In Absence Of Rental Agreement Between Parties, RP Can’t Demand Payment Of Usage Charges For Corporate Debtor’s Machine; NCLAT Delhi

Prior to initiation of CIRP, the Corporate Debtor had given its Machine to an Operational Creditor to settle certain outstanding payments. The Operational Creditor was in possession of Machine for 2 years. Post CIRP commencement, the Resolution Professional filed an application before NCLT seeking handover of the Machine and payment of usage charge by the Operational Creditor to the Corporate Debtor at the rate of Rs. 2 Lakhs per month (total Rs. 48 Lakhs). The Bench held that in absence of any rental agreement between Parties in respect of the Machine, no usage charges can be demanded by the Resolution Professional.

Background Facts

D Thakkar Constructions Pvt. Ltd. (“Corporate Debtor”) owned an equipment named Komatsu Motor Grader GD-511 (“Machine/Asset”). The Corporate Debtor had entered into a work contract with Patsons Construction (“Appellant”). While certain payments payable to Appellant remained outstanding, the Corporate Debtor gave the Machine to Appellant to clear part dues.

Subsequently, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. A resolution plan for the Corporate Debtor was approved by the NCLT on 14.03.2022. The Appellant filed its claim after the approval of resolution plan, hence, the same was not been considered.

The Resolution Professional filed an application before NCLT, seeking (i) direction to Appellant to handover the Machine of Corporate Debtor; and (ii) direction to Appellant to deposit the usage charges of Machine amounting to Rs. 48 Lakhs (calculated at Rs. 2 Lakhs per month) in the account of Corporate Debtor.

On 25.03.2022, the NCLT directed the Appellant to handover the Machine as well as pay usage charges to the Corporate Debtor.

The Appellant filed an appeal before the NCLAT.

NCLAT Verdict

In a previous hearing held on 19.10.2022, the Bench had directed the Appellant to hand over the machine to the Corporate Debtor within 15 days. The Appellant complied with the order by handing over the machine.

The Bench observed that no rental agreement existed between the Parties and the Machine was given to Appellant in lieu of dues owed by Corporate Debtor to the Appellant.

“In so far as the direction to pay usage charges it is clear that there has been no rental agreement between the parties for any usage charges and machine was given to the operational creditor by the director of the Corporate Debtor in lieu of the certain dues which Corporate Debtor owe to the appellant which is reflected in letter dated 08.06.2021.”

It was observed that the NCLT order did not advert as to how Rs. 2 Lakh per month can be allowed for payment of usage charge. Accordingly, the Bench has set aside the NCLT’s direction for payment of usage charges to the Corporate Debtor.

“In the application which was filed by the Resolution Professional there was no basis for claiming Rs. 2 lakhs per month of usage charges. Adjudicating Authority by the impugned order has also not adverted as to how the amount of Rs. 2 lakhs per month can be allowed for payment of usage charges. We, thus, are of the view that second direction issued by Adjudicating Authority for payment of Rs. 48 lakhs is unsustainable and is set aside.”

The appeal has been partly allowed.

Case Title: Patsons Construction v Shri Ram Ratan Kanoongo

Case No.: Company Appeal (AT) (Ins.) No. 1269 of 2022

Counsel for Appellant: C.S. Sachin Sinha (PCS), Mr. Shravan Shukla, Ms. Tejaswi Kumar, Advocates.

Counsel for Respondent: Mr. Rajendra Beniwal, Mr. Rajat Kashyap, Mr. Saksham Solanki, Ms. Shivangi Ghosh, Ms. Richa Singh, Advocates.

Click Here To Read/Download Order