Claim for Refund of Security Deposit Contingent on Execution of Leave and License Agreement Does Not Constitute Operational Debt under IBC: NCLAT New Delhi

Facts of the Case [Carestream Health India Pvt. Ltd. Vs. Seaview Mercantile LLP]:

1. 1. The Appellant and the Respondent entered into a “Without Prejudice” Letter of Intent (WP-LOI) for leasing a unit in the Silver Metropolis building.
   2. The Appellant paid a security deposit of Rs. 25,68,280/-.
   3. Upon due diligence, the Appellant discovered the premises were not eligible for IT/ITES/STPI registration, contrary to initial representations.
   4. Consequently, the Appellant sought to terminate the LOI and requested a refund of the security deposit.
   5. The Respondent, on 17 February 2020, disputed the Appellant’s claims and contended the right to forfeit the security deposit due to non-compliance by the Appellant.
   6. The Appellant filed a Section 9 petition on 20 February 2020.
   7. The Adjudicating Authority dismissed the Appellant’s application under Section 9 of the Insolvency and Bankruptcy Code (IBC) to initiate a Corporate Insolvency Resolution Process (CIRP) against Seaview Mercantile LLP (Respondent). The NCLT held that the Appellant did not qualify as an “Operational Creditor” under the IBC as the claim did not arise from the provision of goods or services to the Respondent.n

Decision of the Appellate Tribunal:

Refund of Security Deposit as “Operational Debt” under IBC:

1. 1. Section 5(21) of the IBC defines an “operational debt” as a claim in respect of the provision of goods or services, including employment, or a debt arising under any law for the time being in force.

   2. The Appellant’s claim for the refund of a security deposit under the LOI does not pertain to the provision of goods or services but rather to a contractual obligation contingent upon executing a leave and license agreement. The security deposit is linked to a conditional contractual arrangement and not to the actual provision of any goods or services, thus not constituting an operational debt under the IBC.

   3. The definition of “operational debt” specifies a claim arising from the provision of goods or services. While the LOI contemplated a future license agreement, the security deposit itself was not directly linked to any service rendered by Seaview.

Applicability of Consolidated Construction Consortium Limited Vs. Hitro Energy Solutions Pvt. Ltd.:

1. 1. The judgment in Consolidated Construction Consortium Limited Vs. Hitro Energy Solutions Pvt. Ltd. (2022) stated that the words “claim in respect of the provision of goods or services” include those who supply or receive goods or services from the corporate debtor and should not receive a narrow interpretation. The claim must bear some nexus with the provision of goods or services.
   2. In the present case, the Appellant neither supplied nor received goods or services to/from the Corporate Debtor. Therefore, the cited judgment does not assist the Appellant.

Applicability of Jaipur Trade Expo Centre Pvt. Ltd. Vs. Metro Jet Airways Training Pvt. Ltd.:

1. The judgment in Jaipur Trade Expo Centre Pvt. Ltd. Vs. Metro Jet Airways Training Pvt. Ltd. (2022) stated that a claim towards unpaid license fees for an immovable property constitutes an operational debt under the IBC. However, this does not support the Appellant’s case that a security deposit is a form of license fee available for adjustment against outstanding license fees.
2. In the present case, there is no outstanding license fee and the security deposit was not an advance license fee but a deposit to ensure the Appellant entered into a license agreement. No services were rendered or supplied by either party. The security deposit became liable to forfeiture due to the Appellant’s non-performance of its obligation to enter into a leave and license agreement.

Conclusion:

1. 1. The scope of “operational debt” under the IBC does not encompass situations like security deposits unrelated to any immediate service rendered.

   2. Even if the security deposit is presumed to be an operational debt, the petition could not have been accepted under Section 9 of the IBC as analysed in subsequent paragraphs.

   3. The claimed amount does not constitute an operational debt under the IBC as it does not arise from the provision of goods or services.

   4. There exists a pre-existing dispute between the parties, rendering the application under Section 9 of the IBC non-maintainable.

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