The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) observed that the refund of Security Deposit on contractual obligation contingent on executing leave and license agreement is not Operational Debt under the Insolvency and Bankruptcy Code, 2016 ( IBC ).
The appeal was filed by Carestream Health India Private Limited ( “Appellant” ) against the order dated 24 March 2023 issued by the Adjudicating Authority ( National Company Law Tribunal, Mumbai Bench ), which dismissed the Appellant’s application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ( “IBC” ) to initiate 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.
The Appellant submitted that security deposit is an Operational Debt as per the IBC Code and as per various rulings. The claimed amount qualifies as ‘operational debt’ under Section 5(21) of the IBC. The Supreme Court in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited, has held that advance payment to a Corporate Debtor for supply of goods and services is considered as an operational debt.
The counsel for the respondent argued that the amount claimed does not constitute an “operational debt” as defined in Section 5(21) of the Insolvency and Bankruptcy Code, 2016 ( IBC ). The Appellant sought a refund of a security deposit paid under a Letter of Intent ( LOI ), which is a precursor to a leave and licence agreement. This does not pertain to the provision of goods or services, hence it does not qualify as operational debt.
A Two-Member Bench comprising Justice Yogesh Khanna, Member (Judicial) and Arun Baroka, Member ( Technical ) observed that “We therefore come to a conclusion that the scope of “operational debt” under the IBC does not encompass situations like security deposits unrelated to any immediate service rendered. Even if we presume that the security deposit is to be treated as an operational debt as claimed by the Appellant, the petition could not have been accepted under Section 9 of IBC as is analysed in subsequent paragraphs. Existence of Pre-Existing Dispute. The IBC mandates that an application under Section 9 is not maintainable if a pre-existing dispute exists between the parties. The presence of such a dispute must be assessed to determine the maintainability of the application.”
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