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TMI Blog2020 (10) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... Law - in relation to the reclassification of the debt from Financial debt to Operational debt on the pretext of order of this Adjudicating Authority also does not hold any good as there is no any specific finding regarding classification of debt in the above referred order. With regards to other prayers, this Adjudicating Authority observes that the equipment of the Applicant herein is lying in the premises of the Corporate Debtor and that the RP vide its letter dated 19.09.2019, has requested the Applicant to remove the Equipments from its premises and also indicated that it would charge a penalty of ₹ 1 lakh per day. Further it is not in dispute that the equipment is not in Workable condition' and the railway track is damaged, because of which the said Equipment could not be transferred to the Applicant - The Applicant relied on the Clause 18 of the Lease Agreement, wherein it is stated that it would be the Lessee's obligation to ensure that the equipment is handed over in the same operating order and condition as originally delivered to the lessee and at a place notified by the Lessor at the cost of the Lessee. However, the Applicant herein itself has waived Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the 2nd Respondent to return the scheduled equipment to a working condition after carrying out the necessary repairs and handover the same once done at a location specified by the Applicant at that time, at the cost of the Corporate Debtor. d. To direct the 2nd Respondent to include the lease rental amount of ₹ 1,20,30,748.03/- per quarter from 29.08.2018 till the date of the handover of the scheduled equipment in the manner specified in relief (iii), as the Insolvency Resolution Process Costs ( CIRP costs ) under Section 5(13) of the IBC r/w Regulation 31 of the CIRP Regulations, 2016. e. In the alternative to reliefs (iii) and (iv) above, in the event that the 2nd Respondent is unable to deliver possession of the scheduled equipment in the manner specified in relief (iii) above, direct the 2nd Respondent to include the current market value of the scheduled equipment as CIRP costs (including the lease rental amount of ₹ 1,20,30,748.03/- per quarter from 29.08.2018 till the date of inclusion of the current market value of the scheduled equipment as CIRP costs). 2. Brief facts as stated by the Applicant are as under:- a. That the Applicant sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take possession of the equipment and to exercise all rights under the Lease Agreement. g. Admittedly, the Corporate Debtor defaulted in making payments as per the agreed schedule. Hence, the Applicant is at liberty to exercise all its rights under the Lease Agreement. h. That the Applicant filed its proof of claim for an amount of ₹ 66,58,04,020.16/- on 12.09.2018 with the RP. That the claim filed by the Applicant includes the lease termination price that the Applicant is entitled to as per the Lease Agreement. The claim amount includes the following: Sl. No. Particulars Amount 1 Future Rentals ₹ 446,856,355.53 2 Residual Value ₹ 59,000,284.60 3 Gross Foreclosure Value (1+2) ₹ 505,856,640.13 4 GST @ 5% ₹ 25,292,832.01 5 Total Foreclosure Value including GST (3+4) ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order dated 17.07.2019 in IA No.115/2019 has expressly recognised that the ownership of the scheduled equipment vests with the Applicant and that there has not been any transfer of ownership to the Corporate Debtor. n. That the Resolution Professional through its email dated 11.09.2019 reclassified the Applicant from a Financial Creditor to an Operational Creditor, purportedly on the basis of the order of this Adjudicating Authority dated 17.07.2019. As a result of the reclassification, the Applicant was held to be not a part of the CoC. The admitted claim amount was arbitrarily deducted to ₹ 12,73,69,756/- as Operational debt. The Resolution Professional called upon the Applicant to take possession of the asset within 7 days and to make arrangements for removal of the equipment and to bear the cost of the same. The Resolution Professional also informed to levy a charge of ₹ 1 Lakh per day if the Applicant failed to remove the equipment within the stipulated time. o. That the Applicant replied to the aforesaid email on 18.09.2019 and brought to the notice of the RP that the reclassification of the Applicant as an Operational Creditor was erroneous and based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, did not have the attributes of a 'financial lease.' Therefore, once it was declared by this Adjudicating Authority that the Lease Agreement did not have the attributes of a financial lease, the Applicant cannot contend that it is a 'financial creditor' or that its claim is a 'financial debt'. g. In view of this finding, the only thing to do for the RP was to classify the Applicant's debt as an 'operational debt' in compliance with the order dated 17.07.2019 passed by this Adjudicating Authority. h. In paragraph 7 of the order dated 17.07.2019, this Adjudicating Authority had directed the RP to reconsider its decision with respect to the differential amount and to verify from the books of accounts of the Corporate Debtor to decide on the issue of admitting the same. i. As a result of classification of Applicant's claim as 'operational debt', it was imperative that the amount towards the lease rentals outstanding until the insolvency commencement date (i.e. 29.08.2018) is admitted as 'operational debt'. j. As per the order dated 17.07.2019, after verification of the documents, the RP admitted the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode. o. That in compliance of the said order, the RP has already admitted an amount of ₹ 4,74,86,445/- as CIRP costs towards the 'lease rentals' starting from 29.08.2018 till 11.09.2019 i.e., the day on which the RP called upon the Applicant to remove the Scheduled Equipment from the premises of the Corporate Debtor within 7 days from the date thereof. However, the Applicant failed to take delivery of the same. The Corporate Debtor cannot be held liable for any further 'lease rentals' post 11.09.2019. As an owner of the Scheduled Equipment, the Applicant has failed to exercise due diligence in taking delivery of the Scheduled Equipment and the Corporate Debtor cannot be made to pay for the same. Reiterating the above, counsel for the Corporate Debtor prayed to dismiss the present Application. 4. Counsel for the Applicant filed its written submissions inter-alia stating as under:- a. That the principle of res-judicata is not applicable to the present case. The Applicant has questioned the action of the 2nd Respondent in reclassifying the applicant as an Operational Creditor, reducing the claim amount and the manner in which the 2nd Respondent has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the clauses of the Lease Agreement. e. That the RP has reduced the admitted claim amount of the Applicant to ₹ 12,73,69,756/- claiming the sajme to be the outstanding lease rental amounts till the commencement of the Corporate Insolvency Resolution Process. f. That as per the Lease agreement the Applicant is entitled to the Lease Termination Price. Clause 15.2.3 of the Lease Agreement provides that on termination of the Lease Agreement for default of the Corporate Debtor, the Lessor will be entitled to the Lease Termination Price which includes all the amount of lease rentals for the entire lease period, i.e., 12 years. g. That the Adjudicating Authority in its order dated 17.07.2019 had specifically noted that the RP had already admitted a sum of ₹ 60,68,03,736.16/- out of the claim of ₹ 66,58,04,020.16/- and directed the RP to reconsider its decision with respect to the differential amount. The direction of the NCLT to reconsider is only with respect to the differential amount of 5 Crores and cannot be the basis for the arbitrary reduction of the claim amount to ₹ 12,73,69,756/-. h. That the liability to return the equipment rests solely with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheduled equipments in the pool of Assets of the Corporate Debtor the Resolution Professional has relied on the Indian Accounting Standards ( Ind AS 17 ) that defines a finance lease as a lease which transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. Disputes with respect to finance lease arise when there are two possible interpretation as to whether all the risks and rewards have been transferred. It is relevant to quote the following observations of Hon'ble Apex Court in this regard: In Association of Leasing and Financial Services Company v. Union of India, the Supreme Court observed that in case of finance lease the lessee could use the asset for its entire economic life and thereby, acquires the risks and rewards incidental to the ownership of such assets. Further, in Asea Brown Boveri Ltd v. Industrial Finance Corporation, the Supreme Court, while distinguishing a finance lease and an operating lease, held: A finance lease is one where the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has requested the Applicant to remove the Equipments from its premises and also indicated that it would charge a penalty of ₹ 1 lakh per day. Further it is not in dispute that the equipment is not in Workable condition' and the railway track is damaged, because of which the said Equipment could not be transferred to the Applicant. 10. The Applicant relied on the Clause 18 of the Lease Agreement, wherein it is stated that it would be the Lessee's obligation to ensure that the equipment is handed over in the same operating order and condition as originally delivered to the lessee and at a place notified by the Lessor at the cost of the Lessee. However, the Applicant herein itself has waived Clause 18 vide its letter dated 21.11.2018, written to the RP wherein it has made a request to permit Applicant to remove the Equipment from the premises of the Corporate Debtor, the cost of which was to be borne by the Applicant itself. Therefore, the applicant cannot insist on execution of Clause 18 in its original form. 11. Considering these facts and circumstances, this Adjudicating Authority, to put to rest the controversy surrounding this issue, hereby directs the RP to g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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