Vipin Choudhary vs Connect Residuary Private Limited And ...

referred to as the Adjudicating Authority) in CP(IB)

No.1291/IBC/MB/2021. By the said order the application filed

under Section 9 of the IBC by the Respondent No.1 was admitted

and Corporate Insolvency Resolution Process (CIRP) was initiated.

For better appreciation it is necessary to reproduce the impugned

order as follows:-

"1. This Company petition is filed by Connect Residuary

Private Limited (hereinafter called "Operational Creditor")

seeking to initiate Corporate Insolvency Resolution Process

(CIRP) against MT Educare Limited. (hereinafter called

Company Appeal (AT)(Ins) No.22/2023 3

"Corporate Debtor") by invoking the provisions of Section 9

Insolvency and Bankruptcy Code, 2016 (hereinafter called

"Code") read with Rule 6 of Insolvency & Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 for

resolution of an unresolved Operational Debt of Rs.

5,48,62,056/- (Rupees Five Crores Forty-Eight Lacs Sixty-Two

Thousand and Fifty Six Only).

2. The submissions of Operational Creditor are as follows:-

a. The Applicant is in business of renting of equipment or

other assets. Respondent, is an education support and

coaching services provider.

b. Parties had entered into a Master Rental Agreement

(MRA). It was during Jul 2019 and Jan 2020 Respondent

had obtained use of certain assets like Servers, Routers,

Desktops, UPS, and other IT related (Collectively, Rented

Assets) on rent basis from Applicant under 8 Rent

Schedules No. MTEL-015(A)-022(A) in terms of MRA.

c. In the contract in consideration of payment of rent

instalment to Applicant, Respondent was entitled to use

Company Appeal (AT)(Ins) No.22/2023 4

Rented Assets for the agreed rent tenure as specified in

each mentioned Rent Schedules.

d. Onward Jul/Aug 2019, Respondent starting to commit

default in payment of rent instalment and other monies.

As a result, by end of March 2020 payment up to Rs.

1,31,89,068.00 (incl. GST) towards quarterly rent

instalment were in default under 20 invoices. Various

follow-up emails sent to Respondent on 05.03.2020,

11.03.2020. 13.03.2020, and 16.03.2020 were ignored

as such remained unanswered. Pertinently, the

mentioned outstanding as it then stands was pertaining

to the period falling before COVID-19.

e. Later, between Apr 2020 Aug 2021 Applicant had

issued several demand notices/reminders to Respondent

regarding payment default and called them to pay the

outstanding rent instalment and other monies under the

contract.

f. In between Dec 2020-Jan 2021 Respondent returned

certain Rented Assets to Applicant which resulted in

some damage/loss to RentedAssets returned as such

Applicant claimed a damage cost from Respondent by its Company Appeal (AT)(Ins) No.22/2023 5

email dt. 15.02.2021; Respondent vide email dt.

18.02.2021 in reply had concurred to the damage cost

provided by Applicant. At the same time, while ignoring

the issue of outstanding Respondent had proposed to

Applicant to consider revised rent rate to be made

effective from Jan 2021 taking into account valuation of

Rented Assets retained, the valuation ascribed by

Respondent thereof was Rs. 7,98,31,083.00; the revision

was not accepted by Applicant.

g. Thereafter, Respondent continued on payment default

and Applicant was constrained to issue a termination

notice inter-alia calling upon Respondent to pay Rs.

5,34,48,523.00 and other monies in terms of Clauses

12.3(c); there wasn't any reply by Respondent to

Applicant thereof.

h. In view of the above, Applicant was constrained to

issue a demand notice dt. 26.08.2021 under S. 8 of the

Code 2016 to Respondent for default in payment of

operational debt up to Rs. 5,37,65,669.00, the same was

delivered to Respondent at its registered office on

28.08.2021 at 16:23:33 Hrs; there hasn't been any

Company Appeal (AT)(Ins) No.22/2023 6

response or payment from Respondent till date as such

there is a complete neglect and callous attitude by the

current management of Respondent to the said notice. i.

The debt is an operational debt under S. 5 (21) of the

Code, 2016, and Respondent continue defaulting the

same, as such the instant Application.

3. The Corporate Debtor filed reply dated 14.03.2022 of Ms.

Mansi Thakkar opposing the above Company Petition. The

relevant paragraphs of the reply are extracted hereinunder:

a. It appears that since the year 2016 the erstwhile

management of the Respondent rented IT equipment in

the nature of electrical and computer appliances more

particularly being Servers, routers, Desktops, UPS,

Cable, Access points and other IT related accessories, etc

("Equipment") which were handed over and delivered to

the Respondent on rental basis from time to time to run

its coaching institute, situated at different parts of India.

b. The said equipment were lying idle at the

Respondent's premises for a substantial period of time.

In fact, the Rental Schedule in respect of such equipment

also expired because of efflux of time. However, despite Company Appeal (AT)(Ins) No.22/2023 7

expiry of the Rental Schedule, the Petitioner was still

claiming rent from the Respondent respect to equipment

which were of no use to the Respondent. It was put to the

attention of the Petitioner that, in such circumstances it

shall be prudent for the Respondent to return such non-

effective equipment to the Petitioner, which were lying

with the Respondent. Hence, the Respondent time and

again sought necessary cooperation from the Petitioner to

get the said equipment relocated from the Petitioner's

premises and also requested the Respondent for not

charging rent on such unused equipment. The Petitioner

failed to pay any heed to the same and continued to levy

a full amount of rent on such equipment, leading to

Financial Loss to the Respondent. Hence, the question of

levying rent on such non- effective and depreciated

equipment does not arise. c. The Respondent time and

again reiterated the aforesaid issues and put to the

Petitioner's attention that the Respondents have been

charging exorbitant amount of rent. However, the

Petitioner failed to pay any heed to the same. To the

shock and surprise of the Respondent, the Petitioners by

Company Appeal (AT)(Ins) No.22/2023 8

taking an advantage of the situation addressed a Legal

Notice dated 28th October,2020 upon the Respondent

under a subject of "Legal Notice for Recovery of Rs.

2,56,28,968/- towards the outstanding rental instalment

payment and overdue interest (ODI) charges.....The

Petitioner had blatantly misinterpreted the clauses of the

Master Rental Agreement and called upon the

Respondent to repay a sum to the tune of

Rs.2,56,28,968/- without any proper justification and

explanation. Merely in an attempt to extort sums from the

Respondent.

d. In response to the said Legal Notice for recovery, the

Respondent vide emails dated 13th November, 2020 and

26 November, 2020 categorically denied the demands as

raised by the Petitioner. Further, it was categorically put

to the attention of the Respondent that the Petitioners

have been charging exorbitant rent and it was once again

reiterated that, the satiable portions of the equipment

have become redundant and are stored unused at

various locations causing Financial Losses in form of

Rentals. It was further put to the Petitioner's attention

Company Appeal (AT)(Ins) No.22/2023 9

that the rent period in respect of such equipment also

expired due to efflux of time. Hence, the Respondent once

again. Requested the Petitioner to take such equipment in

its custody.

e. It is pertinent to note that, the Respondent has time

and again paid rent in respect of the equipment actually

utilized by the Respondent. The Respondent has been

maintaining its tally data in respect of its various

transactions containing the detailed particulars of

payments made and the amounts due and payable. It is

pertinent to note that, as per the Respondent's tally data

in respect of the present transaction the only amount due

and payable by the Respondent to the Petitioner amounts

to Rs.12,78,385/-.

f. In view of the aforesaid, the Respondent vide an email

dated 18th February, 2021, put to the attention of the

Petitioner that the Respondent had rented assets worth

Rs.10,22,48,455/- out of which the Respondent had

returned assets worth Rs.2,30,52,372/-. Despite no

reasonable explanation with regard to the alleged

damages claimed, the Respondent was kind enough to

Company Appeal (AT)(Ins) No.22/2023 10

adjust the alleged damage cost of a sum of Rs.6,35,000/-

by paying an extra sum towards the rent on equipment.

Accordingly, the Respondent in the said email dated 18th

February, 2021 called upon the Petitioner to consider and

levy the rent on the basis of assets which are worth

Rs.7,98,31,083/- lying with the Respondent. The said

sum also includes the amount of alleged damages. It was

further put to the attention of the Petitioner that the

Respondent shall return further assets in the due course

and the amount of rent shall be deducted accordingly.

FINDING

1. Heard Mr. Jayprakash Sen a/w Mr. Nazish Alam,

counsel appearing for the Operational Creditor and Mr.

Nausher Kohli a/w Mr. Umang Mehta, counsel appearing

for the Corporate Debtor and perused the material

available on record.

2. After hearing the submissions on both sides, this

Bench notes that there is no dispute between the parties

with regard to hiring of IT equipment in the nature of

electrical and computer appliances more particularly

Servers, routers, Desktops, UPS, Cable, Access points Company Appeal (AT)(Ins) No.22/2023 11

and other IT related accessories since 2016 by

Operational Creditor to the Corporate Debtor on rental

basis from time to time to run its coaching institute

situated at various parts of India. Similarly, the terms

and conditions of the agreement are reduced into writing.

Since there was a default committed by the Corporate

Debtor in payment of the outstanding rental the

Operational Creditor got issued a legal notice dated

20.10.2022 calling upon the Corporate Debtor to pay an

amount of Rs. 2,56,28,968/- towards pending

operational dues. The Corporate Debtor himself filed the

following emails which are prior to issuing Demand

Notice by operational creditor which are extracted

hereunder for ready reference:

EXHIBIT-'B' Ref: Your notice dated 28 October 2020 SAyyappan sayyapppan@mteducare.com To: alamnazish2010@gmai l.com Fri, Nov 13, 2020 at 1:22 PM 13 November 2020 Through e-mail/Registered AD To Adv. Nazish Alam

D/12, Rameshwar CH S,

Near Surya Hospital,

Company Appeal (AT)(Ins) No.22/2023 12

S.V. Road, Santacruz (West), Mumbai-400 054

Ref.: Your notice dated 28 October 2020

Sir,

We are in receipt of the notice above referred, issued by you on behalf of your client M/s. Connect Residuary Pvt. Ltd.

Kindly be informed that, due to the ongoing Covid-19 pandemic situation and based on the instructions/circulars from the respective state and central governments, our organization has not started functioning yet with our full strength of employees/staff. This situation causes us difficulties to retrieve the relevant accounts/finance statements and related transactions details. We have noted the contents/averments/claims of your notice above referred and we are not in a position to asses the veracity of the same at this point of time. We are in the process of compiling the documents in connection with the transactions as contemplated in your notice. Requesting you to bear with us for some extended period so as to enable us to get back with a formal reply to your notice. This is without prejudice to our rights and nothing in the said notice under reply may be deemed to be admitted for want of denial or otherwise.

Sd/- Advocate

EXHIBIT C

FW Reply to nonce dated 28.10.20

November 26, 2000

By Registered AD Emal

To Adv Nazish Alam D12 Raneshwar CHS Near Surya Hospital SV. Road Santacruz (West) Mumbai-400054

Ref: Your notice dated 28.10.2020 ) Our reply dated 13.11.2020

Dear Sir.

Company Appeal (AT)(Ins) No.22/2023 13

This is further to our reply dated 13 November 2020 in connection with the notice issued by you on behalf of your client Connect Residuary Pvt. Ltd.

It is the matter on record that, vide Master Rental Agreement dated 16 February 2015, we engaged your client to supply as various IT related equipments on rental basis. As your client is aware, we have complied with all our contractual obligations conferred on us vide the agreement with your client

However, the outbreak of Coronavirus (COVID-19) pandemic globally and in India has caused significat diseption of the supply chain and consequent slowdown of economic activity. Measures taken to contain spread of the vins, including travel bans, quarantines, social distancing. and closure of non-essential services have triggered significant disruptions to businesses worldwide, resulting in an economic slowdown. Business for most of the companies have had a severe negative impact all over the world including adverse impact on businesses in India resulting into a massive slowdown in the economy. In the present situation, it is difficult to ascertain the overall impact of the outbreak.

The sudden lockdown in March 2020 due to COVID-19 & the impact it caused into the schools coaching centers operation and more particularly our collection significantly. This has completely disrupted & significantly affected our operation as well during this period, which almost got standstill during this lockdown & created new set of challenges for us. Uncertainty continues ever the re- opening of schools coaching centers amid the COVID-19 pandemic in the y and even the state government have taken a favorable stand towards it. COVID 19 has so impacted the financial position of the parents

3. It is very clear from the above emails that there is a

continuous default in payment of rent committed by the

Corporate Debtor from July/August, 2019 till the demand

notice was issued on 26.08.2021.

4. This bench also observes from the above emails

addressed by the Corporate Debtor that the Corporate

Debtor except pleading mercy in reducing certain amount

Company Appeal (AT)(Ins) No.22/2023 14

of rent and also expressing their financial difficulties due

to Covid-19, did not raise any pre-existing disputes in the

above emails. It is appropriate to mention here that the

onus of proof lies on the Corporate Debtor to establish the

pre-existing dispute by placing cogent and convincing

evidence before this Tribunal which is totally lacking in

this case. Whatever stand that was taken by the

Corporate Debtor in response to the demand notice is only

an afterthought and nothing but laying foundation to

contest the company petition which does not stand to the

test of legal scrutiny.

5. The contention of the Corporate Debtor in para 6 (b) of

the reply to the effect that the erstwhile management of

the Corporate Debtor has entered into transaction with

Operational Creditor of completely with unreasonable

and exorbitant terms and the current management

realised the same and immediately proceeded to close

the transaction by making an attempt to return the said

equipment to the Operational Creditor clearly shows that

there is no dispute with regard to the rent agreed

between the parties. This Bench cannot decide the

Company Appeal (AT)(Ins) No.22/2023 15

reasonableness of rent etc. in an application filed under

Section 9 of the code and it is beyond the purview of this

Bench and it is purely the look out of Corporate Debtor

and its erstwhile management.

6. Mr. Kohli, counsel appearing for the Corporate Debtor

made an unsuccessful attempt to convince and establish

before this Bench as if the defaulted period falls within

section 10 A period. As rightly submitted by the

Operational Creditor the default is continuous from

July/August 2019 till the date of issuing demand notice

and therefore, there is no question of attracting the

benefits of Section 10 A in this case. In fact, the

respondent did not raise the above plea in their reply. In

fact, the entire reply filed by the Corporate Debtor is a

mere general denial and narration of the mistake of the

earlier management in entering into the rental

agreements with the petitioner for higher rent etc. which

are beyond the scope of an enquiry in an application filed

under Section 9 of the Code.

7. For the aforesaid reasons this bench after hearing the

submissions of both sides and upon perusing the

Company Appeal (AT)(Ins) No.22/2023 16

material available on record, is thoroughly convinced that

the Operational Creditor has successfully demonstrated

the existence of "debt" and "default" committed by the

Corporate Debtor in this case and the above Company

Petition being filed on 23.11.2021 is within three years

from the date of default and is well within limitation and

thus, the present Company Petition satisfies all the

necessary legal requirements for admission. It is

pertinent to mention here that the petitioner has included

an amount of Rs. 6,35,000/- towards repair/damage

costs and an amount of Rs. 15,27,116/- towards agreed

liquidation damages which are beyond the purview of

this application and therefore this Tribunal is disallowing

the above two amounts along with the corresponding

interest if any charged by the Petitioner in the above

application. Accordingly, the above Company Petition is

admitted by passing the following:

ORDER

a.The above Company Petition No. (IB) -1291(MB)/2021

is hereby allowed and initiation of Corporate Insolvency

Company Appeal (AT)(Ins) No.22/2023 17

Resolution Process (CIRP) is ordered against MT Educate

Limited.

b. Since the Operational Creditor has not suggested the

name of any Interim Resolution Professional (IRP) in the

petition, this Bench is hereby appointing an IRP from the

panel of RP's furnished by the Insolvency and

Bankruptcy Board of India (IBBI). This Bench hereby

appoints Mr. Ashwin Bhavanji Shah

(ashwin@caashwinshah.com), Insolvency Professional,

Registration No: IBBI/IPA-001/IPP02648/2021-

2022/14054 (mobile No. 9769468909 as the interim

resolution professional to carry out the functions as

mentioned under the Insolvency & Bankruptcy Code,

2016.

c. The Operational Creditor shall deposit an amount of

Rs.5 Lakh towards the initial CIRP costs by way of a

Demand Draft drawn in favour of the Interim Resolution

Professional appointed herein, immediately upon

communication of this Order. The IRP shall spend the

above amount towards expenses only and not towards

fee till his fees is decided by COC.

Company Appeal (AT)(Ins) No.22/2023 18

d. That this Bench hereby prohibits the institution of suits

or continuation of pending suits or proceedings against

the corporate debtor including execution of any judgment,

decree or order in any court of law, tribunal, arbitration

panel or other authority; transferring, encumbering,

alienating or disposing of by the corporate debtor any of

its assets or any legal right or beneficial interest therein;

any action to foreclose, recover or enforce any security

interest created by the corporate debtor in respect of its

property including any action under the Securitization

and Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002; the recovery of any

property by an owner or lessor where such property is

occupied by or in the possession of the Corporate Debtor.

e. That the supply of essential goods or services to the

Corporate Debtor, if continuing, shall not be terminated

or suspended or interrupted during moratorium period. f.

That the provisions of sub-section (1) of Section 14 shall

not apply to such transactions as may be notified by the

Central Government in consultation with any financial

sector regulator.

Company Appeal (AT)(Ins) No.22/2023 19

g. That the order of moratorium shall have effect from the

date of pronouncement of this order till the completion of

the corporate insolvency resolution process or until this

Bench approves the resolution plan under sub-section (1)

of section 31 or passes an order for liquidation of

corporate debtor under section 33, as the case may be.

h. That the public announcement of the corporate

insolvency resolution process shall be made immediately

as specified under section 13 of the Code. i. During the

CIRP period, the management of the corporate debtor will

vest in the IRP/RP. The suspended directors and

employees of the corporate debtor shall provide all

documents in their possession and furnish every

information in their knowledge to the IRP/RP.

j. Registry shall send a copy of this order to the Registrar

of Companies, Mumbai, for updating the Master Data of

the Corporate Debtor.

k. Accordingly, this Petition is admitted.

l. The Registry is hereby directed to communicate this

order to both the parties and to IRP immediately."

Company Appeal (AT)(Ins) No.22/2023 20

2. The short fact of the case is that the Respondent

No.1/Operational Creditor in view of non-reply to demand notice

under Section 8 of the IBC by the appellant herein (Corporate

Debtor) was constrained to file an application under Section 9 of

the IBC disclosing therein that Operational Creditor and Corporate

Debtor had entered into a Master Rental Agreement (MRA). It was

during the month of July, 2019 and January, 2020. The Corporate

Debtor had obtained use of certain assets like Servers, Routers,

Desktops, UPS and other IT related (collectively, rented assets) on

rent basis from the Operational Creditor under the rent schedule

in terms of MRA. As per contract in consideration of payment of

rent instalment to the operational creditor, the Corporate Debtor

was entitled to use rented assets for the agreed rent tenure as

specified in each mentioned Rent Schedule. However,

subsequently on or after July/August, 2019 the Corporate Debtor

started committing default in payment of rent instalment and

other monies. As a result of which by the end of March, 2020

payment upto Rs.1,31,89,068/- (including GST) towards quarterly

rent instalment were in default in 20 invoices. As per the

operational creditor various follow up emails were sent to

Corporate Debtor particularly on 05.03.2020, 11.03.2020,

Company Appeal (AT)(Ins) No.22/2023 21

13.03.2020 and 16.03.2020 which were ignored and remained

unanswered. It was also indicated that all the demands were

raised prior to Covid-19. Subsequently in between April, 2020 and

August, 2020 the operational creditor issued demand

notice/reminders to the corporate debtor regarding default and

called them to pay the outstanding rent instalment and other

monies under the contract. It was further pleaded that in between

December, 2020 -January, 2021 the corporate debtor returned

certain rented assets to the operational creditor but some were in

damaged condition. Accordingly the operational creditor claimed

damage cost from the corporate debtor by email of 15.02.2021

which was concurred by the corporate debtor vide email dated

18.02.2021. However, the corporate debtor while ignoring the

issue of outstanding debt gave a proposal to the operational

creditor to consider revised rent rate to be made effective from

January, 2021 taking into account the valuation of the rented

assets, the valuation ascribed by the Respondent thereto was

Rs.7,98,31,083/- (Rupees Seven crore ninety eight lakh thirty one

thousand eighty three only). Even thereafter since the corporate

debtor continued with default the operational creditor was

constrained to issue termination notice calling upon the corporate

Company Appeal (AT)(Ins) No.22/2023 22

debtor to pay Rs.5,34,48,523/- (Rupees Five crore thirty four lakhs

forty eight thousand five hundred twenty three only) and

subsequently on 26.08.2021 a notice under Section 8 of the IBC

was issued to the corporate debtor for default in payment of

operational debt to the tune of Rs.5,37,65,669/- (Rupees Five

crore thirty seven lakh sixty five thousand six hundred sixty nine

only) which was delivered at registered office of the corporate

debtor on 28.08.2021. However, the corporate debtor did not give

reply to the operational creditor.

3. According to the operational creditor it was an operational

debt under Section 5(21) of the IBC and as such petition was filed

under Section 9 of the IBC. After notice the corporate debtor

appeared and raised an objection as if there were earlier dispute.

However, the learned Adjudicating Authority after hearing both the

sides has admitted the application and initiated CIRP by the

impugned order which has been assailed in the present appeal.

4. The appellant primarily assailed the impugned order on the

ground as if dispute were persisting much prior to the issues of

the demand notice. A plea was also taken as if while calculating

the debt the operational creditor had ignored the amount of

returned assets. The appellant in the present appeal has also

Company Appeal (AT)(Ins) No.22/2023 23

raised a plea that admitting the application was contrary to the

provisions of Section 10A of the IBC. A plea was taken as if default

had occurred during the month of March, 2020.

5. At the time of hearing Mr. Vaibhav Gaggar, learned counsel

for the appellant has argued that actual outstanding debt was only

Rs.80 lakhs which was below the threshold for filing the

application under Section 9 of the IBC. He argued that actual due

amount was Rs.1,31,00,000/- and from the said amount value of

the returned assets was to be deducted and after such deduction

debt was about Rs.80 lakhs and as such there was no reason for

initiation of CIRP. He has further referred to running page 76 and

77 to show as if the demand was continued by the corporate debtor

and as such there was apparent dispute regarding debt. There

was pre-existing dispute, therefore, there was no reason for

admitting the application. He has also drawn our attention to

running page 174 which is part of the demand notice dated 26th

August, 2021 to show that the operational creditor has himself

admitted in the notice regarding return of assets and regarding

initiation of discussion on the outstanding. It is better to

reproduce relevant portion of demand notice at running page 174

para (j):

Company Appeal (AT)(Ins) No.22/2023 24

"Thereafter, on 04.12.2020, the Corporate Debtor had

approached the Operational Creditor and initiated a

discussion on the outstanding and the return of some Rented

Assets. By its email on 10.12.2020, the corporate Debtor had

supplied to the Operational Creditor with the list of those

Rented Assets intended for return. Pursuant thereof, the

Operational Creditor had received some of Rented Assets from

the Corporate Debtor in 3(Three) tranche(s) on 25.12.2020,

16.01.2021 and 27.01.2021

Details of the Rented Assets received by the Operational

Creditor and those still retained with the Corporate Debtor are

annexed and marked as Exhibit 9 hereto."

6. By way of referring to aforesaid it was argued by Mr. Gaggar,

learned counsel for appellant that there is no discussion regarding

the deduction of the amount of rented assets from the operational

debt. He has also disputed the actual debt as claimed by the

operational creditor. In support of his argument regarding list of

equipment he has also drawn our attention to running page 149

of the Memo of Appeal which is an email dated 28.10.2020. In

sum and substance it was submitted by the learned counsel for

the appellant that considering the pre-existing dispute and non-

Company Appeal (AT)(Ins) No.22/2023 25

disclosure of the amount relating to the returned assets the whole

proceeding is vitiated and order impugned is liable to be set aside.

7. In the present appeal the Respondent/operational creditor

has also field an exhaustive reply dealing with all contentions

raised in the Memo of Appeal. Certain relevant facts which are

deciphered from the reply which appears to be relevant are

required to be reproduced for proper appreciation of the matter.

"5.6 Onward July-August 2019, the Corporate Debtor started to commit

defaults in its payment for the invoices raised towards rent instalment

and other monies, due and payable to the Respondent No. 1. There were

multiple payment follow up emailed/sent to the Corporate Debtor by the

Respondent No. 1 during the month of March 2020, particularly on

05.03.2020, 11.03.2020, 13.03.2020, and thereafter on 16.03.2020;

however, none of those emails were ever addressed and or responded by

the Corporate Debtor.

5.7 Earlier, on 06.09.2019 the Respondent No. 1 received a payment of

Rs. 12,16,527.00 (in words, Rupees Twelve Lakhs Sixteen Thousand

Five Hundred and Twenty-Seven Only), which was the last payment from

the Corporate Debtor to the Respondent No. 1 till date in this matter, the

said payment was a part payment towards an outstanding invoice in

default bearing No. 10081927MTE0531, raised for rentals payable under

the rent contract, the Rent Schedule MTEL-015(A). As a result of the

continuing default in payment onward since July- August 2019, the

Company Appeal (AT)(Ins) No.22/2023 26

rentals to a tune of amount Rs. 1,19,72,541.00 (in words, Rupees One

Crore Nineteen Lakhs Seventy-Two Thousand Five Hundred and Forty

One Only) remained overdue in twenty (20) invoices. Copies of the

mentioned invoices are referred to and relied upon by the Appellant in

the Appeal Memo (Annexure "A-16" of the Appeal Memo).

5.8.2 On 28.10.2020, as there was continuing default in payment by the

Corporate Debtor, the Respondent had served another demand notice to

the Corporate Debtor calling upon to pay towards outstanding rent

instalments and ODI, those which were recuring since July-August 2019.

This time, on 13.11.2020 the Corporate Debtor had replied which was a

ministerial response requesting for time to file its reply to the said notice

dt. 28.10.2020.

5.8.3 Thereafter, on 26.11.2020, the Corporate Debtor had replied to the

Respondent No. 1. In reply, the Corporate Debtor renege the payment

obligations and denied to make payment citing reasons, namely, (i)

delayed cash flow collection due to Covid- 19 and lockdown; and (ii) the

rate for rent is exorbitant in view of the Covid-19 circumstances, and

furthermore, the Corporate Debtor had requested the Respondent No. 1

to offer a subsidy in the rentals. In the said reply, the Corporate Debtor

also alleged that the tenure of the Extension Schedules with respect to

various rented equipment have 'expired due to efflux of time'. It is

submitted before this Hon'ble Appellate Tribunal that none of the

Extension Schedules were in expiration at that time. All Extension

Schedules in question were well subsisting, valid and binding onto the

Company Appeal (AT)(Ins) No.22/2023 27

parties at that relevant time. The mentioned facts regarding the validity

and term of the Extension Schedules is also not disputed by the

Appellant, in fact, the Appellant has referred to and relied upon the

Extension Schedules as stated above.

5.8.4 In addition, it was stated by the Corporate Debtor in its email reply

dt. 26.11.2020 that the rented equipment have become redundant stored

at its locations causing financial losses in form of the rentals, and it has

no other option but to hand over such equipment to the Respondent No.

1. It is submitted to this Hon'ble Appellate Tribunal under the rent

contract irrespective of use or non-use of the rented equipment, as

claimed herein, the renter is liable to make payment towards all rentals

as the payment are absolute and unconditional (See, Clause 4.6 of the

MRA); besides, the renter has no right to terminate the rent contract at

will or for convenience (see, Clauses 12.1 to 12.5 of the MRA), sought by

the Corporate Debtor. It was also stated by the Corporate Debtor that the

Respondent No. 1 forthwith take custody of the rented equipment from

the Corporate Debtor, and that it will furnish a detailed list of those

rented equipment which the Corporate Debtor wants to hand over.

5.10 On 26.08.2021 the Respondent No. 1 had duly served a demand

notice to the Corporate Debtor for the outstanding operational debt in

default (continuing default since July- August 2019), aggregating up to

Rs. 5,37,65,669.00 (in words, Rupees Five Crore Thirty-Seven Lac Sixty-

Five Thousand Six Hundred and Sixty-Nine only) in terms of Section 8(1)

of the Insolvency and Bankruptcy Code, 2016 read along with Rule 5 of

Company Appeal (AT)(Ins) No.22/2023 28

the Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules 2016. The said demand notice was delivered to the Corporate

Debtor by way of a registered post on 28.08.2021 (at 16:23:33 Hrs. IST);

still, the Corporate Debtor did not respond/replied to the said demand

notice neither there was any payment towards outstanding operational

debt in default to the Respondent No.1 by the Corporate Debtor.

5.11 In the circumstances, as particularly narrated herein above, and

where there was no reply to Section 8 Demand Notice or payment to the

Respondent No. 1 by the Corporate Debtor that in November 2021, the

Respondent No. 1 had rightly proceeded to file an application for initiating

Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor

in terms of Section 9 of the Insolvency and Bankruptcy Code, 2016 read

along with Rule 6(1) of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules 2016 due to the Operational Debt in default

go a tune of Rs. 5,48,62,056.00 (Rupees Five Crores Forty-Eight Lacs

Sixty- Two Thousand and Fifty-Six Only), due and payable to the

Respondent No. 1 by the Corporate Debtor under the rent."

8. Mr. Nazish Alam, learned counsel appearing on behalf of

Respondent/operational creditor submits that the order impugned

itself reflects a good reason for rejection of the present appeal. He

submits that in the petition filed before the Adjudicating Authority

under Section 9 of IBC each and every detail were explained in

seriatim which reflects that the appellant defaulted in making of

Company Appeal (AT)(Ins) No.22/2023 29

payment of operational debt which had earlier occurred in the

month of March, 2020 before starting of Covid19 pandemic,

thereafter again default was committed and most of the rental

assets were in possession of the corporate debtor and rental

agreement was extended from time to time. Since the corporate

debtor did not pay heed to clear the outstanding debt without

raising any dispute, the operational creditor was left with no option

but to issue demand notice under Section 8 of the IBC which

admitted was not replied by the corporate debtor nor the corporate

debtor made payment. The outstanding was to the tune of

Rs.5,34,48,523/- and as such in absence of any reply application

under Section 9 of the IBC was filed and after receipt of notice the

corporate debtor appeared and filed its response raising an

artificial dispute as if there were pre-existing dispute and some

frivolous grounds were taken. The Learned Counsel for R1

submits that through in its reply before the Adjudicating Authority

the appellant had referred to email i.e. email dated 13.11.2020 and

26.11.2020 and stand was taken that the corporate debtor had

raised dispute, the said two emails does not reflect any dispute

rather it indicates as if the corporate debtor was only requesting

the extension of time taking shelter of Covid19 Pandemic.

Company Appeal (AT)(Ins) No.22/2023 30

9. Besides hearing learned counsel for the parties we have

examined the materials available on record and after going through

the same prima facie we are of the opinion that learned

Adjudicating Authority has committed no error in passing the

impugned order and initiating CIRP. From the order impugned

itself it is evident that the learned Adjudicating Authority has

reproduced two emails dated 13.11.2020 and 26.11.2020. On

going through the aforesaid two emails, which has been

incorporated in the impugned order, it is clear that regarding

default or debt no dispute was raised. It only reflects the hardship

or inconvenience of the corporate debtor due to Covid19 pandemic.

On aforesaid emails it is difficult to draw an inference as if there

was pre-existing dispute between the parties. Before the

Adjudicating Authority a plea was also taken by the corporate

debtor that rented assets were lying in the different premises of the

corporate debtor without any use. However, on perusal of the MRA

which has been brought on record in the Memo of Appeal as

Annexure A-2 it is evident that in the said MRA there is a clause

regarding return of equipment which is Clause 14 at running page

92 and 93 of the Memo of Appeal. For better appreciation it is

necessary to reproduce only clause 14 of the MRA as follows:-

Company Appeal (AT)(Ins) No.22/2023 31

"14. Return of Equipment:

14.1 At the expiration or earlier termination of the renting of

the Equipment the Renter will at the Renter's expense deliver

the Equipment in good working order and condition, packed

and crated in such manner to avoid any damage/loss to the

Equipment during transportation, to our nominated place in

Mumbai.

14.2 The Equipment will not be regarded as returned, unless

(where applicable) it is decommissioned in accordance with the

original manufacturers specifications by an authorised person

and appropriate certificates have been supplied, and it is

returned in accordance with the requirements set out in this

Agreement.

14.3 It is not possible for the Renter to return the Equipment to

Connect in accordance with the provisions of this Agreement

then the Renter must immediately at the expiration or earlier

termination of the renting of the Equipment in terms of this

Agreement and at the Renter's cost deliver to Connect

replacement equipment approved by Connect and of a similar

nature to the Equipment, provided that Connect may in its sole

discretion accept payment of an amount equal to the Residual Company Appeal (AT)(Ins) No.22/2023 32

Value of the Equipment instead of deliver of such replacement

equipment. A certificate duly completed by Connects auditors

indicating the amount of the Residual Value will be prima facie

evidence of the contents thereof. For purposes of this clause

14, Residual Value shall mean the financial interest which

connect acquire in the Equipment at the inception of the rental

of the Equipment in terms of this Agreement and retains for the

duration of the rental of the Equipment in terms of this

Agreement.

14.2 In case of breach of essential terms as specified in Clause

10 and default as per Clause 11 in addition to demanding

payment of the unpaid dues, Connect shall also, at its option

and in addition to claiming the liquidated damages, be entitled

to dismantle and remove the Equipment from the place where

it shall have been kept and take way there from and sell the

Equipment by auction by private treaty and for that purpose,

Connect shall have right to enter into any premises where such

equipment is located subject to receiving permission from the

owner or the occupant of the premises where the Equipment is

located. The Renter shall provide all assistance in obtaining

permission as aforesaid.

Company Appeal (AT)(Ins) No.22/2023 33

14.3 Connect may without prejudice to any of our other rights

hereunder, by notice in writing terminate the Agreement and

the Rental of the Equipment created hereby and thereupon, or

upon the termination by efflux of time, as the case may be, the

Renter shall forthwith deliver the Equipment at the Renter's

own expenses to Connect and in accordance with any

directions given by Connect and in default thereof Connect

may re-possess and retake the Equipment, and for that

purpose Connect by its servants and agents may enter upon

any land, building or premises where the Equipment is or

where Connect or it's agents or servants suspect the

Equipment is;

All costs and expenses incurred by Connect in exercising or

attempting to exercise its rights under this clause shall be paid

by the Renter to Connect on demand, and that in the event

ourselves taking any financial or other assistance from any

bank or any other lender this right shall ensure for the benefit

of such bank or lender."

10. On perusal of the aforesaid clause contained in the MRA it is

evident that in case of non-use of the assets by the corporate

debtor onus was on the corporate debtor to return such assets on

Company Appeal (AT)(Ins) No.22/2023 34

his own transportation cost. After filing of the application under

Section 9 of IBC the corporate debtor was not entitled to raise the

issue as if those rented assets were lying idle and without use in

different premises of the corporate debtor and as such cannot

claim benefit of this issue. Moreover, at the time of hearing of

application under Section 9 if the corporate debtor was in a

position to satisfy the Adjudicating Authority that there was pre-

existing dispute only then he would have got any benefit but in the

present case there is no plausible explanation or reason shown by

the corporate debtor as to whether there was pre-existing dispute

in between the parties.

11. The petition filed under Section 9 before the Adjudicating

Authority which has been brought on record in the Memo of Appeal

in Volume II running page 183 to 239 reflects each and every detail

and on perusal of the same there is no reason to raise any doubt

on the claimed operational debt which was claimed amount. On

the date of notice under Section 8 the total outstanding operational

debt was Rs.5,37,65,669/- (Rupees Five crore thirty seven lakh

sixty five thousand six hundred sixty nine only) and the same debt

was operational debt under Section 5(21).

Company Appeal (AT)(Ins) No.22/2023 35

12. We have also noticed that when initially the present appeal

was taken for admission before the Bench of this Tribunal, learned

counsel for the appellant had made a statement that the appellant

was also taking steps for settlement and thereafter recording

submission of learned counsel for the appellant on 06.01.2023 an

interim order was passed whereby constitution of CoC, if not

constituted, was stayed. Thereafter interim order continued.

However, at the time of hearing of present appeal learned counsel

for the appellant completely remained silence on the said issue.

13. Considering the fact that the appellant/corporate debtor

failed to establish pre-existing dispute and the fact that it was an

operational debt we find that the Adjudicating Authority has

committed no error in passing the impugned order. Accordingly

we donot find any merit in the present appeal.

14. The appeal stands dismissed.

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical) bm

Company Appeal (AT)(Ins) No.22/2023