NCLT Mumbai: License Agreement Terminated Before Commencement Of CIRP, Security Deposit Can Be Appropriated Against Arrears Of Rent Receivable From Corporate Debtor
The National Company Law Tribunal (“NCLT”), Mumbai Bench, comprising of Justice Shri V.G. Bisht (Judicial Member) and Shri Prabhat Kumar (Technical Member) has partly allowed an application and held that in the case of the license agreement which has been terminated before the commencement of Corporate Insolvency Resolution Process (“CIRP”) proceedings, the security deposit can...
The National Company Law Tribunal (“NCLT”), Mumbai Bench, comprising of Justice Shri V.G. Bisht (Judicial Member) and Shri Prabhat Kumar (Technical Member) has partly allowed an application and held that in the case of the license agreement which has been terminated before the commencement of Corporate Insolvency Resolution Process (“CIRP”) proceedings, the security deposit can be appropriated against the arrears of rent which is receivable from the Corporate Debtor.
Background Facts
M/s Sanghvi Metal Corporation through its Partner Sh. Lalit B. Sanghvi (“Applicant”) had licensed various Industrial Sheds/ Godown having approx.. 50,000 sq. ft. area along with an administrative office, owned by it, to Dilip Chhabria PVT LTD (“Corporate Debtor/Respondent”) for their business purpose for the period from 1.1.2014 to 31.12.2018 and in respect of certain Industrial sheds for the period from 15.04.2014 to 31.12.2018.
Under this, it received Interest-free Security Deposit amounting to Rs. 30 lakhs and Rs. 32 lakhs from the Corporate Debtor. As per clause 19 of the Leave and License Agreement, between the Applicant and the Corporate Debtor, it was agreed that if the Licensee commits default in payment of the dues to the Licensor or commits a breach of any of the terms and conditions of the agreement, then the Licensor shall be entitled to levy interest @ 2% per month on all outstanding or to terminate the said Agreement and revoke the permission after giving one month written notice to the Licensee to rectify such breach.
On such termination or otherwise upon expiry of License by efflux of time, the Licensee shall remove itself and all its personnel and movable articles and things belonging to it and being in the Licensed premises without any damage and hand over the same to the Licensor failing which the Licensee shall be bound and liable to pay to the Licensor compensation/menses profits/damages at Rs. 60 thousand per day and Rs. 70 thousand per day totalling Rs. 1.30 lakhs per day, for the period of default.
The License fee was payable in advance on the 5th of every month.
Given the breach of various conditions of the Leave and License Agreement, the Applicant sent multiple written reminders to pay outstanding license fees. However, the Corporate Debtor failed to take any action and ignored such reminders. Therefore, the Applicant sent a legal notice dated 21.10.2016 and terminated the said Leave and License Agreement and asked the Corporate Debtor to immediately hand over the vacant and peaceful possession of the said premises and also to pay Rs. 1.30 lakhs per day towards damages till the time the vacant and peaceful possession of the Premises is handed over. The Corporate Debtor however failed to vacate the premise.
On 17.09.2019, CIRP commenced against the Corporate Debtor.
NCLT Verdict
NCLT partly allowed the application and held that when there is a breach of the License Agreement and the Corporate Debtor has defaulted on account of which the License agreement came to be terminated before commencement of CIRP, the Applicant has the right of appropriation of Security Deposit against the Arrears of rent receivable from the Corporate Debtor.
NCLT observed that it is an undisputed fact that the Corporate Debtor was in physical occupation of the Premises of the Applicant on the date of commencement of CIRP and the articles and vehicles. NCLT further observed that the Corporate Debtor continued to be in occupation of the said premises, the Corporate Debtor therefore is liable to pay rent for the period up to 16.9.2019 as an Operational Debtor at the rate applicable to the month of termination of the Agreement. Further, the Corporate Debtor is also liable to pay rent for the period from 17.9.2019 till the occupation in terms of Regulation 31 of the Insolvency and Bankruptcy Code, 2016.
Case Title: M/s Sanghvi Metal Corporation vs Dilip Chhabria PVT LTD
Case No.: I.A. 2023 OF 2021
Counsel For the Applicant: Mr Tejas Dande, a/w Mr Bharat Godhani, Advocates
Counsel For the Respondent: None