The NCLAT in Aquacity Consumer and Societies Welfare Society v/s AG8 Ventures Limited & Anr. held that Corporate Insolvency Resolution Process cannot be commenced under section 9 of Insolvency and Bankruptcy Code, 2016 (‘IBC’) based on Barter Agreement.
The Respondent No.1, AG 8, also the corporate debtor procured registration of 11 real estate projects from RERA, Madhya Pradesh. They hired Respondent no.2, DB Corp Limited for marketing and advertisement of its projects. Barter agreements, encompassing both cash and barter components, were established between the Corporate Debtor and Operational Debtor. The barter component involved the transfer of units to the Operational Creditor.
Several grievances were lodged with RERA by the allottees of the Corporate Debtor, resulting in various directives for the refund of allotment amounts. Additionally, a ruling on January 8, 2022, found the Corporate Debtor culpable of fund diversion and the failure to maintain the designated account, leading to the rescindment of the registration for the ‘Aakriti Aquacity’ project. Subsequently, orders were issued to annul the registration of ‘Aakriti Business Arcade’ and mandated the appointment of an agency for project completion under Section 8 of the RERA Act, 2016.
In 2022, the CIRP application under section 9 was filed by the operational creditor at NCLT Indore which allowed the CIRP. An appeal was filed before the NCLAT New Delhi against NCLT Indore’s order.
NCLAT allowed the appeal. It denied the CIRP and held that the commencement of CIRP was contrary to the provisions of IBC since non-discharge of barter agreement by corporate debtor does not lead to operational debt. The appellate tribunal highlighted that the claim must subsist for becoming an operational debt and must relate to right to payment as clause ‘(a)’ and ‘(b) of section 3(6) of IBC refers to “right of payment”. The right must subsist to trigger the CIRP.
Furthermore, it was highlighted the absence of payment for the operational debt is an essential prerequisite for issuing any demand notice under Section 8 of the Code. Additionally, Section 9 explicitly states that if, after the lapse of a 10-day period from the notice’s delivery date, the Operational Creditor does not receive payment from the Corporate Debtor, the Operational Creditor has the authority to initiate CIRP. Consequently, the failure to settle the operational debt is a mandatory condition for commencing CIRP.
Reliance was placed on Supreme Court’s judgment in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. NBCC (India) Ltd. & Ors. where it was held that the expression payment only refers to payment of money and nothing of similar nature.

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/

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