Operational debt arises from premature termination of a service agreement, and unregistered or unstamped execution did not defeat the claim.

A premature termination of an executed service agreement that created no right, title or interest in immovable property gave rise to a right to payment for breach and therefore constituted operational debt under the Insolvency and Bankruptcy Code. The agreement was not compulsorily registrable because it did not create or extinguish any proprietary interest in the premises, and the fact that it was executed on unstamped paper did not defeat the claim in the section 9 proceeding where the contract had been acted upon. The rejection order was set aside and the application directed to be admitted.

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Issues: (i) Whether the amount claimed for the lock-in period under the service providers agreement constituted operational debt under the Insolvency and Bankruptcy Code, 2016; (ii) whether the agreement dated 17 August 2018 was compulsorily registrable under the Registration Act, 1908; (iii) whether the agreement being on unstamped paper rendered the claim unenforceable in the section 9 proceeding.

Issue (i): Whether the amount claimed for the lock-in period under the service providers agreement constituted operational debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The agreement was a services arrangement for coworking facilities and expressly created no right, title or interest in any property. It provided a 36-month lock-in period and permitted termination only after that period. The corporate debtor terminated the arrangement prematurely, giving rise to a right to payment for breach of contract. A right to remedy for breach of contract that gives rise to a right to payment falls within the definition of claim, and the resulting liability is a debt. The amount claimed for the unexpired lock-in period therefore answered the description of operational debt.

Conclusion: The claim was operational debt and this issue was decided in favour of the appellant.

Issue (ii): Whether the agreement dated 17 August 2018 was compulsorily registrable under the Registration Act, 1908.

Analysis: Compulsory registration is attracted only where an instrument creates, declares, assigns, limits or extinguishes any right, title or interest in immovable property. The agreement here was only a service providers agreement and did not create any proprietary interest in the premises. The mere use of premises with allied services did not convert the document into one requiring compulsory registration.

Conclusion: The agreement was not compulsorily registrable, and this issue was decided in favour of the appellant.

Issue (iii): Whether the agreement being on unstamped paper rendered the claim unenforceable in the section 9 proceeding.

Analysis: The agreement was admittedly executed, acted upon, and followed by possession and payment of monthly charges. The corporate debtor itself treated the arrangement as operative and did not dispute execution of the contract. In a section 9 proceeding, the focus is on whether an operational debt and default exist. The absence of proper stamping did not displace the executed and acted upon agreement for that purpose.

Conclusion: The unstamped nature of the document did not defeat the operational debt claim, and this issue was decided in favour of the appellant.

Final Conclusion: The operational creditor established a maintainable section 9 claim, the objections as to registration and stamping failed, and the impugned rejection order was set aside with directions for admission of the application.

Ratio Decidendi: A premature termination of an executed service agreement that creates no interest in property can generate an operational debt under the Insolvency and Bankruptcy Code, and such a claim is not defeated merely because the agreement is unregistered or insufficiently stamped where the document has been acted upon.

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