Case Law Details
Anup Sushil Dubey Vs National Agriculture Co-operative Marketing Federation of India Ltd. (NCLAT)
Conclusion: Lease rentals arising out of use and occupation of a cold storage unit which was for Commercial Purpose was an ‘Operational Debt’ as envisaged under Section 5 (21) of the Code.
Held: National Agriculture Co-operative Marketing Federation of India (NAFED)/Operational Creditor and the Corporate Debtor entered into a Leave and Licence Agreement for the usage of cold storage facilities for a period of three years. Agreement provides for the payment of licence fee payable on the 7th day of every calendar month with an increase of 10% in the monthly licence fee on or after the expiry of 12 months. As per clause of the agreement, in case of default in payment of any monthly licence fee, the Corporate Debtor would be liable to pay an interest @ 21% p.a. for the delayed period. NAFED stated that the Corporate Debtor defaulted in the payment of monthly rentals from September 2017 onwards and an outstanding amount of Rs. 2,14,14,560/- was due and payable together with interest, electricity and water charges. It also stated that the Corporate Debtor acknowledged and confirmed the ‘outstanding debt’, but despite several reminders and also issuance of eviction notice, the Corporate Debtor failed to make the necessary payments. Hence a Demand Notice under Section 8, was issued demanding payment which was stated to be due from September, 2017 onwards. The Corporate Debtor denied all the claims and sought for renewal of the Leave and Licence Agreement. The issue arose for consideration was whether dues, if any, arising from the ‘Leave and Licence Agreement’ was construed as an ‘Operational Debt’ and whether there was any ‘Pre-Existing Dispute’ prior to the issuance of the Demand Notice. It was held that the premises in the case on hand was leased out for ‘Commercial Purpose’, the cold storage owner/NAFED on collection was required to pay ‘service tax’ which was reflected in the tax invoices and ‘Ledger Accounts’ which was part of the record filed. Further, with regard to issue number second, it was noted that though the Agreement was terminated, yet the Corporate Debtor continued to be in possession of the said storage facility and even sought an extension for a further period of 2 years. Hence, Tribunal stated that ‘Debt’ was ‘ due and payable’. The subject lease rentals arising out of use and occupation of a cold storage unit which was for Commercial Purpose was an ‘Operational Debt’ as envisaged under Section 5 (21) of the Code. Applying the test of ‘existence of a dispute’ it was evident that a dispute did not truly exist in fact between the Parties and, therefore, Tribunal held that the communication on record specifically the letter dated 19.09.2018, addressed by appellant themselves prior to the issuance of the demand notice clearly established that there was a ‘Debt due and payable’ and there was no ‘Pre-Existing Dispute’. Thus, Tribunal held that there was no illegality or infirmity in the Impugned Order of the ‘Adjudicating Authority’ in admitting the Application.
FULL TEXT OF ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL
1. Challenge in this Company Appeal is to the Order dated 20.12.2019, passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Mumbai Bench), by which Order, the ‘Adjudicating Authority’ has admitted the Application filed by M/s. National Agriculture Co-operative Marketing Federation of India Ltd. (herein after referred to as ‘NAFED’), the Operational Creditor against Umarai Worldwide Private Limited, the ‘Corporate Debtor’.
2. Briefly put, the facts relevant to the case are that NAFED/Operational Creditor and the Corporate Debtor entered into a Leave and Licence Agreement for the usage of cold storage facilities on 01.10.2015, for a period of three years. The Agreement provides for the payment of licence fee of Rs. 9,31,000/- payable on the 7th day of every calendar month with an increase of 10% in the monthly licence fee on or after the expiry of 12 months. As per Clause 1.14 of the said Agreement, in case of default in payment of any monthly licence fee, the Corporate Debtor would be liable to pay an interest @ 21% p.a. for the delayed period. It is stated by the First Respondent that the Corporate Debtor defaulted in the payment of monthly rentals from September 2017 onwards and an outstanding amount of Rs. 2,14,14,560/- is due and payable together with interest, electricity and water charges. It is the case of First Respondent/NAFED that the Corporate Debtor acknowledged and confirmed the ‘outstanding debt’ vide its letters dated 01.06.2017 and 26.02.2018, but despite several reminders and also issuance of eviction notice on 24.05.2018, the Corporate Debtor failed to make the necessary payments.
Hence a Demand Notice dated 26.09.2018 in Form 3 under Section 8 of I&B Code 2016, was issued demanding payment of Rs. 1,83,45,278/- which is stated to be due from September, 2017 onwards. The Corporate Debtor in their reply dated 10.11.2018, denied all the claims and sought for renewal of the Leave and Licence Agreement.
3. While admitting the Section 9 Application, the ‘Adjudicating Authority’ observed as follows;
“6. The Counsel for the Petitioner submits that the Corporate Debtor also issued several cheques in discharge of the outstanding liabilities towards the Petitioner, but the cheques got dishonored on presentation. Thus, the Petitioner had also initiated the criminal prosecution against the Corporate Debtor under Section 138 of Negotiable Instruments Act, 1881 for one such cheque and same is pending before the concerned court at Mumbai.
7. The Counsel for the Petitioner submits that the Corporate Debtor was served with the Petition and date of hearing was also intimated to him by the Petitioner. Despite the receipt of notice, the Corporate Debtor did not appear for the hearing on 10.10.2019. The Counsel for the Petitioner was heard and the matter was reserved for orders.
8. The Petitioner has issued several invoices towards the payment of monthly licence fee as agreed under the Leave & Licence Agreement and the same remained unpaid. The Corporate Debtor vide letter dated 26.02.2018 has confirmed to release the outstanding dues for rent of two months and vide earlier letter dated 01.06.2017, the Corporate Debtor confirmed to clear the outstanding dues of rent, electricity and penalties. The Leave and Licence Agreement executed between the Petitioner and the Corporate Debtor entitles the Petitioner to claim the licence fee and other charges from the Corporate Debtor. Therefore, there is a clear debt established by the said agreement and the Corporate Debtor has defaulted in payment of such dues and therefore, the Corporate Debtor is in breach of the contractual obligations under the Leave and Licence Agreement. Hence, the Petition deserves to be admitted.”
4. Learned Counsel appearing for the Appellant vehemently argued that the ‘Adjudicating Authority’ had passed an ‘Ex-Parte Order’ without giving it a sufficient opportunity to be heard. She submitted that criminal proceedings were initiated against the Appellant due to which the Appellant was in custody at the time of initiation of Section 9 proceedings and though efforts were made to follow up with the matter, the case status on NCLT website displayed a single date and, therefore, it was not possible for the Appellant to have knowledge of the proceedings. She, further, submitted that it was only on 07.01.2020, that the Advocate who had filed the Reply to the Demand Notice, informed the Appellant that he had received notices informing about the proceedings but due to lack of instructions, did not enter appearance.
5. Learned Counsel appearing for the Appellant, further, contended that the alleged ‘Debt in Default’ as per Demand Notice is for the period September 2017 to October 2018, which is subsequent to the termination of the Agreement; that the ‘Adjudicating Authority’ relied on letters dated 01.06.2017 and 26.02.2018, which is with respect to two outstanding months prior to termination and pertains to a different time period and hence, cannot be construed as ‘Debt in Default’; that letters dated 11.09.2017, in Reply to the termination notice dated 23.08.2017, and letter dated 15.09.2017, explicitly state that no dues are payable from October 2017 onwards and vehemently contended that letters dated 23.08.2017, 11.09.2017, 15.09.2017, 15.02.2018, 19.09.2018 and 10.11.2019, show a ‘Pre-Existing Dispute’ which was suppressed by the First Respondent and, therefore, the Admission of the Application is erroneous.
6. Learned Counsel for the Appellant contended that the Agreement entered into with NAFED is a Leave and Licence Agreement and rentals on immovable property does not amount to ‘Operational Debt’ as defined under Section 5 (21) of the I&B Code and the same was observed by this Tribunal in Ravindranath Reddy V/s. G Kishan, [Company Appeal (AT) (Ins) No. 331 of 2019]. The Learned Counsel also argued that the ‘Adjudicating Authority’ had failed to acknowledge the difference in the amount demanded in the Demand Notice i.e. Rs. 1,83,45,278/- and the amount claimed in Form 5, which is Rs. 2,14,14,559.03/- and that there is a security deposit of approximately Rs. 27.93/- Lakhs and another Rs. 10 Lakhs towards electricity security which was not adjusted by NAFED towards dues if any.
7. Learned Counsel appearing for the First Respondent argued that the Appeal was barred by ‘Limitation’ as it was filed beyond the prescribed period of 30 days without filing any Application seeking condonation; that the Demand Notice dated 26.09.2018 was issued under Section 8 of the Code to the Corporate Debtor alongwith all the relevant ‘Invoices’ and ‘Debit Notes’, but the Demand Notice was not replied to within the statutory period provided under Section 8(2) of the Code and it was replied to only on 10.11.2019, raising frivolous objections; that there is no evidence of any ‘Pre-Existing Dispute’ provided by the Corporate Debtor in their Reply to the Demand Notice; the Appellant undertook to clear the entire outstanding amount owed to NAFED under the condition that the Agreement would be extended by a further period of two years; that the quantum of the outstanding amount was ascertained by the Resolution Professional subsequent to the receipt of claims and the claims so admitted, amounted to Rs. 2.64/- Crores; that receiving any consideration by way of licence fee falls within the purview of providing services and falls within the definition of ‘Operational Debt’ held by this Tribunal in Sarla Tantia V/s. Nadia Healthcare Pvt. Ltd. [Company Appeal (AT) (Ins) No. 513 of 2018] and also in Jindal Steel and Power Pvt. Ltd. V/s. DCM International Ltd. [Company Appeal (AT) (Ins) 288 of 2017] and that the Hon’ble Apex Court in Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited (2018) 1 SCC 353, noted that any consideration by way of rent, Leave and Licence, while letting out premises would fall within the ambit of Section 5(21) of the Code and, therefore, since, there is an existence of ‘Debt and Default’, there is no evidence of any ‘Pre-Existing Dispute’ and the sum is higher than the stipulated threshold for initiating ‘CIRP process’, the ‘Adjudicating Authority’ had rightly admitted the Application.
8. This Tribunal finds force in the submission made by the Learned Counsel for the Appellant, that the Appellant was in custody during that period and hence, the minimal delay of 9 days ought to be condoned. Keeping in view, that the said delay of 9 days falls within the 15 days period as per Section 61 (2) of the Code whereby and whereunder this Appellate Tribunal is endowed with the Judicial discretion to condone the delay, there being a sufficient cause in this regard for not filling the Appeal in time, in the interest of justice, on being subjectively satisfied, the delay of 9 days is condoned even in the absence of a formal Application being filed thereto.
9. At the outset, this Tribunal addresses itself to the contention of the Learned Counsel for the Appellant that the ‘Adjudicating Authority’ ought not to have passed an ‘Ex-Parte Order’ without giving it sufficient opportunity to be heard. It is seen from the record that letters dated 15.07.2019 and 18.09.2019, were received by the Advocate for the Corporate Debtor which establish that the Corporate Debtor was aware of the proceedings. The contention of the Learned Counsel appearing for the Appellant that the Appellant was released from custody only in August 2019 and, therefore, was not aware of the proceedings, is not tenable as the notice issued to the Appellant by the ‘Adjudicating Authority’ on 18.09.2019, regarding the matter being taken up for hearing, was subsequent to the release date of the Appellant. Further, the Impugned Order is dated 21.01.2020, which is more than four months after the release date. Additionally, the Corporate Debtor is a Private Limited Company and it cannot be stated that it could not have been represented by any other person merely because the Director of the Corporate Debtor Company, was in custody. Therefore, this Tribunal is of the considered view that sufficient opportunity was very much available for the Appellant to have appeared before the ‘Adjudicating Authority’, but despite service of notice did not choose to do so.
10. Heard both sides at length. The main issues which fall for consideration in this Appeal are;
(a) Whether dues, if any, arising from the ‘Leave and Licence Agreement’ is construed as an ‘Operational Debt’?
(b) Whether there is any ‘Pre-Existing Dispute’ prior to the issuance of the Demand Notice?
11. In order to prove a ‘Debt’ as an ‘Operational Debt’ the criteria that needs to be met is as follows;
(a) Claim in respect of provisions for goods and services
(b) Employment or debt in respect of dues and
(c) Such repayment of dues which should arise under any law in force at that time.
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