Jaipur Trade Expocentre Private ... vs M/S Metro Jet Airways Training Private ...

(Arising out of Order dated 04.03.2020 passed by National Company Law Tribunal, Jaipur Bench in C.P. No. (IB)-176/9/JPR/2019).

IN THE MATTER OF:

JAIPUR TRADE EXPOCENTRE PRVIATE LIMITED, I-83, Lajpat Nagar - II, New Delhi - 110024 India ...Appellant

Versus

M/S METRO JET AIRWAYS TRAINING PRIVATE LIMITED, 102-103, Gopalpura Bypass, Near Trivani Nagar Chouraha Jaipur, Jaipur, Rajasthan - 302018, India ...Respondent

Appellant: Ms. Sanjana Saddy, Mr. Sanyat Lodha and Ms. Harshita Singhal, Advocates Respondent: Mr. Vikrant Arora, Advocate.

JUDGEMENT

Ashok Bhushan, J:

1. This Appeal has been filed against the Judgement and Order dated

04.03.2020 passed by the Adjudicating Authority (National Company Law

Tribunal, Jaipur Bench) in Company Petition No. (IB)-176/9/JPR/2019 by

which Order the Application filed by the Appellant under Section 9 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred as 'The Code')

has been rejected holding that the Appellant is not an 'Operational Creditor'.

-2- 2. Brief facts of the case which are necessary to be noted for deciding

this Appeal are:

• The Appellant entered into a 'Licence Agreement' with the Respondent

on 15th April, 2017 for premises bearing no. SP-10, Sitapur Industrial

Area, Phase 4 Jaipur. The Licensee took the premises for the purpose

of running an Educational Establishment at the licence fee of Rs. 4

Lacs per month. Licensor agreed to hand over possession to the

Licensee on or before 1st June, 2017. License was granted for an initial

period of 5 years commencing from 1ST June, 2017 to 31st May, 2022.

Appellant who is a Licensor received part payment made by the

Corporate Debtor towards outstanding License Fee on 08th November,

2017 and 22nd November, 2017. Cheque dated 07th May, 2018

amounting Rs. 20 Lacs was handed over to the Appellant by the

Corporate Debtor towards part payment which on presentation was

dishonoured. Another Cheque dated 08.10.2018 amounting to Rs. 20

Lacs was handed over to the Appellant by the Corporate Debtor which

too was dishonoured.

• When despite several reminders and emails, the Corporate Debtor did

not clear outstanding payment towards License Fee, a Demand Notice

under Section 8 of the Code dated 3rd May, 2019 was issued by the

Appellant to the Corporate Debtor claiming an outstanding dues of Rs.

1,31,20,788/-. The Notice under Section 8 of the Code was delivered

on 07th May, 2019 and was received by the Corporate Debtor but no

Reply to Demand Notice was sent by the Corporate Debtor. The

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Appellant filed an Application under Section 9 claiming an amount of

Rs. 1,31,20,688/- including interest. Notice was issued by the

Adjudicating Authority. The Corporate Debtor filed its Reply-Affidavit

dated 11.09.2019. Rejoinder to the Reply was also filed by the

Appellant. Corporate Debtor was allowed to file Additional Documents

to which Reply-Affidavit was also filed by the Operational Creditor-

Appellant. Adjudicating Authority vide Order dated 04.03.2020

rejected the Section 9 Application holding that the Appellant is not an

Operational Creditor and there is no Operational Debt due. Aggrieved

by the said Order dated 04.03.2020, this Appeal came to be filed.

3. Learned Counsel for the Appellant in support of his Appeal contends

that Appellant is an Operational Creditor. The claim of the Appellant arises

out of non-payment of license fee agreed to be paid by the Corporate Debtor

against the License Agreement dated 15.04.2017 and as per the Agreement

the premises were taken by the Corporate Debtor under License Agreement

for use of the commercial purposes that is for running an Educational

Institute. The Corporate Debtor defaulted in making payment of the License

Fee and two Cheques issued were dishonoured. A Demand Notice dated 3rd

May, 2019 was served on the Corporate Debtor on 07th May, 2019 to which

no Reply was filed rather Corporate Debtor initiated Civil Proceedings before

Sanganer Court, Jaipur, Rajasthan on 09.05.2019 after receipt of notice

under Section 8 of the Code.

4. Learned Counsel for the Appellant further submits that the

Judgement which has been relied on by the Adjudicating Authority in "Mrs.

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Pramod Kumar Vs. Divine Infracon Pvt. Ltd." by the NCLT, New Delhi Bench

is not applicable in the facts of the present case and is clearly distinguished.

The Adjudicating Authority committed error in holding that there is no

Operational Debt.

5. Learned Counsel for the Respondent refuting the submissions of

Learned Counsel for the Appellant submits that the Appellant is not an

Operational Creditor. The License Fee which is the core issue in the present

case is not in respect of any Goods and Services. Outstanding rent/license

fee does not come within the meaning of Operational Creditor. The alleged

due or rent from the Respondent-Corporate Debtor is purely a subject

matter of Civil Suit before the Court under the jurisdiction of Civil Court.

When the property was taken on the License there was not so many basic

facilities and without basic facilities it was not possible for the Respondent

to run their Educational Institute. The Respondent incurred expenses.

Learned Counsel for the Respondent further submitted that the allotment in

favour of the Appellant of the premises in question was also not in

accordance with law and several notices have been issued by the Rajasthan

State Industrial Development and Investment Corporation for cancellation of

the allotment. Different entity has earlier applied for allotment and the

premises were allotted to the Appellant for the purpose on 13th April, 2007.

The cheques which were issued to the Appellant by the Respondent were for

security purposes.

6. We have considered the submissions of Learned Counsel for the

parties and perused the record.

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7. The Adjudicating Authority in the Impugned Judgment after noticing

that claim of the Appellant arises out of a License Agreement under which

Respondent has right to use immovable property, held that the claim arising

out of grant of licence to use immovable property does not fall in the

category of goods and services. The reasons given by the Adjudicating

Authority for rejecting the Application is contained in Paragraph 25 of the

Judgment which is to the following effect:

"25. In the present Application the claim of the Applicant has arisen out of a License Agreement whereby the Applicant had granted, to the Respondent, the right to use its immovable property to carry out business. It can be concluded that the claim arising out of grant of licence to use immovable property does not fall in the category of goods or services including employment and is also not a debt for the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or any Local Authority, as defined under Section 5(21) of IBC, 2016. Thus, the amount claimed in the present petition is not an unpaid operational debt and therefore the Application cannot be allowed."

8. We may first notice the nature of Licence Agreement between the

parties dated 15th April, 2017 which is the basis of Application filed by the

Appellant under Section 9 of the Code. The Licence Agreement was entered

into 15th April, 2017 between the parties "Jaipur Trade Expocentre Pvt. Ltd.

and M/s. Metro Jet Airways Training Pvt. Ltd. the Corporate Debtor". The

Recitals in the Agreement as well as Clause 1, 4(a), 7(a) and 7(o) are as

follows:

"1. Grant of Demised Premises on License

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a. In consideration of the LICENSE FEE to be paid by the LICENSEE and the LICENSEE agreeing to observe and perform the covenants, terms and conditions herein contained, the LICENSOR hereby grants on LICENSE the Demised Premises to the LICENSEE and the LICENSEE has agreed to take the Demised Premises on LICENSE for the purpose of running an educational establishment as detailed hereinabove, on the terms and conditions appearing hereinafter.

In pursuance to the above LICENSE AGREEMENT, the LICENSOR hereby agree to hand over the vacant and peaceful license of the Demised Premises to the LICENSEE on or before 1st June, 2017.

b. It is specifically agreed between the parties that the LICESEE will not in respect of the Demised Premises create encumbrance of any kind such as mortgage, collateral security etc. or any other interestin favour of third party or otherwise.

c. At the time of signing of this License Agreement, the LICENSEE undertakes and warrants that it does not have any claim against the LICENSOR with regard to any item of work, quality of work, materials, installation etc. any or all complaints that the LICENSEE had with respect to the Demised Premises have been sorted out by the LICENSEE with the LICENSOR before signing of this agreement.

d. On termination of the agreement the LICENSEE undertakes to restore the demise premises to its original condition. .......... 4 LICENSEE FEE (a) In consideration of the LICENSE granted

herein for the Demised Premises, the LICENSEE shall pay to the LICENSOR an amount of Rs. 4,00,000/- Lumpsump per month (Rupees Four Lacs only) plus Government Taxes if any payable to the LICENSOR by means of Banker's cheque/cheque payable at par, in advance on or before 7th Day of each English Calender Month.

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Any delay in payment of the LICENSE FEE beyond the 7th of each calendar month would attract interest @2% per month compound monthly for the period of delay. The amounts payable per month shall be as described in the schedule annexed as Annexure B. ............

7. LICENSEE'S OBLIGATIONS AND COVENANTS a. The LICENSEE shall use the Demised Premises for specific purpose as aforesaid only i.e. for educational purposes only as allowed by the RIICO/Authority.

......

o. The LICENSEE shall not cease to carry on its commercial/business activity at the Demised Premises for which the Demised Premises has been licensed to the Licensee for more than 7 (seven) days in continuation. In the event of cessation of commercial activity/business by the LICENSEE for a period of 15 (fifteen) days, the LICENSOR shall have the right to cancel the agreement evict the Licensee by giving 15 days notice. The waiver of this right will be the sole discretion of LICENSOR on such terms and conditions as the LICENSOR may deem fit."

9. The aforesaid agreement clearly proves that immovable property was

taken on license by the Corporate Debtor with effect from 1st June, 2017 for

payment of license fee of Rs. 4 Lacs per month. The premises were obtained

by the Corporate Debtor for commercial purposes for running an

Educational Institute. The Application was filed by the Appellant due to

outstanding dues arising out of License Agreement dated 15th April, 2017.

Apart from the part payment for license fee for few months, the Corporate

Debtor defaulted in making the payment of license fee. Tow cheques which

were issued 20 Lacs each by the Corporate Debtor on 07th May, 2018 and

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08th October, 2018 were dishonoured. The Adjudicating Authority in its

Order had stated that since the Appellant has allowed the Respondent to use

its immovable property to carry out business, it does not fall in the category

of goods and services including employment.

10. The definition of "Operational Debt" is contained in Section 5(21) of

the Code. When the Corporate Debtor has taken on license the immovable

premises of the Appellant for the use of premises for commercial purposes

i.e. for running educational institutes the license of the premises by

Appellant to Corporate Debtor is clearly included in the expression

"provision of services". The "Debt" has been defined under Section 3(11) of

the Code which is to the following effect:

"Section 3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt"

11. The claim of the Appellant under Section 9 of the Code arising out of

liability which fell on the Corporate Debtor to make the payment of License

Fee as agreement dated 15th April, 2017 when the License Fee having not

been paid it was clearly "debt" which was in default.

12. Now we may notice the Judgement of Hon'ble Supreme Court in

"Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd." (2018) 1 SCC 353,

where in Hon'ble Supreme Court has noticed the report of Bankruptcy Law

Reforms Committee. Paragraph 5.2.1. of the Bankruptcy Law Reforms

Committee has been quoted with approval. In para 5.2.1 the Committee

stated:

"5.2.1 . Who can trigger IRP?

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Here, the Code differentiates between financial creditors and operational creditors. Financial Creditors are those whose relationship with the entity is a pure financial contract, such as a loan or a debt security. Operational Creditors are those whose liability from the entity comes from a transaction on operations. Thus, the wholesale vendor of spare parts whose spark plugs are kept in inventory by the car mechanic and who gets paid only after the spark plugs are sold is an operational creditor. Similarly, the lessor that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease. The Code also provides for cases where a creditor has both a solely financial transactions as well as an operational transactions with the entity. In such a case, the creditor can be considered a financial creditor to the extent of the financial debt and an operational creditor to the extent of the operational debt."

13. Bankruptcy Law Reforms Committee has given a clear example in

Paragraph 5.2.1 in following were "similarly, the lessor that the entity rents

out space from is an operational creditor to whom the entity owes monthly

rent on a three-year lease". The expression "service" used in Code has not

been defined in the Court.

14. Learned Counsel for the Appellant has relied on Judgment of this

Tribunal in "Anup Dubey Vs. National Agricultural Cooperative Marketing

Federation of India Ltd. & Ors." reported in 2020 OnLine NCLAT 674

(Company Appeal (AT) (Insolvency) No. 229 of 2020) where the Tribunal held

that subject to lease rental arising out of use of operational cold storage unit

is Operational Debt. In this context, reference to Paragraph 20-22 of the

Judgment is as follows:

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"20. At this juncture, we find it relevant to refer to the definition of 'Service' as defined under Section 2 (42) of the Consumer Protection Act 2019;

"(42) "service" means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;"

21. The provisions of the Central Goods and Services Tax Act 2017. Schedule - II of the Act lists down the activities that are to be treated as supply of goods or services, and paragraph 2 of the Schedule stipulates as follows;

"(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services."

As the premises in the case on hand is leased out for 'Commercial Purpose', the cold storage owner/NAFED on collection is required to pay 'service tax' which is reflected in the tax invoices and 'Ledger Accounts' which is part of the record filed.

22. Therefore, keeping in view, the observations made by the Hon'ble Supreme Court in Para 5.2.1 of Mobilox (Supra), and having regard to the facts of the instant case this Tribunal is of the earnest opinion that the subject lease rentals arising out of use and occupation of a cold storage unit which is for Commercial Purpose is an 'Operational Debt' as envisaged under Section 5 (21) of the Code. Further, in so far as the facts and attendant circumstances of

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the instant case on hand is concerned, the dues claimed by the First Respondent in the subject matter and issue, squarely falls within the ambit of the definition of 'Operational Debt' as defined under Section 5 (21) of the Code."

15. Learned Counsel for the Respondent has placed reliance on the

Judgment of this Tribunal in Company Appeal (AT) Ins. No. 331 of 2019 in

the matter of "Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors."

delivered on 17th January, 2020 this Tribunal wherein application for

recovery of alleged enhanced lease rent, held not to fall within the meaning

of 'Operational Debt' in terms of Section 5(21) of the Code.

16. There being two divergent opinions of this Tribunal, it is necessary

that an authoritative pronouncement be made with regard to the issues

which has been raised i.e. whether License Fee pertaining to immovable

premises taken by Licensee from Licensor for running commercial activity

i.e. Educational Institute fall within the definition of 'Operational Debt'. We

have our doubts over the opinion by this Tribunal in "Mr. M. Ravindranath

Reddy Vs. Mr. G. Kishan & Ors.". The Report of the Bankruptcy Law Reforms

Committee as quoted with approval by Hon'ble Supreme Court of India in

Mobilox Innovative (Supra) has not been placed before the Bench deciding

"Mr. M. Ravindranath Reddy Vs. Mr. G. Kishan & Ors." case.

17. We thus are of the view that matter needs to be placed before the

Hon'ble Chairperson on administrative side for constitution of a 'Larger

Bench' to resolve the conflict as noted above.

18. Following two questions are framed for consideration before the 'Larger

Bench':

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i. Whether the Judgment of this Tribunal in Company

Appeal (AT) (Ins.) No. 331 of 2019 in the matter of 'Mr.

M. Ravindranath Reddy Vs. Mr. G. Kishan & Ors.' Lays

down the correct law.

ii. Whether claim of the Licensor for payment of License

Fee for use and occupation of Immovable Premises for

commercial purposes is a claim of 'Operational Debt'

within the meaning of Section 5(21) of the Code.

19. Let the matter be placed before the Hon'ble Chairperson on

administrative side to constitute a Larger Bench for an authoritative

Pronouncement.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI 07th March, 2022 Basant B.

Company Appeal (AT) (Insolvency) No. 423 of 2021