2022 (3) TMI 603 - AT - Insolvency and Bankruptcy

Rental dues deemed IRP costs under Insolvency Code. Landlords awarded payment; rent to continue.

S. Rajendran Resolution Professional of M/s. Vasan Health Care Pvt. Ltd. Versus Mr. B.M Anand (HUF), B.M. Anand, Pradeep Kumar Anand, Sandeep Anand

The Tribunal held that rental dues qualify as Insolvency Resolution Process (IRP) costs under the Insolvency and Bankruptcy Code. The Resolution ... Demand of CIRP cost - demand to pay monthly rent to the Respondents during the CIRP Period till such time the Corporate Debtor is in occupation of the premise - HELD THAT:- It is an admitted fact that in pursuance of the lease agreement entered between the Corporate Debtor and the Respondents herein who are the owners of the premises, the Corporate Debtor carrying on its business from the leased premises as per the terms agreed in the agreement/lease deed dated 28.02.2011 and the Corporate Debtor is liable to pay the rents to the Respondents herein. While so the Corporate Debtor is into the CIRP and the Resolution Professional managing the affairs of the Corporate Debtor as per the directions of the Adjudicating Authority in the matter. Therefore, the Resolution Professional who is in the helm of affairs of the Corporate Debtor is liable to pay the rents payable to the Respondents herein. In view of the fact that the Appellant is in obligation to pay the dues to the Respondents. This Tribunal is of the view that the issue that arises for consideration is mixed question of fact and law. The fact remains that the premises in which the Corporate Debtor is carrying on its business is belongs to the Respondents herein and the Appellant is duty bound to pay the dues to the Respondents - the Adjudicating Authority has not committed any error in passing the above direction/order. The status quo is to be maintained with respect to the premises which the business of the Corporate Debtor is carrying on, when the Corporate Debtor is into CIRP i.e. after admission of Application under Section 7 or Section 9 or Section 10. After admitting the Application, the Adjudicating Authority would declare moratorium as per Section 14 of the I & B Code, 2016. Admittedly the Corporate Debtor is into CIR Process and declared moratorium by the Adjudicating Authority on admission of the Application against the Corporate Debtor - the Corporate Debtor continuing its business in the premises leased to it. For the stated reason the Learned Adjudicating Authority rejected the prayer of the Respondents seeking handing over of vacant possession of the premises. Hence, no interference is called for. The law in this regard clearly specifies the IRP Costs which includes any cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern. In the present case as stated supra the Corporate Debtor is into CIRP and due to imposition of moratorium the Respondents should not suffer. Therefore, the IRP Costs makes provision for payment in such cases as defined in Sub Section 13 of Section 5 of the I & B Code,2016 and as detailed out in Regulation 31 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It is apt to state that no one can seek to deviate from the provisions of the Code and the Regulations framed there under. The Appellant has not made out any case calling interference of the order passed by the Adjudicating Authority dated 07.01.2022 which is impugned in this Appeal - appeal dismissed. Issues Involved:1. Payment of rental dues by the Corporate Debtor during the CIRP period.2. Applicability of Insolvency Resolution Process (IRP) costs to rental dues.3. Compliance with the Adjudicating Authority's order.Issue-wise Detailed Analysis:1. Payment of Rental Dues by the Corporate Debtor During the CIRP Period:The primary issue revolves around whether the Corporate Debtor is liable to pay the rental dues to the Respondents during the Corporate Insolvency Resolution Process (CIRP). The Appellant, who is the Resolution Professional, argued that the Corporate Debtor's revenues were severely impacted by the COVID-19 pandemic, leading to only partial payments towards rental dues. Despite these challenges, the Appellant managed to meet 100% of the rental payments from June 2021 onwards. Conversely, the Respondents, who are the landlords of the premises leased to the Corporate Debtor, contended that the non-payment of rents caused them significant monetary loss. They emphasized that the Corporate Debtor was obligated to pay the monthly rent as per the lease agreement dated 28.02.2011.2. Applicability of Insolvency Resolution Process (IRP) Costs to Rental Dues:The legal crux of the matter lies in whether the rental dues qualify as IRP costs under the Insolvency and Bankruptcy Code (IBC), 2016. The Respondents argued that the Appellant is duty-bound to pay the CIRP costs as per Section 5(13)(c) read with Regulation 31 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Tribunal concurred, stating that during the moratorium period, the lessor cannot recover the possession of the property from the Corporate Debtor. Consequently, the costs incurred by the Resolution Professional in running the business of the Corporate Debtor, including rental dues, must be treated as IRP costs. The Tribunal cited Regulation 31, which includes amounts due to a person whose rights are affected by the moratorium as IRP costs.3. Compliance with the Adjudicating Authority's Order:The Tribunal upheld the Adjudicating Authority's order dated 07.01.2022, which directed the Appellant to pay the Respondents a sum of Rs. 1,17,28,159/- within 14 days and to continue paying the monthly rent during the CIRP period. The Tribunal dismissed the Appellant's contention that complying with this order would lead to financial strain due to similar claims from other landlords. The Tribunal emphasized that the law mandates the payment of IRP costs to keep the Corporate Debtor as a going concern. Furthermore, the Tribunal directed the Appellant to implement the Adjudicating Authority's order within two weeks from the passing of this judgment, considering the appeal's pendency period.Conclusion:The Tribunal concluded that the rental dues qualify as IRP costs and must be paid by the Resolution Professional. The Adjudicating Authority's order was sustained, and the appeal was dismissed with a directive for compliance within two weeks. The Tribunal emphasized adherence to the IBC provisions and the principles of natural justice in its judgment.