No Valid Set-Off Based on Unauthorised Correspondence or Fit-Out Delays: NCLAT holds appellant liable to pay licence fee [Read Order]

In this case, the appeal was filed by Wakai Hospitality Pvt. Ltd., under Section 61 of the Insolvency and Bankruptcy Code, 2016 (Code), challenging the order dated 29.02.2024 passed by the National Company Law Tribunal, Mumbai. The respondent in this case is Ms Palak Desai, who is the Liquidator of Rajmal Jewelers Private Limited.

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Coming to the facts, the appellant was operating a restaurant named Wakai, entered into a Leave and License Agreement (LLA) on 14.07.2022 with Rajmal Lakhichand Jewellers Pvt. Ltd. (Corporate Debtor) for commercial premises in Mumbai, with a monthly license fee of Rs. 7.5 lakhs and a three-year lock-in period. Renovation works were halted due to a notice from MCGM, which the appellant claims was the corporate debtor’s responsibility to resolve. After mutual agreement, it was decided that fit-out costs (capped at Rs. 1 crore) would be adjusted against the license fee, and the LLA term would begin post-receipt of occupation and excise licenses.

The Appellant incurred Rs. 2.5 crores in renovation costs and informed the Corporate Debtor on 23.06.2023 that the license period would start from 01.07.2023. On 18.07.2023, the appellant was informed about the initiation of CIRP against the corporate debtor. The respondent demanded payment of licence fees from 13.09.2022 to 31.07.2023, which the appellant disputed, citing prior correspondence and mutual understanding.

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A legal notice was sent demanding Rs. 87.25 lakhs in dues, and a final application was filed by the respondent on 26.10.2023, seeking recovery of Rs. 1.14 crore (including interest) and possession of the premises.

3 main issues were raised in the appeal, and one of them was that there was no licence fee payable by the appellant to the corporate debtor since it was agreed between the appellant and the corporate debtor that the cost incurred by the appellant would be settled against the licence fee.

The bench, after going through the relevant portion of LLA, noted that the licence was for a period of 5 years and that the LLA provided for a grace period, which is a fit-out period to the appellant of 60 days from the date of commencement, within which the appellant was supposed to commence the business and pay the licence fee as per the LLA.

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The bench further observed that “We note that the there was no authorisation from the Corporate Debtor to the suspended director of the Corporate Debtor to issue such letters to the Appellant regarding the issuance of such correspondence as per record made available to us and also that the letter do not bear the seal/stamp of the corporate debtor.”

The bench relied on the view of the adjudicatory authority that the correspondence relied upon by the appellant with the suspended board of directors is contrary to the terms and conditions of LLA.

The NCLAT, comprising Justice Rakesh Kumar Jain (Judicial Member), Naresh Salecha (Member Technical), and Indevar Pandey (Technical Member), upheld the impugned order.

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