Jaipur Trade Expocentre Pvt. Ltd. v. M/s Metro Jet Airways Training Pvt. Ltd.

1" This Application has been filed under Section 9 of the Insolvency and Bankruptcy code ('IBC'), 2016 read with Rule-6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Jaipur Trade Expocentre private Limited ('Appricant,) claiming to be an operational Creditor with a prayer for initiation of Corporate Insolvency Resolution Process against IWs Metro Jet Airways Training pvt. Ltd. ('Respondent'). This Application is filed through Mr. Sandeep Kum ar, an Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training h/t. Ltd. Authorised Representative of the Applicant, authorised vide Board Resolution dated 10.03.2019. The Applicant is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 on 09.l}.2}}3,duly registered with Registrar of companies, Delhi with cIN: u74gggDL2003pT c122557 and the Registered office of the Applicant is at I-g3 B, Second Floor, Lajpat Nagar-II, New Delhi (ltOO24). The Respondent is a Private Limited Company incorporated under the provisions of companies Act, 1956 on 04.0g .2006, duly registered with Registrar of companies, Jaipur with cIN: U80302RI2006PTCO22IO6 and the Registered office of the Respondent is at lo2-103, Gopalpura Bypass, near Trivani Nagar chouraha, Jaipur (30201g). The Respondentl corporate Debtor is in the business of running an education institution" The aounsel for the Applicant states that the Respondent had executed a License Agreement dated 15.04.2017 with the Applicant. It was agreed between the parties that the Respondent would use the Applicant,s land situated at SP-10, Sitapura Industrial Area, phase 4 Jaipur -3o2oz2,for the term of 5 years from 0r.06.201 7 to 3r.05.2022, for the pu{pose of running an educational establishment. The Respondent had agreed to pay monthry license fee of Rs- 4,00,000/- in advance on or before 7h day of each month. Jaipur Trade Export Centre hrt. Ltd. Versus IWs Metro Jet Airways Training h/t. Ltd. 4The minimum lock-in of the said agreement was of 24 months. At the time of execution of the said agreement, the Respondent made an initial payment of Rs. 8,00,000/- as security deposit and thereafter had made a payment of Rs' 5,00,000/- each on 08. lI.2Ol7 and 22.t1.2017 towards license fee" 5' It is submitted by the Applicant that the Respondent has issued two cheques of Rs. 20,00,0001- each bearing No. 090494 and OgO4gS dated 07.05"201g and 08'10'2018 respectively. The said cheques, upon presentation, were dishonoured and returned unpaid with the remark "funds insufficient,, and "account blocked" respectively. Consequently, the Applicant had filed a complaint under Section 138 of the Negotiable Instruments Act, lggl with CC No" 7255118 before the Hon'ble District Court Saket, where due to non- appearance of Respondent, bailable warrant has been issued against the concerned person(s) of the Respondent/ corporate Debtor" 6" The Applicant had sent various reminders to make the due payment but all went in vain. Thus, the Applicant had issued Demand Notice dated 03'05'2019 under Section 8 of IBC, 2ol6,which was duly received by the Respondent through post. The tracking report as proof of service of the said Section 8 notice is annexed. The Respondent has neither replied to, nor raised any dispute on the unpaid operational debt as stated in the demand notice. Thus, the Applicant filed the present Application under Section 9 of the Insolvency and Bankruptcy Code, 20t6. Jaipur Trade Export Centre pW. Ltd. Versus IWs Metro Jet Airways Training h/t. Ltd.

57. The total amount claimed by the Applicant as mentioned in part IV of Form

5 is a sum of Rs" 1,31 ,20,7881- including interest as an outstanding amount which is due and payable by the Respondent as described below: 8" The Respondent has filed reply on 11 .Og.2}lg and raised a preliminary objection that the Applicant is not an Operational Creditor within meaning of IBC, 2016 and hence has no locus to fiIe the present Application. The Respondent further submits that the claim of the Applicant is based on licensee fee and not in respect of any goods or services and thus the claim of the Applicant does not fall within the definition of "Operational Debt,, as defined under Section 5 (21) of the IBC, 2016. The Respondent submits that Jaipur Trade Export Centre Pvt. Ltd. Versus lv{/s Metro Jet Airways Training pW. Ltd. PART IV Particulars of Operational Debt Total amount ofdebt, detaits of transactions on account of which debt fell due, and the date from which such debt fell due. Rs. 1,31,20,7881- Amount claimed to be in default and the date on which the default occurred Rs. 87,44,000/- + Taxes alongwith interest @ 2Yo per month compounded monthly calculated from l't day of each month for which the license fee is outstanding calculated upto 02.05.20L9 amounting to Rs. 26,22,8681-. Total claim being Rs. I ,31,20,7881-. Date of default : 0l .06.2017 6it had issued legal notice dated 23.04.2019 to the Applicant to perform his obligation as agreed while executing the license agreement. The Respondent had also filed injunction application on 09.05.2019 under Order 39 Rule 1 and2 read with Section 151 of the Code of Civil Procedure, 1998 against the Applicant before CJM, Court-26, Sanganer registered at 14412019 in regard to the subject matter in the present application and the Applicant had also filed reply in the said injunction suit. The Respondent further submits that it has lodged FIR bearing No" 73712019 against the Applicant for which investigation is pending till date. Thus, it is submitted by Respondent that there is a pre-existence of dispute" 9' It is also submitted by the Respondent that the alleged cheques were issued for the purpose of security deposit and on the assurance of the Applicant to complete the repair installation work in the licensed premises but such obligation was never fulfilled by the Applicant.

1 0 ' The Applicant has filed rej oinder dated 19 .Og .2019 and submits that in terms of Section 2 (a) & 2 (b) of the Central Goods and Services Tax, 2Ol7,lease, tenancy, license of any land or building including commercial complex for business is a supply of service. Therefore, the licensing out of premises for permissive use by the Respondent amounts to service and such license fee constitutes an Operational Debt and the licensor is an Operational Creditor. The Applicant submits that the legal notice as alleged by the Respondent has Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training A/t. Ltd. never been served upon him and the Respondent has not placed on record any proofthat the said legal notice has been duly served. Thus, the averments of the Respondent regarding pre-existence of dispute are false. It is further submitted by the Applicant that the civil proceeding initiated by the Respondent has no bearing on the present Application as the suit is based on false and concocted narations and also no interim order, as sought for, granted by the court. The said civil suit has been filed on Og.o5.2ol9 and the statutory demand notice was seryed upon the Respondent on 07.05.2019. Therefore, the same is merely an afterthought and is not a pre-existing dispute. The Respondent has filed an affidavit and copy of email dated 29.04.2019 to establish that the service of the legal notice was duly made through email too; and also annexed a copy of the order dated 23.og.2olg of Additional Civil Court, Jaipur. In the said order, the Additional Civil Courr, Jaipur had passed an order of temporary injunction and prohibited the Applicant herein from taking any legal action or forcibly evicting the Respondent herein from the rented premises and also not to obstruct the Respondent herein in the use of the premises. The Applicant has filed the reply to the above said affidavit and submits that the alleged email dated 29.04.2019 produced by the Respondent reveals that Jaipur Trade Export Centre pW. Ltd. Versus IWs Metro Jet Airways Training hlt. Ltd. the email is neither issued by the Respondent or any of its director or person in management. Also, the email contains nothing in the body. Such emails from random email address are usually sent to spam and not received by the recipient. Thus, no such email was received by the Applicant. It is also submitted that the order passed by the Sanganer Court was for an application fortemporary injunction regarding eviction and has no bearing on the presenr proceeding as the claim of license fee is neither raised nor dealt with by the Sanganer court" Therefore, the said order has no bearing on the present proceeding. The Applicant has filed written arguments and stated that as per clause lc of the License Agreement, the Respondent has no claim against the Applicant and any or all complaints with respect to the demised property under the Licence Agreement have been sorted out before signing of the Agreement. The Applicant fuither states that the Applicant is a service provider as against a specified Licence Fee as it provides permission to the respondent to use a portion of its premises only forthe purposes of an educational establishment. The Applicant relied the on the judgement of the Hon'ble Supreme Court in the case of Mobilox rnnovations pvt. Ltd. v/s Kiruso software (p) Ltd" reported in (2018) 1 SCC 353, wherein the Hon'ble Supreme Court extracted Paragraph 5-2-2 of the Report of the Bankruptcy Law Reforms Committee, which is reproduced as follows: ,/ , \W Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training h/t. Ltd. "Operational creditors are those whose liabilityfrom the entity comes fro* a transaction on operations. Thus, the wholesale vendor of spare parts whose sparkprugs are kept in inventory by the car mechanic and who gets paid onry after the spark prugs are sold is an operationol creditor" Similarly, the lessor that the entity rents out space from is an operationar 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 transaction as well as an operational transaction with the entity. In such a cQSe' the creditor can be considered afinancial creditor to the extent of the /inancial debt and an operational creditor to the extent of the operational debt.,, 15" The Applicant has also referred the Hon'ble Supreme Court judgement in the case of c.M. Beena v/s p. N. Ramachandra Rao (2004) 3 scc sgs, wherein the Hon'ble Supreme Court discussed the difference between the Lease and Licence as follows: " Generally speabing, the dffirence between o,rease, and,ricence, is to be determined byfinding out the rear intention of the parties as decipherabre m a comprete reading of the document, ,f any, executed between the parties and the surrounding circumstances" only a right to use the property in a particurar way or Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training hrr. Ltd. certain terms given to the occupant while the owner retains the control or possession over the premises results in a licence being created; for the owner retains legal possession while all that the licensee gets is a permission to use the premises fo, o particular purpose or in a particular manner and but for the permission so given the occupation would have been unlawful",, 16' Further in order to establish that there is no existence of dispute the Applicant has relied on para 40 of the Hon'ble Supreme Court in the case of Mobilox rnnovations (p) ltd. v/s Kirusa software (p) Ltd. (supra), which is as follows: "40. It is clear, therefore, that once the operotional creditor has Jiled an application, which is otherwise complete, the adjudicating authority must reject the application under section g(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in 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.,,

17 ' The Respondent has also filed its arguments and submits that the Hon,ble Supreme Court in the matter of Mobilox fnnovulions private Ltd. versus Kirusa Software Pvt Ltd. (supra) had only reproduced the report of the Jaipur Trade Export Centre p\4. Ltd. Versus lWs Metro Jet Airways Training hit. Ltd. Committee with respect to the arrears ofrent in nature of operational creditor and not recorded any observation / finding on it.

18. The Respondent has relied on the foltowing orders in support of contention that the non- payment of licence fee does not fall within purview of Section 5 (21) of the Code: a. The order of Hon'ble National company Law Appellant Tribunal in the matter of Jindal Steel & Power Ltd. versus DCM International Ltd. in cA @D (nsolvency) No. 2gg of 2017, datedzg.lt.2ot7. b. The order of Hon'ble National company Law Tribunal, New Delhi Bench in the matter of Mrs parmod yadav and ors. versus Divine Infracon (P.) Ltd. in IB No. 209/ND/2017, dated2g.og.2ot7. c. The order of Hon'ble National company Law Tribunal, Guwahati Bench in the matter of Aurora Accessories (p.) Ltd. versus Ace Acoustics & Audio video sorutions (p.) Ltd, in cp (IB) No. I 5/GB/2 0 I 9, dated 09.08.20 I 9. d. The order of Hon'ble National company Law Tribunal, Hyderabad Bench in the matter of IuI/s Manjeera Retail Holding pvt. Ltd. versus IUI/s Blue Tree Hospitality pvt. Ltd., in cp (B) No. 6t/9/HDB/2L1g, dated 16.09.20t9.

19. Further in regard to .*irt.rrce of dispute the Respondent following citations: Jaipur Trade Export Centre pvt. Ltd. Versus lv{/s Metro Jet Airways Training hrt. Ltd. has relied on the The judgement of Hon'ble Supreme court of India in the matter of Mobilox Innovations (P) ltd. v/s Kirusa sofhuare (p) Ltd. (supra). The order of Hon'ble National company Law Appellant Tribunal in the matter of Girish surajmal chandak versus Nandlal Giridhar Popat in cA(AT) (Insolvency) No. 336/2019, dated o6.os.2otg. The order of Hon'ble National Company Law Appellant Tribunal in the matter of IuI/s Drulum India pvt. Ltd. versus ivl/s sharma Kalypso Pvt. Ltd. in GA(AT) (Insolvency) No. 351/201g, dated og.o7.2otg.

20. The learned counsel for the parties have placed detailed arguments" The preliminary question to be considered for discussion is: Whether the unpaid Licence Fee arising out of Licence Agreement with regard to immovable property falls under the definition of Operational Debt as defined under the provisions of the Insolvency and Banlcruptcy Code, 2016?

21. In order to answer the above question, it is necessary to go through the following definitions as provided under of Insolvency and Bankruptcy Code, 2016: Section 3 (6) ,?claim,, means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training hrt. Ltd. (b) right to remedyfor breach of contract under any law for the time being inforce, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; seclion 3 (11) "debt" means a liability or obligation in respect of a claim which is duefrom any person and includes afinancial debt and operational debt; section 3 (12) "defoultt' meens non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be; seclion 3 (10) "creditor" means qny person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder; section 5 (20) 'toperalionar creditor, meqns a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; section 5 (21) "operalionar debt,, means a claim in respect of the provision of goods or services incruding employment or a debt in Jaipur Trade Export Centre p\4. Ltd. Versus IvTs Metro Jet Airways Training h/L Ltd. respect ofthepayment of dues arisingunder any lawfor the time being in force and payable to the central Government, any state Government or any local authority;

22. Further in the matter of Mrs Pramod Yadav V/s Divine Infracon private Limited (supra), the National company Law Tribunal, New Delhi Bench has held in detail as follows (the effect of amendments in definitions with effect from 06.08.2018, as stated hereinbefore, has to be appropriately construed): Thus, for an amount to be classified as an "operational debt,, under IBC, 2016 a sort offiltration process is provided: Firstly, the amount should fall within the definition of ,,claim,, as defined under Section 3(6) of the code; Next such a Claim shouldfall within the confines of the definition of a "debt" as defined under section 3(l l) meaning it should be by way of a liability or obligation duefrom qny person; Thirdly such a "debt" should fall strictly within the scope of an "operational debt" as defined under section s(21) of the code, i.e., the claim should arise in respect of

(i) provision of soods or services incruding employment or / r tH+ Jaipur Trade Export Centre pvt. Ltd. Versus lWs Metro Jet Airways Training Art. Ltd.

(ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the central Government, any state. Government or any local authority, To sum up thus only if the claim by way of debt falls within one of the three categories as listed above can such a claim be categorized as an operational debt. In case tf the amount claimed does notfall under any of the categories mentioned as above, the claim cannot be categorized as an operational debt and even though there might be a tiability or obligation duefrom one person, namely corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorize itself as qn "operational creditor,, qs defined under section 5(21) of IBC, 2016 unless it is established that such goods or serttices has direct relationship to input-output operations of the corporate Debtor and hence disentitles such a person from maintaining an application for cIRp against the corporate debtor as an operational creditor. There seems to be some rationale in restricting only to Operational Creditors for Initiating a CIRP against a corporate Debtor other than a Financial creditor, Default committed to operational creditors in relation to payment of their debt definitely connotes that the corporate Debtor is not even in a position to service their dues and run the day to day operations of the corporate Debtor which is a clear pointer to its commercial Jaipur Trade Export Centre pvt. Ltd. Versus IWs Metro Jet Airways Training h/t. Ltd. insolvency waruanting the process of insolvency being initiated and restructuring process being put in place. Before proceeding further this Tribunal 'is refraining from going into the aspect where the immovable property in itself constitutes stock-in-trade of the corporate person and has a direct nexus to its input-output and being an integral part of the operation, In the instant case no such specific pleading to support such a contention has been placed on record by the petitioner, In fact even the Memorandum and Articles of Association of the Corporate Debtor has not beenfiledfro* which atleast the objectfor which the Corporate Debtor has been incorporated can be gathered, Thus, this Tribunal is of the view that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus cannotfall within the definition of operational debt,.