Supreme Court issues notice: Whether Non-Payment of Rent qualify as an Operational Debt under IBC

Supreme Court issues notice: Whether Non-Payment of Rent qualify as an Operational Debt under IBC

The Supreme Court bench of Justices Dr. DY Chandrachud, Indira Banerjee and Sanjiv Khanna issued notice in an appeal filed against an order passed by National Company Law Appellate Tribunal (NCLAT). The primary issue raised was whether the non-payment of rent would qualify as an operational debt within the meaning Section 5(21) of the Insolvency and Bankruptcy Code, 2016(IBC).

The brief background of the case was that the landlord filed the Application under Section 9 of Insolvency and Bankruptcy Code, 2016, which was dismissed by the Adjudicating Authority on ground that dues in the nature of rent of immovable property do not fall under the head of Operational Debt as defined under Section 5 (21) of IBC.

The NCLAT upheld this order of the Adjudicating Authority referring to its earlier judgment in M. Ravindranath Reddy vs. G. Kishan& Others.

In the appeal, Promila Taneja (appellant) argued that were two contrasting decisions of NCLAT on the issue and that, in the contemporary case, the demand was both in respect of the arrears of rent as well as on account of damages for breach of the lock-in-period.

In Ravindranath Reddy case the issue, "Whether a landlord by providing lease, will be treated as providing services to the corporate debtor, and hence, an operational creditor within the meaning of Section 5(20) read with Section 5(21) of the Insolvency and Bankruptcy Code, 2016?", was considered.

It was held by the tribunal that, "An operational debt is essentially a claim in respect of the following: (a) provision of goods; (b) provision of services, including employment; or (c) a debt arising under any statute and payable to Government/local authority. If the claim by way of debt does not fall under any of the three categories as mentioned above, the claim cannot be categorized as an operational debt, even though there may be a liability or obligation due from the corporatedebtor to the creditor, and hence, such a creditor disentitled from maintaining an application for initiation of corporate insolvency resolution process (CIRP) of the corporate debtor".

Per Contra the decision in Anup Sushil Dubey vs National Agriculture Co-operative Marketing Federation of India Limited & Othersthe Tribunal had observed that, "Lease rentals arising out of use and occupation of a cold storage unit which is for Commercial Purpose is an 'Operational Debt' as envisaged under Section 5(21) of the IBC.

Taking note of the following contentions the Supreme Court proceeded to issue notice.