Carestream Health India Private Limited vs Seaview Mercantile LLP
Company Appeal (AT) (Insolvency) No. 579 of 2023
Facts:
1. On 7 May 2019, the Appellant and Respondent entered into a “Without Prejudice” Letter of Intent (WP-LOI) for leasing unit no. 702 in the Silver Metropolis building. The Appellant paid a security deposit of Rs. 25,68,280/. The Appellant discovered that the premises were not eligible for IT/ITES/STPI registration after due diligence, despite the initial representation.
2. Consequently, the Appellant sought to terminate the LOI and requested a refund of the security deposit,, Respondent replied on 17 February 2020, disputing the Appellant’s claims and contending the right to forfeit the security deposit due to non-compliance by the Appellant. Thereafter, the Appellant filed a Section 9 petition on 20 February 2020, which the Learned NCLT dismissed on grounds that the Appellant did not qualify as an “Operational Creditor.
3. Appeal is filed against the above order.
Issue: Whether the appeal can be admitted ?
Arguments:
Appellant:
1. Counsel submitted that AA interpretation that the since the appellant has neither supplied goods nor provided services to the Respondent Corporate Debtor it does not fall under the Operational Creditor. It was submitted that this interpretation is legally incorrect as the claimed amount does not qualify as ‘operational debt’ under Section 5(21) of the Code, implying no ‘default’ under Section 3(12).
2. Counsel 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 I & B Code. The Hon’ble Supreme Court in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited [2022 (7) SCC 164
Respondent:
1. Counsel submitted that Respondent is a solvent entity with liquid assets significantly exceeding the disputed claim amount. It was submitted that Appellant’s claim is for Rs. 29,31,193/- (Rupees Twenty-Nine Lakhs Thirty-One Thousand One Hundred and Ninety-Three only), which is substantially less than the Respondent’s closing stock. Therefore, the Respondent cannot be considered a candidate for insolvency proceedings under the IBC.
2. Counsel submitted that it is established law that proceedings under the Insolvency and Bankruptcy Code (IBC) should not be initiated with the intent to recover dues, particularly when a pre-existing dispute exists. Solvent companies should not be subjected to Insolvency Resolution Process intended to rehabilitate financially distressed entities. 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 seeks 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.
Decision: NCLAT dismissed the appeal.
Rationale:
1. NCLAT held that 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 here is linked to a conditional contractual arrangement and not to the actual provision of any goods or services. Therefore, the claim does not constitute an operational debt under the IBC.
2. It further noted that LOI contemplated a future license agreement, the security deposit itself was not directly linked to any service rendered by Seaview. It held that there exists a pre-existing dispute between the parties also, rendering the application under Section 9 of the IBC non-maintainable.
Order:
