Home > Recent Judgements > Operational Debt And Creditor Rights In Corporate Insolvency
August 06, 2024
BACKGROUND
In the case of Vaibhav Aggarwal v. Mr. Sunil Sachdeva and Anr, a Lease Agreement was entered into on August 28, 2016, between the Lessors, Late Shri Ram Prakash Sachdeva and Late Smt. Chand Sachdeva, and the Lessee/Corporate Debtor, Haldiram Fincap Pvt Ltd. (HFPL). The agreement was set for a 12-year term, lasting from August 28, 2016, to August 27, 2028. Following the deaths of the original lessors, their son, Mr. Sunil Sachdeva, claimed the status of their legal heir. On December 16, 2016, HFPL purportedly assigned the Lease Agreement to Haldiram Bhujiawala Inc (HBI). On February 5, 2019, Mr. Sunil Sachdeva, on the grounds of non-receipt of rent and GST payments, served a notice to HFPL, demanding Rs. 52.64 lakhs. This was followed by a notice of termination of the lease on April 28, 2019, claiming a default amount of Rs. 85.44 lakhs. Despite these notices, no payments were received from HFPL. Consequently, the operational creditor issued a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) on September 17, 2019, claiming an amount of Rs. 94.66 lakhs. HFPL did not respond with a Notice of Dispute. In light of the unresolved payment issues, he filed a Section 9 application before the Adjudicating Authority on October 23, 2019. HFPL responded to the application on February 7, 2020, and also filed a Civil Suit against the Operational Creditor, in the same month. Despite HFPL’s efforts to contest the claims, the Adjudicating Authority, on February 14, 2023, allowed the Section 9 application and admitted HFPL into the Corporate Insolvency Resolution Process (CIRP). Aggrieved by this decision, HFPL preferred the present appeal against the impugned order, seeking relief from the rigors of CIRP imposed by the Adjudicating Authority’s ruling. The appeal challenged the grounds on which the application was admitted and disputed the financial claims made by the operational creditor.
ISSUES
Was the rent owed from properties leased to the Corporate Debtor considered an operational debt?
The question of whether rent owed from properties leased to the Corporate Debtor was classified as an operational debt, and whether Respondent No. 1 legitimately held the status of an Operational Creditor, was settled according to the judgment of this Tribunal in Jaipur Trade Expo Centre Jet Airways Training Pvt. Ltd. (2022) 478 NCLAT Pvt. Ltd. v. Metro. It was established that the payment of license fee for the use of leased premises for business purposes constituted an operational debt (p16).
DECISION OF APPELLATE TRIBUNAL
1. Dispute Raised at Later Stage:
The Operational Creditor consistently pressed for the release of outstanding amounts. The Corporate Debtor did not object or counter the claims before the Section 8 Demand Notice. Conditions from Mobilox Innovations Private Limited v. Kirusa Software Private Limited of debt exceeding Rs.1 lakh, due and unpaid, were met. Despite not replying to the Section 8 notice, the Corporate Debtor was not precluded from establishing pre-existing disputes in pleadings.
2. Sub-Lease/Assignment of Lease Case:
Respondent No. 2 claimed that rent and TDS payments were made by HBI, not HFPL. NCLAT observed that HFPL sought the NOC for service tax registration for HBI’s use. HFPL remained the actual lessee and could not circumvent legal proceedings initiated by the Operational Creditor.
3. Legal Notice and Pre-Existing Dispute:
The legal notice dated 22.10.2019, served post-Section 9 application, could not qualify as a pre-existing dispute. The commercial suit filed by Respondent No. 2 in February 2020 was post-Section 9 application and could not be considered a pre-existing dispute. The appeal was dismissed with no costs.
JUDGEMENT
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code 2016 (IBC) by the Appellant, arising out of the Order dated 14.02.2023 (Impugned Order) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Court-III) in CP No. (IB)-2768(ND)/2019. The Adjudicating Authority admitted the Section 9 application under IBC filed by the Operational Creditor, and initiated the Corporate Insolvency Resolution Process (CIRP) against Haldiram Fincap Pvt Ltd. (HFPL), the Corporate Debtor. Aggrieved by this order, the present appeal was preferred by the Authorized Representative of the Corporate Debtor. Respondent No. 1 countered that the lease rent was an operational debt as per the Jaipur Trade Expo Centre Pvt Ltd Vs M/s Metro Jet Airways Training Pvt Ltd judgment and that he inherited the role of lessor based on registered wills. Respondent No. 1 argued that allegations of forceful possession were unfounded and pointed out that necessary steps to reclaim possession were taken only after directions from the Tribunal.
The Tribunal concurred with Respondent No. 1 that the lease rent was indeed an operational debt and that Respondent No. 1, as the inheritor of the original lessor’s role, had the authority to claim this debt. The Tribunal found no substantial grounds to disagree with the Adjudicating Authority’s decision and held that the Section 9 application was correctly admitted. The appeal was dismissed, and the impugned order of the Adjudicating Authority was upheld.
ANALYSIS
The tribunal’s decision underscored a crucial shift towards bolstering creditor protections and enforcing directorial responsibilities in insolvency scenarios. It highlighted a growing emphasis on transparency and fiduciary duties, crucial for sustaining trust in corporate governance amidst financial distress. The judgment set a precedent for stringent scrutiny of corporate actions during insolvency, aiming to safeguard stakeholders’ interests while promoting fair and accountable business practices.
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