Tax Management India. Com
                        Law and Practice: A Digital eBook ...
TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Articles News
Highlights
D. Forum
What's New
Sub-Menu

Share:      

        Home        
 

TMI Blog

Home

2017 (11) TMI 194

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... f the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect In characterizing the defense as vague, got-up and motivated to evade liability. - In the light of the above the contentions of the Learned Counsel for the Petitioner relating to dispute may not be of much effect. Hence, taking into consideration all the above including facts and position of law, we are not inclined to admit this Petition and hence the Petition is dismissed, but without costs. - No.IB-209/ND/2017 - Dated:- 28-9-2017 - R.VARADHARAJAN, Hon'ble Member (JUDICIAL) For the Petitioner : Shri SakalBhushan, Advocate , Shri Surendra Kumar, Advocate, Shri Akash Jandial, Advocate For the Respondent :Shri Inayat Ahmed, Advocate , Ms. Rehana Ahmed, Advocate ORDER The factual matrix for filing this application under Insolvency & Bankruptcy Code, 2016 (IBC, 2016) by the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e Debtor' on 24.4.2017. In view of the fact that no payment of the amount claimed in default has been remitted nor the notice of demand being replied to, which it is stated to have made the Operational Creditor to file under Section 9 of IBC, 2016 this Petition for invoking the Corporate Resolution Process (CIRP) against the 'Corporate Debtor'. 3.The Respondent/Corporate Debtor named in the application has filed a counter/reply denying the claim as put forth by the Petitioner on the following grounds: a) That the claim is based on the lease agreement dated 16.8.2014 which has been terminated w.e.f. 04.04.2016 and hence the amount which is claimed to be in default is not right and therefore non-maintainable as the amounts which are claimed have not even accrued to the Applicants and which it has been pointed out as an instance of blatant misuse of the provisions of the Code on the part of the Applicants. b) The 'Corporate Debtor' also contends that the Applicants do not fall under the definition of 'Operational Creditor' and that the amount claimed is not an 'Operational Debt' and the Respondent cannot be categorized as the 'Corporate Debtor&# .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ive parties and elaborate submissions made by the Id. Counsel for the respective parties, this Tribunal is called upon to decide whether the lease agreement entered into for the lease of the immovable property will or will not fall within the definition of Operational Debt' as defined under the provisions of Section 5(21) of IBC,2016 and whether the Applicant can be categorized as an Operational Creditor'. 4. At the time of oral submissions the Ld. Counsel for Petitioner strenuously took us through the notice of arbitration alleged to have been issued on 17.1.2017 by the 'Corporate Debtor' and contends that in the said notice no attributable dispute has been detailed as required under the provisions of Arbitration and Conciliation Act, 1996 which is required to be referred to the Arbitrator other than merely pointing out the arbitration clause in the agreement as reproduced from clause No. 32 of the Hotelier-Buyer Agreement dated 10.1.2012. Merely citing the clause or arbitration without mentioning the nature of dispute which is required to be referred to the Arbitrator cannot be considered as notice and in the circumstances it is contended by the Ld. Counsel for th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... efinition clause as contained under Section 3 as well as under Section 5 of IBC, 2016 and if necessary to other provisions of IBC, 2016 to gather, if possible from IBC, 2016 to ascertain whether the applicant petitioner can categorize itself as an Operational Creditor'. Since it is the act of default which triggers a reaction, the definition of "default' as given under Section 3(12) of IBC, 2016 is first taken note of as below: 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 repaid by the debtor or the corporate debtor, as the case may be. 6.The above definition of "default" makes it evident that it is pre-dominantly hinged on the term "debt" as the non-payment of debt which has become due and payable by the debtor or the corporate debtor give rise to a default and "debt" as defined under Section 3(11) is as follows: - 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. From the above definition, it can be discerned that while the term .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ot;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. While creditor has been defined under Section 3(10) of Part I of IBC, 2016 which is as follows: 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. 8. However the word "operational" or for that matter "operation" or "operations", despite being repeatedly mentioned In Part II of IBC, 2016 has not been defined anywhere in IBC, 2016 and in particular Part I or Part II of the Code in which it seems to assume significance as in Part III of the Code as applicable to Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms such a classification of Debt as ' Financial Debt' and 'Operational Debt' nor creditors based on the said classification of debt has been made applicable and the classification of debts there under seems to stand on an entirely different footing and hence Part III also does not offer much help in ascertaining .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... errupted during moratorium period. What constitutes essential goods or services is provided under the rules titled as Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 (for brevity Insolvency Regulations) wherein under Regulation 32 the following has been detailed as essential supplies and the said Rule is reproduced in full hereunder for ready reference:- Regulation 32: The essential goods and services 14 (2) shall mean - (1) Electricity; (2) Water; (3) Telecommunication services;and (4) Information technology services, to the extent these are not a direct input to the output produced or supplied by the corporate debtor. From the above usage of the term "goods or services" relating to Section 14(2) and what constitutes or do not constitute or in other words qualifies to be considered as essential goods or services', we are able to discern that the term 'goods or services' used in the definition of operational debt must relate to direct input to the output produced or supplied of the corporate debtor. Thus any debt arising without nexus to the direct input to the output produced or supplied cannot i .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nnot categorize itself as an "operational creditor" as defined under Section 5 (21) of IBC, 2016 unless it is established that such goods or services has direct relationship to input-output operations of the Corporate Debtor and hence disentitles such a person from maintaining an application for CIRP against the corporate debtor as an Operational Creditor. There seems to be some rationale in restricting only to Operational Creditors for initiating a CIRP against a Corporate Debtor other than a Financial Creditor. Default committed to operational creditors in relation to payment of their debt definitely connotes that the Corporate Debtor is not even in a position to service their dues and run the day to day operations of the Corporate Debtor which is a clear pointer to its commercial insolvency warranting the process of insolvency being initiated and restructuring process being put in place. Before proceeding further this Tribunal is refraining from going into the aspect where the immovable property in itself constitutes stock-in-trade of the corporate person and has a direct nexus to its input-output and being an integral part of the operation. In the instant case no such .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... reach of agreement against the 'Corporate Debtor'. In this regard, reliance is placed on the decision of the Hon'ble High Court of Karnataka rendered in Greenhills Exports (Private) Limited, Mangalore and Others vs. Coffee Board, Bangalore (2001) 106 Comp. Cas 391 (Kar) wherein after a detailed discussion of the authorities on the point including that of the Hon'ble Supreme Court, of what constitutes a 'debt' giving rise to an action under the erstwhile provisions of Companies Act, 1956 seeking winding up and whether claim to damages, whether liquidated or not will constitute one, the High Court of Karnataka at paragraph 14 of the aforesaid Judgement has summed up as follows:- (1) A 'debt' is a sum of money which is now payable or will become payable in future by reason of a present obligation. The existing obligation to pay a sum of money is the sine qua nan of a debt. "Damages" is money claimed by, or ordered to be paid to, a person as compensation for loss or injury. It merely remains as a claim till adjudication by a Court and becomes a 'debt' when a Court awards it. (ii) In regard to a claim for damages (whether liquidated or u .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nsequential. Again at paragraph 16, the Hon'ble High Court of Karnataka gives the position in a nutshell: In the absence of a decision by a competent Civil Court (or Arbitrator, as the case may be) that the appellant has committed breach and has incurred a pecuniary liability, no amount can be said to be due to the Board merely on its claim that the Company has committed breach and that it (the Board) has quantified the loss in terms of the contract. As the amount claimed is not a 'debt' but damages, we hold that the petition for winding up of a Company is not maintainable, even though the amount claimed is calculated in terms of the contract. The only ground urged by the Board was that the Company Is unable to pay its debts. No other ground is urged. 13. As compared to the earlier regime prevalent under the provisions of Companies Act, 1956, the present regime in relation to insolvency are more stringent, in the sense that all debts as noticed and dealt with in paragraphs supra cannot lead to a claim for invoking the provisions of IBC,2016 and only two types of debt, namely financial and/or operational debt qualify to be considered. Further as already seen the position .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... vestigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defense which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defense is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. Again at paragraph 45 of the said Judgement in relation to existence of dispute' it has been observed as follows: Going by the aforesaid test of "existence of a dispute", it is clear that without going Into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Site Map - Recent || Site Map ||