NCLAT: lease rentals arising out of use and occupation of a cold storage unit is an 'Operational Debt'

NCLAT: lease rentals arising out of use and occupation of a cold storage unit is an 'Operational Debt'

The two Judges Bench, comprising of Hon'ble Member (Judicial) Venugopal M. and Hon'ble Member (Technical) Shreesha Merla,on 7th October,2020 in the matter of Anup Dubey Vs. National Agricultural Co-operative Marketing Federation of India Ltd. & Ors('NAFED'), has observed that the subject 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 Insolvency and Bankruptcy Code, 2016.

This company appeal, which challenged the Order of the National Company Law Tribunal, (Mumbai Bench), by which the Adjudicating Authority has admitted the Application filed by NAFED,the Operational Creditor against Umarai Worldwide Private Limited, the Corporate Debtor,has been dismissed by the Appellate Authority.

The facts of this case pertain to the default in the payment of monthly rentals with respect to the Leave and Licence Agreement entered into between NAFED/Operational Creditor and the Corporate Debtor for the usage of cold storage facilities, for a period of three years.
The main contentions of the appellant included
-that the Adjudicating Authority had passed an Ex-Parte Order without giving it a sufficient opportunity to be heard
-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';

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.

The first respondent, NAFED has contested the appeal by arguing that that there is no evidence of any 'Pre-Existing Dispute' provided by the Corporate Debtor in their reply to the Demand Notice.It has also been put forth that receiving any consideration by way of licence fee falls within the purview of providing services and falls within the definition of 'Operational Debt'.

The main issues involved were- (i)Whether dues, if any, arising from the 'Leave and Licence

Agreement' is construed as an 'Operational Debt'?

(ii)Whether there is any 'Pre-Existing Dispute' prior to theissuance of the Demand Notice?

The Tribunal has opined that Regulation 32 (Insolvency Resolution Process for Corporate persons, Regulation 2016) read with Section 14 (2) only mentions essential goods and services whose supply cannot be terminated during the course of CIRP.The I&B Code does not anywhere specify that the goods so mentioned under Regulation 32 are the same as those which fall within the ambit of the definition of Section 5 (21).It also asserted, "As the premises in the case on hand is leased out for Commercial Purpose, the cold storage owner/NAFED on collection is required to pay service tax which is reflected in the tax invoices and Ledger Accounts which is part of the record filed."

The dues claimed by the First Respondent in the subject matter and issue, squarely falls within the ambit of the definition of 'Operational Debt' as defined under Section 5 (21) of the Code.The communication dated 19.09.2018, prior to the issuance of Demand Draft notice establishes that the Corporate Debtor was in possession of the subject premises and sought to extend the Lease and Licence for a further period of 2 years and that rental amounts were still due & payable as can be seen from the submission regarding readiness to submit the Bank guarantee.

The Appellate Tribunal has referred mainly to the judgments of the Sarla Tantia V/s. Nadia Healthcare Pvt. Ltd.[Company Appeal (AT) (Ins) No. 513 of 2018] and Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited (2018) 1 SCC 353.

The Tribunal has also specifically mentioned that the communication on record, prior to the issuance of the Demand Notice clearly establishes that there is a 'Debt due and payable' and there is no 'Pre-Existing Dispute', in the teeth of the observations made by the Hon'ble Supreme Court in Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited.