Corporate Debtor's appeal against insolvency proceedings dismissed as lease rent defaults constitute operational debt under Section 9

NCLAT Principal Bench dismissed an appeal challenging CIRP initiation under Section 9 of IBC. The Corporate Debtor defaulted on lease rent payments exceeding Rs. 1 lakh to the Operational Creditor. The Tribunal held that lease rent constitutes operational debt under Sections 5(20) and 5(21) of IBC, citing Jaipur Trade Expo Centre precedent. The Corporate Debtor's email objection and subsequent legal notice were deemed insufficient to establish pre-existing dispute, being served after Section 9 application filing. The mediation process became non-starter when Corporate Debtor refused participation. NCLAT upheld the Adjudicating Authority's decision admitting the application and vacated interim stay on CIRP process.

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Issues Involved:
1. Whether the payment of rent to the Operational Creditor constitutes an operational debt.
2. Whether there was a default in the payment of such operational debt by the Corporate Debtor.
3. Whether there existed a pre-existing dispute between the parties.

Issue-wise Detailed Analysis:

1. Whether the payment of rent to the Operational Creditor constitutes an operational debt:

The Tribunal examined whether the rent payment as per the lease deed qualifies as an operational debt under the Insolvency and Bankruptcy Code, 2016 (IBC). The Respondent No. 1 argued that the payment of license fee for the use of leased premises for business purposes is an operational debt, as established in the Jaipur Trade Expo Centre Pvt Ltd Vs M/s Metro Jet Airways Training Pvt Ltd case. The Tribunal agreed, citing Sections 5(20) and 5(21) of IBC, which define operational debt to include tenancy and lease rent dues. The Tribunal also considered the registered wills dated 09.10.2013 and 24.08.2016, which supported Respondent No. 1's claim as the legitimate Operational Creditor.

2. Whether there was a default in the payment of such operational debt by the Corporate Debtor:

The Tribunal noted that Respondent No. 1 issued a notice for default of payment on 05.02.2019, which mentioned that the Corporate Debtor had been irregular in rent payments since 10.03.2017 and had not paid rent and GST since 30.08.2018. The total outstanding amount was Rs. 52.64 lakhs. The operational debt claimed in Part-IV was Rs. 94.66 lakhs, including arrears of rent, GST, interest, and user and occupation charges. The Tribunal found no evidence that the Corporate Debtor disputed these claims before the Section 8 Demand Notice was issued. Thus, the Tribunal concluded that the operational debt exceeded Rs. 1 lakh, was due and payable, and had not been paid.

3. Whether there existed a pre-existing dispute between the parties:

The Tribunal examined whether any genuine and real pre-existing dispute existed. The Corporate Debtor argued that the lease had been assigned to Haldiram Bhujiawala Inc (HBI) and that Respondent No. 1 had failed to provide necessary documentation for commercial conversion charges, leading to business losses. However, the Tribunal found that the lease deed clearly stated that the lessee (HFPL) was responsible for paying conversion charges. The Tribunal also noted that the email dated 18.01.2018 from the Corporate Debtor did not indicate a pre-existing dispute but merely mentioned issues with obtaining an MCD Health Licence. The Tribunal found no evidence of a pre-existing dispute in the legal notice dated 22.10.2019, which was served after the Section 9 application was filed. The Tribunal also dismissed the Corporate Debtor's claim of pre-existing disputes based on commercial suits filed after the Section 9 application, as these could not be considered pre-existing disputes.

Conclusion:

The Tribunal concluded that the Corporate Debtor defaulted in the payment of operational debt above the prescribed threshold, which had become due and payable. The Tribunal found no real pre-existing disputes and upheld the Adjudicating Authority's decision to admit the Section 9 application and initiate the Corporate Insolvency Resolution Process (CIRP). The appeal was dismissed, and the interim stay on the CIRP process was vacated. The Tribunal directed the Registry to refund the amount deposited by the Appellant and instructed the Interim Resolution Professional (IRP) to proceed with the CIRP as per law.

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