NCLAT on July 05, 2022 while adjudicating an appeal in the case of Jaipur Trade Expocentre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd. held that the lease rental qualifies as an operational debt within the meaning of Section 5(21) of the Insolvency Bankruptcy Code, 2016 (“IBC”).

In the instant case, Jaipur Trade Expocentre Private Limited (“Jaipur Trade”) entered into a license agreement with Metro Jet Airways Training Private Limited (“Metro Jet Airways”) for a license of a building admeasuring 31,000 Sq. Ft. The term of the license was for a period of five years and the license was INR 4,00,000/- per month plus govt. taxes. Initially, Metro Jet Airways made payment to the Jaipur Trade but the cheque dated 07.05.2018 & 08.10.2018 for INR 20,00,000/- each were dishonoured. Accordingly, Jaipur Trade sent a demand notice under Section 8 of the IBC and thereafter filed petition under Section 9 of the IBC against Metro Jet Airways before NCLT, Jaipur. NCLT, Jaipur dismissed the Section 9 petition on the ground that the claim arising out of the license to use the immovable property does not fall in the category of goods & services and therefore, the Section 9 application is not maintainable.

NCLAT noted that the definition of operational debt as mentioned under Section 5(21) of the IBC provides that the operational debt means a claim arising out of provision of goods and services but the term “services” is not defined anywhere under the IBC.

The Bench referred to Clause 4(b) of the license agreement which provides that the licensee shall pay all govt. taxed including GST and observed that the payment of GST is only provided for goods and service and the license agreement itself provided for payment of GST which clearly indicates that the license is taxed for services. It was also observed that if the agreement was not for services then there was no requirement of payment of GST.

NCLAT also held that the term operation is derived from “operate”. An Operating Cost is an expense incurred in the conduct of the principal activities of the enterprise and similarly operational debt is also a debt which is incurred in the conduct of the principal activities of the enterprise.

“In the present case, the Corporate Debtor has taken a licensed premises for running an Educational Institution. All cost incurred by the Corporate Debtor and cost which remained unpaid shall become a debt on the part of Operational Creditor.”

In light of the above, NCLAT observed that – The claim of licensor for payment of license fee for use of Demised Premises for business purposes is an ‘operational debt’ within the meaning of Section 5(21) of the IBC