TMI Blog2022 (7) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... ained unpaid shall become a debt on the part of Operational Creditor. The payment of License Fee is an obligation on the Corporate Debtor under the Agreement dated 15.04.2017. In a judgment relied by learned Counsel for the Appellant is Sanjeev Kumar vs. Aithent Technologies Private limited and another [ 2021 (2) TMI 443 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ], where the Corporate Debtor has taken on lease the basement and the ground floor of the premises and Lease Deed was executed for renting out the premises. Demand Notice was sent and then Section 9 Application was filed. One of the questions which arose for consideration in the case was as to 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(2) read with Section 5(21) of the Insolvency and Bankruptcy Code, 2016? In the above context, the Adjudicating Authority had admitted the Application, which order was upheld by this Tribunal holding that Operational Creditor had provided different type of services to the Corporate Debtor. Section 14, sub-section (2) deals with supply of essential goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to it by Three Members Bench vide order dated 09.03.2022: i. Whether the Judgment of this Tribunal in Company Appeal (AT) (Ins.) No.331 of 2019 in the matter of Mr. M. Ravindranath Reddy vs. Mr. G. Kishan Ors. lays down the correct law. ii. Whether claim of the Licensor for payment of License Fee for use and occupation of immovable premises for commercial purposes is a claim of Operational Debt within the meaning of Section 5(21) of the Code. 2. Before we proceed to consider the submission of the parties and the Questions framed, it is necessary to notice the facts of the case, which has given rise to this Appeal. (i) The Appellant before us entered into an Agreement dated 15.04.2017 with the Respondent M/s Metro Jet Airways Training Private Limited, the Corporate Debtor. Under the License Agreement the Licensor granted license of Admin Building with total super area measuring 31000 Sq. Ft., which premises was on Warm Shell Building with fittings and fixtures, electrical, flooring as per good corporate standards and as per the requirement of the Licensee. The Licensee took the premises for the purposes of running an Educational Establishment with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant and Shri Vikrant Arora, learned Counsel for the Respondent. 5. The learned Counsel for the Appellant submits that Agreement dated 15.04.2017 executed between the parties for providing services to the Corporate Debtor of the premises, which is a Warm Shell Building with fittings and fixtures, electrical, flooring as per good corporate standards and as per the requirements of the Licensee. The premises was licensed to the Corporate Debtor for running Educational Institution. The provision made by Agreement was a provision of service within the meaning of Section 5, sub-section (21) of the Code. The debt was an operational debt within the meaning of Section 5, sub-section (21) of the Code. The Adjudicating Authority committed error in holding that claim arising out of grant of license to use of immovable property does not fall in the category of goods or services. The Corporate Debtor defaulted in payment of license fee and dishonour of cheques is proof that the amounts are due from the Corporate Debtor to the Operational Creditor. Demand Notice was duly served on the Corporate Debtor on 07.05.2019 but neither any reply was given to the Demand Notice nor any dispute was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.11.2015 to Finance Minister, Government of India. In paragraph 5.2.1, the Bankruptcy Reforms Committee dealt with subject who can trigger the IRP? , the following observations have been made by Bankruptcy Law Reforms Committee, 2015 under paragraph 5.2.1: 5.2.1 Who can trigger the IRP? .Here, the Code differentiates between financial creditors and operational creditors. Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or a debt security. Operational creditors are those whose liability from the entity comes from a transaction on operations. Thus, the wholesale vendor of spare parts whose spark plugs are kept in inventory by the car mechanic and who gets paid only after the spark plugs are sold is an operational creditor. Similarly, the lessor that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease. The Code also provides for cases where a creditor has both a solely financial transaction as well as an operational transaction with the entity. In such a case, the creditor can be considered a financial creditor to the extent of the financial de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In consideration of the LICENSE FEE to be paid by the LICENSEE and the LICENSEE agreeing to observe and perform the covenants, terms and conditions herein contained, the LICENSOR hereby grants on LICENSE the Demised Premises to the LICENSEE and the LICENSEE has agreed to take the Demised Premises on LICENSE for the purpose of running an educational establishment as detailed hereinbefore, on the terms and conditions appearing hereinafter. In pursuance to the above LICENCE AGREEMENT, the LICENSOR hereby agrees to hand over the vacant and peaceful license of the Demised Premises to the LICENSEE on or before 1st June 2017. b. It is specifically agreed between the parties that the LICENSEE will not in respect of the Demised Premises create encumbrance of any kind such as mortgage, collateral security etc. or any other interest in favour of third party or otherwise. c. At the time of signing of this License Agreement, the LICENSEE undertakes and warrants that it does not have any claim against the LICENSOR with regard to any item of work, quality of work, materials, installation etc. Any or all complaints that the LICENSEE had with respect to the Demised Premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take the Demised Premises for the purpose of running an educational establishment on the terms and conditions appearing in the Agreement. 16. Now coming back to the definition of operational debt as contained in Section 5 (21), the definition clause provides that operational debt means a claim in respect of the provision of goods or services. 17. Apart from definition as contained under Section 5(21), the operational debt has not been explained in any other provisions of the Code. The definition under Section 5(21) uses the expression operational . The expression services used in Section 5(21) has also not been defined in the Code. When an expression used in statute is not defined, the Court has to explain the meaning of undefined expression in accordance with the well-established rules of statutory interpretation. The Hon ble Supreme Court has laid down the law on the above in (2015) 4 SCC 770 in Keshavlal Khemchand and Sons Private Limited and Ors. vs. Union of India and Ors., wherein in paragraph 53, following has been laid down: 53. We are of the firm opinion that it is not necessary that the legislature should define every expression it employs in a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Tax Act, 2017 (hereinafter referred to as 2017 Act ) in Section 2(102) is to the following effect: 2(102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged 21. Section 2(52) of 2017 Act, defines goods in following manner: 2(52) goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply 22. The Agreement dated 15.04.2017 is not with regard to any goods . The Agreement dated 15.04.2017 has to read to mean that the Agreement between the parties was with regard to services within the meaning of Section 5, sub-section (21) of the Code. Had the Agreement dated 15.04.2017 did not contemplate services, there was no occasion for making the Licensee liable to pay GST over and above the License Fee. The License Fee to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured 25. The claim of the Operational Creditor for payment of License Fee is fully covered as claim of the definition under Section 3, sub-section (6) and similarly liability or obligation in respect of claim becomes a debt on the part of the Corporate Debtor within the meaning of Section 3 (11), which defines debt in following words: (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 26. Before we refer to the judgments relied by learned Counsel for the parties in respect of their respective submission, we may notice the judgment of Hon ble Supreme Court in Mobilox Innovations (P) Ltd. vs. Kirusa Software (P) Ltd. (2018) 1 SCC 353, where the Hon ble Supreme Court had occasion to consider Section 9 of the Code, which deals with operational debt. The Hon ble Supreme Court in the above judgment has noticed the Bankruptcy Law Reforms Committee Report given in November 2015. In paragraph 17, the Hon ble Supreme Court observed that it was as a result of the deliberations of this Committee, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the records of their liabilities, unlike the case of financial creditors. However, their incentives to file liabilities are even stronger when the entity approaches insolvency. 4.3.4. Information about operational creditors Once the invoice or notice is served, the debtor should be given a certain period of time in which to respond either by disputing it in a court, or pay up the amount of the invoice or notice. The debtor will have the responsibility to file the information about the court case, or the repayment record in response to the invoice or notice within the specified amount of time. If the debtor does not file either response within the specified period, and the creditor files for insolvency resolution, the debtor may be charged a monetary penalty by the adjudicator. However, if the debtor disputes the claim in court, until the outcome of this case is decided, the creditor may not be able to trigger insolvency on the entity. This process will act as a deterrent for frivolous claims from creditors, as well as act as a barrier for some types of creditors to initiate insolvency resolution. 22. The Committee then went on to consider as to who can trigge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability and evidence of the entity having defaulted on payments. The Committee recommends different documentation requirements depending upon the type of creditor, either financial or operational. A financial creditor must submit a record of default by the entity as recorded in a registered information utility (referred to as the IU) as described in Section 4.3 (or on the basis of other evidence). The default can be to any financial creditor to the entity, and not restricted to the creditor who triggers IRP. The Code requires that the financial creditor propose a registered insolvency professional to manage IRP. Operational creditors must present an undisputed bill which may be filed at a registered information utility as requirement to trigger IRP. The Code does not require the operational creditor to propose a registered insolvency professional to manage IRP. If a professional is not proposed by the operational creditor, and IRP is successfully triggered, the Code requires the adjudicator to approach the regulator for a registered insolvency professional for the case. When the adjudicator receives the application, she confirms the validity of the documents before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon ble Supreme Court. It is true that there is no observation in the judgment specifically approving the views of the recommendation of the Bankruptcy Law Reforms Committee Report as contained in paragraph 5.2.1, but the reference of the said paragraph while quoting the relevant part of the Report, clearly means that the said recommendations of the Report were for the purpose of understanding the nature and content of the operational debt . Further, there is no indication in the observation made by Hon ble Supreme Court in Mobilox that the Report of Bankruptcy Law Reforms Committee in paragraph 5.2.1 is incorrect or not to be followed. We, thus, conclude that the reference to paragraph 5.2.1 of the Bankruptcy Law Reforms Committee Report by the Hon ble Supreme Court in Mobilox cannot be said to be irrelevant or meaningless. Thus, what Bankruptcy Law Reforms Committee Report in 2015 mentioned while explaining the operational debt is relevant and can be fully relied for interpreting the expression operational debt as reflected in Section 5, sub-section (21). 28. Now we come to the judgments of this Tribunal relied by learned Counsel for the Appellant in support of her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service; 21. The provisions of the Central Goods and Services Tax Act 2017. Schedule - II of the Act lists down the activities that are to be treated as supply of goods or services, and paragraph 2 of the Schedule stipulates as follows; (a) any lease, tenancy, easement, licence to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. As the premises in the case on hand is leased out for Commercial Purpose , the cold storage owner/NAFED on collection is required to pay service tax which is reflected in the tax invoices and Ledger Accounts which is part of the record filed. 22. Therefore, keeping in view, the observations made by the Hon'ble Supreme Court in Para 5.2.1 of Mobilox (Supra), and having regard to the facts of the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent that the adhoc amount was paid on the basis of reduced carpet area of the licensed premises or that the oral agreement running parallel to the Leave and License Agreement enjoined upon the Respondent to pay rent on the basis of carpet area , which was less as compared to the super built up area , was a mere moonshine and could not be entertained as a pre-existing dispute to defeat initiation of Corporate Insolvency Resolution Process. The Adjudicating Authority has clearly landed in error in rejecting the Appellant's version that the license fee was fixed for super built up area and not for carpet area as clearly stipulated in the Leave and License Agreement and the Appellant was under no obligation to reduce the rent. Reliance on irrelevant documents in coming to conclusion that there was a pre-existing dispute was uncalled for. The Adjudicating Authority also failed to notice that the Respondent never sought settlement of any dispute in regard to calculation of rent on carpet area basis through arbitration which was the agreed mode of resolution of dispute between the parties in terms of the Leave and License Agreement. Significantly, no dispute was raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not fall within the definition of the operational debt in terms of Section 5(21) of the Code. On the above basis, it is clear that appeal deserves to be allowed. ORDER The appeal is allowed and the impugned order dated 21st January 2019 passed by the Adjudicating Authority/National Company Law Tribunal in CP (IB) No. 134/09/HDB/2018 Mr. G. Kishan Ors. Vs. M/s Walnut Packaging Private Limited is set aside. In effect, order (s) passed by Ld. Adjudicating Authority appointing Interim Resolution Professional , declaring moratorium, freezing of account and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action taken by the the Resolution Professional , including the advertisement published in the newspaper and all such orders and actions in pursuant to the impugned order are declared illegal and are set aside. The application preferred by the 1st Respondent under Section 9 of the I B Code is dismissed. The Adjudicating Authority will now close the proceeding. The 5th Respondent Company is released from all the rigour of proceedings and is allowed to function independently through its Board of Directors with immediate effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. 35. Section 14, sub-section (2) deals with supply of essential goods or services to the Corporate Debtor. The said provision has nothing to do with the extent and expense of operational debt within the meaning of Section 5(21). The observation that any debt arising without nexus to the direct input or output produced or supplied by the Corporate Debtor, cannot be considered to be operational debt is conclusion drawn by this Tribunal contrary to the scheme of the Code. The operational debt as defined in Section 5(21) has meaning much wider than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Reforms Committee and Paragraph 5.2.1 which was part of the report of the Committee was reproduced. Such paragraph 5.2.1 of report of Insolvency Law Reforms Committee has been recorded in Paragraph 17 of the Judgment as if it is observation of the Hon ble Supreme Court in the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited Ors. This is apparently not correct. After referring to the Report, Hon ble Supreme Court referred to the Insolvency Bankruptcy Bill (See Para 25 of Mobilox Judgment) and its contents as well as Notes on clauses; the Joint Committee report of April, 2016 (Para 28) and examined the provisions of IBC and observed in para 32 that In the passage of the Bills which ultimately became the Code various important changes have taken place . Hon ble Supreme Court went on to hold that at the time of admitting Application under Section 9 of IBC all that Adjudicating Authority is to see is whether there is plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. Learned Counsel for Appellant, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Services Tax Act, 2017 are not covered by Section 3(37) of the Code, with regard to which observation, no exception can be taken. However, in the facts of the present case, where Agreement itself contemplate payment of GST for the services under the Agreement, on which GST is payable, the definition of service under Central Goods and Services Tax Act, 2017 cannot be said to be irrelevant. More so, even if an expression is not defined in the statute, the meaning of expression in general parlance has to be considered for finding out the meaning and purpose of expression. After making above observation in Promila Taneja s case (supra), this Tribunal did not dwell with the question as to what is the meaning of expression of service used in Section 5(21) of the Code. Reference to Section 5(8)(d) regarding financial debt by this Tribunal in the above case also was not relevant for finding out definition of expression service under Section 5(21). We, thus, are of the view that both in Mr. M. Ravindranath Reddy and Promila Taneja this Tribunal did not dwell upon the correct meaning of expression service used in Section 5(21) of the Code. In any view of the matter, in the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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