2022 (9) TMI 565 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor committed a default in payment of it dues - failure to execute the lease deed - Financial Creditors - existence of debt and dispute or not - principles of natural justice - HELD THAT -Admittedly, the Letter of Intent (LOI) has been executed between the petitioner and the respondent qua lease of place situated in Block No. 249-G Udyog Vihar, Gurgaon i.e. entire building comprising three basements plus ground plus three floors for lump sum value of Rs. 48.00 lacs per month including Rs. 8.00 lacs towards maintenance charges on rent. In response to that the applicant herein had to deposit six months' rent on which part deposit equivalent three months' rent payable within seven days of the signing of the Letter of Intent and the post clearance of the Legal Due Diligence (LDD) - It is admitted that a sum of Rs. 1.2 crore were extended as per LOI dated 30.07.2015 and the lease was to be executed by the parties accordingly in view of the said LOI. But no lease deed was executing afterward hence the said LOI did not fructify into the lease deed. The applicant herein deposited an amount of Rs. 1.2 crore as earnest money, according to the LOI dated 30.07.2015. This Tribunal makes it abundantly clear that Hon'ble NCLAT in SPICEJET LTD. VERSUS AFFORDABLE INFRASTRUCTURE AND HOUSING PROJECTS PVT. LTD. 2020 (2) TMI 1506 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, DELHI does not bar any right of the parties and it is open to the respective parties to raise all factual and legal pleas before the Competent Authority/Adjudicating Authority when the necessary Application seeking appropriate relief is filed by the concerned party and further that said Authority' shall determine the said Application on merits, of course, after providing due opportunities to the contesting parties to air their the views, by adhering to the Principles of Natural Justice. Hon'ble Supreme Court of India in the matter of M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LIMITED VERSUS M/S HITRO ENERGY SOLUTIONS PRIVATE LIMITED 2022 (2) TMI 254 - SUPREME COURT , clearly laid down that if any advance payment has been made for providing goods and services, that would fall within the definition of Operational Debt. Herein, the applicant paid advance money Rs. 1.20 crore to the respondent corporate debtor for taking the premise situated in Gurgaon on lease and the said amount was not repaid as the respondent failed to execute the lease-deed. Further, it is also observed in this context that advance made of Rs. 1.2 crore to the respondent Corporate Debtor was without any interest accrued thereon, therefore, the same does not come to the purview of the definition of Financial-Debt as 5(8) of the Code as the same was not for the time value for money, as defined under Section 5(8) of the Code. The present petition under Section 7 of the Code qua the advance payment for the goods and services is not maintainable as the said advance payment does not come under the purview of definition 'Financial Debt' rather the same amounts to Operational Debt. This Tribunal is of the view that the present petition under Section 7 of the Code is not maintainable. Accordingly, the present petition u/s. 7 stands rejected, with no order as to costs.

Summary

Issues Involved:
1. Jurisdiction and Territorial Authority
2. Nature of Debt: Financial or Operational
3. Limitation Period for Filing Application
4. Execution and Validity of Letter of Intent (LOI) and Addendum
5. Admissibility of Evidence and Documents
6. Legal Precedents and Applicability

Issue-Wise Detailed Analysis:

1. Jurisdiction and Territorial Authority:
The Tribunal confirmed its territorial jurisdiction over the National Capital Territory of Delhi, as the registered office of the respondent corporate debtor is located in New Delhi. The application was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against the respondent.

2. Nature of Debt: Financial or Operational:
The core issue was whether the debt owed by the respondent was a 'Financial Debt' or an 'Operational Debt.' The Financial Creditor claimed the amount as a financial debt, while the Tribunal, referencing the Supreme Court's judgment in M/s. Consolidated Construction Consortium Limited v. M/s. Hitro Energy Solutions Private Limited, concluded that the debt was operational. The Tribunal noted that the advance payment of Rs. 1.20 crore was for leasing premises, which falls under the definition of 'Operational Debt' as it was for goods and services.

3. Limitation Period for Filing Application:
The respondent argued that the application was barred by limitation, claiming the last cause of action arose on 31 July 2015, making the application filed on 08 October 2018 time-barred. The Tribunal considered the Addendum dated 07 September 2015, which extended the validity of the LOI to 21 September 2015, and acknowledged the jural relationship reaffirmed by the Corporate Debtor on 19 September 2018. The Tribunal found the application filed within the limitation period.

4. Execution and Validity of Letter of Intent (LOI) and Addendum:
The Tribunal examined the LOI dated 31 July 2015 and the Addendum dated 07 September 2015. It was noted that the Addendum was signed only by the Financial Creditor and not by the respondent. Despite the Financial Creditor acting on its part by depositing Rs. 1.20 crore, the lease deed was never executed by the respondent, leading to the non-fulfillment of the LOI.

5. Admissibility of Evidence and Documents:
The Financial Creditor submitted various documents, including the LOI, Addendum, RTGS receipts, demand notice, and replies, to substantiate its claim. The Tribunal scrutinized these documents, noting that while the Financial Creditor had acted upon the LOI, the respondent failed to execute the lease deed, resulting in the demand for repayment of the advance.

6. Legal Precedents and Applicability:
The Tribunal referred to several legal precedents, including the Supreme Court's judgment in M/s. Consolidated Construction Consortium Limited, which clarified that advance payments for goods and services are operational debts. The Tribunal also considered the NCLAT's judgment in Vibrus Homes Private Limited Versus Ashimara Housing Private Limited, which stated that security deposits related to immovable property transactions fall under operational debts. The Tribunal found that the present petition under Section 7 of the Code was not maintainable as the advance payment did not qualify as a financial debt.

Conclusion:
Based on the detailed analysis, the Tribunal concluded that the advance payment of Rs. 1.20 crore was an operational debt, not a financial debt. Consequently, the petition under Section 7 of the Code was deemed not maintainable and was rejected. The Tribunal emphasized that the applicant should have filed the application under Section 9 of the Code for operational debts. The Tribunal's decision was guided by legal precedents and the interpretation of the nature of the debt involved.