TMI Blog2019 (10) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... n widest possible scope so that creditors rights are not restricted/narrowed down due to legal technicalities and litigation and, consequently, objects of Insolvency Bankruptcy Code, 2016 are not defeated. Meaning of term debt and claim - HELD THAT:- The Insolvency Bankruptcy Code, 2016 recognises three types of debts giving birth to three different types of creditors i.e. financial creditors, operational creditors and other creditors who have been given different rights, powers and treatment under the Insolvency Bankruptcy Code, 2016. Therefore, classification of debt as financial, operational or other debt is extremely important, for example, CIRP can be initiated only by financial creditors or operational creditors or corporate debtor itself as per Sec.6 of the Code whereas other creditors have been given right to lodge their claims during CIRP only. The decision of the NCLT Delhi Bench in the case of MRS PARMOD YADAV, W/O SH. RAM CHANDER YADAV, MRS. SNEHA YADAV, W/O SH. SIDDHARTH YADAV VERSUS DIVINE INFRACON PVT. LTD. [ 2017 (11) TMI 194 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI] support our view for the reason that in the present case operations of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 164/- which comprises of ₹ 6194096/- (principal amount) and Rs. (interest) thereon. 2. The facts, in brief, are that the operational creditor had entered into a lease agreement with the corporate debtor for letting out part of its property for a period of 5 years with effect from Ist November 2010 to 31st October 2015. Extension of such agreement was done through an agreement dated 1st November 2015 for a period up to 31st October 2020. The corporate debtor is running its business from this place and using the said premises also as its registered office. On failure of corporate debtor to pay the rent for several months and also electricity and water charges, a meeting was held in January 2017 whereby corporate debtor assured to clear off its dues, however, outstanding amount as mentioned hereinbefore still remained pending. 3. Ld. Counsel for the operational creditor narrated these basic facts and drew our attention to the bills raised by the operational creditor, various cheques given by the corporate debtor and other correspondences exchanged between them to substantiate its claim. Our attention was also drawn at pages 17 and 18 of the petition containing unpaid bills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim that agreement being unstamped and unregistered could not be a valid ground for not to make payment of rent. It has been contended that operational creditor provided necessary facilities under its scope as per lease agreement hence, the corporate debtor did not suffer due to any such alleged lapses and such claims were an after thought just to avoid the claims made by the operational creditor through this petition. 7. It has further been claimed that the corporate debtor had taken the premises as is where is basis and all the interiors were to be done by the corporate debtor itself hence, such investment was made by corporate debtor on its own purpose which was never an obligation of operational creditor, as such, claim of the corporate debtor was also liable to be rejected. 8. On behalf of operational creditor it has also submitted that there is no counter claim which is required to be set off against the dues of the operational creditor nor the possession of the said premises had been given, therefore, security deposit was also not liable to be refunded. Operational creditor has also stated that present outstanding fall within the definition of operational debt withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/transferred and recovery proceedings can be initiated against the defaulting party. However, as it is a settled proposition now that the Insolvency Bankruptcy Code, 2016 is not a mechanism or tool for recovery of outstanding dues but it is a process for revival of an entity and continuation of such entity as a going concern. In this background, before proceeding further we reproduce definition of few relevant terms as under:- Sec.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 taw 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. Sec.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. Sec.3(11) Debt rteans a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s implications for enforcing the provision of Insolvency Bankruptcy Code, 2016, in the case of Religare Finvest Ltd. Vs. Bharat Road Network Ltd. cp (1B) No.540/KB/2018 in CA (1B) No. 1060/KB/2019 dated 28th August 2019. Relevant findings of the aforesaid order are reproduced as under:- (i) It is noted that Financial Creditor is a registered NBFC with RBI having requisite authorsation to carry on business as NBFC. In the course of its business, it has granted short term loan to the Corporate Debtor. Such short term loan was given on interest and payable after one year as per the terms and conditions agreed by and between the parties, through MOU dated 14.12.2016. The amount of loan and rate of interest is not in dispute. It is also not in dispute that the Corporate Debtor has failed to repay the loan along with interest accrued thereon. Hence, the Financial Creditor has filed an application for initiation of Insolvency Resolution Process under Section 7 of the IBC 2016. (ii) First preliminary objection raised by Corporate Debtor is that petition is not maintainable due to insufficient stamp duty being paid in relation to such MoU. To deal with this plea, firstly we would e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment, one of the tests which has been evolved by Courts is the conduct test . Under the conduct test, a right to payment arises when the conduct giving rise to the alleged liability occurred. Another test is the pre-petition relationship test which requires some pre-petition relationship such as contract, exposure, impact or privity, between debtor's pre-petition conduct and the claimant in order for the claimant to hold a section 3(6) claim. (iv) It is fu rther apparent that the term 'claim ' has b een defined in widest possible manner so that lender's right to receive payment can be enforced in variety of situations or conversely, it contemplates that all obligations to the extent possible of the corporate debtor would be dealt within the insolvency and bankruptcy proceedings. For example, on occurrence of default, even if a claim is disputed, financial creditor can seek refuge under Code to initiate CIRP process. Similarly, whether loan is secured or unsecured, in both these situations CIRP process can be initiated when a default occurs in repayment of loan. (v) 'Claim' has been defined also to include a right to payment whether or not We need t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including - (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; or (iv) an order of a court or tribunal that has adjudicated upon the non- payment of a debt, if any. Form C has been prescribed in this regard which is reproduced as under :- FORM C SUBMISSION OF CLAIM BY FINANCIAL CREDITORS (Under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016) [Date] From [Name and address of the financial creditor, including address of its registered office and principal office] To The Interim Resolution Professional / Resolution Professional, [Name of the Insolvency Resolution Professional / Resolution Professional] [Address as set out in public announcement] Subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e insolvency commencement date, being the.. ........day of ......20......., actually indebted to me for a sum Of Rs. [insert amount Of claim]. 2. In respect of my claim of the said sum or any part thereof, I have relied on the documents specified below: [Please list the documents relied on as evidence Of claim]. 3. The said documents are true, valid and genuine to the best of my knowledge, information and belief and no material facts have been concealed therefrom. 4. In respect of the said sum or any pan thereof, neither I, nor any person, by my order, to my knowledge or belief, for my use, had or received any manner of satisfaction or security whatsoever, save and except the following: [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim]. 5. I am / I am not a related party of the corporate debtor, as defined under section 5 (24) of the Code. 6. I am eligible to join committee of creditors by virtue of proviso to section 21 (2) of the Code even though I am a related party of the corporate debtor. Date: (Signature of the claimant) Place: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reprobate, which means that a person cannot approbate and reprobate at the same time, that is, no party can accept or reject the same instrument and cannot say at one time that the transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn around and say it is void for the purpose Of securing some other advantage. In the instant case, it is the Corporate Debtor who has purchased the stamp paper for the execution of said MOU, meaning thereby that stamp duty for execution of MOU has been borne by the Corporate Debtor. It is settled judicial proposition that insufficiency of a stamp duty is a curable defect which can be cured by making up for the deficiency, hence, if the Corporate Debtor wishes to pay the stamp duty not paid, then nobody can stop but, at this stage, the Corporate Debtor being a wrongdoer at one end cannot be allowed to take advantage of its own wrong. For this reason also the claim of the Corporate Debtor regarding enforceability of MOU is liable to be rejected. (x) To strengthen our this view, we draw support from certain observations of NCLT Mumbai Bench in the case of Bank of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, we can't get into subjective perceptions of anybody or even of us, law is set out how to deal with it, parties apply their wisdom when they enter into binding covenants they enter into contracts, Parliament applies its wisdom when a legislation is brought in, therefore discretion in between left to this Bench is judicial discretion, not to wedge into any other perception into it. Why conventional method of trial has been taken out from IBC proceedings is one - obviously to expedite the process and two - perhaps on the reason that parties cannot deny at least the entries showing in the records of companies. (xi) From the above discussion, it can be fairly said that w here Corporate Debtor has obtained a loan having time value of money or on interest, enjoyed it on the basis of subject MOU, it is both a legal and equitable obligation of a Corporate Debtor and, simultaneously, legal and equitable right of the Financial Creditor to initiate CIR process under IBC 2016 in case of default by the Corporate Debtor in repayment thereof. (xii) we are further of the view that admitted facts need not be p roved and when it is so that is, when proof of document is not required, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, we reject the contention that the outstanding sum is not a claim within the meaning of Sec.3(6) of Insolvency Bankruptcy Code, 2016. 17. Further, based upon the meaning of term debt and claim , the inevitable conclusion is that the Insolvency Bankruptcy Code, 2016 recognises three types of debts giving birth to three different types of creditors i.e. financial creditors, operational creditors and other creditors who have been given different rights, powers and treatment under the Insolvency Bankruptcy Code, 2016. Therefore, classification of debt as financial, operational or other debt is extremely important, for example, CIRP can be initiated only by financial creditors or operational creditors or corporate debtor itself as per Sec.6 of the Code whereas other creditors have been given right to lodge their claims during CIRP only. This has been structured in this manner because most of the creditors may fall under the category of either financial creditor or operational creditor and claims Of other creditors would generally be not of substantial magnitude and they may not be interested in the initiation of IRP. 18. If arrears of lease rent are categorised as of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an established principle of judicial propriety that a later decision which after considering the earlier decision takes a view on the same matter, that later view would have higher persuasive value. Thus, the decision of the NCLT Kolkata Bench in the case of Sarala Tantia vs. Nadia Health Care Pvt. Ltd. in CP(IB) No. 108/KB/2018 order dated 5/ 10/2018 wherein, after considering a divergent view expressed by NCLT Bench Delhi in the case of Promod Yadav and Ors. vs. Divine Infracom Pvt. Ltd. 1B/209/ND/2017, order dated 28/9/2017 it has been held that outstanding lease rent would fall within the definition of operational debt needs to be followed. It is further noteworthy that in the case of Sarala Tantia (supra), the Tribunal drew support from the decision of the Hon'ble Apex Court in the case of Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd order dated 21/9/2017 wherein it was held that outstanding lease rent would be an operational debt. It is further noteworthy that in the case of Promod Yadav Ors. (supra) this decision of the Hon'ble Supreme Court was not considered. Accordingly, in our humble view, this aspect can be said to have been settled on this basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and the consideration that is recoverable becomes operational debt. In view of these facts on record, I hold that recovery of arrears of rent is operational debt within the meaning of section 5(21) of the 185B Code. 22. We are further of the view that in fact, the decision of the NCLT Delhi Bench in the case of Promod Yadav ors. (supra) support our view for the reason that in the present case operations of the corporate debtor are being carried from the leased premises only, hence, the out put is produced from the said premises. Having said so, with all humility we submit that the ratio that services should be of the nature of input to output directly needs reconsideration for the reason that no such requirement exists in Sec.5(21) of Insolvency Bankruptcy Code, 2016 and services referred to in Sec. 14(2) read with Regulation 31 and 32 are essential goods and services and not goods or services as mentioned in Sec.5(21) of Insolvency Bankruptcy Code, 2016 which means that definition given in the context of specific purpose or the object cannot apply to a general object or purpose. In the present case, the issue is related to classification of creditor based upon natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts involve an exchange of funds between the entity and a counterparty which is a financial finn or intermediary. This can cover a broad array of types of liabilities: loan contracts secured by physical assets that can be centrally registered; loan contracts secured by floating charge on operational cash flows; loan contracts that are unsecured; debt securities, that are secured by physical assets, cash flow or are unsecured. Operational contracts typically involve an exchanqe of goods and services for cash. For an enterprise. the latter includes payable for purchase Q.f raw materials. other inputs or services, taxation and statutory liabilities, and wages and benefits to employees . 23. From perusal of these comments/observations it is apparent that rental obligation are to be considered as operational debt and consequently claim of operational creditor. Secondly, observation in para 4.3.3 make it absolutely clear that raw material and other inputs cannot be sole criterion to define the scope of term services . We are, further, of the view that if a restricted meaning is given then the amount payable to consultancy, adviser etc. who play an important role in running of org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode, 2016 read with relevant Regulation thereto. Accordingly, we admit the same and order as under: - ORDER i. The application filed by the Financial Creditor under section 9 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Axiom Estates Advisory Services Pvt. Ltd. is hereby admitted. ii. We declare a moratorium and public announcement in accordance with Sections 13 and 15 of the IBC, 2016. iii. Moratorium is declared for the purposes referred to in Section 14 of the Insolvency Bankruptcy Code, 2016. The IRP shall cause a public announcernent of the initiation Of Corporate Insolvency Resolution Process and call for the submission of claims under Section 15. The public announcement referred to in clause (b) of sub-section (I) of Section 15 of Insolvency Bankruptcy Code, 2016 shall be made immediately. iv. Moratorium under Section 14 of the Insolvency Bankruptcy Code, 2016 prohibits the following: a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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