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Judgment
[Per; Shreesha Merla, Member (T)]
The issue raised in this Appeal, filed against the Impugned Order dated 25.01.2021 in I.A. No. 1570 of 2020 in CP (IB) No. 2640 of 2019 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench), is allowing the first Appellant to file a claim in respect of the unpaid rent from 25.03.2020 to 28.07.2020 as ‘Operational Creditor’ with a direction to the Resolution Professional to collate the claim and classify in terms of the Liquidation Mechanism under Section 33 of the Insolvency and Bankruptcy Code (hereinafter referred to as the ‘Code’). I.A. 1570 of 2020 was preferred by the Resolution Professional of M/s. Cox & Kings Limited (hereinafter referred to as the ‘Operational Creditor’) before the Adjudicating Authority seeking the following directions:
“i.Pass an order directing the Respondents to cooperate with the Applicant and to not restrain the Company and the Applicant from accessing, dealing with, taking over possession of and relocating the assets and records of the Company present at the premises;
ii.Pass an order directing the local administration including police authorities to facilitate the Applicant in accessing, dealing with, taking over possession of and relocating the assets and records of the Company present at the Premises and for facilitation of the prayer (a) above;
iii.A declaration that the Termination Notice dated 13.02.2020 to terminate the Lease Deed and Maintenance Agreement is effective and valid;
iv.A declaration that the Lease Deed and Maintenance Agreement stand terminated with effect from 15.09.2020 consequent to the Termination Notice and after exclusion of the Lockdown Period from 25.03.2020 to 28.07.2020.
v.Pass an order granting the Corporate Debtor full waiver of the Lease Rent and Maintenance Charges payable under the Lease Deed and Maintenance Agreement, respectively, for the entire Lockdown Period from 25.03.2020 to 28,07.2020;
vi.A declaration that the outstanding Lease Rent and Maintenance Charges payable by the Corporate Debtor to the Respondents shall be calculated treating 15.09.2020 as the date of termination of the Lease Deed, Maintenance Agreement and in accordance with the calculation provided in Exhibit ‘A1’;
vii.Pass an order restraining the Respondents from deducing/adjusting any amounts from the Security Deposit and/or Maintenance Advance available with them towards the admitted claims of the Respondents as admitted by the applicant at the commencement of the CIRP of the Corporate Debtor.”
The first Appellant ‘M/s. Nimitaya Infotech Private Limited’ is the Land Owner of the building and the second Appellant ‘M/s. Nimitaya Infrastructure Private Limited’ renders the maintenance services for the subject premises. The ‘Corporate Debtor’ entered into a maintenance Agreement with the second Appellant on 06.03.2017 and a Lease Deed dated 28.03.2017 with the first Appellant with respect to the subject premises.
By the Impugned Order, the Adjudicating Authority has observed as follows:
“20.Now, in light of the judgments referred in the preceding paragraphs we have come to a conclusion that the amount due and payable to the Respondents is the Operational Debt and with a view to put an end to this matter, it is advisable to the Respondents that they may file their claim before the RP as soon as possible and this Bench will direct the RP for verification of claim and determination of amount of claim in terms of Regulation 13 and 14 of the (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and pay the Respondents as and when the funds are available with him as per the waterfall mechanism provided under Section 53 of the Code. This direction has been passed keeping the fact in mind that the RP is the officer of this Tribunal and is running the company which is already into CIRP and therefore, it is difficult for him to arrange the funds. Also, this does not mean that the Respondents are not entitled to be paid. There should be no injustice on the Respondents and it is the duty of the RP to look into the same. On the same time, the Respondents cannot henceforth withhold the assets of the Corporate Debtor and thus are directed to allow the RP to vacate the premises within 30 days from the date of this Order. The R is permitted to seek the assistance of the local police if so needed in vacating the premises. SHO of the concerned area is directed to render police assistance to the RP either on production of copy of this order or at the request made by the RP.
21.We hereby declare that the Lease Deed and Maintenance Agreement is terminated with effect from 15.09.2020 but not excluding the lockdown period from 25.03.2020 to 28.07.2020 as sought by the Applicant because the premises were in possession of the RP/Corporate Debtor during that period and the Respondents are therefore, entitled to be paid. Not doing so will cause prejudice to the rights of the Respondents for no fault of theirs. Therefore, the Respondents are directed to file their claim before the RP for the unpaid rent from 25.03.2020 to 28.07.2020 and not beyond that. Delay if any in filing the claim of the Respondents stands condoned. We direct the above because the RP is bound by the provisions of the Code and thus is not allowed to give preferential treatment over the other claimants. The RP has to collate the claim and then prepare a list as per the criteria under Section 53 of the Code.
22.We also direct that the Termination Notice dated 13.02.2020 to terminate the Lease Deed and Maintenance Agreement is valid and effective from 15.09.2020. After careful perusal of the Agreement entered into between the parties and also from the facts of the case it is understood that if the Respondents opt to withhold the security deposit, they will have to forego the rent of the extended period and therefore, we believe that the Respondents cannot/should not withhold the security deposit and hereby are directed to refund the same within a stipulated period of 30 days from the date of this Order. But this does not mean that the Respondents have no right to claim rent of the extended period. Thus, keeping the interest of the Respondents in mind, we have already suggested that they may file claim before the RP for the rent during the lockdown period for which the delay has also been condoned by this Bench in the above paragraphs.
23.With the above directions and observations, this I.A. No. 1570 of 2020 is partially allowed and is accordingly disposed of.” (Emphasis Supplied)
Submissions of the Learned Counsel appearing on behalf of the Appellants:
Learned Counsel for the Appellants vehemently submitted that as per the Lease Deed entered into between the ‘Corporate Debtor’ with the first Appellant, a rent area admeasuring 46,130 square feet with 16 parking area in the basement for payment of Security Deposit of Rs.1,75,75,130/- for a monthly rent at Rs.29,29,255/- + GST is an admitted fact. Another Maintenance Agreement was entered into with the second Appellant upon payment of Security Deposit of Rs.57,77,117/- at Rs. 20.15 per square foot.
The first Appellant has a Debt of Rs.182.40 Crores, from Asia Pacific Credit Opportunities 1 Singapore PTE Limited and the interest on this loan is generated from leasing out of the building in which the ‘Corporate Debtor’ is one of the tenants.
On 22.10.2019, the CIRP process of the ‘Corporate Debtor’ commenced. The IRP paid the Rent and Maintenance Charges from 22.10.2019 to 31.12.2019 of Rs.1,00,59,436/- and Rs.41,62,825/-respectively. Thereafter Mr. Ashutosh Agarwala was appointed as RP on 10.01.2020. Vide email dated 13.02.2020, the ‘Corporate Debtor’ expressed its intention to terminate the said Rent Agreement which was addressed by one Mr. Derrick Fernandes without mentioning any reference to the decision of the CoC/RP.
It is argued that after termination and during the lockdown period, the lease premises were kept maintained and operational to have a proper remote access for emergency use which is also an admitted fact by the Resolution Professional in their email dated 25.03.2020.
It is contended that a settlement was arrived at between the Appellants and RP and it was agreed that rent until 15.09.2020 would be paid. Pursuant to such an Agreement, the RP placed before the CoC, the claim amount of Rs.3,26,29,896/-. The RP determined the amount payable by the ‘Corporate Debtor’ as Rs.2,12,87,368. Instead of making the payment of Rent and Maintenance Charges as per the settlement Agreement, the CoC directed the RP to take possession of the asset and to seek full/partial waiver of rental dues for the lockdown period and decided not to vacate the rental premises.
RP filed I.A. 1570/2020 and the Adjudicating Authority held that the rent payable by the ‘Corporate Debtor’ is an ‘Operational Debt’; the Rent Agreement was admitted to be terminated with effect from 15.09.2020 which does not exclude the lockdown period; refund of Security Deposit by the Appellant within 30 days.
It is contended that the ‘Corporate Debtor’ is liable to pay the Rent and Maintenance Charges until the date of handing over possession as per the terms of Agreement and till date the ‘Corporate Debtor’ has not vacated the said premises and therefore refunding the Security Deposit within 30 days is contrary to the terms of Agreement.
The Adjudicating Authority has erred in observing that the Rent Agreement stands terminated with effect from 15.09.2020. It is the case of the RP that the Termination Notice dated 18.02.2020 was valid until 17.05.2020. Since the RP himself placed before CoC that rent has to be paid till 15.09.2020, it clearly demonstrates that the ‘Corporate Debtor’ did not vacate the premises prior to 18.05.2020.
I.A. 1570 of 2020 is dated 16.09.2020 which is filed on directions of the CoC in its meeting held on 09.09.2020. The rent payment until 15.09.2020 is as per the settlement arrived with the condition that the rental premises shall be vacated within one month from 15.09.2020, but the same did not happen as the ‘Corporate Debtor’ did not vacate the rental premises as on 15.09.2020. The Adjudicating Authority on one hand held that the Agreement stood terminated on 15.09.2020, but on the other hand gave a direction to file claim for the period from 25.03.2020 to 28.07.2020.
It is strenuously argued that as the ‘Corporate Debtor’ has not vacated the premises as per the terms of the admitted Agreement, the Rent and Maintenance Charges are payable till the date of vacating of the rental premises and only then the Security Deposit is refundable.
Submissions of the Learned Counsel appearing on behalf of the Respondent:
As per Clause 13.4, the lessee may terminate the Lease Deed by providing an advance Notice in writing of not less than three months to the lessor or rent in lieu thereof. It is argued that the RP issued a Termination Notice to the first Appellant terminating the Lease Deed as per Clause 13.4 as on 13.02.2020. Hence the Lease Deed stands terminated on 12.05.2020.
Vide letter, dated 18.02.2020, the first Appellant has agreed that the Lease Deed would expire on 12.05.2020 in terms of Clause 13.4 and acknowledged receipt of the Termination Notice.
A lockdown notification was issued on account of Covid-19 outbreak in March, 2020. On 01.06.2020 an employee of the ‘Corporate Debtor’ entered the premises to initiate the process of vacating, but was not permitted to do so. On 02.06.2020, the RP addressed an email to the Appellants requesting them to permit the employees to enter the premises for initiating the process of vacating. On 03.06.2020, the Appellants responded to the email categorically stating that no vendor will be permitted to enter into the premises, unless all outstanding dues were cleared.
Another email, dated 12.06.2020 was issued by the Respondent seeking co-operation of the Appellants in initiating the process of vacating the premises. On 19.06.2020, the Appellants replied to the email, dated 12.06.20.20 stating that they were entitled to retain possession of furniture, fixtures and other office equipment till outstanding, dues were cleared.
Vide email dated 17.07.2020, the Appellants were intimated that with great difficulty, representatives of the Respondents managed to arrange for packers and movers to move the asset of the Company out of the premises and requested the co-operation of the Appellants towards the same. But on 20.07.2020, the Appellants responded that only upon receipt of payment would they cooperate for shifting and removing the asset of the Company.
It is contended that in terms of the Termination Notice dated 13.02.2020, the Company made all efforts to ensure vacating the premises on or before 12.05.2020 but the Respondent was not in a position to procure logistical support during the period 25.03.2020 to 28.07.2020 on account of the pandemic and was able to engage the services on the Transport Agencies only on 28.07.2020 and hence the computation of the Notice period restarted on 28.07.2020. Accordingly, the Lease Deed and the Maintenance Agreement stood terminated with effect from 15.09.2020. The Appellants have filed claim forms with the RP where they did not claim any credit for the Security Deposit of Rs.2.32 Crore which has been appropriated by them. The only remedy available for the Appellants is to file an Application before the Adjudicating Authority to challenge the admission of the Appellants’ claim.
Assessment:
For better understanding of the case, Regulations 13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is reproduced as hereunder:
13.Verification of claims –(1) The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing, names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.
(2)The list of creditors shall be–
(a)available for inspection by the persons who submitted proofs of claim;
(b)available for inspection by members, partners, directors and guarantors of the corporate debtor [or their authorised representatives];
(c)displayed on the website, if any, of the corporate debtor; [(ca) filed on the electronic platform of the Board for dissemination on its website: Provided that this clause shall apply to every corporate insolvency resolution process ongoing and commencing on or after the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020;]
(d)filed with the Adjudicating Authority; and
(e)presented at the first meeting of the committee.
14.Determination of amount of claim. – (1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him.
(2)The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.
On 22.10.2019, CIRP was initiated against the ‘Corporate Debtor’. It is not in dispute that the rents were received up to December, 2019. The claims for amounts towards the Rent and Maintenance Services is subsequent to the CIRP initiation. Clause 13.4 of the Lease Agreement reads as follows:
“13.4Upon expiry of the Lock-in-Period, the LESSEE may terminate the Lease Deed by providing an advance notice in writing of not less than (3) months to the LESSOR or rent in lieu thereof.”
Learned Counsel for the Appellants vehemently contended that the question of Security Deposit and its refund arises only subsequent to the vacating of the subject premises by the Respondent and not before that. The Learned Council placed reliance on Clause 6.2 of the Lease Deed which refers to the interest free Security Deposit:
“6.2: The LESSOR undertakes to refund the Security Deposit simultaneous with the handover of the vacant peaceful possession of the Demised Premises. In the event and despite the LESSEE’s demonstration of its willingness to handover vacant peaceful possession of the Demised Premises, the LESSOR fails to refund he unadjusted Security Deposit, the LESSEE shall be entitled to:-
6.2.1: In addition, the LESSOR shall be liable to pay to the LESSEE compounding interest @ 18% p.a., on the Interest Free Security Deposit from the date on which the same became due, till the date of actual receipt of the Security Deposit by the LESSOR to the LESSEE.
6.2.2: The LESSOR shall be entitled to deduct all unpaid undisputed lease rent including any unexpired lock-in-period rent, any unpaid due by the LESSEE towards outgoings, electricity and water due etc., if any, from the Interest Free Security Deposit.”
It is the case of the Appellants that since the ‘Corporate Debtor’ is still in possession of the demised premises, refund of Security Deposit cannot be considered.
The Termination Notice dated 13.02.2020 issued by the ‘Corporate Debtor’ to the first Appellant is reproduced as hereunder:
The acceptance of the aforenoted Termination Notice is in the letter dated 18.02.2020, the relevant portion of which, reads as hereunder:
“Keeping in line the same you are requested to release our outstanding as well as future payment up to 12.05.2020 at your earliest and also handover the vacant peaceful possession of the demised premises with all fitting and fixture intact in good working condition as handed over at the time of execution of Lease Deed and enable us to process the necessary compliances of termination of Lease Deed. We also inform you that the maintenance agreement executed between Nimtaya Infrastructure Private Limited and Cox & Kings Ltd. stands terminated with effect from 13.02.2020 with the same terms and conditions. Please expedite the same.” (Emphasis Supplied)
Section 25 of the Code deals with the duties of Resolution Professional and reads as hereunder:
“25.Duties of resolution professional.—(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2)For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:—
(a)take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b)represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;
(c)raise interim finances subject to the approval of the committee of creditors under section 28;
(d)appoint accountants, legal or other professionals in the manner as specified by Board;
(e)maintain an updated list of claims;
(f)convene and attend all meetings of the committee of creditors;
(g)prepare the information memorandum in accordance with section 29;
(h)invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.
(i)present all resolution plans at the meetings of the committee of creditors;
(j)file application for avoidance of transactions in accordance with Chapter III, if any; and
(k)such other actions as may be specified by the Board.”……………….. (Emphasis Supplied)
In terms of the provisions of the Code, the RP enjoys the right to take control and custody of all the assets and records of the ‘Corporate Debtor’ for the purpose of preserving and protecting the assets. The material on record shows that the RP responded to the claim forms submitted by the Appellants. Vide two letters dated 05.06.2020 and 30.08.2020 admitting part of their claims and informing that in the event, the verification of claims was not agreeable to them, they may take appropriate recourse under the provisions of the Code. In the claim forms, dated 04.11.2019, filed by the Appellants, no reference has been made regarding the deductions made from the Security Deposit or Maintenance Advance towards the outstanding dues. We find force in the contention of the Learned Counsel representing the RP that in the absence of any communication or initiation by the Appellants to the Respondents regarding adjustments made against the Security Deposit or the Maintenance Advance, it is evident that no such adjustments have been made by the Appellant. A perusal of the Maintenance Agreement shows that in the event of non-payment of Maintenance Charges by the Respondent, the only right that accrues upon the two Appellants is to disconnect/discontinue the electric supply to the premises. Further, the Respondent looses their right to use the common facility and services specified in the Maintenance Agreement. The Agreement does not empower the two Appellants with any right to deduct the Maintenance Advance on account of non-payment of Maintenance Charges.
We are of the view that on account of the moratorium imposed under Section 14 of the Code on 21.10.2019, any action taken by the Appellants to enforce their Security Interest over their Security Deposits or Maintenance Advance by making any deduction from the same, subsequent to initiation of CIRP, would be in violation of Section 14 of the Code. It is also not in dispute that there was an attempt to settle the matter between the parties. In their settlement offer, the Appellants had agreed that the termination date for the Lease Deed and Maintenance Agreement would be 15.09.2020, giving additional one month grace period for vacating the premises. The emails dated 13th and 14th August 2020 establish the same. The Minutes of the Meeting of the CoC held on 09.09.2020 also recorded the settlement offer. It is seen from the record that the RP prepared and submitted a comparative table of amounts and placed before the CoC, dues payable upto 15.09.2020. Having regard to the provisions of Section 14 of the Code, Regulations 13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Section 25(2) which relates to duty of the RP regarding custody of the asset of the ‘Corporate Debtor’, we are of the considered view that the Adjudicating Authority has rightly examined the provisions of the Agreement between the parties in detail. However, in para 21 of the Impugned Order, the Learned Adjudicating Authority has observed, ‘Therefore, the Respondents are directed to file their claim before the RP for the unpaid rent from 25.03.2020 to 28.07.2020 and not beyond that’. Having taken into consideration the factual matrix of the case on hand, the Minutes of the Meeting held on 09.09.2020 and concluded that the Lease Deed & Maintenance Agreement stood terminated as on 15.09.2020, the Learned Adjudicating Authority ought to have directed the Respondents to file their claims, in the interest of justice, upto 15.09.2020. The Order is modified only to this extent while we confirm the rest of the Order of the Learned Adjudicating Authority.
This Appeal is partly allowed and the Impugned Order is modified to the extent indicated above.
The Registry is directed to upload the Judgement on the website of this Tribunal and send the copy of this Judgement to the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) forthwith.