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Judgment
Abni Ranjan Kumar Sinha, J
The present petition has been filed invoking the provision of Section 9 of the Insolvency & Bankruptcy Code, 2016 by Apnaghar Builders Pvt. Ltd. praying for initiation of Corporate Insolvency Resolution Process of the Corporate Debtor on grounds of its inability to liquidate its operational debt.
The Operational Creditor and the Corporate Debtor entered into a Registered Lease Agreement dated 04.01.2016. Vide the Lease Agreement, property bearing No. C-2/10, Safdarjung Development Area, New Delhi, was leased out to the Corporate Debtor by the Operational Creditor and it was agreed that a monthly rent in respect of the abovementioned property at a sum of Rs. 17,00,000/- p.m. (Rs. 18,36,000/- after deducting TDS and adding GST) shall be payable by the Corporate Debtor to the Operational Creditor in advance by the 7th day of each calendar month, w.e.f. 01.03.2016 to 28.02.2019. As per the Lease Deed dated 04.01.2016 between the parties it was agreed that a monthly rent in respect of the abovementioned property at a sum of Rs. 19,55,000/- p.m. (Rs. 21,11,400/- after deducting TDS and adding GST) shall be payable by the Corporate Debtor to the Operational Creditor in advance by the 7th day of each calendar month, w.e.f. 01.03.2019. The lease was for a total period of 9 years commencing from 01.03.2016. In addition to the monthly rent, the Corporate Debtor was also liable to pay service tax, and any other taxes/levies, as made applicable by the Govt. agencies, including GST etc.
The Operational Creditor has claimed as detailed as under: -
Particulars
Outstanding Amount as on 19.03.2019 (Rs.)
Outstanding Unpaid Operational Debt at an admitted rate of s. 18,36,000/- per month with effect from 01.11.2018 to 28.02.2019 and at an admitted rate of Rs. 21,11,440/- per month with effect from 01.03.2019
94,55,400/-
Non-deposit of the TDS for the period of 01.10.2018 to 18.03.2019
10,45,500/-
Interest @18% p.a. calculated from 01.11.2018 till 10.07.2019 and thereon
8,56,441/-
Total
1,13,57,341/-
The Operational Creditor issued the demand notice dated 19.03.2019 as required under Section 8 of the Code, demanding a total sum of Rs. 1,13,57,341/- due to be paid to the Operational Creditor by the Corporate Debtor towards lease and rental outstanding for the building/premises taken by them for commercial purposes.
In view of the Corporate Debtor's failure to reduce or liquidate its liability, the present petition has been filed in the required format praying for initiation of the Corporate Insolvency Resolution Process of the Corporate Debtor. Affidavit in compliance under Section 9(3)(b) and 9(3)(c) of Code are on record to corroborate his case.
Pursuant to the Court notice issued to the Corporate Debtor, reply was filed and it was submitted by Corporate Debtor that:
a. It is submitted that the present application filed by the Operational Creditor is not maintainable as there is no claim of any operational debt from the side of the Operational Creditor as per the provisions of the Code. Further, the application is not maintainable on the ground that admittedly and undisputedly there is a pre-existing dispute between the parties.
b. In the present case, forming the subject matter of the application, the purported debt has neither arisen out of goods and services nor has it arisen out of provision of employment or government dues. The application in the present case is associated with disputed arrears of rent which cannot be covered as "operational debt". It is also pertinent to note here that this Hon'ble Tribunal has also held in several judgments that the lease of an immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition of "operational debt". While referring to the term "goods or services" used in the definition of operational debt. This Hon'ble Tribunal has also observed that it must related to direct input to the output produced or supplied of the corporate debtor. The tribunal also held that any debt arising without nexus to the direct input to the output produced or supplied cannot, in the context of the Code, be considered as an operational debt, it cannot be categorized as an operational debt. Even though it can be a claim amounting to a debt, it cannot be categorized as an operational debt. The aforementioned position was further upheld by National Company Law Appellate Tribunal (NCLAT) in a different case rejecting an argument that a transaction of lease of immovable property will fall within the term of "service" under Section (21) of the Code. Thus, it is submitted and contended that the 'purported debt' claimed by the operational creditor does not fall within the definition of "operational debt" as defined under Section (21) of the IBC, 2016.
c. Further there is an existence of a "dispute" which was cogently raised by the corporate debtor in its reply to the demand notice sent by the operational creditor. The pending litigation with respect to the property bearing No. C-2/10 Safdarjung Development Area, New Delhi against which the rent was withheld by the corporate debtor will fall under the term "existence of a dispute". The Apex Court in its interpretation of the term "existence of a dispute" has clearly stated that so long as a dispute exists in fact and is not spurious, hypothetical or illusory, insolvency application is liable to be rejected. It was also stated that an adjudicating authority has only to see whether there is a plausible contention which requires further investigation, without going into the merits of the dispute.
Heard Ld. Counsel appearing for the Operational Creditor as well as the Corporate Debtor and perused the averments made in the application, reply and the documents enclosed with the applications and the reply.
Ld. Counsel appearing for the Operational Creditor in course of arguments submitted that the present amount is claimed by him on the basis of a lease deed executed on 04.01.2016, which is for a period of 9 years with effect from 01.03.2016. He further submitted that as per the lease agreement, the Corporate Debtor had to pay the rent of Rs. 18,36,000 per month for the period till 28.02.2019 and at the rate of Rs. 21,11,400 with effect from 01.03.2019 but when the said amount was not paid, then the Operational Creditor had sent a demand notice dated 18.03.2019 and in response to that the Corporate Debtor has sent a reply dated 04.04.2019. He further submitted that the Corporate Debtor by filing a reply claimed that the amount sought has neither arisen out of goods and services nor the lease rent can be considered as a supply of goods or rendering of any service and so it does not come under the definition of operational debt. He further submitted that the Corporate Debtor also raised that there is a existence of dispute with regard to the proceeding being undertaken with the Municipal Corporation of Delhi. He further submitted that the Corporate Debtor had taken the property of lease after satisfying itself in all respect and the lease deeds shows that Corporate Debtor executed the debt after verifying all the facts in respect to the property in question. He further submitted that the lease deed specifically records that the Corporate Debtor shall carry out its business operations from the property subject to applicable rules and regulations of the Government by laws and statutory restrictions. He further submitted that the relationship of the Operational Creditor and Corporate Debtor are governed by the terms of the lease deed. He further submitted that it was the Operational Creditor, who is contesting the proceedings, which have been illegally initiated by the MCD and till date the operations of the Corporate Debtor has not been hampered. He further submitted that despite the expiry of the initial period of 3 years, the Corporate Debtor has not exercised any right to terminate the lease and premises.
On the other hand, Ld. Counsel appearing for the Corporate Debtor submitted that the claims of arrear of rents by the Operational Creditor are not maintainable because the amount claimed by the Operational Creditor does not come within the definition of Operational debt. He further submitted that the Corporate Debtor had obtained premises to start its business of gym and he had invested huge amount but after 8 months from the date of entering the aforesaid lease agreement, he came to know that the said premises is not a commercial premises and running of gym is not permissible and in this regard a notice dated 19.09.2016 was served to the Operational Creditor under Section 345A of the Delhi Municipal Corporation Act 1957 alleging the misuse of the said premises for the commercial purposes.
He further submitted that the South Delhi Municipal Corporation on 19.01.2018 passed the order by which the said premises was order to be sealed forthwith and in that order, it is a specifically mentioned that said property is being used for running gymnasium in the name and style of anatomy life style fitness, which is in total violation of permission/sanction of the master plan 2021/zonal plan/sanction plan and use of the said property. He further submitted against that order the Operational Creditor preferred an appeal before the MCD and the MCD vide its order dated 24.12.2018 dismissed the appeal by holding that the Operational Creditor is not allottee to the commercial use of subject property, especially for using the residential property into commercial for running a gym and other activities as mentioned in the lease deed. He further submitted that after the sealing of the aforesaid property, the sale of the business of the Corporate Debtor has reduced and resulted loss. He further submitted that although the Operational Creditor was fully aware with the facts that the said premises is already declared as none commercial even he the sent demand notice under Section 8 of the IBC and the respondent submitted the reply and claim that the lease rent is not Operational debt and also raised the pre-existence disputes with respect to the nature of the said premises. He further submitted that in a series of decisions it was held that the lease rent is not a operational debt and therefore, no claim with respect to the same could be made under the IBC and in this regard he place reliance upon the decision of Hon'ble National Company Appellate Tribunal passed on 17.01.2020 in the case of M. Ravindranath Reddy vs. G. Kishan & Ors. Company Appeal (AT) (Insolvency No. 331 of 2019) and also on the following decisions:
i. Parmod Yadav vs. Divine Infracon Pvt. Ltd. NCLT, Delhi (C.P. No. IB-209/2017)
ii. Ms. Citicare Super Speciality Hospital vs. Vighnaharte Health Visionaries Pvt. Ltd. NCLT, Mumbai (C.P. No. IB-567/2018)
iii. Mobilox Innovations (P) Ltd. vs. Kirusa Software Pvt. Ltd. 2018 (1) SCC 352
iv. Manjeera Retail Holding Pvt. Ltd. Vs. Blue Tree Hospitality Pvt. Ltd. CP No. IB-61/9/HDB/2019
v. Pleasant Valley Development Pvt. Ltd. Vs. Spaine Hospitality Pvt. C.P. (IB) No. 134/BB/2019
In the light of decisions and the submissions raised on behalf of the parties, we have gone through the averment made in the application, reply, documents enclosed with the application and reply as well as the decisions upon the both parties placed it. At this juncture, we would like to refer the latest decision of the Hon'ble NCLAT passed in M. Ravindranath Reddy vs. G. Kishan & Ors. Company Appeal (AT) (Insolvency No. 331 of 2019) upon which the Ld. Counsel appearing for the respondent place reliance we have gone through the decisions and we find that in this appeal the Hon'ble NCLAT formulated the two questions:-
a. Whether a landlord by providing lease, will be treated as providing services to the corporate debtor, and hence, an operational creditor within the meaning of Section 5(20) read with Section 5(21) of the Insolvency and Bankruptcy Code, 2016?
b. Whether the petition filed U/S 9 of the Insolvency and Bankruptcy Code, 2016 is not maintainable on account of pre-existing dispute?
In the light of aforesaid questions, when we shall consider the case in hand then we find, here in the case in hand also the similar issues are raised by the parties, it is admitted facts that the Operational Creditor claim the amount, on the basis of lease agreement and defaulted amount, according to the Operational Creditor is the rent, which the Corporate Debtor fails to pay within the time fixed as per the lease agreement, we further find, after receiving the copy of the application as well as the demand notice, the Corporate Debtor raised the similar question, which have been formulated by the Hon'ble NCLAT, in that appeal and claimed amount does not come under the definition of operational debt and there is a pre-existence disputes.
In the light of submissions, we have gone through the application filed on behalf of the applicant and we find the Operational Creditor in his application clearly mentioned this fact that as per the lease deed dated 04.01.2016, the agreed monthly rent was Rs. 18,36,000 after deducting TDS and adding GST with effect from the 01.03.2016 to 28.02.2019 and from 01.03.2019 onwards the agreed rate was Rs. 19,55,000 (per month), (Rs. 21,11,400), after deducting TDS and adding GST. We further notice the Operational Creditor at page 21 para A mentioned this fact that on 29.10.2018, he received a communications from the Corporate Debtor that although the Operational Creditor had represented to the Corporate Debtor that the premises is fit for being used for gym business but on account of the notice received from the South Delhi Municipal Corporation, it was not used for the commercial purpose and similar question was raised by the Corporate Debtor after receiving the demand notice and in its reply the Corporate Debtor clearly mentioned that in view of the order passed by the MCD the premises is not fit to be used for the commercial purposes. Since it is admitted by the Operational Creditor that prior to the sending of the demand notice, he received a communication from the Corporate Debtor on 29.10.2018 that the said premises is not fit to be used for the purpose of gym and as per the contention of the Corporate Debtor, the premises was taken on lease by the Corporate Debtor for the purpose of carrying the business of gym and on this ground he stopped the payment.
We further notice that the Operational Creditor has sent the demand notice on 18.03.2019 and the Corporate Debtor sent a reply on 04.04.2019. We further notice that the tracking report is not enclosed by the applicant and even during the course of hearing, the Operational Creditor has not raised the issue that the reply of the demand notice was not given within 10 days from the date of receipt of demand notice, therefore, in the absence of any tracking reports. We have come to the conclusion that the Corporate Debtor has sent the reply within the period of 10 days of the receipt of the demand notice and we further find that the Corporate Debtor in his reply raised these issues that the debt is not operational debt and there is a dispute regarding the use of the buildings.
Now we would again like to refer the finding given by the Hon'ble NCLAT on the questions and for that we have gone through the decisions upon which the Corporate Debtor has placed reliance and we find, the Hon'ble NCLAT discuss the decisions on this issue as well as the definition of the operational debt and held that:
"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 is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
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 [paid] by the debtor or the corporate debtor, as the case may be; 11
5(20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
5(21) "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;
The Legislature did not include here the reference to rent dues of property. Thus, it is clear that a claim in respect of the provision of goods or services is covered under the operational debt. This petition has been filed for recovery of enhanced rent as per lease agreement; this is not about the goods or services or in respect to goods or services.
This Appellate Tribunal has also held on 28-11-2017 in Company Appeal (AT) (Insolvency) 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 are 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 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 construed as an 'operational debt' other than those classified as 'financial debt'.
Thus, only if the claim by way of debt falls within one of the three categories as listed above, can be categorised as an operational debt. In case if the amount claimed does not fall under any of the categories mentioned as above, the claim cannot be categorised as an operational debt, and even though there might be a liability or obligation due from one person, namely Corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorise itself as an "Operational Creditor" as defined under Section 5(21) of the I&B Code, 2016. Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or 'Operational Debt.
In case of lease of immovable property, Default can be determined, on the basis of evidence. While exercising summary jurisdiction, the Adjudicating Authority exercising its power under Insolvency and Bankruptcy Code 2016, cannot give finding regarding default in payment of lease rent, because it requires further investigation."
On the basis of the aforesaid finding, when we shall consider the case in hand then we find that here also the Operational Creditor claimed the lease rent as an operational debt, which in view of the aforesaid decision, in our considered view does not come under the definition of operational debt. At this juncture, we would also like to refer that there is existence of dispute, as it was admitted by the operational Creditor that before the issuance of the demand notice, the corporate debtor has communicated that a notice was issued by the MCD regarding the commercial use of the building and it has also been decided by the MCD, therefore, in our considered view, the dispute has been raised by the corporate debtor prior to the receiving of the demand notice, therefore, in view of Section 9(5)(2) of the Code, if the notice of dispute is raised regarding existence of dispute within 10 days of the receipt of the demand notice and the record shows that there is a existence of dispute in that case the application is not maintainable. For the reasons discussed above, we are of the view that since the lease rent does not come under the definition of the operational debt and there is pre-existence of dispute, therefore, the present application is not maintainable and same is liable to be dismissed. Accordingly, we hereby dismiss the present application.
The office is directed to send free copy of this order to both the parties.