The court affirmed that debts arising during the COVID-19 protected period under Section 10A of the Insolvency and Bankruptcy Code cannot be included in the calculation for initiating a Corporate Insolvency Resolution Process.

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

The Appellant, M/S Samrat Restaurant, a registered partnership firm, through its Managing Partner, Mr Paramjit Singh Ghai, i.e. the Operational Creditor, against the Impugned Order dated 22.05.2024 passed in Company Petition bearing CP (IB)/483/MB/2023 by the Ld. National Company Law Tribunal, Mumbai Bench, ("Adjudicating Authority") whereby the Ld. Adjudicating Authority dismissed the Application filed by the Appellant, under Section 9 of the Code for initiation of the Corporate Insolvency Resolution Process ("CIRP"), the Appellant herein is constrained to prefer the present Appeal.

Brief facts:

2. The Respondent and the Appellant entered into a leave & license agreement (“L&L agreement”) dated 4th May 2017. The term of the L&L agreement was from 15th June 2017 to 30th April 2022.

3. The Appellant issued a statutory demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), and thereafter filed a Section 9 IBC Application for initiation of CIRP against the Respondent, claiming alleged default of Rs 5,22,95,571/- (rupees five crores, twenty-two lakhs, ninety-five thousand, five hundred and seventy-one only) for the unpaid license fees under the L&L agreement, wrongfully raised reimbursements, and interest on the unpaid license fees.

4. The Section 9 Petition filed by the Appellant was at the very outset declared to be non-maintainable by the Hon’ble NCLT Mumbai, as the default amount claimed by the Appellant was inflated by inclusion of defaulted license fees amounts, interest, purported reimbursements and default amounts which fell due and payable during the prohibited period under Section 10A of IBC.

5. The Adjudicating Authority excluded a license fee of Rs 69,30,442/- (rupees sixty-nine lakhs, thirty thousand, four hundred and forty-two only) finding that the same fell due and defaulted during the prohibited period, in terms of Section 10A of the IBC. The Adjudicating Authority did not consider the ’OTS’ letter dated 31.03.2023 wherein it is claimed that the Corporate Debtor had not only admitted that they were liable to pay a sum of Rs 1,06,00,000/- (rupees one crore and six lakhs only) along with interest at the rate of 18% pa, but had also agreed to pay the sum by 31.03.2023. Resultantly, it is claimed that the default occurred only on 31.03.2023 and not during the period prohibited under Section 10A of the IBC. This exclusion led to the debt falling below the Rs 1 crore threshold. However, established law states that if a default is committed prior to the Section 10A period and continues into the Section 10A period, the initiation of proceedings is not barred.

Submissions of the Appellant:

6. The Corporate Debtor, Brewcrafts Microbrewing Pvt Ltd, is a registered company under Companies Act, 1956, having its registered office at First Brewhouse, The Corinthians Club, Mohammadwadi, Pune MH 411060 IN.

7. The Operational Creditor, M/S Samrat Restaurant, is a partnership concern having its office at 10A, Raj Kutir, Plot E854, 3rd Road, Khar (West), Mumbai-400054. That the Operational Creditor is the exclusive owner of the building known as Hotel Samrat, 10A, Raj Kutir, 3rd Road, Khar (West), Mumbai- 400054.

8. The Corporate Debtor approached the Operational Creditor for carrying on the business of Restaurant for making and selling beverages and eatables and merchandise from the property of the Operational Creditor under the name and style ‘doolally’.

9. The Corporate Debtor and the Ope