2020 (4) TMI 512 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT - Considering the nature of business, the petitioner cannot be considered as operational creditor. As defined under sub-section (20) of section 5 of the I B Code an operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. In the instant case there is no operational debt owed by the respondent, rather the applicant procures raw diamond and supplies it to the respondent for finishing/polishing and after polishing the same is sent back to the applicant - On a mere perusal of the definition of operational creditor and operational debt it is found that, in the instant case, there is no such relation of operational creditor and corporate debtor between the two parties as the applicant never provided any goods and services to the respondent. The application so filed is not maintainable and hence stands dismissed.

Issues:
1. Maintainability of the application filed under section 9 of The Insolvency and Bankruptcy Code, 2016 by the operational creditor.
2. Validity of the demand notice issued by the applicant.
3. Dispute between the parties as per the Insolvency and Bankruptcy Code, 2016.
4. Nature of business relationship between the applicant and the respondent.
5. Definition and applicability of "operational creditor" and "operational debt" in the given case.

Analysis:

Issue 1: Maintainability of the application
The operational creditor, a foreign company dealing in diamonds, filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016, claiming an outstanding amount from the corporate debtor. The respondent challenged the maintainability of the application, arguing that the applicant was not registered as a foreign company as required by the Companies Act, thus not entitled to initiate legal proceedings. The respondent also disputed the existence of a debt, highlighting the consignment nature of transactions and a criminal complaint filed against the applicant's representatives.

Issue 2: Validity of the demand notice
The respondent contended that the demand notice issued by the applicant was invalid as it was signed by an advocate without proper authorization. This raised questions about the procedural compliance and the authenticity of the notice, casting doubt on the applicant's claim.

Issue 3: Dispute between the parties
The respondent claimed the existence of a dispute between the parties, citing various legal actions taken against the applicant's representatives. This dispute was argued to fall within the purview of the Insolvency and Bankruptcy Code, 2016, affecting the validity of the application under sections 8(2)(a) and 9(5)(ii)(d).

Issue 4: Nature of business relationship
The respondent emphasized the unique nature of the business relationship, alleging suppression of facts by the applicant regarding consignment arrangements and commercial transactions. The respondent's assertions aimed to challenge the basis of the debt claimed by the applicant, raising doubts about the authenticity and legality of the transactions.

Issue 5: Definition of "operational creditor" and "operational debt"
The Tribunal analyzed the definitions of "operational creditor" and "operational debt" under the Insolvency and Bankruptcy Code, 2016, to determine the applicability in the present case. It was concluded that the applicant did not meet the criteria of an operational creditor as there was no direct provision of goods or services to the respondent, leading to the dismissal of the application on grounds of maintainability.

In conclusion, the Tribunal dismissed the application on the basis of maintainability, emphasizing that the petitioner could seek other appropriate forums for enforcing its claim against the respondent. The judgment clarified that the dismissal was specific to the maintainability issue and did not express any opinion on the merits of the underlying controversy.

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