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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 ..... ed view that the Ld. Adjudicating Authority has rightly admitted the Application filed under section 9 of IBC. Thus there are 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. As per V.P. SINGH, TECHNICAL MEMBER: HELD THAT:- 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 operational debt is beyond the scope of Sec 9 of the Insolvency Bankruptcy Code, 2016. Based on the demand notice, it is clear that the alleged operational debt is related to the lease rent of Ground Floor and Basement Floor of the said premises. In response to the demand notice dated 27th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. The 'Interim Resolution Professional'/'Resolution Professional' will provide and intimate the fees for the period he has functioned and costs of 'Corporate Insolvency Resolution Process' incurred by him to the Appellant/'Corporate Debtor' and amount, if any, already received. The 'Interim Resolution Professional' will hand over the assets and records to the Board of Directors of the Corporate Debtor. However, it is to be clarified that the view taken by me is in the minority. Hence, it shall not come into effect, and the view taken by the Hon'ble co-Members of the Bench shall prevail - application dismissed. - Company Appeal (At) (Insolvency) No. 474 of 2020 - - - Dated:- 5-11-2020 - Justice Bansi Lal Bhat, ACTG. Chairperson, Anant Bijay Singh, Judicial Member And V.P. Singh, Technical Member For the Appellant : Sumesh Dhawan, Gulshan Sachdeva, Ms. Vatsala Kak, Ms. Geetika Sharma and Ms. Apoorva Choudhary, Advs. For the Respondent : Rishabh Bansal, Adv. and Rajesh Lihala, IRP JUDGMENT ANANT BIJAY SINGH, JUDICIAL MEMBER. The instant Appeal has been filed by 'Corporate Debtor' being aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or stated that the Corporate Debtor cannot vacate the basement alone as there is no clause for part vacation of the said Premises. It was further stated in the said Electronic Mail dated April 6, 2018 that in case the Corporate Debtor wish surrender the basement floor of the said Premises, a new Lease Deed has to be executed for the ground floor and that it can be done after payment of ₹ 40,27,179/-. There were numerous mails were exchanged and various meeting took place between Operational Creditor and Corporate Debtor said mail to resolve the issue for a period from March 2018 to September 2018. (v) It is further alleged that Operational Creditor has terminated the Lease Deed dated June 15, 2015 by its letter dated June 7, 2018. Due to such illegal action of the alleged Operational Creditor in terminating the Lease Deed, the Corporate Debtor was forced to surrender the ground floor of the said premises. Due to such surrender of the ground floor of the said premises, the Corporate Debtor could not meet its business commitments to various customers and suffered huge loss on account of such illegal and arbitrary action on the part of the alleged Operation Creditor. (vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that our company can not vacate the basement alone as there is no clause for part vacation of the property and hence we are unable to accept our request. It was further stated in said mail that in case WDS wish to surrender the basement floor we need to execute a new lease for ground floor alone and it can be done after full payment of ₹ 40,27,179/- (iii) It is pertinent to mention here that the intent of single agreement was contrary to the interpretation made by AITHENT in the said mail dated 6-4-2018. Since then a dispute has arisen between AITHENT and WDS . That AITHENT has not set off the security deposit paid by WDS in respect of Basement. (iv) That to our further shock and surprise AITHENT vide letter dated 7-06-2015 terminated the said lease deed dated 15/06/2015. That due to your company's such illegal action of terminating lease deed WDS was forced to surrender the Ground Floor of said premises. Due to this WDS could not meet its commitments made to its various customer and suffered huge loss due to your company's illegal and arbitrary act. WDS reserve the right to claim damages from AITHENT on account of loss of business to W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany from July 2011 to June 2017 was ₹ 85,66,290/- and the Respondent paid a sum of ₹ 55,51,920/-and therefore the Corporate Debtor was in arrears of rent amounting to ₹ 30,15,270/-. The Respondent/Operational Creditor further contends that a notice under section 106 of the Transfer of Property Act 1882 was issued against the corporate debtor on 15-06-2017, to terminate the lease, and was asked to vacate the premises. The respondent also stated that he had claimed arrears of lease rent as well as mesne profits. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord 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 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. Thus, any debt arising without nexus to the direct input t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 of the lawmakers. The Bankruptcy Law Reforms Committee (BLRC), in its report dated November 2015, 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, u tilities payments and trade credit. Further, while differentiating between a financial creditor and an operational creditor, the Committee indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vency) 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 (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'. We 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'. For an amount to be classified for an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated in paragraph 6 that: - With regard to the allegations in paragraph no. 5 of the notice under reply, it is true that your clients got a legal notice dated 15-6-2017 issued under section 106 of the Transfer of Property Act, 1882 calling upon my client to vacate the premises within six months ending with 31st December 2017. It is also true that your clients 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority has not considered the facts and admitted the Application filed under section 9 of the IBC, thus, in view of the Judgment (supra), the impugned order is fit to be set aside. Submissions on behalf of the Respondent No. 1 8. The learned counsel for the Respondent No. 1 during the course of argument and in his written submissions, stated that a perusal of the Agreement dated 15-6-2015 (at page 33 to 46 of the Reply) between the parties reveals that the relationship between the parties was not a mere relationship of landlord-tenant. The Respondent No. 1 - Operational Creditor provided services to the Appellant, which had direct nexus to the business of Information Technology, being carried out by the Appellant. 9. The learned counsel for the Respondent No. 1 referred to clause E (at page 37 of the Reply) of the Lease Deed whereby the Respondent No. 1 was to provide a DG Set of 550 KVA capacity, which would ensure uninterrupted power supply for the business of the Appellant. 10. Similarly, clause 11(a) (at page 40 of the Reply) of the Lease Deed provides for maintenance of common equipment which reads as under: - 11. (a) Maintenance of common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was not a mere landlord-tenant relationship, is further established by the Master Service Agreement executed between the parties (Copy is at pages 93 to 118 of the Reply). 16. It is further submitted by learned counsel for the Respondent No. 1 that the Ld. Adjudicating Authority has taken note of the fact that it was not a case simple outstanding amount only on account of lease rent, but amount of electricity charges, diesel, sewer and water charges were also due and has taken note of page no. 41 which contains detail of such charges. 17. Learned counsel for the Respondent No. 1 further referred at page 44 para 5 of the Impugned Order when the Ld. Tribunal have given a finding that admittedly in the instant case, there are dues of electricity, diesel, sewer and water charges which are undisputed by the Corporate Debtor. The quantum of such claim/debt is also more than ₹ 1 Lac and these activities fall within the definition of services under section 5(21) of the IBC and admitted the Application under section 9 of the IBC. 18. It is further submitted that the ratio of the judgment of this Hon'ble Appellate Tribunal in the case of Mr. M. Ravindranath Reddy (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Brief facts of the case are as under: This Application has been filed under section 9 of the I B Code, 2016 by Applicant/Operational Creditor -'Aithent Technologies Private Limited' (in short 'ATPL'), against the Corporate Debtor - 'Web Data Systems Private Limited' (in short 'WDS'), for default committed in payment of outstanding debt amounting to ₹ 54,73,536/-. 3. The Operational Creditor contends that the commercial property was given on lease vide Agreement dated 15th June 2015 and alleges that the outstanding dues pertain to outstanding lease rent. 4. The Learned Adjudicating Authority observed that: Admittedly, in the present case, there are dues of electricity, diesel, sewer and water charges which are undisputed by the Corporate Debtor. The quantum of such claim/debt is also more than ₹ 1 Lac, Diesel has been consumed for providing electricity. Electricity charges are to be reimbursed by the Corporate Debtor based upon its consumption. Similarly, water charges are also to be paid. These activities clearly fall in the definition of provisions of Services as defined in Section 5(21) of IBC, 2016 as the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiating 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. 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 account of unpaid rent payable by an entity to a landlord are 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a direct input to the output produced or supplied by the corporate Debtor. 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. 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 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 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 Pvt. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 operational debt u/s 5(20) and 5(21) of the Code. The definition does not give scope to the to interpret rent dues as operational 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 'Operational' is given as 'of or relating to the operation or an operation'. For an amount to be classified for an operational debt under I B Code, 2016, it is provided: Firstly, the amount falls within the definition of claim as defined under section 3(6) of the Code; 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; Thirdly, such a debt should fall strictly within the scope of an Operational Debt as defined under section 5(21) of the Code, i.e. the claim should arise in respect of - (i) provision of goods 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of only the outstanding lease rent and it does not contain any mention of outstanding due on account of diesel, electricity and water charges. The applicant has also stated that in addition to the lease agreement, there was also a business relationship with the Corporate Debtor. The Operational Creditor was engaged by One 97 to collect KYC information of customers of Paytm Payments Bank Limited by obtaining their proof of identity and address which work was assigned by an operational creditor to the corporate debtor for a fixed fee vide a separate agreement. It was further agreed between them that the fee shall be adjusted towards Rents to the extent required for the premises. After all adjustments, the Corporate Debtor still owed ₹ 54,73,536/- to the Operational Creditor. 13. The details of the Operational debt itself reveal the alleged disputes between the parties regarding the outstanding amount of alleged lease rent. The Operational Creditor has stated that as per lease deed, only possession was allowed to be taken in two phases, whereas there was no such condition for the vacation of the part of the leased premises. The Operational Creditor has questioned the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged operational debt is related to the lease rent of Ground Floor and Basement Floor of the said premises. In response to the demand notice dated 27th September 2018, the Corporate Debtor submitted its reply on 08th October 2018. . The contents of said mail dated 13th September 2018 is as under; 4. That vide mail dated 23rd March 2018 we have written to AITHENT and shown our willingness to vacate the Basement (which was taken on lease as per phase-I). However, to our surprise an email dated 06th April 2018 was written by AITHENT representative that our company cannot vacate the Basement alone as there is no clause for part vacation of the property and hence we are unable to accept our request. It was further stated in said mail that in case WDS wish to surrender the basement floor we need to execute a new lease for ground floor alone and it can be done after full payment of ₹ 40,27,179/-. 5. It is pertinent to mention here that the intent of single agreement was contrary to the interpretation made by AITHENT in the said mail dated 06th April 2018. Since then a dispute has arisen between AITHENT and WDS . That AITHENT has not set off the security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be executed after full payment of ₹ 40,27,179/-. 25. Appellant has placed further reliance on the letter dated 13th August 2018. Copy of the letter is as under: 26. The above correspondence clearly shows there was pre-existing dispute from the time before issuance of demand notice dated 27th September, 2018. 27. In case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353: 2017 SCC OnLine SC 1154: (2018) 1 SCC (Civ) 311 at page 405 Hon'ble the Supreme Court of India has held: 51. It is clear, therefore, that once the operational Creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the Application under section 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. 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing - i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. 34. Therefore, the adjudicating Authority, when examining an Application under section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding ₹ 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the Application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the Application would have to be rejected. Apart from the above, the adjudicating Authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the Application, as the case may be, depending upon the factors menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity, diesel, sewer and water charges which are undisputed by the Corporate Debtor. The quantum of such claim/debt is also more than ₹ 1 Lac. Diesel has been consumed for providing electricity. Electricity charges are to be reimbursed by the Corporate Debtor based upon its consumption. Similarly, water charges are also to be paid. These activities clearly fall in the definition of provisions of Services as defined in Section 5(21) of IBC, 2016 as the definition in Section 5(21) means a claim in respect of the provision of Services. Thus, at the cost of repetition, we hold that by no stretch of imagination it can be said that such facilities provided by the Operational Creditor are not services. Accordingly, we reject the contention of the Corporate Debtor that since main services cannot be categorised as operational debt, these will also not construe as operational debt. In this regard, we are further of the view that no such restriction/condition exists in provisions of Section 5(21) of IBC, 2016, hence, for this reason also, we see no merit in this contention of the Corporate Debtor. As evident from the above discussion that the decision of Hon'ble NCLAT clearly distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsupported by evidence. The Hon'ble Supreme Court has further held that 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. 34. However, I find that the Adjudicating Authority has admitted the petition under section 9 without giving any finding on the pre-existing dispute, even though the Corporate Debtor has raised the plea in its reply to the demand notice. On perusal of the record of the case, I am satisfied that there is sufficient evidence to show that there was pre-existing dispute between the parties. 35. The Adjudicating Authority has admitted the petition ignoring the fact that the alleged dues are relating to the outstanding Lease Rent. In contrast, there is sufficient evidence to show that pre-existing dispute existed regarding vacation of part of the leasehold premises, i.e. Basement Floor only, despite there being a Joint lease Agreement for Ground Floor and Basement. Such questions ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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