘Tribunal’ is of the considered view that at best, the claims are contractual claims for which appropriate Civil Proceedings may lie.

Maulik Kirtibhai Shah v/s United Telecoms Limited