2021 (3) TMI 774 - Tri - Insolvency and Bankruptcy

Applicant Denied License Fee Refund; Must Return Deposit. Possession Transfer Ordered.

The Tribunal held that the Applicant was not entitled to any payments for the license fee after 31/05/2019. The Applicant was directed to refund the ... Termination of leave and licence agreement - IRP Costs - contractual right to occupy pending refund of security deposit - deduction from security deposit for licence feesTermination of leave and licence agreement - The Leave and Licence agreement between the parties stood terminated by operation of clause 19 on expiry of the 30 day cure period following the eviction notice dated 30/04/2019. - HELD THAT: - The notice dated 30/04/2019 invoked the licensor's right to terminate and required the licensee to cure the breach within 30 days. The breach was not cured. By a conjoint reading of clause 19 and the admitted facts, the agreement stood terminated with effect from the expiry of the 30 day period (i.e. 31/05/2019). The applicant's contention that services continued for the CIRP period does not avail it because the underlying leave and licence agreement itself had ceased to exist on that date.Agreement terminated with effect from 31/05/2019.IRP Costs - Claims that the monthly licence and amenities charges for the CIRP period are IRP Costs were rejected. - HELD THAT: - The applicant relied on Section 5(13)(c) and submitted that continued use of premises during CIRP rendered the charges IRP Costs. The Bench found no relevance in that submission because the leave and licence agreement had terminated on 31/05/2019. Further, a letter dated 17/08/2019 from the Resolution Professional (not enclosed with the application but furnished in reply) indicated that the RP did not require the premises during CIRP. On these bases, the claim that the monthly fees after termination constituted IRP Costs was not accepted.Applicant is not entitled to treat licence/amenity charges as IRP Costs for any period after 31/05/2019.Contractual right to occupy pending refund of security deposit - deduction from security deposit for licence fees - Clause 21.3 entitled the Corporate Debtor to continue occupation until receipt of the entire security deposit and prescribed that no further licence fee was payable during such extended occupation; accordingly, the applicant must refund the security deposit after deducting licence fees due for the period 1 March 2019 to 31 May 2019. - HELD THAT: - Clause 21.3 provides that where the licensor does not refund the security deposit, the licensee may continue to occupy the premises until receipt of the security deposit without payment of further licence fees, and such extended occupation shall not be treated as unauthorised. Applying this clause, the Respondent was justified in retaining possession until refund. The Bench directed that the applicant shall refund the security deposit after deducting licence fees payable from 1 March 2019 to 31 May 2019, recognising the applicant's entitlement to amounts due up to termination and the contractual entitlement of the Corporate Debtor to occupy until refund.Applicant to refund security deposit after deducting licence fees for 1 March 2019 to 31 May 2019; no licence fee payable for occupation after 31 May 2019.Contractual right to occupy pending refund of security deposit - On receipt of the balance security deposit (after permitted deductions), the Resolution Professional shall hand over vacant possession of the premises to the applicant within seven days. - HELD THAT: - The contractual mechanism under clause 21.3 and the Bench's direction that the applicant refund the security deposit (after permitted deductions) lead to a reciprocal obligation: once the balance security deposit is credited to the Corporate Debtor, the Respondent must surrender vacant possession. The Bench specified a seven day timeline for handing over vacant possession upon receipt of the balance amount.Respondent to hand over vacant possession within seven days of receipt of the balance security deposit.Final Conclusion: The application seeking declaration that monthly fees during CIRP are IRP Costs and related reliefs was dismissed as to fees after 31/05/2019: the leave and licence agreement terminated on 31/05/2019; clause 21.3 permits occupation until refund of security deposit without further licence fee; the applicant must refund the security deposit after deducting licence fees from 1 March 2019 to 31 May 2019; on receipt of the balance, the RP shall deliver vacant possession within seven days. Issues Involved:1. Whether the monthly fees payable to the Applicant under the service agreements should form part of the Insolvency Resolution Process (IRP) Costs.2. Whether the Applicant is entitled to file claims with the Respondent for payment of the monthly fees under the service agreements.3. Whether the Respondent should treat the Applicant's claims relating to monthly fees as IRP Costs.4. Whether the agreements between the Applicant and the Corporate Debtor were terminated, and the implications of such termination on the Applicant's claims.Issue-wise Detailed Analysis:1. Monthly Fees as IRP Costs:The Applicant sought a declaration that the monthly fees payable under the service agreements for the relevant period should form part of the IRP Costs in terms of the Insolvency and Bankruptcy Code (IBC). The Applicant argued that the services provided were essential for keeping the Corporate Debtor as a going concern, and thus, the costs incurred should be considered as IRP Costs under Section 5(13)(c) of the IBC. However, the Tribunal observed that the Leave and License Agreement was terminated on 31/05/2019 due to the Corporate Debtor's failure to cure the breach within the stipulated 30 days. Consequently, the Tribunal held that the Applicant was not entitled to any payment with respect to the license fee after 31/05/2019, and the claim for monthly fees as IRP Costs was not upheld.2. Filing Claims with the Respondent:The Applicant requested permission to file claims with the Respondent for the payment of monthly fees under the service agreements. Given the Tribunal's finding that the Leave and License Agreement was terminated effective 31/05/2019, the Applicant's request to file claims for fees beyond this date was rendered moot. The Tribunal directed that the Applicant could only claim the license fee for the period from 1st March 2019 to 31st May 2019, which would be deducted from the security deposit held by the Applicant.3. Treatment of Claims as IRP Costs:The Applicant sought a directive for the Respondent to treat any claims relating to monthly fees as IRP Costs. The Tribunal, however, concluded that since the agreement was terminated on 31/05/2019, the Applicant's claims for fees after this date could not be considered IRP Costs. The Tribunal emphasized that the Respondent was not required to pay any license fee for the premises from 1st June 2019 onwards, as the Corporate Debtor was entitled to occupy the premises without further payment until the security deposit was refunded.4. Termination of Agreements and Implications:The Tribunal examined the termination clauses in the Leave and License Agreement. Clause 19 allowed the Applicant to terminate the agreement if the Corporate Debtor failed to rectify the breach within 30 days. Clause 21.3 stipulated that the Corporate Debtor could continue to occupy the premises without paying further license fees if the security deposit was not refunded. The Tribunal found that the agreement was effectively terminated on 31/05/2019, and the Applicant was obliged to refund the security deposit after deducting the license fees due up to this date. The Tribunal also noted that the Respondent's letter dated 17/08/2019, which was not initially enclosed by the Applicant, indicated that the Respondent did not require the premises during the CIRP.Conclusion:The Tribunal concluded that the Applicant was not entitled to any payments for the license fee after 31/05/2019. The Applicant was directed to refund the security deposit to the Respondent after deducting the license fees for the period from 1st March 2019 to 31st May 2019. Upon receipt of the balance security deposit, the Respondent was instructed to hand over the vacant possession of the premises to the Applicant within 7 days.