2017 (5) TMI 1432 - Tri - Insolvency and Bankruptcy

Claim of Operational Creditor within the meaning of sections 8 & 9 of the Insolvency and Bankruptcy Code, 2016 - whether insolvency process be initiated against Respondent Corporate Debtor as it has committed default and has not been able to pay despite the demand made - Held that - Debt may arise out of provision of goods or services or dues arising out of employment or dues arising under any law for time being in force and payable to the Centre/State Government. The framer of the Code have also defined the expression Financial Debt in section 5(8) to mean a debt which is disbursed against the consideration of time value of money. However the framer of the Code has not included in the expression Operation Debt as any debt other than the Financial Debt . It is thus confined to aforesaid four categories like goods, services, employment and Government dues. In the present case the debt has not arisen out of the provisions of goods or services. The debt has also not arisen out of employment or the dues which are payable under the statute to the Centre/State Government or local body. The refund sought to be recovered is necessarily associated with the delivery of the possession of immovable property which has been delayed. The Operational Creditors are those persons to whom the Corporate Debt is owed and whose liability from the entity comes from a transaction on operations. The final report of the Committee in para 5.2.1 defines Operational Creditor like the wholesale vendor of spare parts whose spark plugs are kept in inventory by Car Mechanic and who gets paid only after spark plugs are sold to acquire the status of Operational Creditor so and so forth. The Petitioner in the present case has neither supplied any goods nor has rendered any service to acquire the status of an Operational Creditor . As given the time line in the code it is not possible to construe section 9 read with section 5(20) & (21) of the Code so widely to include within its scope even the cases where dues are on account of advance made to purchase the flat or a commercial site from a construction company like the Respondent in the present case especially when the Petitioner has remedy available under the Consumer Protection Act and the General Law of the land. Therefore we are not inclined to admit the petition. The petitioners cannot be treated as Operational Creditor within the meaning of section 9 as the debt incurred by the respondents has not arisen out of provisions of goods, services or employment. It can also not be considered Financial Debt within the meaning of section 5(8) to mean a debt which is disbursed against the consideration of the time value or money.

Summary

Issues:
Claim of petitioners as 'Operational Creditor' under sections 8 & 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis:
The petitioners claimed to be 'Operational Creditors' seeking initiation of insolvency process against the respondent 'Corporate Debtor' due to default in payment despite demand. The petitioners had paid an amount towards the allotment of a commercial shop in a project named 'Adventure Mall.' The respondent failed to pay the admitted debts, leading to a demand notice under section 8 of the Code. The petitioners argued that the default was admitted as the respondent did not reply to the notice, justifying the need for insolvency initiation.

The Tribunal analyzed the definition of 'Operational Debt' under the Code, emphasizing that it pertains to claims related to goods, services, employment, or dues payable to the government. The debt in this case did not fall under these categories, as it was associated with the delayed possession of immovable property. The petitioners were unable to establish themselves as 'Operational Creditors' as they had not provided goods or services, crucial for such classification.

Moreover, the Tribunal considered the legislative intent behind the Code and the specific requirements for maintaining a petition as an 'Operational Creditor.' It was highlighted that the petitioner's argument to treat the petition under section 9 of the Code lacked substance, leading to the rejection of the same. The judgment emphasized the importance of adhering to the provisions of the Code and refrained from imposing costs on the petitioner due to the dismissal of the application.

In conclusion, the Tribunal dismissed the petition as the petitioners could not be categorized as 'Operational Creditors' under section 9 of the Code, given the nature of the debt not aligning with the defined criteria. The judgment underlined the necessity of meeting the statutory requirements for initiating insolvency proceedings and clarified that the dismissal of the application would not prejudice the petitioner's rights before any other forum.