2023 (5) TMI 979 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT rejected the application - Scope of the agreement between parties for use of office space - Unilateral Termination of agreement before the specified date - Corporate Debtor failed to make repayment of its dues - Operational Creditors - non-registered, non-stamped document - existence of debt and dispute or not - HELD THAT - Clause 1.4 of agreement deals with cancellation and clause provides that client that is the Corporate Debtor can terminate agreement with 30 days notice after the lock in period whereas there are restriction on the services provided in the agreement. The present is a case where in pursuance of the agreement, Corporate Debtor took the possession of the premises. When we look into the agreement, there is a number of services, site plan containing the various facilities which has to be provided by the service provider to the corporate debtor like meeting room, writing wall, work stations, etc. - The Operational Creditor thereafter issued notices to the Corporate Debtor demanding payment in respect of unpaid operational debt and ultimately a Demand Notice under Section 8 was issued on 18th August, 2020. Whether the debt claimed by the Appellant was an Operational Debt? - HELD THAT - The Adjudicating Authority committed error in holding that the debt claimed by the Operational Creditor was not Operational Debt. The debt claimed by the Appellant is clearly a claim within the meaning of IBC and on default being committed by the Corporate Debtor the debt became due and Appellant was fully entitled to initiate proceedings under Section 9 of the Code. Compulsorily registrable agreement - HELD THAT - The nature of Agreement is where no interest, title or right on property immovable or movable or any other form of right to assert any claim save and except availing services being run by the Appellant. There being no right, title or interest in the agreement created in favour of the Corporate Debtor, the Agreement was not compulsorily registrable under Section 17(b) of the Registration Act - it is clear that agreement does not purport or operate to create, declare, assign, limit or extinguish any right, title or interest in immovable or movable property. The Agreement was clearly not required to be compulsorily registered under Section 17(b). The above determination by the Adjudicating Authority was also fallacious. Agreement was originally engrossed on an unstamped paper or not - HELD THAT - On looking into the Reply, stand taken by the Corporate Debtor is clear that Corporate Debtor clearly admits that in the Agreement in the stamp paper there are no signatures of both the parties whereas in the entire reply the Corporate Debtor does not deny execution of the agreement between the parties. The Agreement was termed by the Corporate Debtor as a lease agreement. The Reply of the Corporate Debtor and the fact that Corporate Debtor in pursuance of the Agreement took the possession of the premises, also paid monthly office fee upto July 2019 clearly indicate that agreement dated 17th August, 2018 was given effect to. When the Corporate Debtor has accepted the agreement and acted upon by using the premises and have utilized services in the office space provided by the Appellant, even accepting the argument of Learned Counsel for the Respondent that it was not duly stamped, do not negate and do not oblige the Adjudicating Authority to ignore the agreement for finding out as to whether the claim made by the Appellant was an Operational Debt - In the present case, when Agreement was admittedly executed between the parties, signed by both the parties and acted upon, mere fact that it not being engrossed on stamped papers shall have no adverse consequence on the claim of the Operational Creditor. The Adjudicating Authority erred in determining the 3rd point against the operational creditor. The Appellant has proved that debt claimed by the Appellant in Section 9 Application was operational debt. Further the agreement dated 17th August, 2018 was not compulsorily registrable and agreement having not been executed on Rs. 100 Stamp Paper was inconsequential, the agreement having been acted upon and the Corporate Debtor having entered into possession of the premises in pursuance of the Agreement. Appeal allowed.

Summary

Issues Involved:
1. Whether the amount claimed by the petitioner for the lock-in period amounts to operational debt.
2. Whether the agreement dated 17th August, 2018 is a compulsorily registerable instrument under the Registration Act 1908.
3. Whether the agreement dated 17th August, 2018 was originally engrossed on an unstamped paper.

Summary:

Issue 1: Operational Debt
The Appellant, an Operational Creditor, challenged the rejection of their Section 9 Application under the I&B Code, 2016, which sought payment for a lock-in period under a "Services Providers Agreement" with the Respondent-Corporate Debtor. The Adjudicating Authority initially held that the claimed amount was not operational debt. However, the Appellate Tribunal found that the debt for the lock-in period, arising from the breach of contract, qualifies as a claim under Section 3(6)(b) of the IBC and is thus an operational debt. The Tribunal referenced the larger bench judgment in Jaipur Trade Expocentre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd., which overruled the earlier judgment in M. Ravindranath Reddy v. G. Kishan & Ors., affirming that unpaid license fees are operational debts.

Issue 2: Compulsory Registration
The Adjudicating Authority had determined that the agreement required compulsory registration under Section 17(b) of the Registration Act, 1908. The Appellate Tribunal disagreed, noting that the agreement did not create any right, title, or interest in immovable or movable property for the Corporate Debtor. Consequently, the agreement was not subject to compulsory registration.

Issue 3: Unstamped Paper
The Adjudicating Authority had also found that the agreement was originally engrossed on an unstamped paper. The Appellate Tribunal observed that despite the lack of stamping, the agreement was executed, acted upon, and the Corporate Debtor had taken possession of the premises and paid the monthly office fee up to July 2019. Therefore, the unstamped nature of the agreement did not invalidate the claim of the Operational Creditor.

Conclusion:
The Appellate Tribunal allowed the appeal, set aside the order dated 08th April, 2022, and directed the Adjudicating Authority to pass an order of admission of the Section 9 Application within one month, allowing the parties an opportunity to settle during this period.