2017 (7) TMI 466 - Tri - Insolvency and Bankruptcy

Initiation of proceedings under Insolvency and Bankruptcy Code - Held that - Dispute in Insolvency and Bankruptcy must relate to specified nature in clause (a), (b) or (c) of sub-Section (6) of Section 5 of the Code, this Adjudicating Authority holds that the case on hand, in view of the clear violation of covenant provided in the Lease Deed executed between the parties in this case, squarely falls under section 5(6)(c) of the Code. There being vacation, in between, there has been a delay of more than one month in passing this order.Accordingly, this Petition is dismissed with liberty to the operational creditor to approach appropriate forum for suitable remedy if eligible under any other law in force.

Summary

Issues involved:
Operational Creditor's default claim against Corporate Debtor under Insolvency and Bankruptcy Code, 2016.

Analysis:
1. The Operational Creditor, a packaging company, filed an insolvency petition against the Corporate Debtor, Dishnet Wireless Ltd., claiming a default of ?40,40,726 as of 26.2.2017. The claim was based on a lease agreement for a warehouse space leased to the Corporate Debtor for storing optic fiber materials and telecommunication equipment.

2. The Lease Agreement specified the terms, including a monthly rent of ?1,25,000 and a security deposit of ?3,75,000. The Operational Creditor alleged non-payment of rent beyond February-March 2014, leading to a legal notice demanding payment under the Insolvency and Bankruptcy Code.

3. The Corporate Debtor responded, stating that they vacated the premises due to a notice from UP Financial Corporation Ltd., initiated by defaulting lessees. The Corporate Debtor denied liability, citing non-disclosure of a previous 99-year lease and mortgage by the former lessee, Greenfield Corporation Ltd., to UP Financial Corporation Ltd.

4. The dispute centered on the violation of the covenant in the Lease Deed, which required the lessor to be the absolute owner of the premises and not create any encumbrances that could affect the lessee's rights. The Adjudicating Authority referenced the Kirusa Software case to determine the nature of the dispute under Section 5(6)(c) of the Code.

5. Based on the clear violation of the covenant in the Lease Deed and the specified nature of the dispute, the Adjudicating Authority dismissed the petition, allowing the Operational Creditor to seek alternative remedies under applicable laws. The delay in the order was acknowledged due to intervening circumstances.

6. The judgment concluded by directing the Registry to communicate the decision to both parties, highlighting the importance of adherence to contractual covenants and the specified nature of disputes under the Insolvency and Bankruptcy Code.