Covid19 - Force Majeure Clause (FMC)

Force Majeure Clause (FMC) ;  A FM clause does not excuse a party's non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto.

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 No.F. 18/4/2020-PPD 

Government of India 

Ministry of Finance 

Department of Expenditure 

Procurement Policy Division 

***** 

Room No.512, Lok Nayak Bhavan, New Delhi dated the 19th February, 2020. 

OFFICE MEMORANDUM 

Subject;  Force Majeure Clause (FMC) 

Attention is invited to para 9.7.7 of the “Manual for Procurement of Goods, 2017" issued by this Department, which is reproduced as under: 

A Force Majeure (FM) means extraordinary events or circumstance beyond human control such as an event described as an act of God (like a natural calamity) or events such as a war, strike, riots, crimes (but not including negligence or wrong-doing, predictable/ seasonal rain and any other events specifically excluded in the clause). An FM clause in the contract frees both parties from contractual liability or obligation when prevented by such events from fulfilling their obligations under the contract. An FM clause does not excuse a party's non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto. There may be a FM situation affecting the purchase organisation only. In such a situation, the purchase organisation is to communicate with the supplier along similar lines as above for further necessary action. If the performance in whole or in part or any obligation under this contract is prevented or delayed by any reason of FM for a period exceeding 90 (Ninety) days, either party may at its option terminate the contract without any financial repercussion on either side. 

2. A doubt has arisen if the disruption of the supply chains due to spread of corona virus in China or any other country will be covered in the Force Majeure Clause (FMC). In this regard it is clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate, following the due procedure as above. 

(Kotluru Narayana Reddy) 

Deputy Secretary to the Govt. of India 

Tel. No.24621305  

Email: kn.reddy@gov.in 

To ;  Secretaries of all Central Government Ministries/ Departments 

Promila Taneja Vs Surendri Design Pvt. Ltd. - Lease Rents due can not be treated as Operational Debt.

NCLAT (10.11.2020) in Promila Taneja Vs Surendri Design Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 459 of 2020] held that;-

• # 14. Yet again, if the definition of “Financial Debt” is perused Section 5 (8) (d) includes the following as financial debt:

-  “(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standard or such other accounting standards as may be prescribed;”

• # 15. It is clear that the legislature was conscious regarding liabilities arising from lease but although for particular types of lease, as mentioned in above subclause (d), legislature made specific provision to even make it Financial Debt, while dealing with Operational Debt, no such provision has been made. Thus, even on the parameters of interpretation of statutes, we are not in a position to hold that the rents due could be treated as Operational Debt. For reasons recorded in the matter of Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors., we do not find fault with Impugned Order.

Blogger's Comments;

NCLAT (05.07.2022) in Jaipur Trade Expocentre Pvt. Ltd. Vs. M/s Metro Jet Airways Training Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 423 of 2021] held that

• As noted above the Tribunal in the above case has relied on Section 14(2) of the Code for interpreting ‘service’, which was only a very restricted meaning of service. We are thus of the view that the judgment of this Tribunal in Mr. M. Ravindranath Reddy does not lay down the correct law.

Excerpts of the order;

10.11.2020 Heard Learned Counsel for the parties.

# 2. Learned Counsel for the Appellant is submitting that the Appellant is landlord who had filed the Application under Section 9 of Insolvency and Bankruptcy Code, 2016 (In short IBC) in C.P. (IB) No. 394/Chd/Hry/2018 before the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench, Chandigarh). The Application filed under Section 9 of IBC came to be dismissed by the Adjudicating Authority relying on Judgment of this Tribunal in the matter of “Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors.” in Company Appeal (AT) (Insolvency) No. 331 of 2019 dated 17th January, 2020 and held that dues in the nature of rent of immovable property do not fall under the head of Operational Debt as defined under Section 5 (21) of IBC. The Adjudicating Authority further held that there was pre-existing dispute. The Corporate Debtor claimed before the Adjudicating Authority that lease agreement was terminated in July, 2017 due to change of circumstances.

# 4. Regarding the other aspect whether rent is Operational Debt, the Learned Counsel for the Appellant submits that after the Judgment passed by this Tribunal in the matter of “Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors.”, another Bench of this Tribunal has in Judgment in the matter of “Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors.” (Company Appeal (AT) (Insolvency) No. 229 of 2020 dated 07.10.2020 held that when the space provided is for commercial purposes, the arrangement has to be treated as services considering the definitions as seen in the Consumer Protection Act and the Central Goods and Services Tax Act, 2017 and the Bench of this Tribunal has also referred to portion of Judgment of Hon’ble Supreme Court in Mobilox Innovations Pvt. Ltd Vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353. The Learned Counsel has then submitted that on parity, the present appellant should also get relief considering the other view taken by Bench of this Tribunal subsequent to the Judgment in the matter of “Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors.”

# 6. Question raised again is whether arrears of rent could be said to be Operational Debt. This issue was dealt with by a three-member Bench of this Tribunal in Company Appeal (AT) (Insolvency) No. 331 of 2019 (Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors.). Both of us along with one more Hon’ble Member were party to that Judgment. In the said Judgment of Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors, we had referred to the Insolvency Law Reforms Committee Report of November, 15 and observed as under:

• “The law has not gone into defining goods or services – hence, one has to rely on general usage of the terms so used in the law, with due regard to the context in which the same has been used. Simultaneously, it is also relevant to understand the intention of the lawmakers. The Bankruptcy Law Reforms Committee (BLRC), in its report dated November 2015, states that “Operational creditors are those whose liability from the entity comes from a transaction on operations”. While discussing the different types of creditors, the Committee points out that “enterprises have financial creditors by way of loan and debt contracts as well as operational creditors such as employees, rental obligations, utilities payments and trade credit.” Further, while differentiating between a financial creditor and an operational creditor, the Committee indicates “the lessor, that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease”. Hence, the BLRC recommends the treatment of lessors/landlords as operational creditors. However, the Legislature has not completely adopted the BLRC Report, and only the claim in respect of goods and services are kept in the definition of operational creditor and operational debt u/s Sec 5(20) and 5(21) of the Code. The definition does not give scope to interpret rent dues as operational debt.”

# 7. We had then referred to the relevant definitions from IBC and after discussing the provisions we had concluded as under:

• “Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or Operational Debt.”

# 8. As the Learned Counsel for the Appellant has submitted that another Bench of this Tribunal has taken a different view with the assistance of the Learned Counsel for parties we have gone through the said Judgment which is in the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors. (Company Appeal (AT) (Insolvency) No. 229 of 2020). Going through the Judgment, it shows that the Ld. Bench of this Tribunal also referred to the various definitions which are material in Paragraph 12 of the Judgment and then the Tribunal referred to the observations made in Judgment in the matter of Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors. and discussed Judgment in the matter of Sarla Tantia Vs. Ramaanil Hotels & Resorts Pvt. Ltd. in the context of lease and license agreement. In paragraph 17 of the Judgment in the matter of Anup Shushil Dubey Vs. National Agriculture Cooperative Marketing Federation of India Limited & Ors. it is observed as under:

• “17. The Hon’ble Supreme Court in Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited (2018) 1 SCC 353 in Para 5.2.1 observed as hereunder;

• 5.2.1 Who can trigger IRP? Here, the code differentiates between financial creditors and operational creditors. Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or a debt security. Operational creditors are those whose liability from the entity comes from a transaction on operations. Thus, the wholesale vendor of spare parts whose spark plugs are kept in inventory by the car mechanic and who gets paid only after the spark plugs are sold is an operational creditor. Similarly, the lessor that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease. The Code also provides for cases where a creditor has both a solely financial transaction as well as an operational transaction with the entity. In such a case, the creditor can be considered a financial creditor to the extent of the financial debt and an operational creditor to the extent of the operational debt.   (Emphasis Supplied)”

# 9. In paragraphs 20 and 21 of the Judgment, there is reference to definition of “service” under the Consumer Protection Act, 2019 and “a list of activities” which are treated as supply of goods or services under the Central Goods and Services Tax Act, 2017. Referring to the same, in Paragraph 22 of the Judgment, Hon’ble Bench concluded that keeping in view the observations made by the Hon’ble Supreme Court in Para 5.2.1 of Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited (2018) 1 SCC 353 (Supra) and having regard to the facts of the case, Ld. Bench was of the view that lease rentals arising out of use and occupation of Cold Storage which was for commercial purposes was Operational Debt under Section 5 (21) of the Code.

# 10. For such reasons, the Hon’ble Bench of this Tribunal has taken a different view in Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors.

# 11. We are finding difficulty to change the view we had taken in the matter of Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors. for the following reasons. In the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors, it does not appear that the Learned Counsel for parties duly assisted the Hon’ble Bench. In paragraph 17 of the Judgment which we have reproduced above, the Hon’ble Bench recorded that Hon’ble Supreme Court in Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited in paragraph 5.2.1 have observed as per the portion quoted and reproduced by the Hon’ble Bench. When with the assistance of Learned Counsel for parties, we have gone through the original Judgment in the matter of Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited as reported in (2018) 1 SCC 353, in Paragraph 22 of the Judgment, the Hon’ble Supreme Court was reproducing portions from the final report dated November, 15 of Insolvency Law Reforms Committee and Paragraph 5.2.1 which was part of the report of the Committee was reproduced. Such paragraph 5.2.1 of report of Insolvency Law Reforms Committee has been recorded in Paragraph 17 of the Judgment as if it is observation of the Hon’ble Supreme Court in the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors. This is apparently not correct.

…….. Learned Counsel for Appellant, before us does not show anything that in Mobilox Judgment, Hon’ble Supreme Court has held Rent to be Operational Debt.

It appears to us that the Learned Counsel for parties did not properly assist the Hon’ble Bench in the matter of Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors.

# 12. Another aspect is that, Section 3 (37) of IBC reads as under:

• “(37) words and expressions used but not defined in this Code but defined in the Indian Contract Act, 1872 (9 of 1872), the Indian Partnership Act, 1932 (9 of 1932), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), the Limited Liability Partnership Act, 2008 (6 of 2009) and the Companies Act, 2013 (18 of 2013), shall have the meanings respectively assigned to them in those acts.”

# 13. It is clear that words and expressions used in IBC which have not been defined but which have been defined in the Acts mentioned above can be directly imported. However, the Consumer Protection Act, 2019 and Central Goods and Services Tax Act, 2017 do not appear to have been covered under the Section 3 (37) and thus definition of “Service” and “Activities” to be treated as supply of service cannot simply be lifted and applied in IBC. Learned Counsel for parties in Anup Shushil Dubey Vs. National Agriculture Co-operative Marketing Federation of India Limited & Ors do not appear to have brought this to Notice of Bench. For such reasons, with all due respect, we find that we are unable to have a second look at the opinion we arrived at in the Judgment in the matter of “Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors.”

# 14. Yet again, if the definition of “Financial Debt” is perused Section 5 (8) (d) includes the following as financial debt:

• “(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standard or such other accounting standards as may be prescribed;”

# 15. It is clear that the legislature was conscious regarding liabilities arising from lease but although for particular types of lease, as mentioned in above subclause (d), legislature made specific provision to even make it Financial Debt, while dealing with Operational Debt, no such provision has been made. Thus, even on the parameters of interpretation of statutes, we are not in a position to hold that the rents due could be treated as Operational Debt. For reasons recorded in the matter of Mr. M. Ravindranath Reddy Versus Mr G. Kishan & Ors., we do not find fault with Impugned Order.

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M. Ravindranath Reddy Vs G. Kishan & Ors - Lease of Immovable Property cannot be considered as a supply of Goods or rendering of any Services.

 NCLAT (17.01.2020) in Mr. M. Ravindranath Reddy Vs Mr G. Kishan & Ors. [Company Appeal (AT) (Insolvency) No. 331 of 2019] held that;-

• For an amount to be classified for an operational debt under I&B Code, 2016, it is provided: Firstly, the amount falls within the definition of "claim" as defined under Section 3(6) of the Code; Secondly, such a claim should claim within the confines of the definition of a 'debt' as defined under Section 3(11), meaning it should be by way of a liability or obligation due from any person; Thirdly, such a "debt" should fall strictly within the scope of an "Operational Debt" as defined under Section 5(21) of the Code, i.e. the claim should arise in respect of

• (i) provision of goods or services including employment or

• (ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the Central Government, any State Government or any local authority.

• The word “in relation to Government” or local authority and the dues owed to it, has been given a wide platform. It is important to see whether persons other than the Government or local authority can claim the benefit, that any debt owed should be construed as an 'operational debt' other than those classified as 'financial debt'.

• Thus, only if the claim by way of debt falls within one of the three categories as listed above, can be categorised as an operational debt. In case if the amount claimed does not fall under any of the categories mentioned as above, the claim cannot be categorised as an operational debt, and even though there might be a liability or obligation due from one person, namely Corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorise itself as an "Operational Creditor" as defined under Section 5(21) of the I&B Code, 2016. Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or 'Operational Debt.

Blogger's Comments;

NCLAT (05.07.2022) in Jaipur Trade Expocentre Pvt. Ltd. Vs. M/s Metro Jet Airways Training Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 423 of 2021] held that

• As noted above the Tribunal in the above case has relied on Section 14(2) of the Code for interpreting ‘service’, which was only a very restricted meaning of service. We are thus of the view that the judgment of this Tribunal in Mr. M. Ravindranath Reddy does not lay down the correct law.

Excerpts of the order;

Brief facts, as stated by the Respondent/Applicant, is that the Respondents are the Lessors and the Corporate Debtor - M/s. Walnut Packaging Private Limited is the Licensee of Industrial Premises consisting of land measuring about 1667 sq. Yards, situated at Kukatpally, Hyderabad.

That tenancy of the Appellant was yearly, and the rent payable for the period from July 2011 to June 2017 was Rs. 85,67,290/- and the Corporate Debtor / Appellant is stated to be making part payments of lease rent from July 2011 until December 2016, totalling to Rs. 49,96,728/-, after deduction of Rs. 5,55,192/- as TDS. The aggregate credit to the Corporate Debtor's account was Rs. 55,51,920/-. The Corporate Debtor stopped making the payment from January 2017, after the last part payment was made, which was adjusted towards rental dues. The dues against the Corporate Debtor at the end of June 2017 was Rs. 30,15,370/-. After that, the Respondent /Petitioner issued a legal notice dated 15-06-2017 to handover the property back to the Petitioners, but the Corporate Debtor failed to vacate the property. After that, an eviction suit was filed against the Corporate Debtor before the jurisdictional Civil Court.

The Adjudicating Authority held that the Corporate Debtor had taken the property of the Petitioners on rent and they were paying rent up to June 2017. But the Corporate Debtor failed to pay the rent from July 2017onwards.

The Adjudicating Authority has stated that:

• "The main issue in the matter is as to whether the Petitioners accepted a moratorium for no enhancement of rent for six years or not? Though the Corporate Debtor says so, but there is no documentary proof filed to that effect. In the absence of any documentary proof about accepting the moratorium, the submissions of the Corporate Debtor are to fail. It is deemed that the Corporate Debtor has failed in making payment of rents as no substantial document is placed on record to show the existence of moratorium between the parties regarding the Rent. Therefore, I am inclined to admit the Petition".

The following question arises for our consideration :- 

• 1. Whether a landlord by providing lease, will be treated as providing services to the corporate debtor, and hence, an operational creditor within the meaning of Section 5(20 )read with Section 5(21) of the 'Insolvency and Bankruptcy Code, 2016?

• 2. Whether the petition filed U/S 9 of the Insolvency and Bankruptcy Code 2016 is not maintainable on account of 'pre-existing dispute'?

The Insolvency and Bankruptcy Code (“Code”) recognises two types of debt to enable the creditors to make an application for initiating insolvency proceedings against the corporate debtor- financial debt and operational debt. If there is a debt, other than a financial debt or an operational debt, the creditor will not qualify to apply under Sections 7 or 9, as the case may be. Hence, the determination of nature of claim/debt is an important step while considering the admission of an application under the Code.

While the law is still evolving, there are certain categories of dues, about which, the debate as to their classification into financial or operational debt continues. One such debt claims on account of unpaid rent payable by an entity to a landlord are in question in the present case.

The Appellant also placed reliance on the provisions of the Central Goods and Services Tax Act, 2017. Schedule- II of the Act list down the activities that are to be treated as supply of goods or services, and paragraph 2 of the schedule stipulates as follows:

• “(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

• (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”

This Tribunal, in the case of Jindal Steel & Power Ltd. v. DCM International Ltd. Company Appeal (AT)(Insolvency) No 288/2017 , held as follows:

• “Admittedly, the Appellant is a tenant of Respondent- . Even if it is accepted that a Memorandum of Understanding has been entered between the parties in regard to the premises in question, the Appellant being a tenant, having not made any claim in respect of the provisions of the goods or services and the debt in respect of the repayment of dues does not arise under any law for the time being in force payable to the Central Government or State Government, we hold that the Appellant tenant do not come within the meaning of ‘Operational Creditor’ as defined under sub-section (20) read with sub-Section (21) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to ‘I&B Code’) for triggering Insolvency and Bankruptcy Process under Section 9 of the ‘I&B Code’”

Relying on the judgment above of NCLAT, C.P. No.567/IB/2018 Citicare Super Speciality Hospital v. Vighnaharta Health Visionaries Pvt. Ltd. Dated 11th March 2019, NCLT, Mumbai Bench dismissed the petition, which was about arrears of license fee.

NCLT, New Delhi, in Parmod Yadav & Anr v. Divine Infracon (P) Ltd., 2017 SCC OnLine NCLT 11263 observed that the word “operational” or for that matter “operation” has not been defined anywhere in the Code. The General Clauses Act, 1897, also do not define the term. Hence, the term has to be given a meaning as ordinarily understood. The dictionary meaning of „operational‟ is given as „of or relating to operation‟ (Merriam Webster). Similarly, the meaning of „operation‟ is given as „ready for use or able to be used‟.

However, without going into the aspect whether an immovable property in itself constitutes stock- in- trade of the corporate debtor and has a direct nexus to its input- output, being an integral part of its operations, the Bench held that lease of immovable property cannot be considered as a supply of goods or rendering of services, and thus, cannot fall within the definition of operational debt. In this regard, reliance was also placed on Col. Vinod Awasthy v. AMR Infrastructure Ltd.

Further, relying on Jindal Steel (supra) and Citicare (supra), NCLT Hyderabad also, in the case of CP/IB/61/9/HDB/2019 Manjeera Retail Holdings Pvt. Ltd. v. Blue Tree Hospitality Pvt. Ltd., held that the petitioner claiming default in payment of rent of the premises leased out cannot be treated as an operational creditor, and the amount involved cannot be treated as an operational debt.

For an amount to be classified for an operational debt under I&B Code, 2016, it is provided:

• Firstly, the amount falls within the definition of "claim" as defined under Section 3(6) of the Code;

• Secondly, such a claim should claim within the confines of the definition of a 'debt' as defined under Section 3(11), meaning it should be by way of a liability or obligation due from any person;

• Thirdly, such a "debt" should fall strictly within the scope of an "Operational Debt" as defined under Section 5(21) of the Code, i.e. the claim should arise in respect of

• (i) provision of goods or services including employment or

• (ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the Central Government, any State Government or any local authority.

The word “in relation to Government” or local authority and the dues owed to it, has been given a wide platform. It is important to see whether persons other than the Government or local authority can claim the benefit, that any debt owed should be construed as an 'operational debt' other than those classified as 'financial debt'.

Thus, only if the claim by way of debt falls within one of the three categories as listed above, can be categorised as an operational debt. In case if the amount claimed does not fall under any of the categories mentioned as above, the claim cannot be categorised as an operational debt, and even though there might be a liability or obligation due from one person, namely Corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorise itself as an "Operational Creditor" as defined under Section 5(21) of the I&B Code, 2016. Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or 'Operational Debt.

Thus, it is clear that the landlord, who filed an application for recovery of alleged enhanced lease rent, can not be treated as an operational creditor within the meaning of Section 5(20 )read with Section 5(21) of the 'Insolvency and Bankruptcy Code, 2016.

We are of the considered opinion that the alleged debt on account of purported enhanced rent of leasehold property does not fall within the definition of the operational debt in terms of Section 5(21) of the Code. On the above basis, it is clear that appeal deserves to be allowed.

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Dhaval Ranchhod Patel & Anr. Vs Neumec Estate Developers LLP - Lease of Immovable Property cannot be considered as a supply of goods or rendering of any services.

NCLT Mumbai-V (30.04.2020) in Dhaval Ranchhod Patel & Anr. Vs Neumec Estate Developers LLP  [CP (IB) No.2290 & 2508/2019] held that;

• For an amount to be classified for an operational debt under I&B Code, 2016, it is provided: Firstly, the amount falls within the definition of "claim" as defined under Section 3(6) of the Code; Secondly, such a claim should claim within the confines of the definition of a 'debt' as defined under Section 3(11), meaning it should be by way of a liability or obligation due from any person; Thirdly, such a "debt" should fall strictly within the scope of an "Operational Debt" as defined under Section 5(21) of the Code, i.e. the claim should arise in respect of

• (i) provision of goods or services including employment or

• (ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the Central Government, any State Government or any local authority.

• Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or 'Operational Debt”.

Blogger's Comments;

NCLAT (05.07.2022) in Jaipur Trade Expocentre Pvt. Ltd. Vs. M/s Metro Jet Airways Training Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 423 of 2021] held that

• As noted above the Tribunal in the above case has relied on Section 14(2) of the Code for interpreting ‘service’, which was only a very restricted meaning of service. We are thus of the view that the judgment of this Tribunal in Mr. M. Ravindranath Reddy does not lay down the correct law.

• Hence, in the present case, debt pertaining to unpaid license fee was fully covered within the meaning of ‘operation debt’ under Section 5(21) and the Adjudicating Authority committed error in holding that the debt claimed by the Operational Creditor is not an ‘operational debt’. 

• The claim of Licensor for payment of license fee for use of Demised Premises for business purposes is an ‘operational debt’ within the meaning of Section 5(21) of the Code.

Excerpts of the order;

# 1. These two company petitions are taken together for consideration since the issues involved in both the petitions are similar and the corporate debtor is same in both the petitions.

# 2. On hearing the Counsel for both side and going through the pleadings, the following points emerges in these petitions:

• a. The petitioners were tenants in a building complex. The petitioners, the corporate Debtor and the owner of the premises had entered into an agreement for permanent alternate accommodation on 21 July 2011, wherein the corporate Debtor agreed to demolish the existing structure and construct and handover flat measuring 350 ft² to each of the petitioners. The corporate Debtor agreed to pay the petitioners/ tenants, compensation for temporary transit accommodation at certain rate till the handing over of the completed flats by the Corporate Debtor along with occupational certificate.

• b. Corporate Debtor completed the construction and handed over flats to other eight tenants , pending receipt of occupancy certificate, in December 2016. But these two petitioners, refused to take possession of the flats, on the ground that the corporate Debtor failed to get occupancy certificate for the premises from the local authority and hence claimed the monthly compensation/rent for transit accommodation as an operational creditor for the period from 16.12.2016 to 31.03.2019, by sending section 8 notice to the corporate Debtor and demanded the reimbursement of rent along with interest at the rate of 15% per annum. Since the corporate Debtor failed to make the payment as demanded, the petitioners are before us by filing petitions under section 9 of the code. The claim amount is Rs.14,72,154/- in CP No.2290/2019 and Rs.14,75,446/- in CP No.2508/2019.

# 3. This bench is of the considered view that the compensation claim by the petitioners is nothing but reimbursement of rent paid by them. Hence these petitions are claims for rent.

# 4. The Hon’ble NCLAT, in the case of M. Ravindranath Reddy Vs. G. Kishan and Ors. MANU/NL/0016/2020, held as below:

•  “28. For an amount to be classified for an operational debt under I&B Code, 2016, it is provided: Firstly, the amount falls within the definition of "claim" as defined under Section 3(6) of the Code; Secondly, such a claim should claim within the confines of the definition of a 'debt' as defined under Section 3(11), meaning it should be by way of a liability or obligation due from any person; Thirdly, such a "debt" should fall strictly within the scope of an "Operational Debt" as defined under Section 5(21) of the Code, i.e. the claim should arise in respect of

• (i) provision of goods or services including employment or

• (ii) A debt in respect of the repayment of dues arising under any law for the time being in force and payable either to the Central Government, any State Government or any local authority.

• “29. The word "in relation to Government" or local authority and the dues owed to it, has been given a wide platform. It is important to see whether persons other than the Government or local authority can claim the benefit, that any debt owed should be construed as an 'operational debt' other than those classified as 'financial debt'.

• “30. Thus, only if the claim by way of debt falls within one of the three categories as listed above, can be categorised as an operational debt. In case if the amount claimed does not fall under any of the categories mentioned as above, the claim cannot be categorised as an operational debt, and even though there might be a liability or obligation due from one person, namely Corporate Debtor to another, namely Creditor other than the Government or local authority, such a creditor cannot categorise itself as an "Operational Creditor" as defined under Section 5(21) of the I&B Code, 2016. Therefore, we are of the considered opinion that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition or 'Operational Debt”.

# 5. The debt claimed in these petitions being rent, when the ratio laid down in the judgement cited supra, is applied to the facts of the cases on hand, the petitions are liable to be dismissed.

# 6. Further, the letters of the corporate Debtor dated 2 January2017 and 3 January 2017, have been placed on record. Broadly, these letters are identical in nature in both the petitions. The gist of these letters is that the flats were almost ready for occupation, except for fitouts to the satisfaction of the allottees, and that keys had been handed over to the allottees to enable them to carry out fitouts to their liking. Further, the possession of the flats had also been handed over to the allottees in anticipation of occupancy certificate from the Municipal Corporation of Greater Mumbai.

# 7. While other tenants in the same complex have accepted the possession of the flats sans occupational certificate, these petitioners with an intention to get more money from the Corporate Debtor refused to take possession even though the flats are ready, filed these petitions only with an intention to recover the money, as if the proceedings under the Code are recovery proceedings.

# 8. In the light of the above discussion, both the petitions are dismissed.

# 9. The right of the petitioners before any other judicial forum shall not be prejudiced on grounds of dismissal of the present petitions by this Adjudicating Authority.

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