Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

allowed

Advocates
  • Mr. Vaibhav Gaggar, Mr. Vipul Agrawal, Mr. Arjun Kant, Mr. Adarsh Chamoli and Mr. Soham Goswami, Advocates, ;
  • Mr. Sameer Abhyankar and Mr. Akshay Joshi, Advocates,
Judges
  • S.J. Mukhopadhaya
  • Chairperson
  • Bansi Lal Bhat, Member (Judicial)
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

allowed

Advocates
  • Mr. Vaibhav Gaggar, Mr. Vipul Agrawal, Mr. Arjun Kant, Mr. Adarsh Chamoli and Mr. Soham Goswami, Advocates, ;
  • Mr. Sameer Abhyankar and Mr. Akshay Joshi, Advocates,
Judges
  • S.J. Mukhopadhaya
  • Chairperson
  • Bansi Lal Bhat, Member (Judicial)
Acts
See more information ...
Smart Summary

Structured Summary of the Opinion — Company Appeal (AT) (Insolvency) No. 513 of 2018

Factual and Procedural Background

Appellant (an Operational Creditor) granted a portion of the third floor of premises No. DD-30, Salt Lake City, Kolkata (approximately 2,281 sq. ft. super built-up area) to the Respondent (Corporate Debtor) by a Leave and License Agreement dated 1 January 2016 for nine years. The agreement fixed the license fee at Rs. 88 per sq. ft. per month calculated on the basis of super built-up area, with municipal rates, service tax and other statutory liabilities payable extra. The Respondent used the licensed premises as a restaurant under the name Ramaanil Hotels & Resorts Pvt. Ltd and inspected the premises prior to execution of the agreement.

The Respondent defaulted in payment of license fee, resulting in arrears (the opinion records interest computed up to 31 December 2017 as Rs. 40,96,295). The Appellant issued a demand notice under Section 8(1) of the Insolvency and Bankruptcy Code, 2016 on 1 January 2018 (served on 2 January 2018). The Respondent did not reply to that demand notice. The Appellant filed an application under Section 9 of the I&B Code before the Adjudicating Authority (NCLT, Kolkata Bench) to initiate the Corporate Insolvency Resolution Process (CIRP). The Adjudicating Authority rejected the Section 9 application by order dated 23 July 2018 on the ground that there existed a pre-existing dispute regarding calculation of rent on the basis of carpet area and that ad hoc payments were not proof of discharge of the entire liability. The Appellant challenged that rejection by filing the present appeal.

Legal Issues Presented

  1. Whether a pre-existing dispute existed between the parties (prior to receipt of the demand notice) that would bar initiation of CIRP under Section 9 of the I&B Code.
  2. Whether the Adjudicating Authority erred in rejecting the Appellant's Section 9 application despite the written Leave and License Agreement specifying calculation of license fee on the basis of super built-up area and the conduct of the parties (payments made without objection for a period).
  3. Whether the material relied upon by the Adjudicating Authority legitimately established a plausible dispute, or whether that material amounted to a spurious/illusory defence that should have been rejected at the threshold.

Arguments of the Parties

Appellant's Arguments

  • The Leave and License Agreement expressly fixed the license fee at Rs. 88 per sq. ft. per month to be calculated on super built-up area; clause 2 of the agreement so stipulates.
  • The Respondent paid license fee from January 2016 to November 2016 at the agreed rate based on super built-up area without raising any objection to invoices; thus no prior dispute was communicated.
  • The Respondent failed to reply to the statutory demand notice under Section 8 and did not give a notice of dispute; this absence demonstrates lack of a bona fide or plausible pre-existing dispute.

Respondent's Arguments

  • The Respondent contended that a plausible pre-existing dispute existed prior to the demand notice concerning calculation of rent — specifically that rent should be calculated on the basis of carpet area (which is smaller than super built-up area).
  • To support existence of a dispute, the Respondent relied on: (a) an Appellant's letter dated 4 September 2017 addressed to the Urban Development Department, (b) rent receipts issued by the Appellant after June 2017, and (c) an inspection report ordered by the Executive Magistrate.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
M/S. Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407 Explains the scope of Section 8 and Section 9 procedures under the I&B Code and contrasts the scheme of Section 7 with Section 8 (requirement of demand notice and opportunity to raise dispute). The Court relied on the principle that Section 8 requires delivery of a demand notice and that the existence of a dispute prior to receipt of the notice removes the matter from the Code's scope; this contextual principle guided examination of whether a pre-existing dispute existed.
Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 Holds that if notice of dispute has been received or there is a record of dispute, the adjudicating authority must reject a Section 9 application; the authority must determine whether a plausible contention exists that requires further investigation and must reject spurious defences, without finally adjudicating merits. The Court applied the Mobilox test: it examined whether the Respondent's contention amounted to a plausible, non-spurious pre-existing dispute. Finding the Respondent's case to be inconsistent with the written agreement and antecedent conduct, the Court held that the Adjudicating Authority misapplied this principle in rejecting the Section 9 application.

Court's Reasoning and Analysis

The Court proceeded by examining the contractual document and the parties' conduct against the tests distilled from the cited precedents (notably Mobilox and Innoventive). The salient steps in the Court's analysis were:

  1. Status and governing document: The Court noted that the parties' status as Operational Creditor and Corporate Debtor and the existence and validity of the Leave and License Agreement (dated 1 January 2016) were not disputed before either the Adjudicating Authority or the Appellate Tribunal.
  2. Contractual clarity: The Agreement unambiguously provided that the license fee was to be calculated on the basis of the super built-up area at Rs. 88 per sq. ft. per month. The Respondent had inspected the premises before executing the Agreement and agreed to these terms.
  3. Conduct of parties: The Respondent paid license fee from January 2016 to November 2016 at the agreed super built-up area rate without raising objections to the invoices. The Court treated this antecedent conduct as powerful evidence against the claim of a prior dispute.
  4. Mode of dispute resolution in contract: Clause 30 provided for arbitration before a named arbitrator for any dispute arising under the contract. The Respondent never initiated arbitration in respect of the area/rent calculation as contractually agreed.
  5. Quality of the alleged dispute: Applying Mobilox, the Court evaluated whether the Respondent's assertion of a pre-existing dispute was a plausible contention that required further investigation or merely a spurious defence. The Court concluded that the contention — that rent should be calculated on carpet area or that an oral agreement existed to that effect — conflicted with the written agreement and the Respondent's prior conduct, making it hollow and unacceptable as a pre-existing dispute.
  6. Adjudicating Authority's error: While the Court recognized that the Adjudicating Authority should not undertake a roving inquiry, it may sift material to "separate the grain from the chaff." The Court found that the Adjudicating Authority relied on irrelevant documents and erred in concluding there was a pre-existing dispute. In particular, the Adjudicating Authority failed to notice that the Respondent had not pursued contractual arbitration or replied to the demand notice to put the Appellant on notice of any dispute.
  7. Conclusion of analysis: On the basis of the unambiguous contractual provision, the Respondent's inspection and payment history, the arbitration clause, and the absence of a notice of dispute in response to the demand notice, the Court determined that the alleged pre-existing dispute was not a legitimate bar to initiation of CIRP under Section 9.

Holding and Implications

Core Ruling: Appeal Allowed; Impugned Order Set Aside.

Direct consequences and instructions:

  • The appellate court set aside the Adjudicating Authority's order of 23 July 2018 that had rejected the Section 9 application.
  • The matter was remitted to the Adjudicating Authority with a direction that, since debt and default were established, the Adjudicating Authority shall admit the application under Section 9 of the I&B Code after providing an opportunity to the Respondent Corporate Debtor to settle the Appellant's claim, if it so chooses.
  • There was no order as to costs.

Broader implications: The opinion applies established principles from Innoventive and Mobilox concerning when a pre-existing dispute bars initiation of CIRP; the decision enforces the threshold standard that a dispute must be a plausible, non-spurious contention supported by evidence. The opinion does not purport to lay down a new precedent beyond applying those principles to the facts of this case.

Show full summary ...
To access the original judgment, please Sign In or Subscribe.

    Sarla Tantia v. Ramaanil Hotels & Resorts Pvt. Ltd. And Another

    BANSI LAL BHAT, J. Appellant, claiming to be an Operational Creditor provided a portion of third floor of her premises No. DD-30, Salt Lake City, Kolkata measuring 2281 sq.ft. super built area to Respondent in terms of Leave and License Agreement executed inter-se the parties on 1st January, 2016 for a period of nine years for license fee of Rs.88 per sq.ft. per month calculated on the basis of super built area. The licensed premises was permitted to be used by the licensee (Respondent-Corporate Debtor) for carrying on business of restaurant under the name and style of Ramaanil Hotels & Resorts Pvt. Ltd. after the same was inspected by the Respondent as stipulated in the Leave and License Agreement spread over page nos. 65 to 76 of the paper book. The Respondent Corporate Debtor having defaulted in payment of rent with arrears together with interest calculated at Rs.40,96,295/- till 31st December, 2017, demand notice in terms of Section 8 (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as I&B Code) was issued by the Appellant Operational Creditor on 1st January, 2018 and served upon the Respondent Corporate Debtor on 2nd January, 2018. Respondent did not respond to the same. The Appellant filed an application in the prescribed format under Section 9 of the I&B Code before the Company Appeal (AT) (Insolvency) No. 513 of 2018 Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata for triggering of Corporate Insolvency Resolution Process against the Respondent Corporate Debtor. However, the application came to be rejected in terms of impugned order dated 23rd July, 2018 passed by the Adjudicating Authority on the ground that the Respondent Corporate Debtor established that there was a pre-existing dispute in regard to rate of rent on the basis of carpet area and without settling the dispute it could not be held that the adhoc amount paid by the Respondent - Corporate Debtor was towards discharge of entire liability of the rent arrears. Aggrieved by the aforesaid order of rejection, the Appellant Operational Creditor has filed the instant appeal assailing the impugned order on various grounds set out in the memo of appeal, which shall be adverted to hereinafter.

    2. The factum of the licensed premises having been provided by the Appellant to Respondent on leave and license basis w.e.f. 1st January, 2016 for space measuring about 2281 sq. ft. super built area on 3rd Floor (southern portion) of the premises no. DD-30, Salt Lake City, Kolkata in terms of Leave and License Agreement executed between the parties on 1st January, 2016 on the agreed license fees for a period of nine years has not been in controversy before the Adjudicating Authority. Even before this Appellate Tribunal factum and validity of the aforesaid Leave and License Agreement is not in controversy. The only issue raised by the Respondent Corporate Debtor is in regard to existence of a prior dispute disentitling the Appellant to trigger Corporate Insolvency Resolution Process. Appellants Company Appeal (AT) (Insolvency) No. 513 of 2018 case is that the said license was granted in consideration of license fee of Rs.88 per sq. ft. per month calculated on the basis of super built up area of 2281 sq. ft. and in terms of the Leave and License Agreement governing relations inter-se the parties, the Respondent Corporate Debtor was under a legal obligation to pay monthly license fee of Rs.2,00,728/- calculated on the aforestated basis. In this regard, reference is made to clause 2 of the Leave and License Agreement which reads as under:- The license fee of the licensed premises had been agreed to be paid by the licensee @ Rs.88/- (Rupees Eighty Eight Only) per sq. ft. per month to be calculated on super built up area, and all other Municipal rates and taxes, service tax and all other statutory liabilities as applicable will be payable extra. All payment shall be made by A/c. payee cheque only.

    3. It is contended on behalf of the Appellant that the Respondent paid the license fee in respect of the licensed premises from January, 2016 to November, 2016 at the agreed rate calculated on the basis of super built up area of 2281 sq. ft. on the basis of invoices raised by the Appellant without demur and no dispute was ever raised by the Respondent regarding the said invoices and payments made during the aforesaid period. It is further contended that the Respondent even did not choose to reply the demand Company Appeal (AT) (Insolvency) No. 513 of 2018 notice served upon it by the Appellant and failed to give a notice of dispute which clearly demonstrates lack of bonafide and plausible dispute.

    4. Per contra learned counsel for Respondent contended that there was ample evidence to indicate the existence of a plausible dispute between the parties prior to issuance of demand notice. Reference is made to Appellants letter dated 4th September, 2017 addressed to Urban Development Department, rent receipts issued by the Appellant after June, 2017 and inspection report ordered by Executive Magistrate to buttress the point that a prior dispute existed between the parties with regard to calculation of rent on the basis of area of the premises.

    5. Heard learned counsel for the parties and fathomed through the depths of the factual matrix as emerging from record.

    6. Initiation of Corporate Insolvency Resolution Process at the instance of an Operational Creditor is provided for under the provision engrafted in Section 9 of the I&B Code, whereunder an Operational Creditor may file an application before the Adjudicating Authority for initiating a Corporate Insolvency Resolution Process after complying with the statutory requirements of Section 8. Dwelling on the scope of this provision in M/S. Innoventive Industries Ltd. v. Icici Bank & Anr. S, (2018) 1 SCC 407, the Honble Apex Court observed as under: Company Appeal (AT) (Insolvency) No. 513 of 2018

    29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existingi.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. In a later judgment titled in Mobilox Innovations Private Limited v. Kirusa Software Private Limited ., (2018) 1 SCC 353, the Honble Apex Court further observed as under:-

    51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in Company Appeal (AT) (Insolvency) No. 513 of 2018 the information utility. It is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.

    7. Adverting to the facts of the case in hand be it seen that the status of parties respectively as Operational Creditor and Corporate Debtor was neither in issue before the Adjudicating Authority nor has the same been disputed before this Appellate Tribunal. It is also not disputed that the relations inter-se the parties in regard to the licensed premises are governed Company Appeal (AT) (Insolvency) No. 513 of 2018 by the Leave and License Agreement which stipulates in unambiguous terms that the license fee @ Rs.88 per sq. ft. per month shall be calculated on the basis of super built up area. Municipal Taxes, Service Tax and other statutory liabilities as applicable will be payable in addition thereto. The stipulations in the aforesaid agreement do not admit of any ambiguity in so far as calculation of license fee on the basis of super built up area is concerned. The aforesaid agreement also brings it to fore that the Respondent had inspected the licensed premises before execution of the aforesaid agreement and agreed to pay the license fee on aforesaid terms. The licensed premises comprising of approximately 2281 sq. ft. was marked and duly inspected by the Respondent before execution of Leave and License Agreement. Clause 30 of the aforesaid agreement provided that in the event of any dispute or difference arising between the parties the same shall be referred to sole arbitration of Mr. Sanjay Kumar Vaid, Advocate Kolkata. It is manifestly clear that the Respondent was sufficiently clear about the area of the licensed premises, which specifically provided for calculation of license fee on the basis of super built up area. It was therefore absurd on the part of Respondent to question calculation of license fee in the aforesaid manner, that too after acting upon the aforesaid agreement by effecting payment of license fee from January, 2016 to November, 2016 without raising any objection or disputing the invoices raised in regard to license fee payable for the aforesaid period. The conduct of Respondent antecedent to the execution of Leave and License Agreement as also subsequent conduct in paying the license fee at the agreed terms on the basis of super built up Company Appeal (AT) (Insolvency) No. 513 of 2018 area speaks volumes about the hollowness of the plea raised on behalf of Respondent that the Respondent was under obligation to pay rent on the basis of carpet area which, on the face of it, is fallacious.

    8. The Adjudicating Authority was not supposed to conduct a roving enquiry though it could have been within its rights to go for a limited exercise of sifting the material available before it for separating the grain from the chaff and to reject the spurious defense. The contractual relations inter-se the parties which are governed by the Leave and License Agreement do not admit of any oral agreement contrary to stipulations therein. Thus viewed, the defense raised by the Respondent that the adhoc amount was paid on the basis of reduced carpet area of the licensed premises or that the oral agreement running parallel to the Leave and License Agreement enjoined upon the Respondent to pay rent on the basis of carpet area, which was less as compared to the super built up area, was a mere moonshine and could not be entertained as a pre-existing dispute to defeat initiation of Corporate Insolvency Resolution Process. The Adjudicating Authority has clearly landed in error in rejecting the Appellants version that the license fee was fixed for super built up area and not for carpet area as clearly stipulated in the Leave and License Agreement and the Appellant was under no obligation to reduce the rent. Reliance on irrelevant documents in coming to conclusion that there was a pre-existing dispute was uncalled for. The Adjudicating Authority also failed to notice that the Respondent never sought settlement of any dispute in regard to calculation of rent on carpet -10- Company Appeal (AT) (Insolvency) No. 513 of 2018 area basis through arbitration which was the agreed mode of resolution of dispute between the parties in terms of the Leave and License Agreement. Significantly, no dispute was raised by the Respondent in reply to demand notice to which he did not at all respond.

    9. Having regard for the factual matrix of the matter and the settled law on the subject, we are of the considered opinion that the impugned order suffers from serious legal infirmity and the same cannot be supported. A well merited case has been thrown out resulting in grave injustice. We accordingly, allow the appeal and set aside the impugned order. Since the debt and default is established, the Adjudicating Authority will admit the application under Section 9 of I&B Code after providing an opportunity to the Respondent Corporate Debtor to settle the claim of Appellant, if it so chooses.

    10. The appeal is accordingly allowed. There shall be no order as to costs. [Justice S. J. Mukhopadhaya] [Justice Bansi Lal Bhat] Chairperson Member (Judicial) NEW DELHI 26th February, 2019

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Sarla Tantia v. Ramaanil Hotels & Resorts Pvt. Ltd. And Another
    (Feb 26, 2019)