2020 (9) TMI 747 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational debt - existence of debt and dispute or not - HELD THAT - Section 5(21) of the IBC defines an Operational Debt to mean a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. Section 5(2) of the IBC defines the term Operational Creditor to be a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred - Thus, only if the claim falls within one of the three categories as listed above, can it be classified as an operational debt. If the amount claimed does not fall under any of the above categories, then the claim cannot be categorised an operational debt, even though there may be a liability or obligation from one person to another. This is a case where the existence of a jural relationship between the Operational Creditor and the Corporate Debtor has not been established. There is no claim in respect of any provision of goods or services. The respondent was expected to purchase a licence for public performance and broadcast of songs, in respect of which the petitioner is an assignee of copyright. This does not satisfy the definition of Operational Debt within the meaning of section 5(21) of the IBC. Consequently, the petitioner cannot be treated as an Operational Creditor, and the petition itself cannot be maintained under section 9 of the IBC. Petition dismissed.

Summary

Issues:
Company Petition under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking to initiate Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor for non-payment of dues.

Detailed Analysis:

1. Jurisdiction and Background:
The Company Petition was filed by an Operational Creditor against a Corporate Debtor under section 9 of the IBC. The Corporate Debtor failed to make payment of a principal sum and interest, leading to the initiation of the CIRP. The Corporate Debtor is a private company incorporated under the Companies Act, 2013, with jurisdiction falling under the Mumbai Bench of the National Company Law Tribunal.

2. Operational Creditor's Claims:
The Operational Creditor, an assignee of copyrights over sound recordings, entered into agreements with various entities for rights over songs. The Corporate Debtor, an event management company, approached the Operational Creditor for performance rights for an event. Despite issuing an invoice and receiving a bounced cheque, the Corporate Debtor failed to make the payment, resulting in a total debt of ?3,23,474.00.

3. Legal Definitions and Precedents:
The judgment references the definitions of "Operational Debt" and "Operational Creditor" under the IBC. It cites a precedent where the classification of an amount as operational debt is outlined, emphasizing the criteria for a claim to be considered as such. The judgment clarifies that for a claim to be categorized as operational debt, it must strictly align with the definitions provided in the IBC.

4. Decision and Rationale:
The Tribunal found that in this case, the jural relationship between the Operational Creditor and the Corporate Debtor was not established. The claim did not pertain to the provision of goods or services but rather to licensing rights for public performance and broadcast of songs. As this did not meet the criteria of "Operational Debt" as defined under the IBC, the Operational Creditor could not be considered as such. Consequently, the petition under section 9 of the IBC was rejected.

5. Final Orders and Observations:
The Tribunal clarified that the rejection of the petition should not prejudice the Operational Creditor's rights before any other judicial forum. The order was communicated to the parties as per the provisions of the IBC. The judgment emphasized that the dismissal of the petition did not reflect any opinion on the merits of the case, preserving the Operational Creditor's recourse to other legal avenues.