Settlement Restructuring Payment Timelines Does Not Change Nature Of Operational Debt: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai has held that a settlement agreement that merely restructures repayment or acknowledges an existing liability does not extinguish or alter the original character of the debt.

A tribunal comprising Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam observed that simply renegotiating a payment timeline does not create a completely new and independent debt.

“Under Indian law, a settlement agreement that merely restructures repayment or acknowledges a debt, does not extinguish or alter the original character of the debt. Hon'ble Supreme Court and Appellate Tribunals maintained that the fundamental nature of the liability remains tethered to its origin. Simply renegotiating a payment timeline does not create a completely new and independent debt.”, the tribunal ruled.

Om Tranns Infra Corporation Private Limited approached the tribunal seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Everrenew Energy Private Limited over unpaid operational dues of about ₹3.24 crore for transportation and carrier services rendered between June and October 2024.

The operational creditor stated that after the invoices remained unpaid, it issued a demand notice. Everrenew Energy later made a part payment of ₹79.52 lakh but did not clear the remaining dues. In its reply to the demand notice, the company alleged that the transportation services suffered from frequent vehicle breakdowns and delivery delays, causing operational and financial losses.

Everrenew Energy relied on a settlement agreement dated January 28, 2025, and argued that it superseded the earlier invoices and work orders, novated the original contract and that dues arising under the settlement agreement could not be treated as an operational debt under the Insolvency and Bankruptcy Code.

The tribunal rejected the contention after noting that the company had not raised any dispute regarding the quality or quantity of the services before receiving the demand notice. Instead, it made a part payment acknowledging its liability and subsequently entered into a settlement agreement, which it failed to honour.

“there was no substitution nor alteration rather there was a settlement between the parties as to the payment of debt by the Corporate Debtor in respect of the invoices raised by the Petitioner which the Respondent has not honored. There is no variation in the rights, liabilities or the legal position of the parties.”, the tribunal ruled. 

Referring to earlier decisions, the tribunal held that the settlement agreement did not amount to novation of the original contract and did not change the character of the underlying operational debt. It observed that the agreement merely recorded the mode and manner of repayment of the existing operational debt.

“If the Debtor breaches the settlement agreement, the Creditor can pursue remedies based on the underlined nature of the original debt.”, it observed. 

The tribunal further observed that the liability did not arise from any alleged breach of the settlement agreement. Instead, it arose from a pre-existing operational debt that had already been acknowledged by the corporate debtor.

The settlement merely recorded the mode and manner of repayment of that crystallised operational debt and did not create a new liability or alter the nature of the underlying claim.

Holding that the operational debt exceeded the statutory threshold, the petition had been filed within the limitation, and there was no pre-existing dispute before the demand notice was issued, the tribunal admitted the insolvency petition, initiated CIRP against Everrenew Energy Private Limited and appointed S. Kangayan as the Interim Resolution Professional.

For Operational Creditor: Advocate Pankaj Jain

For Respondent: Senior Advocate S.R Rajagopal and Advocate PJ Shri Ganesh