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TMI Blog2021 (6) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly claim of operational creditor. Secondly, observation in para 4.3.3 make it absolutely clear that raw material and other inputs cannot be sole criterion to define the scope of term services - if a restricted meaning is given then the amount payable to consultancy, adviser etc. who play an important role in running of organisation will not be able to initiate CIRP and which cannot surely be an intention of legislature - the arrears of lease rent are operational debt. Accordingly, this contention of the corporate debtor is rejected. Thus, in this view of the matter, the provision of Regulation 32 of the Corporate Insolvency Resolution Process could not be pressed into service to interpret provision of Section 5(21) of the Code. Thus, considering the facts and circumstances of the case, applicable legal provisions and recent judicial precedents as well, we are of the view that there is no merit in any of the claims made by the Corporate Debtor - The application filed by the Operational Creditor is otherwise complete and defect free and this application also complies with all requirements of the Code and Regulations made thereunder. Application admitted - moratorium declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er documentary evidence in respect of each items and Invoices raised in respect thereof. Our attention was also drawn to legal notice issued in general as well as under Section 138 of the Negotiable Instrument Act, 1881. Our attention was also drawn to the copies of the Cheques which were dishonoured. It was also claimed that Form 3 and 4 dated 27.07.2018 delivered and our attention was drawn to the proof of delivery thereof. 6) As regards to the claim of the Corporate Debtor that Common Area Maintenance Charges were already including in License fee (Rent), it was claimed that Corporate Debtor had taken additional Car Parking Services, hence, the Corporate Debtor was liable to pay additional Car Parking Charges as per Clause 5(A) Point No. 1 of Leave and Licence Agreement. 7) The Learned Counsel Mr. Rohan Lavkumar appeared on behalf of the Corporate Debtor and submitted that the rent whether termed as Leave and License fee did not fall within the definition of the Operational debt, hence, an application filed under Section 9 was not maintainable for this reason alone. In this regard, he placed reliance on following rulings: i. Jindal Steel Power Ltd. v. DVM Interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... License Agreement. 10) It was also claimed that other charges claimed towards stamp duty and registration fee were not payable by the Corporate Debtor. Our attention was drawn to the Clause 21.6 of the Leave and License Agreement to show that such charges were borne and to be paid equally by the Operational Creditor and Corporate Debtor. 11) Lastly, it was claimed that alleged Operational Creditor had claimed that amount of outstanding debt claimed in the petition fell due on 31.03.2015. Hence, the petition being filed in September, 2018 was barred by limitation. In this regard, the claim was further made as the agreement was entered in to 2015 and for this reasons also the application was barred by limitation. 12) It was also claimed on behalf of Corporate Debtor that the Operational Creditor could not take shelter and reliance under Leave and Licence Agreement on account of the Operational Creditor own breach of contract. The Corporate Debtor also referred to Article 3, 8, 17 and 18 for this purpose. 13) In the rejoinder, the Learned Counsel for the Operational Creditor claimed that the debt of default was not on 31.03.2015 as claimed by the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that outstanding rent itself for Unit 6A and 6B in terms of Invoices for the month of February 2018 to June 2018, which are not in dispute at all in the reply or otherwise by the Corporate Debtor, is much more than the threshold limit of ₹ 1.00 lakh for initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency Bankruptcy Code, 2016. Hence, we do not consider it necessary and required to go into details thereof as such disputes would not have any bearing on the Resolution/outcome of this application. We have also considered the claim of the Corporate Debtor that some of the Invoices were time barred but considering the fact as stated hereinabove, the same is also not of any consequence. 16) We have gone through the application at page No. 6 of the paper-book and it is noted that the Operational Creditor has mentioned that in column No. 2 at one place date of default as 31.03.2015 but in the heading it has been mentioned that dates of default are given in Tabular Form. Even otherwise in column No. 1 itself it is mentioned that debt has fallen due from 31.03.2015 and not on 31.03.2015, hence, we do not find any merit in this contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f doubt that arrears of lease rent constitute the debt which can be assigned/transferred and recovery proceedings can be initiated against the defaulting party. However, as it is a settled proposition now that the Insolvency Bankruptcy Code, 2016 is not a mechanism or tool for recovery of outstanding dues but it is a process for revival of an entity and continuation of such entity as a going concern. In this background, before proceeding further we reproduce definition of few relevant terms as under:- Sec. 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, matured, unmatured, disputed, undisputed, secured or unsecured. Sec. 3(10) Creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. Sec. 3(11) Debt means a liability or obligation in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or operational debt. This Tribunal had an occasion to deal with the scope of the term claim and its implications for enforcing the provision of Insolvency Bankruptcy Code, 2016, in the case of Religare Finvest Ltd. Vs. Bharat Road Network Ltd. CP (IB) No. 540/KB/2018 in CA (IB) No. 1060/KB/2019 dated 28th August 2019. Relevant findings of the aforesaid order are reproduced as under:- (i) It is noted that Financial Creditor is a registered NBFC with RBI having requisite authorisation to carry on business as NBFC. In the course of its business, it has granted short term loan to the Corporate Debtor. Such short term loan was given on interest and payable after one year as per the terms and conditions agreed by and between the parties, through MoU dated 14.12.2016. The amount of loan and rate of interest is not in dispute. It is also not in dispute that the Corporate Debtor has failed to repay the loan along with interest accrued thereon. Hence, the Financial Creditor has filed an application for initiation of Insolvency Resolution Process under Section 7 of the IBC 2016. (ii) First preliminary objection raised by Corporate Debtor is that petition is not maintainable due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-condition to bring a default within the definition of the term claim . To establish existence of right to payment, one of the tests which has been evolved by Courts is the conduct test . Under the conduct test, a right to payment arises when the conduct giving rise to the alleged liability occurred. Another test is the pre-petition relationship test which requires some pre-petition relationship such as contract, exposure, impact or privity, between debtor's pre-petition conduct and the claimant in order for the claimant to hold a section 3(6) claim. (iv) It is further apparent that the term 'claim' has been defined in widest possible manner so that lender's right to receive payment can be enforced in variety of situations or conversely, it contemplates that all obligations to the extent possible of the corporate debtor would be dealt within the insolvency and bankruptcy proceedings. For example, on occurrence of default, even if a claim is disputed, financial creditor can seek refuge under I B Code to initiate CHRP process. Similarly, whether loan is secured or unsecured, in both these situations CIRP process can be initiated when a default occurs in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existence of debt due to financial creditor would be proved. The said clause 8(2) is reproduced hereunder:- 8(2) The existence of debt due to the financial creditor may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including- (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; or (iv) an order of a court or tribunal that has adjudicated upon the non payment of a debt, if any. Form C has been prescribed in this regard which is reproduced as under:- FORM C SUBMISSION OF CLAIM BY FINANCIAL CREDITORS (Under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016) [Date] From [Name and address of the financial creditor, including address of its registered office and principal office] To The Interim R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director/manager/secretary/designated partner and in the case of other entities, an officer authorised for the purpose by the entity.] (vii) Thus, it can be seen, CIR Process can be initiated on the basis of records available with an information utility or other relevant documents as mentioned hereinbefore which include financial statements showing that debt had not been paid. Similarly, in Form C, the claim can be substantiated in the same manner. On the basis of this analysis, it can safely be concluded that purpose of documents is extremely limited and restricted only to prove the existence of debt and default thereof. (viii) Another aspect relating to the term claim is that right to payment may be an equitable claim. The term 'equitable' has not been defined under IBC, 2016, hence we have to look the meaning of the term in the common parlance or, as has been noticed judicially or, as defined in the dictionary. In general parlance, the term equitable means, something that is fair and reasonable to all parties in a particular situation. In judicial sense, it can be explained as a remedy or solution that is ethically or legally just and reasonable under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich whole society running from thousands of years, unless such trust and belief is not present, we can't survive even for a single day, some are explicit, some are implicit, but fact of the matter is, every second of us is run on trust upon each other, wherever it is broken, there is a dispute, there is a pain to the doctrine of trust and belief, therefore before going any further, I must say that the discretion given to the courts is to see as to whether the agreement entered in between the parties is prohibited under law or as to for any other reason the agreement is invalid for the reason of incompetency of parties, unlawful object or fraud, but these reasons have to be proved to the hilt by the person assailing it, not by the person asking relief basing on the agreement. The only ground that has to be proved by the party asserting it is execution of the agreement, if execution is admitted, then what all assailing party to do is to prove to the satisfaction of the court that though execution of instrument is admitted, it is hit by one or other ground mentioned above. The basic reason perhaps for not providing trial in IBC proceedings is, credit availed by the debtor and guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f nature of MoU or its enforcement due to insufficiency of stamp duty. (xiii) We also reject the contention of the Corporate Debtor regarding applicability of provisions of Indian Stamp Act, 1899 while deciding the fate of proceedings under section IBC, 2016 for the reason that the same, in our considered view, are contrary or repugnant to the provisions of IBC, 2016. (xiv) Thus, on the basis of above discussion, we reject this preliminary objection raised by the Corporate Debtor. 15. Thus, based upon the above discussion it is clear that an outstanding sum in respect of commercial transactions need to fall within the definition of term claim at the first instance and, thereafter, issue of classification of such debt as to whether it is a financial debt or operational debt or other debt would arise. Basically the term claim is a mirror image of the term debt in a sense that claim is a right to payment of one person in respect of a liability or obligation of another person. To put it differently claim and debt are obverse and reverse side of the same coin. As per our understanding, the term claim has been given widest possible scope so that creditors right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. In case corporate debtor is not in CIRP then such lessor for realisation of such debt would have remedy under other laws only. In our view, this could not be the intention of the legislature for the simple reason that preamble to the Insolvency Bankruptcy Code, 2016 manifests that promotion of entrepreneurship and availability of credit are two prime objects of this Code. Such situation would be against such purpose and have severe economical consequence because provision of immovable property on lease serves economic activities in a significant manner, provide businesses opportunities to other industries and generates substantial employment. Hence, classification aspect of outstanding rent in respect of immovable property becomes crucial. 19. Before proceeding further, we consider it pertinent to mention that this matter was earlier heard and reserved for order but listed for clarification was noticed that there were divergent views. In spite of that none appeared on behalf of the corporate debtor but Ld. Counsel for the operational creditor appeared and put forth his submissions. 20. We are conscious of the fact that reconciliation of divergent views is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application is maintainable for recovery of debt on account of services. It is pertinent to mention that letting out premises for rental income is services and service tax is payable on the income from the same. In fact, the Hon'ble Apex Court in the case of Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. held that, The report of the Bankruptcy Law Reform Committee Volume I, Rational and Design dated November 2015 at 5.2.1 under the heading Who can trigger the IRP also provides that, the lessor that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three years lease. 7. In fact, the order of Hon'ble Supreme Court led controversy at the rest holding that the recovery of arrears of rent is of operational debt within the meaning of definition of operational debt stated under section 5(21) of I B Code. No further analysis is required at all. Moreover, the Ld. Counsel for the Operational Creditor brought to my notice the provisions of section 2 of Central Goods Services Tax Act, 2017. Section 2(a) of the Act states that any lease, tenancy, easement, licence to occupy land is a supply of services. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptcy Code, 2016. It is settled principle of judicial interpretation that purfusive construction should be made based upon the objects and reasons of an Act before looking meaning of undefined terms elsewhere or externally. For this purpose, we get great insights from Viswanathan Committee Report of which in para 5.2(1) has already been mentioned by the Hon'ble Apex Court in the case of Mobilox Innovations (supra). Apart from this, at few other places also we get reference of operational creditors. For example, in para 3.2.2 under the heading conflicts in creditor and debtor negotiation following comments are made:- Conflicts tend to be exacerbated when there are multiple levels and types of liabilities in an enterprise. In addition to the conflict between creditor and debtor, there can be conflict between different types of creditors as well. 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. When the debtor contracts these liabilities, there is an understanding about a priority structure of payment to the claims. While this will not be disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund of security deposit from the corporate debtor who was not the owner of the leased premises but a tenant thereof who had sub-let the same to the corporate debtor. Thus, the facts of that case are entirely different from the facts of the case in hand, hence, the ratio of the decision of Hon'ble NCLAT confirming the said decision is not applicable here. 25. In view of the above discussion, we hold that arrears of lease rent are operational debt. Accordingly, this contention of the corporate debtor is rejected. 19) We take this opportunity to humbly submit that in para No. 22 at the said order reproduced hereinabove we have dealt with the aspect of operation. In case of Pramod Yadav Anr. v. Divine Infracon (P) Ltd. 2017 SCC [11263] it has been mentioned that services should be of the nature of Direct input. We most humbly submit that the said regulations i.e. Regulation 31 32 are interconnected and have source of them in provisions of Section 5(13)(e) of the Insolvency Bankruptcy Code, 2016. Hence, these words in regulation 32 have to be read in that context as to what would be the meaning of Corporate Insolvency Resolution Process costs. Further, Section 5( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Process or until this Adjudicating Authority approves the Resolution Plan under sub-section (1) of the Section 31 or passes an order for liquidation of Corporate Debtor Company under Section 33 of the Insolvency Bankruptcy Code, 2016, as the case may be. 3. The Operational Creditor has proposed the name of the Interim Resolution Professional(IRP). Therefore, this Adjudicating Authority hereby appoint Ms. Teena Saraswat Pandey Insolvency Professional, Regn No. IBBI/IPA-001/IP-P00652/2017-2018/11126 e-mail ID [email protected] to act as an IRP under Section 13(1)(c) of the Code. 4. The IRP shall perform all his functions as contemplated, inter alia, by Sections 17, 18, 20 21 of the Code. It is further made clear that all personnel connected with Corporate Debtor, its Promoter or any other person associated with management of the Corporate Debtor are under legal obligation under Section 19 of the Code extend every assistance and cooperation to the Interim Resolution Professional. Where any personnel of the Corporate Debtor, its Promoter or any other person required to assist or co-operate with IRP, do not assist or Co-operate, IRP is at liberty to make ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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