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TMI Blog2024 (11) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of Section 5(8) of IBC is inclusive of debt alongwith interest which disbursal must be against consideration for time value of money and also includes anything which is equivalent to the money that has been loaned as long as commercial effect of borrowing or profit is discernible. It is a well settled proposition of law as laid down by the Hon ble Apex Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India [ 2019 (8) TMI 532 - SUPREME COURT ] that any debt to be treated as financial debt, there must happen disbursal of money to the borrower for utilization by the borrower and that the disbursal must be against consideration for time value of money. The Adjudicating Authority has returned the finding that the Appellant did not fall in the category of a financial creditor nor the alleged transaction of Security Deposit fell within the ambit of financial debt in terms of the statutory provisions enshrined in Section 5(7) and 5(8) of the IBC. The above findings of the Adjudicating Authority have been predicated on the terms of Lease Deed entered between the Appellant and the Corporate Debtor. From the records and documents, the intent of the two parties was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For Appellant : Ms. Misha, Mr. Vaijyant Paliwal and Ms. Kirti Gupta, Advocates For Respondent : Mr. Kunal Kanungo, Ms. Tanushree Sogani, Mr. Atishay Jain, Advocates for R-1 JUDGMENT ( Hybrid Mode ) Per : Barun Mitra, Member ( Technical ) The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ( IBC in short) by the Appellant arises out of the Order dated 01.03.2024 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-V) in I.A. No. 3878 of 2023 in C.P. (IB) No. 979 of 2022. By the impugned order, the Adjudicating Authority has partially allowed the relief sought by the Appellant in IA No. 3878 of 2023. Aggrieved by the fact that all the reliefs were not granted by the Adjudicating Authority the present appeal has been filed by Corob India Pvt. Ltd.- Appellant. 2. Coming to the brief facts of the case, the Appellant- Corob India Pvt. Ltd. desired to obtain a premises on lease from Renaissance Indus Infra Pvt. Ltd.- Corporate Debtor. For this purpose, the Appellant and the Corporate Debtor executed a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this impugned order, the present appeal has been preferred by the Appellant. 3. We have heard Shri Vaijyant Paliwal, Ld. Advocate appearing for the Appellant while Shri Kunal Kanungo, Ld. Advocate appeared representing Respondent No.-1. 4. Making his submissions, the Ld. Counsel of the Appellant stated that the Security Deposit made by the Appellant with the Corporate Debtor for the purpose of the lease deed was an asset belonging to the Appellant and not to the Corporate Debtor. It was submitted that the Appellant also addressed a letter on 16.05.2023 to the RP stating that the Security Deposit lying with the Corporate Debtor was an asset of the Appellant and should be refunded forthwith. Since, the leased premises were never handed over to the Appellant by the Corporate Debtor and the lease deed stood terminated, the Security Deposit should have been returned by the RP more so as the Corporate Debtor had agreed to return the Security Deposit during the meeting held with them on 07.12.2022. It was contended that commencement of CIRP does not create any new rights but only preserves the status quo. Hence, the Security Deposit which never formed part of the assets of the Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with interest of 18% and no lease rent would be required to be paid by the Appellant till the time the deposit would be returned. Hence, it was implicit that the Security Deposit was to be treated as payment towards lease rent and never disbursed or deposited against consideration for time value of money. The basic ingredients of financial debt of there being disbursal against consideration for time value of money and commercial effect of borrowing was missing. It was further contended that the Adjudicating Authority was right in holding that the transaction was not even an operational debt since the Appellant had not rendered any services or provided any goods for which it was entitled to claim any amount. It was further submitted by the RP that once CIRP is initiated, for any creditor to seek money from the Corporate Debtor, it is required to lodge claim before the RP. As per Section 3(6) of the IBC, claim includes right to remedy for breach of contract if any such breach gives rise to a right to payment. In the instant case, the Appellant has sought refund of Security Deposit on account of breach of a contract. Thus, it is a claim for payment which has arisen out of breach o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor committing default in payment of monthly Lease Rent in respect of the Leased Premises. ARTICLE 6 FAILURE TO REFUND SECURITY DEPOSIT In case the Lessor fails to refund the security deposit paid by the Lessee to the Lessor under this Lease, upon the expiry of the Lease Period or earlier determination of the Lease hereby granted then, in that event PROVIDED HOWEVER that the Lessee is ready and willing to hand over peaceful possession of the Leased Premises to the Lessor, the following consequences will follow. (a) The Lessee shall be entitled and is hereby authorized to continue to occupy and use the Leased Premises without being liable to pay any outgoings, cess, taxes and levies etc. (b) In addition, the Lessor will be liable to pay to the Lessee interest at the rate of 18% per annum on the amount of the deposit from the date such refund is due upto the date of actual payment/ realization. The Lessee will have the right to continue using the Leased Premises without having to pay any direct Lease Rent till the time the Security Deposit with interest at the rate of 18% per annum is returned to the Lessee by way of cheque/DD/RTGS. (c) Notwithstanding whatsoever stated hereinbefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Corporate Debtor on 07.12.2022 in which the the Corporate Debtor agreed to return the Security Deposit and BG but failed to do so. The Minutes of the Meeting held on 07.12.2022 which was addressed by the Appellant to the Corporate Debtor in their e-mail date 23.12.2022 is place at page 268-271 of Appeal Paper Book ( APB in short). 10. Given this backdrop of chronology of events, it is the case of the Appellant that the Corporate Debtor had categorically acknowledged during the meeting held on 07.12.2022 that the lease deed had been terminated and that they undertook to return the Security Deposit. The termination of the lease deed was never contested by the Corporate Debtor. Moreover, the liability to return the BG as well as the Security Deposit had been specifically admitted by the Corporate Debtor. Upon termination of lease deed, no rights survived in favour of the Corporate Debtor. Since the Security Deposit was a sum held by the Corporate Debtor in trust/contractual agreement for the benefit of the Appellant at the time of commencement of CIRP, the Corporate Debtor was obligated to return the deposit of the Appellant. The Security Deposit did not form part of the esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor and therefore on this ground the impugned order was assailed. 13. Per contra, it is the contention of the RP that Article 6 of the lease deed does not set out anywhere that the Security Deposit was in the form of a loan. The amount of Security Deposit under Article 3 (Clause 3.4) was equivalent to 4 months of lease rent. Moreover, the Security Deposit was to be retained by the Corporate Debtor without any liability to pay interest on it. The Corporate Debtor was required to keep the deposit amount without any liability to pay interest on it and only on the event of failure to refund the same at the stipulated point of time that interest was chargeable under Article 6. Thus, from the records and documents, the intention of the party was that the Security Deposit lacked the element of commercial borrowing and disbursal against consideration for time value of money. Thus, the Security Deposit amount lacked an element of commercial effect of borrowing. Further, it was contended that in the balance sheet of the Corporate Debtor, the amount of Security Deposit was shown as non-current liabilities and not treated as long-term loan and advance. Hence, the claim amount made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceed to go into the merits of the arguments adduced by the Appellant and the RP, we may now go through some of the relevant definition clauses which finds place in Sections 3 and 5 under Part II Chapter I Preliminary of the IBC would be constructive : 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; 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; 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 1[paid] by the debtor or the corporate debtor, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) operational debt means 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. 16. We have noticed the termination of the Lease Deed which is an undisputed fact. When the Appellant terminated the Lease Deed, the claim for breach of contract clearly arose. We have already noticed above the definition of claim under Section 3(6)(b) according to which the claim of the Appellant against the Corporate Debtor arises due to breach of contract which is claim within the meaning of IBC. The Security Deposit claimed by the Appellant is clearly a claim within the meaning of IBC. Now that we have noted the statutory construct of IBC and the provisions of the Lease Deed, we would like to examine the contention of the Appellant that they deserve to be treated as Financial Creditor and their claim of Security Deposit to be treated as financial debt qua the Corporate Debtor. 17. The essential elements of financial debt in the context of Section 5(8) of IBC is inclusive of debt alongwith interest w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting dues arising on account of unpaid lease rent, utility charges and damages caused to property, if any, other than normal wear and tear. It is clear, therefore, that Security Deposit was never disbursed or deposited against consideration for time value of money. Only in the event of failure to refund the Security Deposit from the date such refund was due that the deposit was to be returned with interest of 18%. It was bereft of all elements of commercial borrowing. The essential elements in the principal clause of Section 5(8) of the IBC pertaining to financial debt was therefore not satisfied. Clearly therefore, the present transaction was not disbursement for time value of money and does not fall within the canvas of financial debt as defined under Section 5(8) of the IBC. 19. This now brings us to the question whether the Appellant fell in the category of Operational Creditor and that an operational debt was owed to him. We have already noticed that the Lease Deed provided for security deposit as a security against a promise of a future handing over of leased premises. Lease deed outlined certain terms and conditions parties agreed between the two parties subject to which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take control and custody of the assets of the Corporate Debtor and under Section 20 of IBC to protect and preserve the value of the property of the Corporate Debtor. That being the case there are no grounds to find faults or illegality on the part of the RP in including the Security Deposit in the pool of assets of the Corporate Debtor under CIRP and in inviting claims for payment in terms of resolution plan. We have already noted that the Appellant has already exercised its liberty in filing their claim with RP in Form-C as financial creditor. However, the RP having examined the claim of the Appellant placed the Appellant in the category of Other Creditors . For the reasons explained above, we have already held that the Security Deposit was in the nature of operational debt. We therefore cannot agree with the categorisation followed by the RP by placing the Appellant in the category of Other Creditors . Since the ingredients of operational debt stands satisfies, and includes all those provide or receive operational services from the Corporate Debtor. We are therefore of the considered view that the Appellant in the present factual matrix should be accorded the status of an opera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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