WHETHER THE NON-PAYMENT OF RENT WOULD QUALIFY AS AN OPERATIONAL DEBT WITHIN THE MEANING OF SECTION 5(21) UNDER INSOLVENCY AND BANKRUPTCY CODE 2016

May 14, 2021

In this case, M.Ravindranath Reddy v. G.Kishan&Ors ., the landlord filed the Application under Section 9 of Insolvency and Bankruptcy Code, 2016, which was dismissed by the Adjudicating Authority on ground 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 NCLAT upheld this order of the Adjudicating Authority referring to its earlier judgment.

In appeal, the appellant contended that there are two conflicting decisions of NCLAT on the issue and that, in the present case, the demand was both in respect of the arrears of rent as well as on account of damages for breach of the lock-in period. The decision in AnupSushil Dubey v National Agriculture Co-operative Marketing Federation of India Limited &Ors, was referred to.

An operational debt is essentially a claim in respect of the following: (a) provision of goods; (b) provision of services, including employment; or (c) a debt arising under any statute and payable to Government/local authority. If the claim by way of debt does not fall under any of the three categories as mentioned above, the claim cannot be categorized as an operational debt, even though there may be a liability or obligation due from the corporate debtor to the creditor, and hence, such a creditor disentitled from maintaining an application for initiation of corporate insolvency resolution process of the corporate debtor, it was held in the Judgement of Ravindranath Reddy, The Tribunal (three member bench headed by Justice A.I.S Cheema)