Lease Dues During CIRP Period Payable to Financial Creditor, Not SRA: NCLT Hyderabad

Lease Dues During CIRP Period Payable to Financial Creditor, Not SRA: NCLT Hyderabad

Introduction

The National Company Law Tribunal (NCLT), Hyderabad Bench, has held that lease dues incurred during the Corporate Insolvency Resolution Process (CIRP) period prior to the vesting date are payable to the financial creditor and do not belong to the Successful Resolution Applicant (SRA).

Factual Background

The State Bank of India advanced a loan of Rs. 33.5 Cr. to the corporate debtor, and as security, the corporate debtor leased its marine processing unit to Sumit Marine Exports Pvt. Ltd. The lease rentals and processing fees were credited into the SBI account and adjusted against dues until June 2022. After the commencement of CIRP, the resolution professional opened a new account, and lease payments were made until July 2023.

Procedural Background

The resolution plan was approved by the CoC and later by the NCLT on October 13, 2023 (vesting date). SBI filed an application seeking payment of Rs. 74,56,673 for lease dues between August 1, 2023, and October 13, 2023.

Issues

1. Ownership of Lease Dues: Whether the lease dues incurred during the CIRP period prior to the vesting date belong to the financial creditor or the SRA.

2. Effect of Resolution Plan: Whether the resolution plan's provisions regarding the balance in the corporate debtor's account affect the financial creditor's claim.

Reasoning & Analysis

The bench of Justice Rajeev Bhardwaj (Member-Judicial) and Sanjay Puri (Member-Technical) observed that the resolution plan provides that the balance in the corporate debtor's account as of the vesting date is to be transferred to SBI. The tribunal ruled that the amount claimed by SBI should have been credited before the vesting date and therefore belongs to SBI, not the SRA.

Decision

The NCLT allowed SBI's application, holding that the lease dues incurred during the CIRP period prior to the vesting date are payable to the financial creditor.

Implications

The decision clarifies the treatment of lease dues incurred during the CIRX period and their distribution among stakeholders.

Conclusion

The NCLT's judgment in this case provides clarity on the treatment of lease dues incurred during the CIRP period and their ownership. The decision is significant for financial creditors, successful resolution applicants, and resolution professionals.

In this case the applicant was represented by Mr. GP Yash Vardhan and Mr. G. Srikanth, Advocates. Meanwhile the respondent was represented by Mr. Y. Suryanarayana, Advocate.