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TMI Blog2021 (2) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Web Date Systems Pvt. Ltd. (hereinafter referred as the 'Corporate Debtor') is a Private Limited Company incorporated under Companies Act, 1956 on 15-5-2012 vide CIN U72300BR2012PTC018668. (ii) The Appellant is an Ex Director of the Corporate Debtor. (iii) The Appellant -'Corporate Debtor' has taken on lease the basement and the ground floor of the Premises situated at Plot No. 8 and 9, Electronic City, Sector 18, Gurgaon - 122 015, Haryana (hereinafter referred to as the said Premises) vide a Lease Deed dated June 15, 2015 executed between the 'Corporate Debtor' and the alleged Operational Creditor. The said Premises was let out as per the following schedule: Phase I - Ground Floor Area admeasuring 9000 sq. ft. from July, 2015 at the rate of monthly rent of Rs. 3,15,000/- plus Service Tax. An amount of Rs. 6,30,000/- towards security deposit was paid vide Cheque No. 002393 dated June 10, 2015 drawn on HDFC Bank by the Corporate Debtor to the alleged Operational Creditor in respect of the said Ground Floor of the Premises. Phase II - Basement Floor Area admeasuring 9980 sq. ft. before January 1, 2016 at the rate of monthly rent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor to the alleged Operational Creditor. 3. The Respondent No. 1 - Operational Creditor sent Demand Notice under section 8 of the IBC on 27th September, 2018 to the Appellant - Corporate Debtor, demanding the payment in respect of the unpaid operational Debt due from M/s Web Date Systems Private Limited under the Insolvency and Bankruptcy Code, 2016. 4. The Appellant - Corporate Debtor sent reply to aforesaid Demand Notice on 8-10-2018 at page 59 of the Appeal Paper Book is as under:- "(i) It is stated that "WDS" has taken on lease the Basement and Ground Floor of the premises situated at Plot No. 8 & 9, Electronic City, Sector-18, Gurgaon-122015, Haryana, India vide Lease Deed dated 15-6-2015 executed between our company and your company. That a security deposit that the leased out floor were leased out as per schedule as per follow: Phase-I- Ground Floor Area measuring 9000 sq. ft. from July 2015 @ monthly rent of Rs. 3,15,000/- plus service tax. An amount of Rs. 6,30, 000/- (vide cheque no. 002393 dated 10-06-2015 drawn on HDFC Bank) towards security deposit was also paid to Lessor in respect of Ground Floor. Phase-II- Basement floor Area measuring 998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned in Part-IV for Particulars of Operational Debt is Rs. 5,473,536/- which is due on 19-2-2018. The Appellant (herein) appeared and contest the matter and denied the claim. 6. The learned counsel for the Appellant during the course of argument and also in the Rejoinder to the reply relied on the Judgment of this Tribunal dated 17th January, 2020 passed in Company Appeal (AT) (Insolvency) No. 331 of 2019 (Mr. M. Ravindranath Reddy V/s Mr. G. Kishan & Ors.) wherein this Tribunal have formulated two questions for consideration and given reply is as under:- "The following question arises for our consideration: 1. Whether a landlord by providing lease, will be treated as providing services to the corporate debtor, and hence, an operational creditor within the meaning of Section 5(20) read with Section 5(21) of the 'Insolvency and Bankruptcy Code, 2016? 2. Whether the petition filed u/s 9 of the Insolvency and Bankruptcy Code 2016 is not maintainable on account of 'pre existing dispute'? Heard the learned counsel for the parties and perused the record. Admittedly, the petitioner has filed this petition under section 9 of the I&B Code, 2016 in respect of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question in the present case. The Appellant also placed reliance on the provisions of the Central Goods and Services Tax Act, 2017. Schedule- II of the Act list down the activities that are to be treated as supply of goods or services, and paragraph 2 of the schedule stipulates as follows: "(a) any lease, tenancy, easement, licence to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services." This Tribunal, in the case of Jindal Steel & Power Ltd. v. DCM International Ltd. Company Appeal (AT)(Insolvency) No. 288/2017 , held as follows: "Admittedly, the Appellant is a tenant of Respondent- . Even if it is accepted that a Memorandum of Understanding has been entered between the parties in regard to the premises in question, the Appellant being a tenant, having not made any claim in respect of the provisions of the goods or services and the debt in respect of the repayment 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 Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, cannot fall within the definition of operational debt. In this regard, reliance was also placed on Col. Vinod Awasthy v. AMR Infrastructure Ltd. Further, relying on Jindal Steel (supra) and Citicare (supra), NCLT Hyderabad also, in the case of CP/IB/61/9/HDB/2019 Manjeera Retail Holdings (P.) Ltd. v. Blue Tree Hospitality (P.) Ltd., held that the petitioner claiming default in payment of rent of the premises leased out cannot be treated as an operational creditor, and the amount involved cannot be treated as an operational debt. Section 5(20) of the Code, defines an "operational creditor" to mean "a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred." In turn, Section 5(21) defines an "operational debt" to mean "a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority." Therefore, an operational debt is essentially a claim in respect of the following: (a) provision of goods; (b) provision of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional debt. The Code provides that for an amount to be classified as an Operational Debt under I&B Code, 2016 the alleged claim should fall in the definition of: - 3(6) "Claim" means - (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; 3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be; 5(20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; 5(21) "operational debt" means a claim in respect of the provision of goods or servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods or services including employment or (ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the Central Government, any State Government or any local authority. The word "in relation to Government" or local authority and the dues owed to it, has been given a wide platform. It is important to see whether persons other than the Government or local authority can claim the benefit, that any debt owed should be construed as an 'operational debt' other than those classified as 'financial debt'. Thus, only if the claim by way of debt falls within one of the three categories as listed above, can be categorised as an operational debt. In case if the amount claimed does not fall under any of the categories mentioned as above, the claim cannot be categorised as an operational debt, and even though there might be a liability or obligation due from one person, namely Corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorise itself as an "Operational Creditor" as defined under section 5(21) of the I&B Code, 2016. Therefore, we are of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g against the letter and spirit of the understanding reached between your clients and my client." On perusal of the above reply of the 'Corporate Debtor,' it is clear that before issuance of Demand Notice dated 8th January 2018 the Appellant had issued legal notice dated 15th June 2017 under section 106 of the Transfer of Property Act, 1882, calling upon to vacate the premises within six months ending with 31st December 2017. It is also stated in the reply that the Director of the Company Shri M Nihal Reddy has questioned on demand for enhancing rent, based on an understanding, that rent would not be enhanced for six years. On perusal of the above reply, it is evident that the 'Operational creditor' himself has admitted that before issuance of demand notice U/S 8 of the Code, notice to vacate the leasehold premises under section 106 of the Transfer of Property Act, and termination of the lease was issued. The lessee/corporate debtor has also stated that there was an understanding regarding moratorium for not increasing rent for six years. But such type of questions whether rent enhancement was as per mutual understanding or not, can only be decided on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Lessee throughout the lease period at it's own cost." 11. Similarly under clause 11(b) (at page 40 of the Reply) of the Lease Deed, it was the responsibility of the Respondent No. 1 to provide and install a UPS for uninterrupted power supply. 12. Learned counsel for the Respondent No. 1 further referred to page 45 and 46 of the Reply which shows that the Respondent No. 1 also supplied essential technical equipment to the Appellant for its IT business. 13. Further, Respondent No. 1 submitted that at page 45 of the Reply as per Agreement provides equipments Serial No. 9 (Network/Data Port), 10 (Voice Ports) and 14 (Electrical Room/Panel). 14. Learned counsel for the Respondent No. 1 further submitted that the Respondent No. 1 regularly provided all these services and also raised invoices. The invoices are at page 119 to 177 of the Reply as under: - (i) Page 119 of Reply - Invoice for services of a Multi skilled Technician and water tanker. (ii) Page 131 of Reply- Invoice for services of a Multi Skilled Technician and Water Tanker. (iii) Page 136 of Reply- Invoice for PAYTM device repair expenses. (iv) Page. 137 of Reply - Invoice for Service of a Multi Skille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 1 has provided different type of services to the Appellant which has been referred hereinabove. ♦ There are dues of electricity, diesel, sewer and water charges which are undisputed by the Corporate Debtor which is more than Rs. 1 Lac. ♦ We are of the considered view that the Ld. Adjudicating Authority has rightly admitted the Application filed under section 9 of IBC. ORDER 20. Having regard to the foregoing discussion, we find no merit in this Appeal. The Appellant has failed to demonstrate that the impugned order suffers from any legal infirmity. The Appeal being devoid of merit is dismissed. Interim orders, if any, stand vacated. No order as to costs. ♦ Let the Registry communicate the Judgment to the Ld. Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata). ♦ Copy of the Judgment be provided to the party concerned as per Rule. ♦ Copy of the Judgment be up-loaded in the Website of this Appellate Tribunal. Later on In view of the majority judgment (2:1) the impugned order dated 13th March, 2020 passed by National Company Law Tribunal, Kolkata Bench, Kolkata in CP(IB) No. 288/KB/2019 (Aithent Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion that the decision of Hon'ble NCLAT clearly distinguishable on facts, hence, ratio of same is not applicable." (verbatim copy) 5. Learned Adjudicating Authority further noted that notice under Section 8 had been duly served and acknowledged and the Application, otherwise complete and defect-free, was thereby admitted. 6. The Operational Creditor has filed the said petition stating that it had let out the premises on lease vide Lease Deed Agreement dated 15th June 2015 for Plot No. 8 & 9, Electronic City, Sector-18, Gurgaon, Haryana for Ground Floor and Basement for Office space in two phases. Phase-I: Ground Floor area measuring 9000 sq. ft. from 1st July 2015 for Rent @ Rs. 3,15,000/- plus service tax per month. A security deposit of Rs. 6,30,000/- was also paid by Corporate Debtor towards Ground Floor. Phase II: Basement floor area measuring 9980 sq. ft. before 1st January 2016 for Rent @ Rs. 2,49,500/- plus service tax per month. A security deposit of Rs. 4,99,000/- was also paid by Corporate Debtor towards Basement. The lease deed was for 5 years, and the effective date was the date of occupancy for each floor. The lock-in period was 24 months. 7. The Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional 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'" Relying on the judgment above of NCLAT, C.P. No. 567/IB/2018 Citicare Super Speciality Hospital v. Vighnaharta Health Visionaries (P.) Ltd. Dated 11th March 2019, NCLT, Mumbai Bench dismissed the petition, which was about arrears of license fee. NCLT, New Delhi, in Parmod Yadav & Anr v. Divine Infracon (P.) Ltd., 2017 SCC OnLine NCLT 11263 observed that the word "operational" or for that matter "operation" has not been defined anywhere in the Code. The General Clauses Act, 1897, also do not define the term. Hence, the term has to be given a meaning as ordinarily understood. The dictionary meaning of "operational" is given as of or relating to "operation" (Merriam Webster). Similarly, the meaning of "operation" is given as "ready for use or able to be used". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government/local authority. If the claim by way of debt does not fall under any of the three categories as mentioned above, the claim cannot be categorised as an operational debt, even though there may be a liability or obligation due from the corporate Debtor to the creditor, and hence, such a creditor disentitled from maintaining an application for initiation of corporate insolvency resolution process (CIRP) of the corporate Debtor. There seems to be some rationale in restricting only to operational creditors for initiation of CIRP, other than financial creditors. Default committed to operational creditors about payment of their debt connotes that the corporate Debtor is not even in a position to service the regular payments and operational expenses, as required in the day-to-day functioning of the corporate Debtor, which provides a clear indication to its insolvency, warranting the resolution process being put in place. The law has not gone into defining goods or services - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any law for the time being in force and payable to the Central Government, any State Government or any local authority; The Legislature did not include here the reference to rent dues of property. Thus, it is clear that a claim in respect of the provision of goods or services is covered under the operational debt. This petition has been filed for recovery of enhanced rent as per lease agreement; this is not about the goods or services or in respect to goods or services. This Appellate Tribunal has also held on 28-11-2017 in Company Appeal (AT) (Insolvency) No. 288 of 2017 is given below: - Admittedly, the Appellant is a tenant of Respondent- "Corporate Debtor". Even if it is accepted that a Memorandum of Understanding has been entered between the parties regarding the premises in question, the Appellant being a tenant, having not made any claim in respect of the provisions of the goods or services and the debt in respect of the repayment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices and thus, cannot fall within the definition or '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." 10. The above judgment has been noticed by the Adjudicating Authority. Still, the Adjudicating Authority has considered that it is not a simple case of outstanding amount only on account of lease rent. Still, the charges of electricity, diesel, sewer and water were also due. Even if the lease rent was not considered as operational debt, still the Application is maintainable because other charges were much more than the threshold limit of Rs. One lakh. It is further noted by the Adjudicating Authority that diesel has been consumed for providing electricity and electricity charges had to be reimbursed by the Corporate Debtor based upon its consumption. Similarly, water charges were also to be paid by the Corporate Debtor. This activity falls in the definition of provision of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate Debtor for the damage caused to articles such as AC, Chairs and Tables, false roofing, flooring, plumbing and carpet based on estimated repair charges. 15. It is pertinent to mention that the alleged damages to the property are not liquidated damages and such unliquidated damages, without the order of Court, cannot be claimed under the powers conferred to the Adjudicating Authority under the I&B Code. 16. In this case, the question, 'whether lease Rent falls under the category of 'operational debt' or not', loses its significance when the alleged lease rent itself is disputed. The undisputed claim is the sine qua non for initiating CIRP u/s 9 of the Code. 17. In this case, the dispute relates to the deemed continuation of lease deed. The Corporate Debtor claims that lease of the ground floor was terminated after notice, and part of the premises was vacated. Per contra, the Operational Creditor claims that vacation of part premises was not permissible and therefore, lease rent for whole premises is recoverable as an operational debt. Thus, even if the Lease Rent is considered as an operational debt U/S 5(21) of the Code, in case of pre-existing dispute, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d till the date of issuance of demand notice, i.e. 27th September 2018. Since the provision of Section 9 can only be invoked for the realisation of the undisputed operational debt, the petition u/s 9 is thus, not maintainable. 22. The Appellant contends that the email correspondence made before the issuance of demand notice clearly shows that the demand contains the rent for the Basement for January, February and March 2018 which "AITHENT" had already agreed to waive off for the said three months. It also contains the rent for May, June and July 2018, although the basement premises was already vacated. Thus, whether the rent for May, June and July is payable or not, is a disputed question which cannot be decided in a petition filed u/s 9 of the Code. 23. The Appellant/Corporate Debtor has further placed reliance on the email correspondence dated 06th April 2018, photocopy of the email is as under: 24. It appears in the above email that dispute was raised on account of part vacation of the property. The Operational Creditor's contention is that since the basement floor and ground floor were part of the same lease deed, therefore, part vacation of the property and subsequent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterising the defence as vague, got up and motivated to evade liability." 28. In the case of Mobilox Innovations Private Limited (supra) Hon'ble Supreme Court has interpreted the phrase 'pre-existence of dispute' used in section 9 of the I&B Code. The relevant portion of the said judgment is reproduced below: "33. The scheme Under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate Debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of Invoices and terms & conditions of the Agreement/Lease Deed. It was specifically argued that it was not a case simply of outstanding amount only on account of lease rent but amount of electricity charges, diesel, sewer and water charges were also due. Our attention was specifically drawn, in this regard, to page no. 41 containing details of such charges. Based upon this statement, it was pleaded that even if the lease rent was not considered as operational debt, in view of the decision of the Hon'ble NCLAT, still this Application was maintainable as the amount on account of other charges was much more than the threshold limit of Rs. 1 Lac. 4. On the other hand, Ld. Counsel for the Corporate Debtor placed strong reliance on the decision of Hon'ble NCLAT In the case of M. Ravindranath Reddy v. G. Kishan & Ors. in Company Appeal (AT) (insolvency) No. 331 of 2019, Order dated 17th January 2020. It was also pleaded that other charges also arose on account of lease, hence, the ratio of this decision was applicable to such charges also. Reliance was also placed on the decision of NCLT, Mumbai Bench, in the matter of Citicare Super Speciality Hospital v. Vighnaharta Health ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. ICICI Bank, (2018) 1 SCC 407: 2017 SCC OnLine SC 1025: (2018) 1 SCC (Civ) 356 at page 438 Hon'ble Supreme Court has held that: "29. The scheme of Section 7 stands in contrast with the scheme under section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing-i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code." 33. Based on the law laid down by Hon'ble Supreme Court in case of in Innoventive Industries Ltd. (supra) Case and Mobilox Innovations (P.) Ltd. (supra) case, it was mandatory for the Adjudicating Authority to decide whether the plea taken by the Corporate Debtor regarding exis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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