2024 (5) TMI 1347 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT dismissed the section 9 application - Nature of debt - Operational debt under the IBC or not - existence of pre-existing dispute between the parties or not. Nature of debt - HELD THAT - The definition of operational debt under Section 5(21) of the IBC is analysed. This definition specifies a claim arising from the provision of goods or services. We find that while the LOI contemplated a future license agreement, the security deposit itself was not directly linked to any service rendered by Seaview. The judicial precedent as cited by the Appellant in Consolidated Construction Consortium Limited v. Hitro Energy Solutions Pvt. Ltd. 2022 (2) TMI 254 - SUPREME COURT also looked into. This judgement is only an authority for the proposition that the words claim in respect of provision of goods or services includes not only those who supply goods or services to corporate debtor but those who receive goods or services from the corporate debtor and the words in respect of must therefore not received a narrow interpretation but the claim must bear some nexus with the provision of goods or services - In the present case the Appellant has neither supplied goods nor services to the Corporate Debtor nor received goods or services from the Corporate Debtor. The said judgement is therefore of no assistance to the Appellant. In the present case, no GST was payable or has been paid on the security deposit. In the present case, the security deposit was not an advance licence fee but deposit for ensuring that the Appellant entered into a license agreement. The same was not liable to be adjusted against any outstanding or future license fee. No services were rendered nor supplied either by the Appellant to the Respondent nor by the Respondent to the Appellant. On the contrary, the security deposit became liable to be forfeited on account of nonperformance of the obligation of the Appellant i.e. it's requirement to enter into a leave and licence agreement. Thus, this is not a case of supply of goods or services - the scope of operational debt under the IBC does not encompass situations like security deposits unrelated to any immediate service rendered. Existence of Pre-Existing Dispute - HELD THAT - The IBC mandates that an application under Section 9 is not maintainable if a pre-existing dispute exists between the parties. The presence of such a dispute must be assessed to determine the maintainability of the application - Given the substantial and documented disputes, it is clear that a pre-existing dispute exists. This aligns with the Supreme Court's guidance in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT , where it was held that if a dispute exists and requires further investigation, the application under Section 9 cannot be maintained. Appeal dismissed.

Summary

Issues Involved:
1. Whether the claimed amount qualifies as an operational debt under the IBC.
2. Whether there exists a pre-existing dispute between the parties.

Summary:

Nature of the Debt:

The Appellant, Carestream Health India Private Limited, filed an appeal against the NCLT's order dismissing their application u/s 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate Corporate Insolvency Resolution Process (CIRP) against Seaview Mercantile LLP. The NCLT held that the Appellant did not qualify as an "Operational Creditor" because the claim did not arise from the provision of goods or services.

The Appellant argued that the security deposit paid under a "Without Prejudice" Letter of Intent (WP-LOI) for leasing premises should be considered an operational debt. They cited the Supreme Court's decision in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited, which held that advance payments for goods and services could be considered operational debt. However, the Tribunal found that the security deposit was not linked to the provision of goods or services but was a contractual obligation contingent upon executing a leave and license agreement. Therefore, it did not qualify as operational debt u/s 5(21) of the IBC.

Existence of Pre-Existing Dispute:

The Tribunal also examined whether a pre-existing dispute existed, which would render the application u/s 9 of the IBC non-maintainable. The Appellant and Respondent had conflicting versions of the WP-LOI, with discrepancies regarding IT/ITES usage and DOI certification. The Respondent claimed the right to forfeit the security deposit based on the Appellant's failure to execute the license agreement. The Appellant's actions, including attempts to obtain certification, contradicted their claim that the premises were unsuitable for IT/ITES purposes.

The Tribunal referred to the Supreme Court's guidance in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Ltd., which emphasized that IBC proceedings are not appropriate when a bona fide dispute exists. The Tribunal concluded that the substantial and documented disputes between the parties precluded the application under Section 9 of the IBC.

Conclusion:

The Tribunal upheld the NCLT's order, concluding that the claimed amount did not constitute an operational debt under the IBC and that a pre-existing dispute existed between the parties. The appeal was dismissed, and each party was directed to bear its own costs.