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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 ..... eliefs 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 lease deed dated 12.12.2018. In terms of the lease deed, the Corporate Debtor agreed to provide the subject premises on lease to the Appellant for a period of 10 years commencing from 12.12.2019. Article 3.4 of the lease deed noted that the Appellant had provided Security Deposit and a Bank Guarantee ("BG" in short) to the Corporate Debtor. In terms of the lease deed the Corporate Debtor was required to handover possession of the leased premises to the Appellant on 12.10.2019 which the Corporate Debtor failed to do. The Corporate Debtor in their e-mail dated 22.02.2022 acknowledged the delay in handing over possession of the leased premises to the Appellant. Further, admitting their poor financial condition, the Corporate Debtor also acknowledged that it was not in position to grant the Appellant the benefit of rent-fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nated, 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 Corporate Debtor should be returned by the RP to the Appellant. It is the case of the Appellant that the Adjudicating Authority committed an error in not directing the RP to return the Security Deposit to the Appellant or to admit the claim filed by them in Form-C as a financial debt. The RP was required to respect and honour the obligations as it existed prior to CIRP. It was further asserted that the Security Deposit was to be used for carrying out construction of the leased premises and hence it deserves to be treated as financial debt under the IBC framework. While admitting that the Appellant had lodged their claim in the Form-C for admission of the Security Deposit as a financial debt, it was stated that the same was done without prejudice. It was also contended that the Adjudicating Authority erred in entering in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of contract by the Corporate Debtor due to non-refund of the Security Deposit after termination of the lease deed. However, as the sums so involved in the Security Deposit being neither in the nature of financial debt nor an operational debt, as per the provisions of the IBC, RP had no option but to place the Appellant in the category of "Other Creditors". Return of the said amount of Security Deposit amount along with the 18% interest per annum directly to the Appellant outside the resolution framework as claimed by the Appellant was not possible as it would be against provisions of moratorium under Section 14 of IBC and tantamount to preferential treatment which is impermissible in law. 6. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the Lessee shall be liable to pay electricity charges/water charges at actuals, for such period till it uses and occupies the Leased Premises. ARTICLE 8 8.2 CONSEQUENCES OF TERMINATION (a).... (b) On the expiry or earlier termination of this Lease, the Lessee shall, within not more than Thirty (30) days of such expiry or termination, remove all his belongings, furniture, fixtures, chattels, articles and things which is movable and can be removed or dismantled without causing any damages to the Leased Premises but not limited to the flooring, and simultaneously against the Lessor refunding the Security Deposit paid by the Lessee, vacate and hand over quiet and peaceful possession of the Leased Premises to the Lessor in the good order and condition in which they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 estate of the Corporate Debtor and hence the RP had no right to retain the same. Instead, the Security Deposit amount was an asset of the Appellant and could not be retained by the Corporate Debtor. Section 18 of IBC does not allow the RP to take control of assets owned by third parties even if held in the possession of the Corporate Debtor under trust or under contractual agreements. 11. It is further their contention that though in terms of lease deed, the Security Deposit was to be adjusted towards rent for 4 months but since the Corporate Debtor had not handed over the possession of the leased premises to the Appellant, the question of adjustment of the Security Deposit towards rent did not arise. Further, failure on the part of the Corporate Debtor to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Appellant was accepted and the Appellant added in the category of "Other Creditors". 14. At this stage, we may see how the Adjudicating Authority has treated the issue at hand. The relevant excerpts of the impugned order is as placed below: "1. The main contention of the Applicant is that since the Security Deposit, although given on the basis of a Lease Agreement, is supposedly used for carrying out construction work in the Leased Premises, given the fact that it was demanded 10 months prior to the date of commencement of lease, it deserves to be treated as a Financial Debt. The Bench is however of the considered opinion that this is not akin to a case of an underlying Sale Agreement which confers the status of a Financial Creditor on the Home B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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; 3(33) "transaction" includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; 5(7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; 5(8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act 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 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 SCC 416 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. In the matter of Anuj Jain, Interim Resolution Profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent 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 the leased property would be handed over to the Appellant by the Corporate Debtor one of which included payment of security deposit. 20. Section 5(20) of the IBC lays down that, unless the context otherwise requires, "operational creditor" means a person to whom an operational debt is owed and Section 5(21) provides that "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. 21. From a plain reading of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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