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Lease and Rentals - Are these Operational Debt under the IBC

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (‘Code’) recognises two types of debts — financial and operational– to enable the creditors to make an application for initiating insolvency proceedings against a corporate debtor. A financial creditor and an operational creditor can initiate a Corporate Insolvency Resolution Process (‘CIRP’) under Section 7 and Section 9 of the Code, respectively. If there is a debt, other than a financial debt or an operational debt, the creditor will not qualify to apply under Sections 7 or 9 of the Code, as the case may be. Therefore, it becomes important to determine the nature of debt/claim while considering the application of an admission under the Code.
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Dispute mechanism available under a lease

How it started:

It started with the case of Booz-Allen & Hamilton Inc v. SBI Home Finance Ltd & Others (“Booz-Allen”), wherein the Supreme Court, after hearing the matter, held that the disputes relating to eviction and tenancy were not arbitrable. Leases are governed under the Transfer of Property Act, 1882 (“TOPA”). The court discussed the nature and scope of issues arising for consideration in an application under Section 8 of the Arbitration and Conciliation Act (“Act”) wherein “even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal”.
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