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TMI Blog2024 (5) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods or services includes not only those who supply goods or services to corporate debtor but those who receive goods or services from the corporate debtor and the words in respect of must therefore not received a narrow interpretation but the claim must bear some nexus with the provision of goods or services - In the present case the Appellant has neither supplied goods nor services to the Corporate Debtor nor received goods or services from the Corporate Debtor. The said judgement is therefore of no assistance to the Appellant. In the present case, no GST was payable or has been paid on the security deposit. In the present case, the security deposit was not an advance licence fee but deposit for ensuring that the Appellant entered into a license agreement. The same was not liable to be adjusted against any outstanding or future license fee. No services were rendered nor supplied either by the Appellant to the Respondent nor by the Respondent to the Appellant. On the contrary, the security deposit became liable to be forfeited on account of nonperformance of the obligation of the Appellant i.e. it's requirement to enter into a leave and licence agreement. Thus, this is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reminders to the Respondent seeking a refund, including: Email dated 4 June 2019 for cancellation and refund. Reminders on 18 June 2019 and 27 August 2019. Legal notice on 14 November 2019. Demand Notice under Section 8 of the IBC on 10 February 2020. 3. The Respondent replied on 17 February 2020, disputing the Appellant s claims and contending the right to forfeit the security deposit due to non-compliance by the Appellant. Thereafter, the Appellant filed a Section 9 petition on 20 February 2020, which the Learned NCLT dismissed on grounds that the Appellant did not qualify as an Operational Creditor. Case of the Appellant: 4. On 24 March 2023, the Adjudicating Authority (Learned NCLT, Mumbai, Bench-V) issued an impugned order holding that the Appellant does not qualify as an Operational Creditor because it has neither supplied goods nor provided services to the Respondent Corporate Debtor. It also held that the Appellant also does not meet the criteria of an Operational Creditor under Section 5(20) of the IBC, which specifies it must be the Central Government, State Government, or a local authority, according to the definition in Section 5(21). This interpretation is legally in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The Appellant submits that security deposit is an Operational Debt as per the IBC Code and as per various rulings. The claimed amount qualifies as 'operational debt' under Section 5(21) of the I B Code. The Hon'ble Supreme Court in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited [2022 (7) SCC 164] has held that advance payment to a Corporate Debtor for supply of goods and services is considered as an operational debt. The relevant extract of the decision is reproduced herein under: 50.1 First, Section 5(21) defines operational debt as a claim in respect of the provision of goods or services . The operative requirement is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver. Such an interpretation is also supported by the observations in the BLRC Report, which specifies that operational debt is in relation to operational requirements of an entity. 50.2 Second, Section 8(1) IBC read with Rule 5(1) and Form 3 of the 2016 Application Rules makes it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... netheless encashed the cheque for advance payment, it gave rise to an operational debt in favour of the appellant, which now remains unpaid. Hence, the appellant is an operational creditor under Section 5(20) IBC. 11. Appellant further claims that the Appellate Tribunal in Jaipur Trade Expocentre Private Limited vs. Metro Jet Airways Training Private Limited [Company Appeal (AT) Insolvency No. 423 of 2021, decided on 05 July 2022], overruled M. Ravindranath Reddy vs. G. Kishan [Company Appeal (AT) (Ins.) No. 331 of 2019], stating: 39. The Agreement contemplates GST payment for services, relevant under the Central Goods and Services Tax Act, 2017, hence, the Tribunal in Mr. M Ravindranath Reddy and Promila Taneja did not interpret 'service' correctly under Section 5(21). Unpaid license fees qualify as operational debt under Section 5(21). 40. Hence, the Licensor's claim for license fees for business premises use is an 'operational debt' under Section 5(21). 12. The decision in Consolidated Consortium Limited vs. Hitro Energy Solutions Private Limited (supra) and the Appellate Tribunal's ruling in Jaipur Trade Expocentre Private Limited vs. Metro Jet Airways T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, in its reply to the demand notice and the Affidavit in Reply to the Petition, claimed that Annexure A3 is the subsequently executed document. The Operational Creditor has not denied this claim. 16.2 The LOI at Annexure A3 is dated 7 May 2019, while the LOI at Annexure A5 lacks a date on the execution page. 16.3 There are differences in clauses between Annexure A3 and Annexure A5. Clause 6 in Annexure A3 relates to Premises Usage for ITeS use, which is absent in Annexure A5. Clause 25 in Annexure A3 requires a DOI certificate, which is not mentioned in Annexure A5. The Appellant claims that the ITeS requirement was removed, while the Corporate Debtor asserts it was never removed, given the property's location in an ITeS building. 16.4 The Appellant s claim that the ITeS requirement was removed is contradicted by their actions and documents. The Operational Creditor attempted to obtain DOI certification for ITeS purposes, as evidenced by their email dated 4 June 2019, and acted upon the ITeS requirement. 16.5 Regardless of whether Annexure A3 or Annexure A5 is the subsequent LOI, both documents stipulate that a security deposit refund is due only if the licensee (OC) finds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng authority must assess whether a plausible contention requires further investigation and if the dispute is not patently feeble or unsupported by evidence. The present dispute is genuine, demonstrable, and supported by incontrovertible evidence. 20. The judgement in Consolidated Construction Consortium Limited v. Hitro Energy Solutions Pvt. Ltd., (2022) 7 SCC 164, clarified that the words claim in respect of provision of goods or services include claims by those who receive goods or services from the corporate debtor. However, the Appellant neither supplied goods nor received services from the Corporate Debtor. This judgment does not assist the Appellant. 21. The Jaipur Trade Expo Centre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd (supra) case is relevant for claims toward unpaid license fees for immovable property as operational debt under the IBC. It does not support the Appellant's proposition that a security deposit is a form of license fee. In this case, no GST was payable or paid on the security deposit, and the deposit was not an advance license fee. The security deposit was for ensuring the Appellant entered into a license agreement and became liable to forfeiture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor services to the Corporate Debtor nor received goods or services from the Corporate Debtor. The said judgement is therefore of no assistance to the Appellant. 29. The appellant has cited Jaipur Trade Expo Centre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd. (supra) which is now being seen for its applicability in the present case. The relevant extracts are as follows : 39. The observation of this Tribunal in the above case in respect of definition of service under Consumer Protection Act, 2019 and Central Goods and Services Tax Act, 2017 are not covered by Section 3(37) of the Code, with regard to which observation, no exception can be taken. However, in the facts of the present case, where Agreement itself contemplate payment of GST for the services under the Agreement, on which GST is payable, the definition of service under Central Goods and Services Tax Act, 2017 cannot be said to be irrelevant. More so, even if an expression is not defined in the statute, the meaning of expression in general parlance has to be considered for finding out the meaning and purpose of expression. After making above observation in Promila Taneja s case (supra), this Tribunal did not dwell wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, it cannot be termed as a form of license fee available for adjustment on failure to meet the outstanding licence fee. In any case, this judgement does not lay down any law that security deposit is a form of license fee. The said judgement proceeds on the basis that payment of GST was made on the license fee and as GST is only contemplated for goods and services, there were services rendered which would fall within the meaning of Section 5 subsection 21 of IBC. In the present case, no GST was payable or has been paid on the security deposit. In the present case, the security deposit was not an advance licence fee but deposit for ensuring that the Appellant entered into a license agreement. The same was not liable to be adjusted against any outstanding or future license fee. No services were rendered nor supplied either by the Appellant to the Respondent nor by the Respondent to the Appellant. On the contrary, the security deposit became liable to be forfeited on account of nonperformance of the obligation of the Appellant i.e. it's requirement to enter into a leave and licence agreement. Thus, this is not a case of supply of goods or services. 31. We therefore come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Respondent Seaview, mentioned IT/ITES use and allowed deposit forfeiture for non-performance. Annexure A5, on the other hand, which Appellant-Carestream argued was the valid version, did not contain the IT/ITES requirement. In fact, the Respondent claims that the LOI at Annexure 3 was agreed to be destroyed as it was an earlier version. Reason for Termination: The parties presented conflicting narratives regarding the justification for termination. Appellant - Carestream countered that the premises were inherently unsuitable for their intended purpose, absolving them of any liability. Respondent- Seaview contended that whether Term sheet in Annexure A3 or Annexure A5 was the subsequent LOI is immaterial as in both LOI's, in Clause 28 1 it is clearly laid down that only if the licensee (OC) found a defect in the title of the premises the security deposit would have to be refunded without interest whereas if the licensee (OC) chose not to enter into the leave and licence agreement for any other reason other than a defect in title, the licensor (CD) would have the right to forfeit the security deposit paid on the LOI. 35. We recognize these conflicting positions as a genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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