2018 (10) TMI 1803 - Tri - Insolvency and Bankruptcy

Maintainability of Application - initiation of CIRP - Corporate Debtor failed to make repayment of the debt - existence of debt and dispute or not - whether return of advance in breach of terms in the mandate letter signed and executed by the operational creditor in favour of the corporate debtor dated 07/09/2016 comes under the purview of operational debt? - HELD THAT - Admittedly, the applicant herein neither did render any service to the corporate debtor nor did provide any goods to the corporate debtor. There is also no agreement entered into as such in connection with any service or services of goods by the operational creditor to the corporate debtor nor did the corporate debtor enter into an agreement with the operational creditor. What is relied upon is a mandate letter. What I understood is that the corporate debtor is a service provider dealing with the financial advice and issued mandate letter dated 16/08/2016 prescribing certain terms and conditions so as to provide advice to the operational creditor and that letter has been signed by the operational creditor and has paid ₹ 3 Lakhs as advance. Alleging breach of term on the side of the corporate debtor, this application was filed contending that the applicant is an operational creditor. The operational creditor, in the case in hand, does not fall within the above referred 3 elements of the definition of operational creditor. Therefore, the claim of the applicant here in this case does not fall within the definition of operational debt - application dismissed - petition dismissed.

Summary

Issues:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process based on non-payment of debt by the corporate debtor.

Analysis:
1. The operational creditor filed an application claiming that the corporate debtor owed them an amount of ?3,63,122, which was not paid despite a demand notice. The operational creditor had approached the corporate debtor for arranging an investor, paid an initial advance of ?3,00,000, and signed a mandate letter. The mandate letter stated that if the corporate debtor failed to arrange a deal, the advance would be refunded. However, the corporate debtor neither arranged a deal nor refunded the advance, leading to the claim for the principal amount and interest.

2. The question arose whether the return of advance in breach of terms in the mandate letter constituted operational debt. The operational creditor contended that the corporate debtor's failure to provide the agreed services entitled them to a refund with interest. Despite the demand notice and absence of a reply or dispute from the corporate debtor, they did not contest the application.

3. The definition of an operational creditor under Section 5(20) of the Code was crucial. An operational creditor is a person to whom an operational debt is owed, as defined in Section 5(21). The debt must arise from the provision of goods or services, employment, or repayment of dues to the government. In this case, the operational creditor's claim did not align with these elements, as no services or goods were provided to the corporate debtor.

4. Referring to a previous judgment, the Tribunal emphasized the substantive elements required for a claim to qualify as an operational debt. As the operational creditor in this case did not meet these elements, the conclusion was drawn that they did not fall within the definition of an operational creditor under the Code. Therefore, the application was dismissed, and the claim was not considered as operational debt.

5. In conclusion, the Tribunal dismissed the petition, stating that the applicant did not meet the criteria to be considered an operational creditor under the Insolvency and Bankruptcy Code. The order was issued on October 11, 2018, and certified copies were to be provided to all concerned parties upon request.