Tribunal rules on operational debt classification, upholds moratorium application

The Tribunal dismissed the Appeal, ruling that the Appellant's claim was classified as an Operational Debt and not 'Assets held in Trust' under Section 18(1)(f) of the Insolvency and Bankruptcy Code. The Tribunal affirmed the importance of Clause 7.4 of the Agreement in crystallizing the debt owed to the Carrier and upheld the application of the Moratorium under Section 14 of the Code, prohibiting payments during the specified period to prevent unfair advantage to any creditor.

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Issues Involved:

1. Classification of the Appellant's Claim as 'Assets in Trust' under Section 18(1)(f) of the Insolvency and Bankruptcy Code, 2016.
2. Applicability of Clause 7.2 and Clause 7.4 of the Passenger Sales Agency Agreement.
3. Determination of the nature of the Appellant's claim as 'Operational Debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
4. Impact of the Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 on the Appellant's claim.

Detailed Analysis:

1. Classification of the Appellant's Claim as 'Assets in Trust' under Section 18(1)(f) of the Insolvency and Bankruptcy Code, 2016:

The Appellant argued that the amount of Rs. 83,16,80,230/- collected by the Corporate Debtor on behalf of IATA constituted 'Assets held in Trust' as per Section 18(1)(f) of the Code. The Appellant contended that the IRP could not take control of these assets as they were held under trust. However, the Tribunal found that Clause 7.2 of the Agreement did not declare any trust property with certainty, as there was no separate trust account or specific segregation/demarcation of the amounts collected under the Agreement. Therefore, no trust was created in favor of the Carrier, and the explanation to Section 18(1)(f) was not applicable.

2. Applicability of Clause 7.2 and Clause 7.4 of the Passenger Sales Agency Agreement:

Clause 7.2 of the Agreement stated that all monies collected by the Agent for transportation and ancillary services sold under the Agreement were the property of the Carrier and must be held in trust. Clause 7.4 stipulated that in the event of bankruptcy or liquidation, all monies due to the Carrier would become immediately due and payable. The Tribunal held that Clause 7.4, a non-obstante clause, overrode Clause 7.2 and became operable from the commencement of the CIRP on 22.10.2019. Thus, the amounts collected by the Corporate Debtor on behalf of the Carrier were crystallized as a 'debt' due and payable to IATA.

3. Determination of the nature of the Appellant's claim as 'Operational Debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016:

The Tribunal concluded that the amount owed by the Corporate Debtor to IATA was an 'Operational Debt' as defined under Section 5(21) of the Code. The Corporate Debtor was providing services to IATA, and the amounts collected were for the sale of air transportation and ancillary services. The Tribunal noted that the Appellant had initially filed its claim as an Operational Creditor and that the amounts collected were used for transactions with third parties, not just under the Agreement. Hence, the claim was rightly classified as an Operational Debt.

4. Impact of the Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 on the Appellant's claim:

The Tribunal held that any payments made to the Appellant would violate the Moratorium imposed under Section 14(1)(b) and Section 14(1)(d) of the Code, which restricts transferring, encumbering, alienating, or disposing of any assets or legal rights of the Corporate Debtor. The Tribunal emphasized that the amounts held by the Corporate Debtor formed part of its cash and bank balance, and any payment to the Appellant would give undue advantage over other creditors. Therefore, no amount could be paid during the Moratorium period.

Conclusion:

The Tribunal dismissed the Appeal, holding that the Appellant's claim constituted an Operational Debt and could not be treated as 'Assets held in Trust' under Section 18(1)(f) of the Code. The Tribunal upheld the Adjudicating Authority's reliance on Clause 7.4 of the Agreement and the imposition of the Moratorium under Section 14 of the Code.

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