IBC not a recovery mechanism: NCLAT

NCLAT Observations on IBC

• It refused insolvency petition against Wipro Ltd earlier

• It cannot be used as a means to recover debt against solvent companies

New Delhi: The Insolvency & Bankruptcy Code is “not a recovery mechanism”, observed the National Company Law Appellate Tribunal, while dismissing a plea against United Telecoms Ltd filed by one of its operational creditors.

This is the second such observation from the Chennai bench of the insolvency appellate tribunal this month, after declining to entertain the petition from operational creditors. Earlier, it had refused to entertain an insolvency petition against Wipro Ltd after observing that the bankruptcy law cannot be used as a means to recover debt against solvent companies. Again, while rejecting a plea against United Telecoms last week, a two-member bench comprising justices M Venugopal and Shreesha Merla said: “Time and again, the apex court in a catena of judgments held that the IBC is not a ‘recovery mechanism’. The appellate tribunal upheld the order by the Bengaluru bench of the National Company Law Tribunal (NCLT), which had dismissed the plea moved by an operational creditor claiming a default of Rs 8.46 crore against United Telecoms Ltd, which is an ICT and social infrastructure company.

According to the petitioner, it had entered into a settlement agreement with the company on its request and had signed an MoU (memorandum of understanding). Some amount was paid, however, a larger payment was due. Counsel for the appellant vehemently contended that the MoU was duly signed by the parties and therefore United Telecoms is bound by the terms of the ‘settlement agreement’. He further submitted that the amounts which are balanced and due and payable fall within the definition of ‘Operational Debt’ and therefore NCLT has erred in dismissing its plea. However, United Telecoms had categorically denied any agreement entered into and evidenced that there was a pre-existing dispute prior to the issuance of the ‘demand notice’. After going through the pleadings, NCLAT said: “The first MoU is dated 10.09.2005 and any amount due and payable under it is barred by limitation. The ‘Settlement Agreement’ dated 01.1.2018 cannot be taken into consideration for establishing any debt due and payable as it is anti-dated.” It is evident that the petition filed in respect of claims arising under the aforementioned settlement agreement does not come within the definition of ‘operational debt’, it said. “For all the aforenoted reasons, this ‘appeal’ fails at the threshold and is accordingly dismissed,” it said.