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2019 (5) TMI 1959 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - amount deposited as security deposit - Operational Debt or not - existence of debt and dispute or not - HELD THAT - As per Part-IV of Form 5, the principal amount due stated to be Rs.1,20,00,000/- and the date on which the amount became due is stated to be 21.09.2015. it is stated in Part-V that as per the terms of the LOI, interest free deposit inter alia of three months rental was payable within 7 days of signing the LOI and that pursuant to the condition, the Operational Creditor deposited a sum of Rs,1,20,00,000/- as deposit with the Corporate Debtor, being equivalent to three months of rent through RTGS on 08.09.2015. Whether the deposit amounting to Rs,1,20,00,000/- is an Operational Debt as defined in Section5(21) of the Code? - HELD THAT - The Learned Counsel for the Operational Creditor has pleaded that the amount of Rs.1,20,00,000/- was not an interest free deposit but an advance for providing consultancy, architectural design and furnishing services to the Operational Creditor. Clause 7 of the LOI clearly provides for an interest free security deposit (IFSD) equivalent to six months rental of which part deposit equivalent to three months rent is payable within 7 days of signing the letter of intent. The rental per month as per Clause 4 of the LOI is Rs.48 Lacs including Rs.8 lacs toward maintenance charges - the IFMS in respect of maintenance charge is separately provided for and is also payable when the maintenance agreement is executed. In these circumstances, three months rent as IFSD comes to Rs.40 lacs per month x 3 Rs.1, 20, 00,000/-. It is accepted in Part V of form 5 (Para 1(iv)) that pursuant to the condition of the IFSD, the Operational Creditor deposited a sum of Rs.1,20,00,000/-. Therefore, the plea of the Learned Counsel for the Operational Creditor that the amount of Rs.1,20,00,000/- is not IFSD and an actually an advance cannot be accepted. Thus, the plea of the Learned Counsel for the Operational Creditor that there was an advance of Rs.1,20,00,000/- in respect of provision of goods or services by the Corporate Debtor cannot be accepted - In view of the decision taken about that the amount of Rs.1,20,00,000/ is not an Operational Debt, the claims of the two parties regarding refund/forfeiture of the IFSD are not being examined. Similarly, the application for condonation of delay in filing the application under Section 9 of the Code as well as the issue of the limitation are not examined. Thus, it is held that the amount of Rs.1,20,00,000/- is not proved to be an operational debt and therefore, the application under Section 9 of the Code is rejected.
Issues Involved:
1. Whether the deposit amounting to Rs.1,20,00,000/- is an Operational Debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016. 2. Whether the Letter of Intent (LOI) between the parties constituted a real estate transaction or a provision of services. 3. Whether the application for initiation of Corporate Insolvency Resolution Process is barred by limitation. 4. Whether the claim of refund/forfeiture of the Interest-Free Security Deposit (IFSD) is valid. Issue-wise Detailed Analysis: 1. Whether the deposit amounting to Rs.1,20,00,000/- is an Operational Debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016: The Tribunal examined whether the amount of Rs.1,20,00,000/- deposited by the Operational Creditor was an Operational Debt. Section 5(21) of the Code defines Operational Debt as "a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority." It was stated by the Operational Creditor that the amount was an interest-free deposit equivalent to three months' rental given as per the terms of the LOI. The Tribunal concluded that no goods or services were provided by the Operational Creditor to the Corporate Debtor, and hence, the claim was not in respect of the provision of goods or services. Therefore, the amount did not qualify as an Operational Debt. 2. Whether the Letter of Intent (LOI) between the parties constituted a real estate transaction or a provision of services: The Tribunal analyzed the LOI and its clauses. The Operational Creditor argued that the LOI was for providing architectural, design, and furnishing services. However, the Tribunal noted that Clause 15 of the LOI, when read with Clause 5, indicated that the Corporate Debtor was required to provide fully furnished premises as per the lessee's specifications and design. The Tribunal found that the LOI placed a restriction on the lessor to finalize the design as per the lessee architect team, but it did not constitute a provision of architectural, design, and furnishing services by the Corporate Debtor to the Operational Creditor. Hence, the transaction was identified as a real estate transaction for leasing fully furnished premises. 3. Whether the application for initiation of Corporate Insolvency Resolution Process is barred by limitation: The Tribunal did not examine the issue of limitation in detail, as the primary issue of whether the amount was an Operational Debt was decided against the Operational Creditor. The Tribunal noted that the application for condonation of delay in filing the application under Section 9 of the Code was submitted but did not delve into this matter since the claim itself was not recognized as an Operational Debt. 4. Whether the claim of refund/forfeiture of the Interest-Free Security Deposit (IFSD) is valid: The Tribunal noted the arguments from both parties regarding the refund and forfeiture of the IFSD. The Operational Creditor claimed that the Corporate Debtor was obligated to refund the deposit as per Clause 21 of the LOI. Conversely, the Corporate Debtor argued that the LOI was conditionally accepted, and the clause regarding refund was not accepted. The Tribunal decided not to examine the claims of refund/forfeiture in detail, as it had already concluded that the amount did not constitute an Operational Debt. Conclusion: The Tribunal held that the amount of Rs.1,20,00,000/- was not proved to be an Operational Debt. Consequently, the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, was rejected and dismissed.
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