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TMI Blog2020 (2) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ext of Code, be considered as an operational debt, even though it is a claim amounting to debt - without going into the aspect whether an immovable property in itself constitutes stock- in- trade of the corporate debtor and has a direct nexus to its input- output, being an integral part of its operations, the Bench held that lease of immovable property cannot be considered as a supply of goods or rendering of services, and thus, cannot fall within the definition of operational debt. In case of lease of immovable property, Default can be determined, on the basis of evidence. While exercising summary jurisdiction, the Adjudicating Authority exercising its power under Insolvency and Bankruptcy Code 2016, cannot give finding regarding default in payment of lease rent, because it requires further investigation. It is clear that once an operational creditor has filed an application which is otherwise complete the Adjudicating Authority must reject the application U/S 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility, the Adjudicating Authority is to see whether there is a plausible contention whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Petitioner issued a legal notice dated 15-06-2017 to handover the property back to the Petitioners, but the Corporate Debtor failed to vacate the property. After that, an eviction suit was filed against the Corporate Debtor before the jurisdictional Civil Court. 5. The learned counsel for the Respondent/Petitioner further submitted that the Demand Notice U/S 8 of I B Code 2016 dated 18-01-2018 was also issued against the Corporate Debtor demanding ₹ 49,51,605/-, which was duly served on the Corporate Debtor. 6. The Corporate Debtor/Appellant submitted that he had paid the rent until December 2017, and no amount is due to the Petitioner. It is further stated that due to slowdown in the Operations of the Corporate Debtor during the period from April 2012 to July 2012 Petitioner/Respondent agreed on a moratorium for no yearly enhancement of rent for six years. 7. The Adjudicating Authority held that the Corporate Debtor had taken the property of the Petitioners on rent and they were paying rent up to June 2017. But the Corporate Debtor failed to pay the rent from July 2017onwards. 8. The Adjudicating Authority has stated that: The main issue in the matter is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so stated that he had claimed arrears of lease rent as well as mesne profits. 11. After that Operational Creditor issued Demand Notice under Section 8 of the I B Code, 2016 raising a demand of Rs, 49,51,605/- i.e. 39,98,926/-towards rent( from July 2011 to December 2017) and interest at 18% per annum is ₹ 9,52,679/- in January 2018, and after that filed the petition under Section 9 of the I B Code, 2016, was filed, which has been admitted by the impugned order. 12. The Insolvency and Bankruptcy Code ( Code ) recognises two types of debt to enable the creditors to make an application for initiating insolvency proceedings against the corporate debtor- financial debt and operational debt. If there is a debt, other than a financial debt or an operational debt, the creditor will not qualify to apply under Sections 7 or 9, as the case may be. Hence, the determination of nature of claim/debt is an important step while considering the admission of an application under the Code. 13. While the law is still evolving, there are certain categories of dues, about which, the debate as to their classification into financial or operational debt continues. One such debt claims on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed'. 18. Further, from the usage of the term goods or services as given under Section 14(2) of the Code, provides that essential goods or services , of the corporate debtor shall not be terminated or suspended or interrupted during the moratorium. What constitute essential goods and services are provided under Regulation 32 (Insolvency Resolution Process for corporate persons) Regulation 2016 wherein it is provided that; The essential goods and services referred to in Sec 14(2) shall mean: 1 Electricity 2 Water 3 Telecommunication Services 4 Information Technology Services To the extent, these are not a direct input to the output produced or supplied by the corporate debtor. 19. Thus, any debt arising without nexus to the direct input to the output produced or supplied by the corporate debtor, cannot, in the context of Code, be considered as an operational debt, even though it is a claim amounting to debt. 20. However, without going into the aspect whether an immovable property in itself constitutes stock- in- trade of the corporate debtor and has a direct nexus to its input- output, being an integral part of its operations, the Bench held that lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, one has to rely on general usage of the terms so used in the law, with due regard to the context in which the same has been used. Simultaneously, it is also relevant to understand the intention of the lawmakers. The Bankruptcy Law Reforms Committee (BLRC), in its report dated November 20151, states that Operational creditors are those whose liability from the entity comes from a transaction on operations . While discussing the different types of creditors, the Committee points out that enterprises have financial creditors by way of loan and debt contracts as well as operational creditors such as employees, rental obligations, utilities payments and trade credit. Further, while differentiating between a financial creditor and an operational creditor, the Committee indicates the lessor, that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease . Hence, the BLRC recommends the treatment of lessors/landlords as operational creditors. However, the Legislature has not completely adopted the BLRC Report, and only the claim in respect of goods and services are kept in the definition of operational creditor and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of dues does not arise under any law for the time being in force payable to the Central Government or State Government, we hold that the Appellant tenant do not come within the meaning of 'Operational Creditor' as defined under sub-section (20) read with sub-Section (21) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to 'I B Code') for triggering Insolvency and Bankruptcy Process under Section 9 of the 'I B Code'. 28. We are also do not find the term is defined under the General Clauses Act, 1897 and hence the term has to be given the meaning as ordinarily understood. The dictionary meaning of 'Operational' is given as 'of or relating to the operation or an operation'. 29. For an amount to be classified for an operational debt under I B Code, 2016, it is provided: 30. Firstly, the amount falls within the definition of claim as defined under Section 3(6) of the Code; 31. Secondly, such a claim should claim within the confines of the definition of a 'debt' as defined under Section 3(11), meaning it should be by way of a liability or obligation due from any person; 32. Thirdly, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had demanded rental amount at ₹ 1,63,926/- (Rupees one lakh sixty three thousand nine hundred and twenty-six only) per month besides demanding alleged arrears of rents amounting to ₹ 30,15,370/- (Rupees thirty lakhs fifteen thousand three hundred and seventy only) failing which your clients demanded payment of interest at 18% per annum. It is also true that in the said notice your clients had demanded mesne-profits at ₹ 3,00,000/- (Rupees three lakhs only) per month. My client states that immediately on receipt of the said notice, the Director of my client's company, Shri M Nihal Reddy contacted you and expressed surprise as to why such a demand for enhanced rent is being made when there was an understanding with your clients that your clients would not enhance the rent for a period of six years and when your clients have accepted the rental payments being made every month without demur or protest. My client further states that when its Director assured about payment of enhanced rents by 10% beginning from July 2018, your clients agreed for the same and continued to receive rents as originally agreed, i.e. ₹ 84,116/- (Rupees eighty-four thousand one hund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, 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 defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence 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. 56. 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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