Claim of Operational Creditor cannot be invalidated merely on Agreement not being Engrossed on Stamped Paper when Corporate Debtor utilises the Premises: NCLAT

The Principal bench of the National Company Law Appellate Tribunal (NCLAT) has held that claim of an Operational Creditor cannot be invalidated merely of the agreement not being engrossed on stamped paper when Corporate Debtor(CD) utilises the premises. M/s Smartworks Coworking Spaces Private Limited, the Appellant is engaged in the business of coworking and/or providing flexible office space i.e. a working arrangement where different corporate bodies come together to work for a single business centre run and maintained by the Appellant. The Appellant developed the premises with all required amenities, and facilities conducive to running/operating a fully functional office with day-to-day service/support service as per the requirement of each client. Appellant makes provision of goods and provision of services as per clients’ requirements. The Appellant entered into an Agreement with the Respondent-Corporate Debtor. The agreement was called the “Services Providers Agreement”. Under the Agreement, the Corporate Debtor was to make a monthly office fee of Rs. 3,52,000/. In pursuance of the Agreement, the CD used the premises. On 04th June 2019, the Corporate Debtor wrote an email to the Operational Creditor informing that Corporate Debtor intends to end the contract by 01st September 2019. The Corporate Debtor was informed to pay the unpaid balance amount. The corporate debtor stopped using the premises with effect from 01st September 2019 by terminating the Agreement. The Appellant issued notice to the Corporate Debtor demanding payment in respect of unpaid operational debt amounting to Rs. 1,05,32,126/-. On 18th August 2020, a Demand Notice under section 8 of the Insolvency and Bankruptcy Code, 2016 was issued to the Corporate Debtor claiming an Operational Debt of Rs. 01,28,95,402/-. The Demand Notice was replied to by the Corporate Debtor denying the claim. The operational Creditor filed an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 on 09/10/2020. The reply was filed by the Corporate Debtor to the Section 9 Application alleging that the office service agreement is a lease agreement and further rent is not an Operational Debt to admit the Section 9 Application. The Adjudicating Authority held that the amount claimed by Operational Creditor for the lock-in period is not an Operational Debt. The Agreement dated 17th August 2018 was originally engrossed on an unstamped paper and was required to be registered. A two-member bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Member (Technical) observed that Adjudicating Authority committed an error in holding that the debt claimed by the Operational Creditor was not Operational Debt. The debt claimed by the Appellant is a claim within the meaning of IBC and on default being committed by the Corporate Debtor the debt became due and the Appellant was fully entitled to initiate proceedings under Section 9 of the Code. It was evident that the agreement does not purport or operate to create, declare, assign, limit or extinguish any right, title or interest in immovable or movable property. The Agreement is not required to be compulsorily registered under Section 17(b) of the Indian Registration Act,1908. It was held that “when Agreement was admittedly executed between the parties, signed by both the parties and acted upon, the mere fact that it not being engrossed on stamped papers shall have no adverse consequence on the claim of the Operational Creditor. We thus are of the view that the Adjudicating Authority erred in determining the 3rd point against the operational creditor.” The Authority set aside the order of the Adjudicating Authority and directed the Adjudicating Authority to pass an order of admission of Section 9 Application within a period of one month. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Claim of Operational Creditor cannot be invalidated merely on Agreement not being Engrossed on Stamped Paper when Corporate Debtor utilises the Premises: NCLAT

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