NCLT New Delhi Holds Cancellation Agreement Claim Outside Operational Debt, Rejects Section 9 Plea

The New Delhi Bench of the National Company Law Tribunal (NCLT) on 20 May 2026 held that a claim arising from a cancellation agreement executed for relinquishment of rights under an earlier development arrangement does not constitute “operational debt” under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Judicial Member Ashok Kumar Bhardwaj and Technical Member Atul Chaturvedi dismissed a Section 9 application filed by Parsvnath Developers Ltd. seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Vinu Promoters Pvt. Ltd. The Bench observed:

“the Cancellation Agreement constituted an independent contractual arrangement between the parties which was to be governed and enforced in accordance with its own terms and conditions. In the event of any alleged breach or non-compliance thereof, the parties would necessarily have recourse to appropriate remedies available under law before the competent civil forum.”

Parsvnath Developers approached the Tribunal alleging a default of Rs. 17 crore. It stated that Vinu Promoters engaged it to develop four commercial plots in Sector-63, Noida, where it constructed a commercial complex known as “Shoppers Den”.

After completing the project, both parties executed a Cancellation Agreement dated 31 March 2014, under which Vinu Promoters agreed to pay Rs. 25 crore for transfer back of development rights and relinquishment of claims. Parsvnath Developers alleged that Vinu Promoters paid Rs. 8 crore and failed to pay the remaining Rs. 17 crore.

Parsvnath Developers contended that Vinu Promoters acknowledged the liability through part-payments and disclosures in its audited balance sheets. It argued that the outstanding amount represented consideration for construction and development services already rendered and therefore qualified as operational debt.

Vinu Promoters opposed the petition and contended that the claim arose entirely from the Cancellation Agreement and not from any unpaid dues under the original development arrangement. It submitted that the dispute remained contractual in nature and could not be adjudicated in insolvency proceedings.

After examining the record, the Tribunal noted that the original development agreement governed the construction and development work, but the parties terminated it upon execution of the Cancellation Agreement. It found that the present claim arose solely from the subsequent arrangement, which provided for payment of Rs. 25 crore towards relinquishment of rights and interests under the earlier contract.

The Tribunal held that the liability did not arise from the provision of goods or services but from a separate contractual settlement between the parties. It therefore concluded that the claim did not qualify as “operational debt” within the meaning of Section 5(21) of the IBC.

Lastly, the Bench reiterated that the IBC does not function as a debt recovery mechanism and held that disputes arising from the Cancellation Agreement must be pursued before the appropriate civil forum.

Accordingly, the NCLT dismissed the Section 9 petition.

For the Respondent: Adv. Jaspreet Singh, Adv. Nandini Singh