Relief to SBI, Lease Dues Incurred During CIRP Prior to Vesting Date are Payable to Financial Creditor: NCLT

In a ruling in favour of SBI, the Hyderabad bench of the National Company Law Tribunal (NCLT) has held that the lease dues incurred during the corporate insolvency resolution period prior to the vesting date are payable to the financial creditor.

The application has been filed by the State Bank of India ( Sole Secured Financial Creditor/Applicant) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ( IBC) . The Applicant seeks a direction to the Successful Resolution Applicant ( Respondent No. 1/SRA) to pay the lease amount arising out of the Lease Agreement dated 19.12.2020 and the Memorandum of Understanding dated 01.02.2021 , entered into with M/s Srikanth International Private Limited ( Corporate Debtor) , to the tune of Rs 74,56,673/- for the period from 01.08.2023 to 13.10.2023.

The Corporate Debtor, engaged in the business of shrimp processing and allied activities, had availed financial assistance of Rs 33.50 Crores from the Applicant/Financial Creditor as on 17.10.2020. To secure the said financial assistance, the Corporate Debtor offered its Marine Processing Plant, admeasuring Ac. 3060 cents (17,424 sq. yds.), situated at Someswaram Village, Alapadu Panchayat, Kaikaluru Mandal, Krishna District, as security.

A Lease Agreement dated 19.12.2020 was executed between Respondent No. 1 and the Corporate Debtor, whereby the premises of the Corporate Debtor was leased to Respondent No. 1 for marine processing purposes, for a period of six (6) years commencing from 01.02.2021 till 31.01.2027, at a monthly lease rental of Rs

2,00,000/-, with an annual escalation of 5%, payable directly into the SBI CC Account No. 00000034840123025.

It is stated that the lease rentals and processing fees were credited into the designated account until June 2022 and were duly adjusted against the dues payable by the Corporate Debtor to the Applicant Financial Creditor. On account of the default in repayment of the loan by the Corporate Debtor, the Corporate Insolvency Resolution Process ( CIRP) was initiated against the Corporate Debtor by this Tribunal vide order dated 30.06.2022, and Mr. Mayur Rajendra Kumar Popat was appointed as the Interim Resolution Professional. Thereafter, Respondent No. 2 was appointed as the Resolution Professional.

In compliance with the provisions of the IBC, a designated account was opened by the RP in the name of the Corporate Debtor with the Applicant FC bearing account no. 41345642963, and lease payments were credited therein till July 2023. The CoC approved the Resolution Plan submitted by Respondent No. 1 for an amount of Rs. 50 Crores, and the same was unconditionally accepted by Respondent No. 1 vide letter dated 12.08.2023. The Resolution Plan was approved by this Tribunal vide order dated 13.10.2023.

. The claim of Applicant FC, amounting to Rs. 44,28,03,456/-, was admitted by the RP and satisfied under the approved Resolution Plan. However, it is contended that lease rentals for the period from 01.08.2023 to 13.10.2023, aggregating to Rs. 74,56,673/-, remain unpaid. Despite repeated representations by the Applicant FC and discussion in the Monitoring Committee Meeting dated 28.12.2023, the outstanding lease payments were not cleared by Respondent No. 1. Further, emails dated 05.01.2024 and 08.01.2024 exchanged between the parties also indicate the pendency of the said dues.

The Respondent No. 1, in its email dated 31.10.2023, claimed that under the terms of the approved Resolution Plan, all balances remaining in the bank account of the Corporate Debtor as on the vesting date ( i.e., 13.10.2023) would stand transferred to the Applicant FC, and those after the vesting date would stand vested with Respondent No. 1/SRA, and hence, it is not liable to pay the lease rentals. However, the Applicant FC disputes this interpretation.

The Applicant FC submitted that the lease amounts claimed herein pertain to the CIRP period, i.e., prior to the vesting date (13.10.2023), and accordingly, are payable to the Applicant FC. The obligation to pay lease rentals during the CIRP continues until the date of approval of the Resolution Plan, and is not extinguished merely due to the change in legal status from lessee to Successful Resolution Applicant.

The bench comprising Justice Rajeev Bhardwaj (Member-Judicial) and Sanjay Puri (Member-Technical) observed that if Respondent No. 1 ( now the SRA) had not made payment for the earlier period of the CIRP, it could have claimed that such rentals did not belong to the Corporate Debtor, thereby depriving the Financial Creditor of its rightful entitlement under the Resolution Plan. Such a position cannot be accepted. Similarly, the claim of Respondent No. 1 that unpaid lease rentals for the CIRP period do not belong to the Financial Creditor is equally untenable.

A Resolution Applicant retains that status until approval of the plan by the Adjudicating Authority, thereafter becoming the Successful Resolution Applicant. Respondent No.1 was a Resolution Applicant during August–September 2023 and remained obligated, as lessee, to pay rentals to the Corporate Debtor under the lease terms. The contention of the Respondent No 1 that such dues are extinguished under the Resolution Plan or amount to “payment to itself” is meritless.

The tribunal held that the obligation to pay arose prior to approval of the Resolution Plan and before the vesting date, and is unaffected by the subsequent change in status of ownership. The Respondent No.1/SRA enjoyed continuous use and occupation of the leased premises as a Lessee during this period and is liable to pay the corresponding rentals.

The NCLT ruled that the obligation to pay lease rentals accrued during the CIRP continues until the vesting date of 13.10.2023. The Respondent No.1/SRA has failed to discharge the admitted liability of Rs 74,56,673/- for the period 01.08.2023 to 13.10.2023.

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