NCLT Dismisses Actor Akshay Kumar's Insolvency Petition U/S 9 Of IBC Against Ed-Tech Company

Brief Facts

Akshay Kumar (Applicant/Operational Creditor) filed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) against M/s Cue Learn Private Limited (Respondent/Corporate Debtor) for initiating the Corporate Insolvency Resolution Process (CIRP) due to a default in payment of Rs. 4,83,24,201.

The Respondent entered into an Endorsement Agreement with the Applicant, under which the Applicant was to render endorsement services. The Applicant rendered the services for Day 1 as agreed, but the Respondent defaulted on the second tranche of Rs. 4,05,00,000 that became due on 15.04.2022.

The Applicant claimed Rs. 4,83,24,201 as “Operational Debt”, comprising Rs. 4.05 cr. with GST and interest as per the Agreement. A Demand Notice under Section 8 of the IBC was issued.

Contentions by the Applicant:

• The Respondent defaulted on payment of the second tranche despite the Applicant fulfilling his obligations.
• Payment was not contingent on the Applicant's availability for additional days. Clause 5.1.2 of the Agreement states that the second payment was due irrespective of whether the Respondent utilized the second day.
• The debt is an “Operational Debt” as it arose from services provided by the Applicant.

Contentions by the Respondent:

• The second tranche was payable for services on Day 2, but the Applicant didn't "make himself available" or propose a schedule, which was a prerequisite for the payment.
• The insolvency petition is not maintainable as it is based on an unadjudicated claim for liquidated damages arising from an alleged breach of contract, which is outside the scope of the IBC.

Observations

The Tribunal observed that for a Section 9 Application to be admitted, the primary requisite is that the debt should qualify as an operational debt as defined under Section 5(21) of IBC.

The Tribunal observed that the lack of performance on the part of the Operational Creditor to provide the required services negated the assertion of an operational debt. The Agreement stated that in the event of default, the Respondent's obligations shall come to an end. Thus, the claim was a claim for damages. The Tribunal held that “Claims for damages, however, do not fall within the ambit of operational debt as defined under the IBC”.

The Tribunal noted that the claim pertained to a breach of contract and was at best, a claim for liquidated damages. “Such claims require adjudication before a competent civil court and do not constitute crystallized debts that can be pursued under the insolvency resolution process”, the Tribunal observed.

The Tribunal went on to state that: “The NCLT's role is to oversee the insolvency resolution process for qualifying debts, and it cannot be expanded to encompass disputes of a contractual nature that do not fall under the operational or financial debt categories defined by the IBC.”

The Tribunal held that the debt in question was not an operational debt. It dismissed the petition.

Case Title: Mr. Akshay Kumar Bhatia vs. M/s. Cue Learn Private Limited

Case Number: CP No.: IB 572(ND)/2022 & IA 5437/ND/2023

For Applicant/ Operational Creditor : Mr. Sanyam Saxena, Mr. Nubair Alvi, Ms. Ramya Aggarwal, Advs.

For Respondent/ Corporate Debtor : Adv. Prithu Garg, Adv. Parth Bhatia, Adv. Sukriti Verma, Adv. Yashodhara Burmon Roy, Adv. Shivam Singh

Date of Order: 07.01.2025

Click Here To Read/Download The Order