Defaults Occurring Out Of Settlement Agreements Are Not “Operational Debts” U/S 5(21) Of IBC: NCLT Delhi

The NCLT (National Company Law Tribunal), Delhi, has ruled that defaults arising out of settlement agreements do not qualify as operational debts under Section 5(21) of the Insolvency and Bankruptcy Code (IBC). Operational debt typically relates to claims arising from the provision of goods or services. The tribunal's decision clarifies that when a default occurs due to a breach of a settlement agreement, which might have been entered into to resolve a prior financial or operational debt, the nature of the debt for the purpose of initiating insolvency proceedings remains distinct from a direct operational debt. This distinction is crucial in determining the eligibility to file an insolvency application under the IBC and the classification of creditors.