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• The Clause 10 of the Agreement stated that if the Respondent fails to perform, then it will be liable to repay the advance to the Appellant along with compensation penalty and losses incurred. When the Respondent could not perform the Agreement, it repaid the advance money to the Appellant.
• The Bench held that whether a claim for compensation penalty has crystallized or not is to be adjudicated by a competent Court and not the Adjudicating Authority.
• Since the compensation penalty remained unpaid, the Appellant filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Respondent. It was argued that mere refund of the advance money would not absolve the Respondent from making payment of...
• The NCLT dismissed the petition, while observing that a petition under Section 9 of IBC cannot be admitted on the basis of claim of compensation under a contract. An Operational Debt must be crystallized, undisputed and shouldn’t be something which requires adjudication by competent authority.
• The Bench observed that as per Clause 10 of the Agreement, the entitlement is for compensation and penalty if there is failure in performance on part of the Respondent. It was held that a competent Court would adjudicate on the issue of whether compensation penalty has crystallized or not. The NCLT has rightly rejected the Section 9 petition.

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