NCLAT dismisses appeal against NCLT judgment regarding rent of immoveable property

NCLAT dismisses appeal against NCLT judgment regarding rent of immoveable property

The Adjudicating Authority ruled that such rent does not fall under the 'operational debt' head

The National Company Law Appellate Tribunal(NCLAT) has dismissed the Appeal against the judgment of the National Company Law Tribunal (NCLT) Chandigarh Bench (Adjudicating Authority) which pertained to Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).

In this matter, the Appellant being a landlord had filed an Application under Section 9 of the IBC before the Adjudicating Authority which was dismissed and the judgment of this Tribunal in the matter of Mr. M. Ravindranath Reddy versus Mr G. Kishan&Ors. was relied upon wherein it was held that dues in the nature of rent of immoveable property do not fall under the head of Operational Debt as defined under Section 5 (21) of the IBC. The Adjudicating Authority further held that there was a pre-existing dispute.

The Appellant submitted that the finding of the Adjudicating Authority that there was a pre-existing dispute was baseless. It was also contended that the Corporate Debtor unilaterally stopped making payments of rent. The Appellant submitted that after the Judgment passed by this Tribunal in the matter of Mr. M. Ravindranath Reddy, another Bench of this Tribunal had in the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited &Ors held that when the space provided is for commercial purposes, the arrangement has to be treated as services considering the definitions as seen in the Consumer Protection Act and the Central Goods and Services Tax Act, 2017.

The Respondent opposed the submissions by pointing out the trail email dated 12 September, 2017, where the Appellant was informed that the lease deed had already been terminated due to change of circumstances. It was also contended that Section 8 of the Notice was sent and even if it was to be said that the rent was Operational Debt, it showed that there was a pre-existing dispute.

The main issue in this case was whether arrears of rent could be said to be Operational Debt.

The Appellate Tribunal observed that in the matter of Anup Shushil Dubey, there is reference to definition of "service" under the Consumer Protection Act, 2019 and "a list of activities" which are treated as the supply of goods or services under the Central Goods and Services Tax Act, 2017.

Referring to the same, in Paragraph 22 of the Judgment, the Hon'ble Bench in that matter concluded that lease rentals arising out of use and occupation of Cold Storage which was for commercial purposes were Operational Debt under Section 5 (21) of the Code. Thus, the Appellate Tribunal concluded that the Hon'ble Bench of this Tribunal had taken a different view in the Anup Shushil Dubey case

According to the Appellate Tribunal, the Consumer Protection Act, 2019 and the Central Goods and Services Tax Act, 2017 do not appear to have been covered under Section 3 (37) of the IBC and thus the definition of "Service" and "Activities" to be treated as supply of service cannot simply be lifted and applied in the IBC.

That the Learned Counsel for parties in the Anup Shushil Dubey case did not appear was brought to the Notice of the Bench. For these reasons, the Tribunal was unable to have a second look at the opinion arrived at in the Judgment in the matter of Mr. M. Ravindranath Reddy.

It was also stated that the Legislature was conscious regarding liabilities arising from lease but although for particular types of lease, as mentioned in section 5 (8) (d), the Legislature made specific provision to even make it Financial Debt, while dealing with Operational Debt, no such provision has been made.

Thus, even on the parameters of interpretation of statutes, the Appellate Tribunal was not in a position to hold that the rents due could be treated as Operational Debt. For reasons recorded in the matter of Mr. M. Ravindranath Reddy versus Mr G. Kishan&Ors., the Hon'ble NCLAT did not find fault with the Impugned Order.

Even if the Debt was said to be Operational Debt from the email dated 12th September, 2017 which was sent subsequent to the email dated 18th August, 2017, it was clear that the Corporate Debtor had referred to Financial Stress and terminated the lease which had a lock in period. Whether or not the said termination of lease was legal would be an issue of trial between the parties.

Thus, the Appellate Tribunal did not interfere with the findings of the Adjudicating Authority regarding Rent not to be Operational Debt, and opined that even if looked at in the alternative, there was a pre-existing dispute.