2020 (9) TMI 940 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt or not - existence of debt and dispute or not - HELD THAT - The debt arising out of non-payment of lease rent does not fall under the definition of 'operational debt' as defined under Section 5(21) of the Code (even though it may otherwise be a debt), and the Petitioner cannot be termed as an 'Operational Creditor' within the meaning of Section 5(20) and for the purpose of the Code. It is also seen from the Petition that there existed a substantial dispute over the debt in question, prior to the filing of this Petition. It had filed a suit before the Court of City Civil Judge at Bengaluru under the Code of Civil Procedure on 1st October, 2018. The matter went to the Lok Adalat. Some payments were made but later the cheques paid towards rent were dishonoured on 31st January, 2019. The settlement was got annulled through the Civil Court. The Demand Notice as prescribed under the Code was issued on 11th October, 2019. This Petition was filed even later. There was therefore a pre-existing dispute, and was still pending in the Hon'ble Civil Court at Bengaluru - In the instant case, neither could the debt be considered to be an Operational debt for the reasons mentioned in the foregoing paragraphs, nor was there a clear undisputed debt as there was a pre-existing dispute taken to the Hon'ble Civil Court, much prior to the issue of the Demand Notice in Form 3 and Form 4 as prescribed under the Code on 11th October, 2019, which was received by the Corporate Debtor on 14th October, 2019. For this reason, also, the Petition has to be dismissed. Petition dismissed.

Issues Involved:
1. Whether the non-payment of lease rent constitutes an 'Operational Debt' under the Insolvency and Bankruptcy Code, 2016.
2. Whether the Petitioner qualifies as an 'Operational Creditor'.
3. The existence of a pre-existing dispute over the debt in question.

Issue-wise Detailed Analysis:

1. Whether the non-payment of lease rent constitutes an 'Operational Debt' under the Insolvency and Bankruptcy Code, 2016:

The Petitioner argued that the debt due to him constitutes an Operational Debt, as letting out premises on rent for a commercial purpose has an element of service, and the consideration there can be regarded as an 'Operational Debt'. The Petitioner cited the Central Goods and Services Tax Act, 2017, which considers leasing as a supply of services, and the recommendations of the Bankruptcy Law Reforms Committee, which includes rental obligations as part of operational debt.

However, the Tribunal noted that the definition of 'Operational Debt' under Section 5(21) of the Code includes claims in respect of the provision of goods or services, employment, or government dues. The Tribunal emphasized that there should be a direct nexus between such input and output in a business context. Different Benches of the Tribunal and the Hon'ble NCLAT have consistently held that letting out property on lease/rent does not constitute the provision of goods or services and hence cannot give rise to an Operational Debt. The Tribunal referred to various judgments, including Pramod Yadav and Ors. Vs. Divine Infracon Pvt. Ltd., Citicare Super Speciality Hospital Vs. Vighnaharta Health Visionaries Pvt. Ltd., and Jindal Steel and Power Ltd. Vs. DCM International Ltd., which held that lease of an immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition of 'Operational Debt'.

2. Whether the Petitioner qualifies as an 'Operational Creditor':

The Tribunal clarified that an 'Operational Creditor' under Section 5(20) of the Code is a person to whom an operational debt is owed. Since the Tribunal concluded that the debt arising out of non-payment of lease rent does not fall under the definition of 'Operational Debt', the Petitioner cannot be termed as an 'Operational Creditor'. The Tribunal rejected the Petitioner's argument that dues arising from non-payment of rent would also be included in the definition of Operational Debt, noting that the debt was not payable to the Central Government, any State Government, or any local authority, but to the Petitioner as an individual.

3. The existence of a pre-existing dispute over the debt in question:

The Tribunal observed that there was a substantial dispute over the debt in question, prior to the filing of this Petition. The Petitioner had filed a suit before the Court of City Civil Judge at Bengaluru, which went to the Lok Adalat, where some payments were made but later the cheques were dishonored. The settlement was annulled, and the Demand Notice under the Code was issued much later. The Tribunal referred to the Supreme Court's judgment in Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd., which held that the existence of an undisputed debt is a sine qua non for initiating CIRP. The Tribunal concluded that there was a pre-existing dispute, and the debt could not be considered as an Operational Debt, nor was there a clear undisputed debt.

Conclusion:

The Tribunal dismissed the Company Petition, holding that the debt arising out of non-payment of lease rent does not fall under the definition of 'Operational Debt', and the Petitioner cannot be termed as an 'Operational Creditor'. The existence of a pre-existing dispute further warranted the dismissal of the Petition. The Petitioner was advised to pursue the recovery of dues through other forums or under other laws. No order as to costs was made.

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