2017 (11) TMI 194 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedure - proof of existence of dispute - Held that - All that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defense which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defense is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. At paragraph 45 of the said Judgement in relation to existence of dispute it has been observed as follows Going by the aforesaid test of existence of a dispute , it is clear that without going Into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect In characterizing the defense as vague, got-up and motivated to evade liability. In the light of the above the contentions of the Learned Counsel for the Petitioner relating to dispute may not be of much effect. Hence, taking into consideration all the above including facts and position of law, we are not inclined to admit this Petition and hence the Petition is dismissed, but without costs.

Issues Involved:
1. Whether the lease agreement falls within the definition of "Operational Debt" under Section 5(21) of IBC, 2016.
2. Whether the Applicants can be categorized as "Operational Creditors."
3. Whether the claim for damages due to wrongful termination of the lease agreement can be considered a debt under IBC, 2016.
4. Whether the existence of an arbitration clause and prior arbitration proceedings affect the maintainability of the Petition.

Detailed Analysis:

1. Definition of "Operational Debt":
The Tribunal examined whether the transaction of leasing immovable property falls under "Operational Debt" as defined in Section 5(21) of IBC, 2016. The Tribunal referred to various sections of IBC to understand the definitions of "default," "debt," and "claim." It concluded that "Operational Debt" must relate to the provision of goods or services, including employment or dues to the government. The Tribunal emphasized that the term "goods or services" should have a direct input-output relationship with the operations of the Corporate Debtor. Since the lease of immovable property does not fit this criterion, it cannot be considered an "Operational Debt."

2. Categorization as "Operational Creditor":
The Tribunal analyzed whether the Applicants could be categorized as "Operational Creditors" under Section 5(20) of IBC, 2016. It concluded that since the lease agreement does not qualify as "Operational Debt," the Applicants cannot be categorized as "Operational Creditors." The Tribunal noted that only claims directly related to the provision of goods or services or employment dues could qualify as "Operational Debt," and thus, the Applicants' claim does not meet this requirement.

3. Claim for Damages:
The Tribunal addressed the Applicants' claim for damages due to the wrongful termination of the lease agreement. It referred to the definition of "debt" under Section 3(11) of IBC, 2016, and concluded that a claim for damages is not a "debt" until adjudicated by a competent court or arbitrator. The Tribunal cited the Karnataka High Court's decision in Greenhills Exports (Private) Limited vs. Coffee Board, Bangalore, which clarified that damages become a debt only when a court awards them. Therefore, the Applicants' claim for future rents and damages does not constitute a debt under IBC, 2016.

4. Arbitration Clause and Prior Proceedings:
The Tribunal considered the existence of an arbitration clause in the Hotelier-Buyer Agreement and the prior arbitration proceedings initiated by the Corporate Debtor. The Tribunal noted that the Corporate Debtor had invoked the arbitration clause before the Applicants sent a notice of default. It emphasized that the existence of a genuine dispute, as indicated by the arbitration proceedings, affects the maintainability of the Petition. The Tribunal referred to the Supreme Court's judgment in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which stated that if a plausible dispute exists, the application for initiating CIRP should be rejected.

Conclusion:
The Tribunal concluded that the lease of immovable property does not fall within the definition of "Operational Debt," and thus, the Applicants cannot be categorized as "Operational Creditors." Additionally, the claim for damages due to wrongful termination of the lease agreement is not a debt under IBC, 2016, until adjudicated by a competent court or arbitrator. The existence of prior arbitration proceedings also indicates a genuine dispute, making the Petition non-maintainable. Consequently, the Petition was dismissed without costs.

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