Rent arrears claim rejected as operational debt: CIRP application dismissed due to pre-existing dispute

The Tribunal dismissed the application for initiation of the Corporate Insolvency Resolution Process, ruling that the claim for arrears of rent did not qualify as "operational debt" under the Insolvency and Bankruptcy Code, 2016. Additionally, it found that there was a pre-existing dispute regarding the commercial use of the leased property, which was raised before the demand notice was issued. Therefore, the application for CIRP was deemed not maintainable.

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Issues Involved:
1. Whether the claim of arrears of rent qualifies as an "operational debt" under the Insolvency and Bankruptcy Code, 2016.
2. Whether there is a pre-existing dispute that would render the application for initiation of Corporate Insolvency Resolution Process (CIRP) non-maintainable.

Issue-wise Detailed Analysis:

1. Whether the claim of arrears of rent qualifies as an "operational debt" under the Insolvency and Bankruptcy Code, 2016:

The Operational Creditor filed a petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to non-payment of operational debt. The debt in question arose from a Registered Lease Agreement dated 04.01.2016, where the Corporate Debtor was required to pay monthly rent for a property leased from the Operational Creditor. The Operational Creditor claimed an outstanding amount of Rs. 1,13,57,341/- including unpaid rent, non-deposit of TDS, and interest.

The Corporate Debtor argued that the claim does not qualify as "operational debt" because it does not arise from the provision of goods or services, employment, or government dues. The Corporate Debtor cited previous judgments, including a recent decision by the National Company Law Appellate Tribunal (NCLAT) in M. Ravindranath Reddy vs. G. Kishan & Ors., which held 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 of "operational debt."

The Tribunal referred to the definitions of "claim," "debt," "default," "operational creditor," and "operational debt" under the Insolvency and Bankruptcy Code, 2016. It concluded that the Legislature did not include rent dues of property within the definition of operational debt. The Tribunal emphasized that for an amount to be classified as operational debt, it must arise from the provision of goods or services, which was not the case here. Therefore, the claim for arrears of rent does not qualify as "operational debt."

2. Whether there is a pre-existing dispute that would render the application for initiation of Corporate Insolvency Resolution Process (CIRP) non-maintainable:

The Corporate Debtor contended that there was a pre-existing dispute regarding the commercial use of the leased property. The property was sealed by the South Delhi Municipal Corporation (SDMC) for being used as a gym, which was not permissible under the master plan. The Corporate Debtor argued that this dispute was raised before the issuance of the demand notice and thus falls under the term "existence of a dispute" as interpreted by the Apex Court.

The Tribunal noted that the Operational Creditor had admitted receiving a communication from the Corporate Debtor on 29.10.2018, indicating that the property was not fit for commercial use. The Tribunal found that the Corporate Debtor had raised the issue of the property's commercial use before the demand notice was issued. According to Section 9(5)(2) of the Code, if a dispute is raised within 10 days of the receipt of the demand notice, the application for CIRP is not maintainable.

The Tribunal concluded that there was a pre-existing dispute regarding the commercial use of the property, which was raised before the demand notice was issued. Therefore, the application for initiation of CIRP was not maintainable.

Conclusion:

The Tribunal dismissed the application for initiation of the Corporate Insolvency Resolution Process on the grounds that the claim for arrears of rent does not qualify as "operational debt" under the Insolvency and Bankruptcy Code, 2016, and there was a pre-existing dispute regarding the commercial use of the leased property. The office was directed to send a free copy of the order to both parties.

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