2020 (3) TMI 97 - Tri - Insolvency and Bankruptcy

Unsigned agreement & pre-existing disputes lead to dismissal of petition for operational debt under IBC

Flemingo Airport Retail Ltd. Versus Caravan Evolved Craft (P.) Ltd.

The Tribunal dismissed the petition as there was no valid operational debt due to the unsigned agreement and pre-existing disputes. The claim for rent ... Maintainability of application - initiation of CIRP - Corporate Debtor has committed default for a total outstanding amount - existence of debt and default or not - HELD THAT:- The issue raised by the Petitioner is the non-payment of an amount stated to be owed by the Respondent/Corporate Debtor to the Petitioner/Operational Creditor and that the Respondent has committed a default in not paying the same. As per section 3(11) of the Code, a 'debt' means a liability or obligation in respect of a claim which is due from any person. Section 3(6) of the Code states that a 'claim' means a right to payment. This right to payment has to arise from a valid understanding or agreement between the two parties, which should contain specific terms as to the goods and services to be rendered and the terms and basis of payment. Due to the non-acceptance of the terms and details of payment by the Respondent, it cannot be said that the right to payment or claim arising from this Agreement will acquire the meaning of 'Debt' under the Code, or make the Respondent a Corporate Debtor. It cannot be said that the amounts claimed by the Petitioner from the Respondent on the basis of MMG, as mentioned in the unsigned Agreement not agreed to or accepted by the Respondent could be the basis of a valid right to payment, claim or debt - The position of law on the issue is clear that the provisions of Code cannot be invoked for recovery of outstanding amount but it can be invoked to initiate CIRP for justified reasons as per the Code. Since there was no valid operational debt in the absence of an agreement being signed by both parties which was to be the basis of the payments due, the Respondent could not be termed as a Corporate Debtor within the meaning of the Code. Further, there was a pre-existing dispute between the parties over the basis of the payments sought. In both these circumstances, the provisions of Sections 8 and 9 of the Code cannot be invoked and the Application made under Section 9 of the Code has to be rejected - the Petitioner has attempted to use this forum for recovery of its dues by praying for ordering a CIRP against the Respondent, which is not the purpose for which the Code was enacted. Petition dismissed. Issues Involved:1. Non-payment of outstanding amount by Respondent/Corporate Debtor.2. Validity and enforceability of the agreement between the parties.3. Existence of operational debt and default under IBC, 2016.4. Nature of the claim as rent recovery and its implications under IBC, 2016.Issue-Wise Detailed Analysis:1. Non-payment of outstanding amount by Respondent/Corporate Debtor:The Petitioner, M/s. Flemingo Airport Retail Limited, sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the Respondent, M/s. Caravan Evolved Craft Private Limited, for an outstanding amount of Rs. 96,47,471, including interest at 18% as of 14.12.2017. The Petitioner claimed that the Respondent failed to make payments despite regular follow-ups and multiple communications, including e-mails and legal notices. The Respondent acknowledged some liability but disputed the amount and terms of payment, leading to a protracted disagreement.2. Validity and enforceability of the agreement between the parties:The agreement, referred to as 'Heads of Terms,' was effective from 01.02.2016. The agreement stipulated that the Respondent would reimburse the Petitioner for capital expenditure, pay 50% of staff costs, and make direct payments of the concession fee to Mumbai International Airport Limited (MIAL). However, the critical Annexure C, detailing the basis of payment (MMG/Revenue Share), was not signed by the Respondent, rendering the agreement defective. The Tribunal noted that without the Respondent's acceptance of these terms, the right to payment or claim could not be established as a 'Debt' under the Code.3. Existence of operational debt and default under IBC, 2016:The Tribunal examined whether there was an operational debt exceeding Rs. 1 lakh, whether the debt was due and payable, and whether there was any pre-existing dispute. The Tribunal found that the unsigned agreement and the ongoing disputes between the parties over the basis of payment indicated a pre-existing dispute. The Tribunal emphasized that the provisions of the IBC could not be invoked merely for the recovery of outstanding amounts but were intended to initiate CIRP for justified reasons. The Tribunal cited the Supreme Court's rulings in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and Transmission Corp. of A.P. Ltd. v. Equipment Conductors & Cables Ltd., which highlighted that the existence of undisputed debt is a prerequisite for initiating CIRP.4. Nature of the claim as rent recovery and its implications under IBC, 2016:The Respondent argued that the claim was essentially for the recovery of rent for sub-leasing shop space at the Mumbai International Airport, which does not constitute an operational debt under the IBC. The Tribunal agreed, stating that the payments sought by the Petitioner were in the nature of rent and not for goods or services. The Tribunal referenced the NCLAT's decision in Jindal Steel & Power Ltd. v. DCM International Ltd., which held that unpaid rent does not qualify as an operational debt under the Code.Conclusion:The Tribunal dismissed the petition, concluding that there was no valid operational debt due to the unsigned agreement and the pre-existing disputes. The Tribunal also noted that the claim was for rent recovery, which falls outside the scope of operational debt under the IBC. The dismissal did not preclude the parties from settling their disputes through other legal avenues.