Hotel Horizon Private Limited vs Degustibus Hospitality Pvt. Ltd.

Per: Chandra Bhan Singh, Member (Technical)

This Company Petition is filed by Hotel Horizon Private Limited, (hereinafter called “Petitioner”) seeking to set in motion the Corporate Insolvency Resolution Process (CIRP) against Degustibus Hospitality Private Limited (hereinafter called “Corporate Debtor”) alleging that Corporate Debtor committed default in making payment to the extent of Rs. 1,31,52,877/- which is inclusive of interest by invoking the provisions of Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called “Code”) read with Rule 6 of the Insolvency and Bankruptcy (AAA) Rules, 2016.

In the requisite Form-5, under the head “Particulars of Operational Debt” the amount claimed to be in default to the extent of Rs. 1,31,52,877/- which is inclusive of some charges and interest. The summary of amounts under default are as follows:

The Petitioner is constructing a star category Hotel which is situated at Juhu Tara Road, Juhu Mumbai inter alia comprising of hotel facility, food and beverages outlets, retail outlets, offices, etc.

The Corporate Debtor was in need of a licensed unit for temporary period of 5 years for running a restaurant under the name of “Indigo Deli” and hence, the Corporate Debtor and Petitioner entered into a registered leave and license agreement dated 28^th December 2017.

The Petitioner agreed to grant license to the Corporate Debtor for the use and occupation of the Licensed Unit on leave and license basis for a period of 5 years commencing from 26.12.2017 and ending on 25.12.2022.

According to Clause 4.1 of the agreement, the Corporate Debtor was liable to pay to the petitioner the higher of the amounts of the Fixed License Fees i.e. Rs. 2,50,000/- plus applicable taxes or Revenue share i.e. 12% of the Net Sales of the Business conducted in the licensed Unit from commencement of Business, on a monthly basis for the use and occupation of the Licensed Unit on leave and license basis. Clause 4.1 of the Leave and License Agreement is as follows:

As per clause 5.2, the Corporate Debtor will pay to the Petitioner CAM charges at a tentative fixed rate of Rs. 40 per square feet plus all applicable taxes in advance on a quarterly basis. the relevant portion of Clause 5.2 is as follows:

As per Clause 6, the Corporate Debtor agreed to pay charges for all the other utilities, electricity and other charges even if not specifically mentioned in the agreement.

As per clause 4.7, 5.6, 6.1 (h), 6.2 (b) and 6.3 (b), the Corporate Debtor has agreed to pay interest on delayed payment of License Fee as well as delay in payment of other charges at the rate of 24% as per the Leave and License Agreement dated 28^th December 2017.

The Petitioner has raised following invoices towards charges and interest component, as follows:

The Director of the Petitioner suffered disqualification under Section 164 (2) which was restricted to re-appointment. The dissolution of Horizon Realty Pvt. Ltd. was challenged in the National Company Law Tribunal under Section 252 of the Companies Act, 2013 and the said appeal was allowed vide Order dated 10^th October 2019 passed by this Hon’ble Tribunal and the company was restored to the register of companies.

The Petitioner issued the Demand Notice under Section 8 of the Code on 21.12.2019 whereby they demanded repayment of the dues to the extent of Rs.97,12,911/-inclusive of interest. However, the Corporate Debtor neither replied to the Demand Notice nor repaid the dues.

The Petitioner enclosed Affidavit as required u/s 9(3)(b) of the Code stating that no reply has been received from the Corporate Debtor relating to a dispute of the unpaid operational debt.

The Petitioner has filed an Interim Application bearing No. 613 of 2021 under Section 60(5) of the Code for initiation of CIRP against the Corporate Debtor.

The Corporate Debtor is a company incorporated under the Companies Act, 1956 having registered office at A-101/102, Navbharat Estate, Zakaria Bunder road, Sewri (West), Mumbai 400015.

The Corporate Debtor in its reply filed reply to the Petition submitted that the contents of the said application are false and baseless and Corporate Debtor denies each and every allegation set out in the Application. The Petitioner has deliberately not disclosed various facts of the matter and thus, Petitioner is guilty of suppressio veri and suggestio falsi.

Corporate Debtor further submitted that the agreement was executed by Mr. Sagar Sharma (Authorized representative of Petitioner), who was disqualified w.e.f. 01^st November 2016 and thus, being disqualified Director, Mr. Sagar Sharma could not have entered into the agreement. Mr. Sagar Sharma, in spite of having knowledge of being disqualified, illegally and fraudulently executed the agreement. The aforesaid act itself shows mala fide on their part and their intention to deceive. As a result of which, Corporate Debtor faced various problems and issues right from inception.

Further, the Corporate Debtor has filed one Commercial Arbitration Application bearing No. 141 of 2020 before the Hon’ble Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. The Hon’ble Bombay High Court has appointed Advocate Manjiri Shah as the sole Arbitrator which shows that there are disputes.

Corporate Debtor submitted that one of the financial creditor (Phoenix ARC Private Limited) preferred an Application under Section 7 of the Code against the Corporate Debtor bearing No. 1458/IBC/NCLT/MB/MAH/2017 before this Hon’ble Tribunal which was admitted and pursuant to which Mr. Jayesh Shah was appointed as the Interim Resolution Professional to conduct the Insolvency Resolution Process. In pursuance of the said Order, IRP started handling the day to day activities of the Petitioner. There were various difficulties faced by the Corporate Debtor to which IRP failed to take any steps.

In this submission, the Corporate Debtor has referred to several emails addressed to the IRP when the IRP had demanded payment of part dues of the Corporate Debtor.

The corporate Debtor also mentions that it has filed a claim with IRP while the Petitioner was under CIRP and thus the same would constitute “dispute”.

The Corporate Debtor states that the perusal of all the documents on record clearly demonstrates that multiple disputes existed and therefore, the present petition is not maintainable and deserves to be rejected.

This Company Petition No. 1284/2020 u/s 9 has been filed by Operational Creditor/ Applicant M/s. Hotel Horizon Pvt Ltd against M/s Degustibus Hospitality Pvt Ltd Respondent/ Corporate Debtor. Both the parties had signed a license agreement through which Operational Creditor had agreed to grant the license to the Corporate Debtor for running a restaurant and occupy the licensed unit on leave and license basis for a period of 5 years commencing from 26.12.2017 and ending on 25.12.2022. The Bench notes that as per the agreement entered between the parties, the Corporate Debtor was to pay license fee, CAM charges, charges for all other utilities as well as interest on delayed payment. However, the Corporate Debtor failed to pay the same. The break-up of the total amount claimed is given in Part -IV of the Petition which is as under:-

The working for computation of amount along with dates of default has been given in a tabular form in the Petition. Clause 4.7 of the Agreement between the parties clearly mentions that interest is chargeable on delayed payment @ 24% per annum compounded annually.

The Bench notes that all the disputes raised by the Corporate Debtor are only after the demand notice was issued to them on 21.12.2019. Here, the Bench also notes that based on an Application preferred by Phoenix ARC Pvt Ltd u/s 7 of the Code, Hotel Horizon Pvt Ltd the Applicant/ Operational Creditor vide an Order dated 29.01.2019 was admitted under CIRP and in view of settlement with the Financial Creditor the CIRP ended on 10.10.2019. During the short period when the Petitioner was under CIRP, letters/ mails were addressed by the IRP whereby the IRP has found fault with the functioning of the Respondent and had made demands for arrears of payments.

It is only when the IRP started asking for payments that the Corporate Debtor raised issues regarding deficiency of services. It is to be noted here and as mentioned earlier that these issues were raised only after the demand notice was issued by the Petitioner to the Corporate Debtor on 21.12.2019. The Bench also notes that the IRP has rejected the claims of the Respondent and directed the Respondent to make payment of arrears. This is clear from the IRP’s letter dated 09.04.2019.

The Bench notes that the Respondent in his reply has mentioned about certain disputes with relation to leave and license agreement. The issues raised by the Respondent and the views on the same are as under:-The Respondent mentions that the use of elevator was reserved for customers and guests and that the Petitioner had allowed it to third party vendor. Therefore, as per the Respondent, it is a breach of the agreement. In this regard the Bench notes that Clause 14(12)(b)(v) of the leave and license agreement reads as under:-

The Bench also notes that the Respondent has not paid the charges towards use of the elevator etc. (CAM Charges) from January 2019 onwards. The Bench notes that the Corporate Debtor had to ensure that the payment obligation in the leave and license agreement are discharged failing which the Petitioner cannot be held responsible for any disruption in service or maintenance as mentioned in Clause 16.2.a of the leave and license agreement reads as under:-

Similarly, the Bench notes that the Petitioner was even providing HDAC services (water services, etc.) despite non-payment of charges for the entire period of occupancy by the Respondent, i.e., from May 2018 to December 2019. For HVAC services and water charges from July 2018 to July 2019, the Respondent’s plea that there was disruption of electricity and, therefore, they did not pay is again a frivolous plea as the Clause 6.1(c) of the leave and license agreement provides that the Petitioner would not be liable for any disruption in supply of electricity to the Respondent.

The Bench further notes that even when the Company was under Corporate Insolvency Resolution Process, the IRP had asked for the payments of the dues vide his email dated 17.07.2019, 18.07.2019, 19.07.2019 and 24.07.2019 and, in fact, in his email dated 26.07.2019 the IRP had asked the Respondent to pay the due arrears amount owed by the Respondent to the present Petitioner which was under CIRP then.

The Petitioner has included all the invoices towards payment of license fee, CAM charges HVAC cost and invoices towards water charges and interest. The unpaid dues pertains for the period from May 2018 to December 2019. A demand notice was issued to the Respondent on 21.12.2019, reply to which was given by the Respondent only on 29.01.2020. This Petition was filed after that on 18.08.2021. The Bench also notes that Respondent has time and again acknowledged its liability towards the Petitioner under leave and license agreement by making part payment as well as making payment towards TDS for the charges falling due and payable from time to time. The Bench further notes that the payment towards license fee in the month of May 2019 not only extends the period of limitation but also constitutes an acknowledgement of liability. Besides, the Bench notes that between May 2018 and October 2019 the Respondent has been making payment of TDS towards invoices raised by the Petitioner from time to time. The Corporate Debtor has been making such payments under Section 1941(b) and 194C of the Income Tax Act, 1961 towards heads of rent.

The Petitioner in this regard has relied on NCLT Mumbai judgment in the case of Amluckie Investment Co. Ltd vs Skil Infrastructure Ltd. wherein at Para 28 it has explicitly held that payment of TDS constitutes an acknowledgment of debt and liability. The relevant extract of Amluckie Investment Co. Ltd. is reproduced below :-

Therefore, the Bench notes that the Corporate Debtor has admitted its liability not only by way of part payment towards license fee but also by TDS deposits under Form 26AS and, therefore, the Respondent cannot raise a defence to contend that there is a dispute between the parties. In this regard the Petitioner has referred to Hon'ble Supreme Court judgment in the case of N. Subramanian vs Aruna Hotels Ltd. (Civil Appeal No. 187 of 2019) which reads as under:-

In conclusion, the Bench notes that the demand notice u/s 8 of the IB Code was issued on 21.12.2019 and before the demand notice dated 21.12.2019, no dispute was ever raised by the Corporate Debtor in relation to the Petitioner. It is only after the issue of demand notice that the Corporate Debtor has raised unsubstantiated terms as a dispute. In view of the above it is clear to the Bench that there is a ‘debt’ in terms of Section 3(11) and there is ‘default’ in terms of Section 3(12) of the IB Code.

As a consequence, keeping the admitted facts in mind that, the Operational Creditor had not received the outstanding Debt from the Corporate Debtor and that the formalities as prescribed under the Code have been completed by the Petitioner/ Operational Creditor, it is our conscientious view that this Petition deserves “Admission”.

The Operational Creditor has not proposed the name of the Interim Resolution Professional and left it to this Bench to appoint the Insolvency Resolution Professional. Accordingly, this Bench appoints Mr. Arun Kishanlal Bagaria, Registration No. IBBI/IPA-002/IP-N00278/2017-18/10836, email [email protected], Address: 701, Stanford, Junction of S.V. Road & Burfiwala Lane, Andheri (West), Mumbai – 400 058. Upon Admission of the Application and declaration of “Moratorium” the Insolvency Process such as Public Announcement etc. shall be made immediately as prescribed under section 13 read with section 15 of The Code. He shall perform the duties as an Interim Resolution professional as defined under Section 18 of the Code and inform the progress of the Resolution process and compliance of the directions of this Order within 30 days to this Bench. A liberty is granted to intimate even at an early date, if need be.

Having admitted the Petition/ Application the provisions of “Moratorium” as prescribed u/s. 14 of the Code shall come into operation. As a result, institution of any suit or parallel proceedings before any Court of Law are prohibited. The assets of the Corporate Debtor must not be liquidated until the Insolvency Process is completed. However, the supply of essential goods or services to the Corporate Debtor shall not be suspended or interrupted during “Moratorium” period. This direction shall have effect from the date of this Order till the completion of Insolvency Resolution process.

Accordingly, CP(IB)-1284/MB/2020 stands “Admitted”.

The Corporate Insolvency Resolution Process shall commence from the date of this order.

Registry is directed to communicate this order to both the parties and the IRP immediately.