State Bank of India Vs. Summit Marine Exports Pvt. Ltd. and Ors. - Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta3, which held that the profits made during the CIRP shall be distributed as per the provisions of RFRP. Also, the Hon’ble NCLAT in JSW Steel Ltd v. Mahender Kumar Khandelwal & Ors4. reiterated that profits made during CIRP shall be distributed in accordance with RFRP as held by the Hon’ble Supreme Court in Essar Case.

 NCLAT (2025.08.21) in State Bank of India Vs. Summit Marine Exports Pvt. Ltd. and Ors. [(2025) ibclaw.in 1559 NCLT, IA No. 1025 of 2024 in CP(IB) No. 320/9/HDB/2021] held that;

• Upon consideration, the Committee concluded that the law should remain flexible as to whether creditors or the Resolution Applicant should benefit from such profits. However, it is recommended that every resolution plan must mandatorily include a clear provision on the treatment and distribution of operating profits or losses.

• Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta3, which held that the profits made during the CIRP shall be distributed as per the provisions of RFRP. Also, the Hon’ble NCLAT in JSW Steel Ltd v. Mahender Kumar Khandelwal & Ors4. reiterated that profits made during CIRP shall be distributed in accordance with RFRP as held by the Hon’ble Supreme Court in Essar Case. 

Excerpts of the order;

# 1. This application has been filed by the State Bank of India (Sole Secured Financial Creditor/Applicant ) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ( IBC ) . The Applicant seeks a direction to the Successful Resolution Applicant ( Respondent No. 1/SRA ) to pay the lease amount arising out of the Lease Agreement dated 19.12.2020 and the Memorandum of Understanding dated 01.02.2021, entered into with M/s Srikanth International Private Limited ( Corporate Debtor ) , to the tune of Rs 74,56,673/- for the period from 01.08.2023 to 13.10.2023.

Application

# 2. The Corporate Debtor, engaged in the business of shrimp processing and allied activities, had availed financial assistance of Rs 33.50 Crores from the Applicant/Financial Creditor as on 17.10.2020. To secure the said financial assistance, the Corporate Debtor offered its Marine Processing Plant, admeasuring Ac. 3060 cents (17,424 sq. yds.), situated at Someswaram Village, Alapadu Panchayat, Kaikaluru Mandal, Krishna District, as security.

# 3. Pursuant thereto, a Lease Agreement dated 19.12.2020 was executed between Respondent No. 1 and the Corporate Debtor, whereby the premises of the Corporate Debtor was leased to Respondent No. 1 for marine processing purposes, for a period of six (6) years commencing from 01.02.2021 till 31.01.2027, at a monthly lease rental of Rs 2,00,000/-, with an annual escalation of 5%, payable directly into the SBI CC Account No. 00000034840123025.

# 4. Subsequently, on 01.02.2021, a Memorandum of Understanding was executed between Respondent No. 1 and the Corporate Debtor, under which Respondent No. 1 agreed to pay a flat processing fee of Rs 43,00,000/- per month, exclusive of GST and TDS, with an annual increment of 5%, to be credited into the aforesaid SBI account of the Applicant Financial Creditor.

# 5. It is stated that the lease rentals and processing fees were credited into the designated account until June 2022 and were duly adjusted against the dues payable by the Corporate Debtor to the Applicant Financial Creditor.

# 6. On account of the default in repayment of the loan by the Corporate Debtor, the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor by this Tribunal vide order dated 30.06.2022, and Mr. Mayur Rajendra Kumar Popat was appointed as the Interim Resolution Professional. Thereafter, Respondent No. 2 was appointed as the Resolution Professional.

# 7. In compliance with the provisions of the IBC, a designated account was opened by the RP in the name of the Corporate Debtor with the Applicant FC bearing account no. 41345642963, and lease payments were credited therein till July 2023.

# 8. The CoC, in its 13th meeting held on 04.08.2023, approved the Resolution Plan submitted by Respondent No. 1 for an amount of Rs. 50 Crores, and the same was unconditionally accepted by Respondent No. 1 vide letter dated 12.08.2023. The Resolution Plan was approved by this Tribunal vide order dated 13.10.2023.

# 9. The claim of Applicant FC, amounting to Rs. 44,28,03,456/-, was admitted by the RP and satisfied under the approved Resolution Plan. However, it is contended that lease rentals for the period from 01.08.2023 to 13.10.2023, aggregating to Rs. 74,56,673/-, remain unpaid.

# 10. In order to quantify the outstanding dues, the Applicant FC appointed BSRG & Associates, a firm of Chartered Accountants, who submitted a report stating that Respondent No. 1 had incurred expenses of Rs. 46,15,702/-, and the balance amount of Rs. 74,56,673/- is payable as lease rentals for the aforementioned period.

# 11. Despite repeated representations by the Applicant FC and discussion in the Monitoring Committee Meeting dated 28.12.2023, the outstanding lease payments were not cleared by Respondent No. 1. Further, emails dated 05.01.2024 and 08.01.2024 exchanged between the parties also indicate the pendency of the said dues.

# 12. The Respondent No. 1, in its email dated 31.10.2023, claimed that under the terms of the approved Resolution Plan, all balances remaining in the bank account of the Corporate Debtor as on the vesting date (i.e., 13.10.2023) would stand transferred to the Applicant FC, and those after the vesting date would stand vested with Respondent No. 1/SRA, and hence, it is not liable to pay the lease rentals. However, the Applicant FC disputes this interpretation.

# 13. The Applicant FC submits that the lease amounts claimed herein pertain to the CIRP period, i.e., prior to the vesting date (13.10.2023), and accordingly, are payable to the Applicant FC. The obligation to pay lease rentals during the CIRP continues until the date of approval of the Resolution Plan, and is not extinguished merely due to the change in legal status from lessee to Successful Resolution Applicant.

# 14. It is further submitted that Respondent No. 1 has executed an Affidavit and Indemnity1 dated 08.01.2024 in favour of the Applicant FC, acknowledging the outstanding lease dues. In the said affidavit, Respondent No. 1 has specifically admitted that lease amounts for the months of August 2023 to October 2023 remain unpaid.

# 15. The rental obligations incurred during the CIRP period are not part of the Resolution Plan and do not qualify as CIRP costs. The payment of lease dues remains an independent contractual obligation, subsisting until the vesting date, and must be paid to the Applicant FC.

# 16. It is further submitted that there is no mention of the said unpaid lease amounts being included as CIRP costs in the Resolution Plan submitted by Respondent No. 1/SRA.

17. In light of the above facts, the present application has been filed seeking direction to Respondent No. 1 for payment of Rs. 74,56,673/- towards lease rentals due for the period from 01.08.2023 till 13.10.2023, in terms of the Lease Agreement dated 19.12.2020 and MoU dated 01.02.2021.

Counter (SRA and CD (Respondent Nos 1 and 3)

# 18. The Respondent No. 1 denied all the averments of the applicants and stated that they are baseless and without any legal tenability.

# 19. It is submitted that the Respondent No. 1, herein being the lessee of the property, continued to pay the lease rentals till July 2023. Thereafter, on 04.08.2023, the Resolution Plan submitted by the Respondent No. 1 was approved by the CoC (Applicant herein), and the Resolution Professional had filed the application for approval of the Resolution Plan by the Authority on 13.10.2023.

# 20. As per the terms of the Resolution Plan, the balance remaining in the bank account of the CD as on the Vesting Date (i.e. date of approval of 1 Annexure No. 10 the plan by the Hon’ble Adjudicating Authority) shall be handed over to the financial creditor, and all balances after the Vesting Date shall belong to the Applicant herein.

# 21. It is submitted that Respondent No. 1, having acquired the Corporate Debtor, contends that any lease rentals for August to October, if paid now, would be received by the Corporate Debtor—now owned by the Respondent No. 1/SRA and that under the approved Resolution Plan, all balances in the Corporate Debtor’s bank account after the vesting date belong to the Respondent No. 1/SRA.

# 22. It is submitted that the order dated 13.10.2023 passed by this Tribunal states as follows:

• “19. iii. The dues to all financial creditors, to all workmen/employees, to all operational creditors (including statutory, electricity, excise, export, EPCG dues, etc.) and any other dues of the company whether acknowledged or not, admitted or not or otherwise, shall be deemed to be fixed to the amounts shown in the financial plan in Chapter VI of Resolution Plan. All and any other dues are deemed to be extinguished.”

# 23. The Resolution Plan states that the amounts that are fixed under the financial plan under Chapter VI of the Resolution Plan are the only amounts payable by the Respondent No. 1/SRA, and all other amounts shall stand extinguished. Therefore, the contention of the Applicant FC that the lease rentals are pending and the same are payable by the Respondent No. 1/SRA to the Applicant FC herein is untenable.

# 24. The Respondent No 1/SRA has not paid the lease rentals as the payment at this stage would be a payment to itself, which is a futile exercise. Further, such rent is deemed to be extinguished in terms of the approved Resolution Plan.

# 25. It is submitted that, in terms of Section 31(1) of the IBC, a resolution plan is binding on all the stakeholders of the Corporate Debtor. Section 31(1) is reproduced hereunder:

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.

# 26. It is submitted by the Respondent No. 1 that it had offered Rs. 21 Crores to the Applicant FC on the assurance that the Resolution Plan would be approved within two months from 04.03.2023. However, the Applicant FC delayed approval until 04.08.2023, due to which Respondent No. 1 continued to incur lease obligations.

# 27. It is further submitted that during the period from 04.03.2023 to 13.10.2023, Respondent No. 1 paid Rs. 2.34 Crores towards lease rent, including Rs. 40 Lakhs disallowed by the CoC chaired by the Applicant FC. It is contended that these payments have already benefited the Applicant beyond its entitlement under the Resolution Plan.

# 28. Therefore, having received the revised final plan from the Respondent No.1 on 04.03.2023, the Applicant FC having accepted its entitlement under the Resolution Plan, the Applicant FC cannot go back and enhance its entitlement under “financial plan” in the Resolution Plan as approved by this Tribunal, by claiming the lease rentals for the months of August to October 2023, as the same would not be in consonance with the Resolution Plan.

# 29. It is submitted that even as per the order dated 13.10.2023 approving the resolution plan furnished by the Respondent No.1, the fair value and the liquidation value of the Corporate Debtor are Rs. 10,31,03,327/- and Rs. 8,24,46,509/- respectively. The amount offered by the Respondent No.1 is more than twice that of the said fair value and liquidation value.

# 30. It is submitted that the Hon’ble Supreme Court in the matter of Ghanshyam Mishra & Sons Vs. Edelweiss Asset Reconstruction Company (Civil Appeal No. 8129 of 2019) held as follows:

• “A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor”

# 31. In view of the above facts and circumstances, the Respondent No 1 prays to dismiss the instant application as not maintainable either in law or on the facts.

# 32. Respondent No. 2/ Resolution Professional was set ex parte by this Authority vide order dated 22.10.2024.

Rejoinder

# 33. The Applicant FC denies every averment made in the Counter and puts Respondent Nos. 1 and 3 to strict proof thereof.

# 34. The Applicant FC reiterates that, as per the terms of the Resolution Plan, the balance remaining in the bank account of the Corporate Debtor as on the vesting date shall be handed over to the Applicant FC, and all balances after the vesting date shall belong to the Respondent No. 1/SRA. Furthermore, it is stated that the Respondent No. 1/SRA paid lease rent only till July 2023 and failed to pay the outstanding lease rent for the period 01.08.2023 to 13.10.2023, which falls prior to the vesting date.

# 35. Respondent No. 1, in this case, held a dual capacity as lessee prior to the approval of the Resolution Plan and as SRA thereafter. In its capacity as lessee, Respondent No. 1 was obligated to discharge its liability to pay lease rent for the period preceding the approval of the Resolution Plan, i.e., up to 13.10.2023.

# 36. Additionally, Respondent No. 1, in its email dated 31.10.2023, has wrongly interpreted the Resolution Plan to claim all balances after the vesting date. The lease amounts sought pertain to the CIRP period, during which Respondent No. 1 remained lessee, and are payable irrespective of the vesting date or its later status as SRA.

Findings and Decision

# 37. Upon perusal of the pleadings and consideration of the submissions, it is noted that the Applicant, being the sole secured financial creditor, seeks payment of Rs 74,56,673/- towards lease rentals for the period 01.08.2023 to 13.10.2023, under a Lease Agreement dated 19.12.2020 and MoU dated 01.02.2021 with the Corporate Debtor.

# 38. During the CIRP, Respondent No.1 occupied the leased premises and paid rentals until July 2023 into the Corporate Debtor’s designated account. The Resolution Plan was approved by the CoC on 04.08.2023 and by this Authority on 13.10.2023. Respondent No.1, in its Affidavit and Indemnity dated 08.01.2024, admitted that rentals for August–October 2023 remain unpaid.

# 39. The Insolvency Law Committee2, in its Report dated 20.02.2020, considered two divergent views on the distribution of operating profits during the CIRP. The first view is that such profits/or losses should accrue to the creditors, as they forgo interest on their debts during the CIRP and also bear the losses arising from any decline in the company’s valuation through haircuts. The second view is that the operating profits belong to the corporate debtor itself, remaining within the company and being factored into the resolution plan, thereby passing on to the Successful Resolution Applicant. Upon consideration, the Committee concluded that the law should remain flexible as to whether creditors or the Resolution Applicant should benefit from such profits. However, it is recommended that every resolution plan must mandatorily include a clear provision on the treatment and distribution of operating profits or losses.

# 40. We are of the considered view that during the CIRP, the rights of the Financial Creditor are protected through funds generated from the Corporate Debtor’s operations and credited to its designated account. After approval of the Resolution Plan, those rights are determined by the plan’s terms. Here we refer to the case of Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta3, which held that the profits made during the CIRP shall be distributed as per the provisions of RFRP. Also, the Hon’ble NCLAT in JSW Steel Ltd v. Mahender Kumar Khandelwal & Ors4. reiterated that profits made during CIRP shall be distributed in accordance with RFRP as held by the Hon’ble Supreme Court in Essar Case.

# 41. In the present case, the Resolution Plan dated 13.10.2023 stipulates5 that “ The balances remaining in the bank account of the CD as on the vesting date shall be handed over to the financial creditor. All balances after the vesting date will be handed over to the RA. ” It is pertinent to note that the Respondent No.1 consistently remitted lease payments into the Corporate Debtor’s designated account throughout the CIRP (until 3 Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2019) ibclaw.in 07 SC 4 JSW Steel Ltd v. Mahender Kumar Khandelwal & Ors (2020) ibclaw.in 217 NCLAT 5 Page 27 of the Counter July 2023), and rentals for August–October 2023 remain unpaid. In the light of the clear allocation in the Resolution Plan and Respondent No.1’s established practice lease rentals for the period 01.08.2023 to 13.10.2023, which stood, or ought to have stood, to the credit of the Corporate Debtor’s account on the vesting date fall within the “balances” allocated to the financial creditor under the Resolution Plan. Respondent No.1 cannot now contend otherwise.

# 42. The lease rent for the period from 01.08.2023 to 13.10.2023 falls within the CIRP period and was payable prior to the vesting date. If Respondent No. 1 had paid the same in due course, the amount would have been credited to the bank account of the Corporate Debtor and, as of the vesting date, would have belonged to the Financial Creditor in accordance with the Resolution Plan. The non-payment of such rent during that period does not alter its classification as a pre-vesting liability. Even if received later, the said amount shall form part of the pre-vesting balance payable to the Applicant Financial Creditor.

# 43. If the position taken by Respondent No. 1 is accepted, it could create a situation where any income generated through the operations of the Corporate Debtor during the CIRP period could be postponed by manipulation—deliberately withholding payment until after the approval of the Resolution Plan—thereby resulting in the unjust enrichment of the SRA at the cost of the Financial Creditor.

# 44. In the present case, if Respondent No. 1 (now the SRA) had not made payment for the earlier period of the CIRP, it could have claimed that such rentals did not belong to the Corporate Debtor, thereby depriving the Financial Creditor of its rightful entitlement under the Resolution Plan. Such a position cannot be accepted. Similarly, the claim of Respondent No. 1 that unpaid lease rentals for the CIRP period do not belong to the Financial Creditor is equally untenable.

# 45. A Resolution Applicant retains that status until approval of the plan by the Adjudicating Authority, thereafter becoming the Successful Resolution Applicant. In this case, Respondent No.1 was a Resolution Applicant during August–September 2023 and remained obligated, as lessee, to pay rentals to the Corporate Debtor under the lease terms. The contention of the Respondent No 1 that such dues are extinguished under the Resolution Plan or amount to “payment to itself” is meritless.

# 46. The obligation to pay arose prior to approval of the Resolution Plan and before the vesting date, and is unaffected by the subsequent change in status of ownership. The Respondent No.1/SRA enjoyed continuous use and occupation of the leased premises as a Lessee during this period and is liable to pay the corresponding rentals.

# 47. In view of the above, this Authority holds that the obligation to pay lease rentals accrued during the CIRP continues until the vesting date of 13.10.2023. The Respondent No.1/SRA has failed to discharge the admitted liability of Rs 74,56,673/- for the period 01.08.2023 to 13.10.2023.

# 48. Accordingly, the application is allowed. The Respondent No.1 is directed to pay Rs 74,56,673/- to the Applicant within thirty (30) days from the date of this order.

This Application is allowed and disposed of.

Reference;

2 Ministry of Corporate Affairs: Report Of The Insolvency Law Committee (February, 2020) at page 55 paras 15.1–15.5

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Mr. A. Guhan & Anr. Vs. Ms. Sunita Umesh - In the present case, when the Appellant was not in receipt of rent from December 2014, and Arbitral Award obtained by the Appellant was still under execution, the lease rental subsequent to the commencement of the CIRP cannot be treated as CIRP cost and the Adjudicating Authority has rightly accepted the said claim of the Appellant as Operational Debt.

 NCLAT (2024.10.29) in Mr. A. Guhan & Anr. Vs. Ms. Sunita Umesh [Company Appeal (AT) (Insolvency) No. 1095 of 2023 & I.A. No. 3782 of 2023] held that;

• In the present case, when the Appellant was not in receipt of rent from December 2014, and Arbitral Award obtained by the Appellant was still under execution, the lease rental subsequent to the commencement of the CIRP cannot be treated as CIRP cost and the Adjudicating Authority has rightly accepted the said claim of the Appellant as Operational Debt.

Blogger’s Comments; AA’s following observations are quite significant;

• “Arbitral Tribunal directed the CD to pay the rent towards the leased premises from May 2015 till the date of handing over the possession of the leased property to Appellants.”

These observations signify that Arbitral Tribunal directions acknowledge that there was no subsisting lease at the time of Arbitral Award, for which award granted possession of the property to the owner. In absence of a subsisting lease, RP is in unauthorized possession of the property & thus moratorium under section 14 is not applicable on the properties under unauthorized occupation of CD/RP.

Excerpts of the Order;

This Appeal has been filed challenging the Order dated 09.05.2023 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court – II) in Company Appeal (IBC) No.13/2023. Company Appeal (IBC) No. 13/2023 was filed by the Appellant challenging the decision of the Liquidator communicated by email dated 03.01.2023. CA filed under Section 42 of the Insolvency and Bankruptcy Code, 2016, (for short `The Code’ or `The IBC’) by the Appellant was disposed of with 3 directions as contained in Paragraph 5 of the Order. Aggrieved by the Order passed by the Adjudicating Authority, this Appeal has been filed.

# 2. Brief facts of the case necessary to be noticed for deciding the Appealare:

i. Appellant’s predecessor in title executed a Lease Deed dated 04.04.2012 in favour of the Corporate Debtor, letting out an industrial shed with built-up area and open space situated in Survey No. 820/1 B2 in No. 28 Kuthambakkkam Village, Thiruvallur District. ii. Lease deed was executed for 7 years on monthly lease rent of Rs. 21,83,000/-.

iii. Appellant obtained title over the demise premises Property by virtue of Settlement Deed registered on 18.03.2015.

iv. The Corporate Debtor started defaulting payment of the lease rent from the month of December 2014. Lessor invoked Clause 21(a) of the Lease Deed and Notice dated 01.05.2015 was issued to the Corporate Debtor terminating the Lease Deed and calling upon the Corporate Debtor on failure to pay the arrears of rent due, to hand over the possession. 

v. Arbitration Proceedings were initiated and Arbitral Tribunal in Arbitration Case No. 01/2015 gave an Award on 07.09.2016, directing for payment of rental arrears from 16.12.2014 to 01.05.2015 of Rs.1,26,95,876/- and further directed to pay Rs.21,83,000/- p.m., as damages for use and occupation till the handing over of the possession and to vacate and handover possession.

vi. The Appellant filed Execution Petition being EP No.40/2018 and EP No. 41/2018 before the Ld. District Judge, Thiruvallur to exclude the Award, which Execution Proceedings remain pending till Corporate Insolvency Resolution Process (CIRP) was commenced against the Corporate Debtor on 03.02.2021.

vii. Public announcement was made on 06.02.2021. 

viii. Appellant filed their claim on 13.02.2021 in `Form-B’ claiming a sum of ₹12,18,30,000/- being the sum for the rent payable between 01.05.2015 and 15.02.2021, after giving credit to the advance amount and deducting TDS.

ix. By Order dated 18.10.2022, Adjudicating Authority directed for liquidation of the Corporate Debtor and appointed Respondent as Liquidator. Application filed by the Appellant I.A. No. 2379/2022 was disposed of permitting the Appellant to approach the Liquidator with their prayers and Liquidator was directed to decide. As per the Order of the Adjudicating Authority, Appellant approached the Liquidator and sought prayer for handing over possession of the demised property and paying the arrears of lease rent/damages.

x. On 03.01.2023 Liquidator communicated her decision to the Appellant that arrears of rent/damages for unauthorised occupation of the  demised premises property are admitted as an Operational Debt and not as a CIRP Cost. 

xi. With regard to vacation of Plot, Liquidator informed that Auction Proceeding has begun and will be completed within few days and property will be handed over.

xii. Adjudicating Authority in the Impugned Order has issued following 3 directions by disposing the Appeal filed by the Appellant:

“I. The Respondent would make the vacant possession of the leased premises available to the Appellant on 09.05.2023;

II. The rent qua the leased premises for the period from 03.02.2021 to 18.10.2022 during which CIRP was in vogue shall not be treated as CIRP cost;

III. On handing over of vacant possession of the leased premises by Respondent to Appellant on 09.05.2023, the Respondent would be entitled to claim the amount of Rs. 2,18,30,000/-, paid by the CD to the predecessor of the Appellant as an interest-free security deposit, which was refundable to CD on termination/determination of the lease. Nevertheless, it would be open to Appellants herein to work out their claim for adjustment of said amount towards the rent payable by the CD to the predecessor in title of Appellants qua the leased premises and/or the occupation charges which the CD is willing to pay to the Appellants for occupying the premises for the period beyond 18.10.2022, in terms of her e-mail dated 03.01.2023;”

xiii. Appellant aggrieved by this Order, has come up in this Appeal.

# # 3. We have heard Learned Sr. Counsel Mr. Abhijit Sinha appearing for the Appellant and Learned Counsel Mr. Sumant Batra appearing for the Respondent.

# 4. Learned Counsel for the Appellant submits that rent/damages @ Rs.21,83,000/- p.m. were required to be treated as CIRP Cost. Learned Counsel for the Appellant relies on Regulation 31(b) of the IBBI (Insolvency Resolution Process for Corporate Persons), Regulations, 2016, and submits that in view of Moratorium imposed under Section 41(1)(d) Appellant could not take possession of the assets and hence rights of the Appellant are prejudicially affected, which entitled the amount which was liable to be paid to the Appellant as CIRP Cost. Demised premises was in possession of the Corporate Debtor on the commencement of the CIRP, hence in terms of the embargo imposed by Section 14(1)(d) Appellant could not recover the possession of demised premises from the Resolution Professional (RP), even though decree of possession in their favour has already been granted by Arbitral Tribunal which is pending execution. Liquidator in its email dated 03.01.2023 has intimated that premises is being used for storing plant and machinery. When the Liquidator was using the premises, Liquidator was liable to pay the damages as CIRP Cost. RP was occupying and using the premises during the CIRP period. Hence, the Respondents are liable to pay the same as CIRP Cost and not to consider it an Operational Debt.

# 5. Learned Counsel, Mr. Sumant Batra appearing for the Liquidator refuting the submissions of the Counsel for the Appellant submits that the case of the Appellant does not fall under Section 14(1)(d) of the IBC, rather it is covered by Section 14(1)(a). It is submitted that according to own case of the Appellant, Appellant was not receiving rent from December 2014 and on the date when CIRP commenced, i.e., 03.02.2021, Appellant was not in receipt of monthly rent so as to cause any prejudice to the Appellant. Appellant has already obtained an Arbitral Award in its favour dated 07.09.2016, which entitled the Appellant to receive rent and damages till the handing over of the  possession, which Arbitral Award is already put in execution by Execution Petition No. 40 /2018 & 41/2018 which are pending before the District Court, Thiruvallur. When the Appellant was not receiving the rent on the date when CIRP commenced, it cannot claim that the Moratorium prejudicially affected its rights. It is submitted that CIRP Cost is defined under Section 5(13) of the IBC Code and the Insolvency Resolution Process Cost include any cost incurred by the RP running the business of Corporate Debtor as a going concern. Corporate Debtor was not being run as a going concern, hence there was no occasion to treat the damages claimed by the Appellant as the CIRP Cost. Operation of Corporate Debtor has ceased five years before the commencement of the CIRP. The Appellant was not prejudicially affected on account of Moratorium imposed under Section 14(1)(d), as Corporate Debtor has stopped paying rent much before CIRP commenced, more than 7 years ago, Liquidator has accepted the claim of damages from 03.02.2021 till the commencement of the Liquidation as Operational Debt and the payment of said Operational Debt shall be discharged as per waterfall mechanism under Section 53 of the IBC.

# 6. Learned Counsel for both the Parties have relied on various Judgments in support of their respective submissions, which we shall refer hereinafter. 

# 7. We have considered the submissions of Counsel for the Parties and perused the record.

# 8. After commencement of the CIRP, the claim has been filed by the Appellant in `Form-B’ on 13.02.2021 for an amount of Rs. 12,74,12,526/- which claim was admitted by the RP. The Application was filed by the Appellant before the Adjudicating Authority, claiming rent/damages for lease rental/damages for unauthorised occupation @ Rs.21,83,000/- from 03.02.2021, on which Adjudicating Authority has directed the Appellant to approach the Liquidator and Liquidator on the prayers made by Appellant has communicated his decision dated 03.01.2023. The copy of the decision of the Liquidator has annexed as Annexure-16 to the Appeal which is as follows:

# 9. The bone of contention between the Parties is as to whether the claim of lease rent/damages for an authorised occupation after 03.02.2021 till 18.10.2022 is to be accepted as CIRP Cost or is an Operational Debt as accepted by Liquidator. The CIRP cost has been defined in Section 5(13) of the IBC Code, which is as follows:

• “5. Definitions. In this Part, unless the context otherwise requires,—

• (13) Insolvency Resolution Process Costs means—

• (a) the amount of any interim finance and the costs incurred in raising such finance;

• (b) the fees payable to any person acting as a resolution professional;

• (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;

• (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and

• (e) any other costs as may be specified by the Board”

# 10. When we look into the definition of Insolvency Resolution Process Cost as contained in Section 5(13), the claim does not fall in any of the Clauses (a) to (d). Counsel for the Appellant has relied on Regulation 31(b) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, referable to Section 5(13)(e). Regulation 31 deals with Insolvency Resolution Process cost. Regulation 31 provides as follows:

• “31. Insolvency resolution process costs.

• “Insolvency resolution process costs” under Section 5(13)(e) shall mean-

• (a) amounts due to suppliers of essential goods and services under Regulation 32;

• (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

• (c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;

• (d) expenses incurred on or by the resolution professional fixed under Regulation 34;

• (e) and other costs directly relating to the corporate insolvency resolution process and approved by the committee.”

# 11. Appellant’s submission is that due to imposition of Moratorium on 03.02.2021 by the Adjudicating Authority rights of the Appellant insofar as the amounts due are prejudicially affected on account of Moratorium imposed under Section 14(1)(d), since the Appellant could not recover the possession from Corporate Debtor due to Moratorium. Hence, amounts due are Insolvency Resolution Process cost by virtue of Regulation 31(b), hence the Adjudicating Authority committed an error in not accepting the said amount as Insolvency Resolution Process cost.

# 12. From the facts which have been noticed above, it is on the record that Corporate Debtor has stopped making payment from December 2014 and the Arbitral Award dated 07.09.2016 directed Corporate Debtor to pay rent towards the lease premises from May 2015, till the handing over of the possession. From executing the Award, the Appellant had filed Execution Petition No. 40/2018 & 41/2018 before District Court, Thiruvallur which remain pending. On the date when CIRP commenced on 03.02.2021, Appellant was not receiving any rent from the Corporate Debtor and claim of rent/damages and possession of the assets was under consideration in the Execution Proceedings. Adjudicating Authority in the Impugned Order, in Paragraph 5 in detail noticed the sequence of the events and the fact that the Appellant was not receiving any rent from Corporate Debtor on the date CIRP commenced. It is useful to extract following observations:

• “…In the present case, as per the admission by the Appellants themselves, the validity of the lease was for seven years i.e. up till 04.04.2019. The CIRP commenced on 03.02.2021. Thus, when much prior to the commencement of the CIRP, the lease deed had expired, the Appellants cannot be heard saying that as on 03.02.2021 they were entitled to any amount of rent in terms of the lease deed, which claim could be prejudicially affected on account of the moratorium imposed under Section 14 (1) (d) of IBC, 2016. It is also the case of the Appellants that the CD had discontinued payment of rent qua the leased premises from December 2014 itself. Ergo, also in terms of such contention put forth by the Appellants, it was not on account of the moratorium commenced on 03.02.2021 that any prejudice was caused to the Appellants. As it may, on discontinuance of the payment of rent by CD from December 2014, when there was no moratorium in operation against CD, the Appellants/predecessor in title had remedies available to them in accordance with law. Availing such remedy, the predecessor of the Appellants had invoked Clause 21(a) of the Lease Agreement and had invoked Arbitral Proceedings successfully. In terms of the award dated 07.09.2016, passed in Arbitration Case No. 1/2015, the Arbitral Tribunal directed the CD to pay the rent towards the leased premises from May 2015 till the date of handing over the possession of the leased property to Appellants. Admittedly, the Appellants instituted execution proceedings in terms of EP Nos. 40/2018 and 41/2018 before District Court, Thiruvallur. Prejudice on account of the moratorium could be said to have been caused to Appellants, only when the Appellants could not have taken steps prohibited under Section 14 of IBC, 2016. In the present case, the cause of action had arisen to the Appellants much before initiation of CIRP i.e., in December 2014 and the Appellants had availed the legal remedies for redressal of their grievance successfully. They could also resort to execution proceedings much before the commencement of CIRP. Thus, no prejudice could be said to have been caused to them on account of the moratorium. We may also be not oblivious to the fact that the position on the commencement of CIRP was the same as was prevalent in December 2014. The prejudice on account of the moratorium could be alleged only when, till the commencement of the moratorium, the Appellants could be in receipt of rent and thereafter the payment could be stopped only by operation of Section 14 of IBC, 2016. There is no such position involved in the present appeal. Thus, we are of the considered view that the entitlement of the Appellants for rent qua the leased premises was not prejudiced in view of the commencement of moratorium and the plea espoused by the Appellants that a sum of Rs.21,83,000/- per month should be paid to them as CIRP cost for the period from 03.02.2021 to 18.10.2022 is not tenable. It would not be out of place to mention here that the Appellants had consciously filed their claim before the IRP in Form-B. Apparently, the Claim in Form-B of Schedule 1 to IBBI (IRPC) Regulations, 2016 is submitted by the Operational Creditors for operational debt. The best contention of the Appellants may be that their claim for rent was materialized in terms of the Arbitral Award dated 07.09.2016 (ibid). If such could be the plea of the Appellants, the award has taken care of their right and entitlement from 16.012.2014 to 01.05.2015 and from May, 2015 till the vacation of the lease premises, which is yet to be vacated. Thus, the Appellants could avail the remedy and get the relief that they could look for, but for the moratorium. For the implementation of the award, besides filing execution proceedings before the appropriate forum, they could also file a claim as Operational Creditor before IRP/Liquidator. The Appellants cannot plead that part of the amount of the Arbitral award should be treated as operational debt and part of the same should be treated as CIRP cost. At the cost of repetition, it is viewed that once the Arbitral Award has taken care of the claim of the Appellants qua the rent up till vacation of leased premises, the moratorium has not caused any prejudice to them…”

# 13. After enforcement of Moratorium under Section 14 by virtue of Section 14(1)(a) the Appellant could not have prosecuted the Execution Proceeding against the Corporate Debtor. The provision against the Appellant to execute the Arbitral Award is covered by Section 14(1)(a). Present is the case where there is already an Arbitral Award in favour of the Appellant execution of which had already been initiated. Hence Appellant was by virtue of Section 14(1)(a) could not have been proceeded with the execution. When the Appellant could not have proceeded with the execution of Arbitral Award, there was no occasion to recover the rent and assets from the Corporate Debtor.

# 14. Now we come to the applicability of Regulation 31(b) on which reliance has been placed by the Counsel for the Appellant. Regulation 31(b) refers to amount due to a person whose rights are prejudicially affected on account of the Moratorium imposed under Section 14(1)(d). As noted above, the Appellant was not receiving lease rental from Corporate Debtor from December 2014 and direction to pay lease rental/damages for occupation from May 2015 also was under execution since 2018. The entitlement of Appellant to receive damages and occupation from the Corporate Debtor was already crystallised in Award and it was due to 14(1)(a) Appellant could not have prosecuted the execution. Hence, we are of the view that the claim of Appellant as per Arbitral Award to receive damages and occupation from Corporate Debtor cannot be treated as Insolvency Resolution Process cost under Section 31(b).

# 15. It is not the case that RP has incurred any cost for running the Corporate Debor as a going concern. RP has never communicated to the Appellant or accepted that amount of damages shall be treated as CIRP cost. Learned Counsel for the Appellant has contended that by the email dated 03.01.2023, Liquidator communicated that the land is being utilised by the Corporate Debtor for running its business. The email dated 03.01.2023 does not contain any averment that assets are being used for by the Corporate Debtor as a going concern. What was communicated to the Appellant was that few plants and machinery are attached/available at the site, on which Auction Proceedings have begun and shall be completed within a few days. It was stated that removal of these plants and machinery are time consumable task.

# 16. The fact that plant and machineries are attached/available at the site cannot be read to mean that the premises were being used as a going concern by Corporate Debtor, and the said statement was made with regard to claim f vacation of the assets as was prayed by the Appellant. It is due to the aforesaid that Adjudicating Authority in the Impugned Order has fixed a time limit for vacation of the assets i.e., by 09.05.2023. Parties are at Agreement that premises have already been handed over to the Appellant.

# 17. Counsel for the Appellant has relied on the Judgment of this Tribunal dated 06.05.2022 in the matter of `Mack Star Marketing Private Limited’ Vs. `Mr. Ashish Chhawchharia’ in Comp. App. (AT) (Ins.) No. 389/2021, and the Clarification Order dated 30.05.2022. In the above case, the RP did not pay the monthly license fee on the ground that security amount is payable by the Appellant to the Corporate Debtor. It is true that in the above case, the monthly license fee payable was treated to the CIRP cost. The RP had not handed over the possession on account of security being payable by Appellant to the Corporate Debtor. In the present case, there is already an Arbitral Award in favour of the Appellant, which direct for payment of damages and occupation till the handing over of the possession. The Judgment of the `Mack Star Marketing Private Ltd.’ (Supra) is clearly distinguishable in the facts of the present case where the claim of damages for occupation of premises has been admitted from date of commencement of CIRP till the date of liquidation and has been treated as an Operational Debt. The issue which has arisen in the facts and circumstances of the present case were not up for consideration in the `Mack Star Marketing Private Limited’ (Supra), hence said Judgment is distinguishable in the facts of present case.

# 18. Learned Counsel for the Appellant has relied on another Judgment of this Tribunal in the matter of `Prerna’ Singh Vs. `Committee of Creditors’, in Contempt Case (AT) No. 03/2020 in Comp. App. (AT) (Ins.) No. 104/2019, where this Tribunal has held that rent of premises comes within the purview of CIRP cost. In the present case, there was already an Arbitral Award entitling the Appellant to receive damages and occupation till possession is handed over but on account of Moratorium under Section 14(1)(a) Execution Proceedings which were initiated in 2018 by the Appellant could not be proceeded. In the present case, there is no dispute to the entitlement of the Appellant of damages and occupation @ Rs.21,83,000/- p.m., which claim has already been admitted by the Liquidator. In the special

facts and circumstances of the present case, we agree with the view of the Adjudicating Authority that claim of damages and occupation after 03.02.2021 cannot be treated to be the CIRP cost. The Corporate Debtor is not carrying any business nor has undertaken to pay the lease rental to the Appellant for use of occupation at any point of time.

# 19. Learned Counsel for the Respondent has placed reliance on the Judgment of this Tribunal in the matter of `JAS Telecom Private Limited’ Vs. `Eolane Electronics Bangalore Private Limited’, reported in 2018 SCC OnLine NCLAT 641. In the above case, this Tribunal had occasion to consider the case where rent has not been paid by the Corporate Debtor since January 01, 2017, whereas Moratorium was imposed on 31.08.2017. In the above case, also the Appellant has claimed amount of rent as CIRP cost under Section 14(1)(d). This Tribunal in Paragraphs 3 to 7 has noted the facts and has held that Appellant cannot claim that its rights have been affected prejudicially on account of Moratorium since rent has not been paid much beyond Moratorium. Paragraphs 3 to 7 are as follows:

• “3. The question arises for consideration in this appeal is whether the amount of rent due to the Appellant has prejudicially affected on account of the moratorium imposed under Section 14(1)(d).

• 4. The insolvency resolution process cost as prescribed in regulation 31 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 reads as follows:

• “INSOLVENCY RESOLUTION PROCESS COSTS 

• 31. Insolvency resolution process costs.-

• “Insolvency resolution process costs” under section 5(13)(e) shall mean-

• (a) amounts due to suppliers of essential goods and services under Regulation 32; (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

• (c) expenses incurred on or by the interim resolution professional to the extent ratified under regulation 33;

• (d) expenses incurred on or by the resolution professional fixed under regulation 34; and

• (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.”

• 5. From the aforesaid provision it is clear that the amounts due to the person whose rights are prejudicially affected on account of the moratorium imposed under Section 14(1)(d), such amount to be n the insolvency resolution process costs.

• 6. So far as Appellant is concerned, the rent has not been paid by the Corporate Debtor since 1st January, 2017 that is much prior to order of moratorium.

• 7. Learned counsel for the Resolution Professional (Respondent) rightly pointed out that the rent amount due to the Appellant was not prejudicially affected on account of the moratorium imposed under Section 14(1)(d). In fact it has not been paid since prior to the order of moratorium i.e. since 1st January, 2017. The order of moratorium was passed subsequently on 31st August, 2017, therefore, the Appellant cannot claim that its right has been affected prejudicially on account of moratorium imposed by the Adjudicating Authority.”

# 20. The above Judgment fully supports the contention raised by the Counsel for the Respondent that benefit of Section 14(1)(d) cannot be claimed by the Appellant in the present case. Learned Counsel for the Respondent has also relied on another Judgment of this Tribunal in the matter of `Avil Menezes Liquidator of Sunil Hitech and Engineers Limited’ Vs. `Abdul Qudduskhan and Anr.’ reported in 2024 SCC Online NCLAT 615. In the above Judgment, in Paragraphs 49 & 50 following has been held:

• “49. We are, therefore, inclined to agree that mere fact that the dues have arisen during the CIRP period would not be determinative of it to be classified as CIRP cost. Interpreting Section 5(13)(c) of the Code in this manner would render the words “in running the business of the corporate debtor as a going concern” otiose. Further, it is clear from Regulation 31 and the guidance provided by IBBI vide the above-mentioned circular that unless the CoC has approved the dues and they directly relate to the CIRP, the dues cannot be classified as CIRP cost. And the CoC decided to exclude the cost incurred from the terminated projects, which is not maintaining the Corporate Debtor as “a going concern”.

• 50. In conclusion, the following criteria determine whether a cost incurred by the Resolution Professional during CIRP qualifies as CIRP cost: (a) maintaining the Corporate Debtor as a going concern, (b) payment to suppliers of essential goods and services, and (c) direct relation to CIRP with approval from the Committee of Creditors (CoC). Applying these criteria to this case, the claim fails to meet the definition of CIRP cost.”

# 21. In the present case, when the Appellant was not in receipt of rent from December 2014, and Arbitral Award obtained by the Appellant was still under execution, the lease rental subsequent to the commencement of the CIRP cannot be treated as CIRP cost and the Adjudicating Authority has rightly accepted the said claim of the Appellant as Operational Debt. It is already on the record that Appellant itself has filed its claim prior to CIRP period as an operational claim which has been admitted.

# 22. We fail to find any distinction in the nature of the claim of the Appellant, which is claimed for damages and occupation prior to CIRP and subsequent to the CIRP, the nature of claim both pre-CIRP and post CIRP has rightly been treated as Operational Debt. We thus do not find any error in the Order of the Adjudicating Authority, warranting interference by this Tribunal in exercise of the appellate jurisdiction. The Appeal is dismissed.

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