The Chennai Bench of the National Company Law Tribunal (NCLT) has held that a claim arising from an alleged failure to complete an agreed capital contribution in a joint venture or membership arrangement does not qualify as an “operational debt” under Section 5(21) of the IBC. The Tribunal also reiterated that obligations relating to acquisition of ownership or equity interests are distinct from liabilities arising from supply of goods or services and therefore cannot trigger CIRP under Section 9.
The Tribunal noted that the record revealed longstanding disputes, settlements, reciprocal claims, correspondence, and financial disagreements between the parties well before the demand notice was issued. Relying on settled Supreme Court jurisprudence, the Tribunal emphasized that where genuine disputes require adjudication, the insolvency process cannot be invoked as a substitute for debt recovery.
Further, the Tribunal considered past settlements, meeting records, emails, and the parties’ conduct as evidence showing that the claim was seriously contested and not an undisputed operational debt.
Briefly, the petition was filed by ISPT LLC vs Indo Shell Mould Limited before the NCLT Chennai under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking initiation of CIRP against Indo Shell Mould Limited. ISPT LLC claimed that under a 2012 undertaking, Indo Shell Mould had agreed to contribute USD 2 million towards its 49% membership interest in ISPT LLC, but paid only USD 1.11 million, leaving an alleged unpaid balance of USD 890,000. ISPT LLC treated this amount as an operational debt and asserted that default occurred on 25 August 2023.
ISPT LLC further contended that the non-payment of the balance contribution adversely affected its business and financial position. It relied on earlier proceedings involving its subsidiary, ISPT India Private Limited, and argued that a compromise recorded before the NCLAT could not extinguish its independent rights because it was neither a party nor a signatory to that settlement.
The Corporate Debtor, Indo Shell Mould Limited, opposed the petition and argued that no amount was payable to ISPT LLC. It pointed out that ISPT LLC itself owed substantial sums towards supplies, commissions and other dues. The company relied on several emails, minutes of meetings, a 2022 settlement arrangement, and a 2023 Memorandum of Understanding (MOU) to show that the parties had already reconciled their accounts and that there were longstanding disputes regarding the claim.
The Division Bench comprising Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member) noted that the alleged debt arose out of a commitment by the Corporate Debtor to invest capital into ISPT LLC and acquire an equity interest in the company. The claim represented the balance of an agreed equity contribution and not consideration for goods, services, employment, or statutory dues. Therefore, the nature of the claim itself was fundamentally different from an operational debt contemplated under Section 5(21) of the IBC.
The Bench also found that the record showed extensive disputes between the parties long before the issuance of the statutory demand notice. Various emails exchanged between 2017 and 2020, the minutes of members’ actions dated March 01, 2022, the payment of USD 769,053 by ISPT LLC to the Corporate Debtor, the settlement discussions, the MOU dated Aug 25, 2023, and several litigations demonstrated that the parties had serious and ongoing disagreements concerning their mutual financial obligations.
The Tribunal observed that ISPT LLC had itself acknowledged and acted upon arrangements under which amounts were paid to Indo Shell Mould in full and final settlement of certain liabilities. The surrounding circumstances indicated that the relationship between the parties involved reciprocal claims and counterclaims, making the dispute far from illusory or sham.
