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TMI Blog2018 (9) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... und it was the duty of the Adjudicating Authority to admit the application. - Company Appeal (AT) (Insolvency) No. 256 of 2017 - - - Dated:- 9-8-2018 - Mr S.J. Mukhopadhaya], Chairperson And Mr Bansi Lal Bhat, Member (Judicial) For The Appellant : Mrs. Avnish Ahlawat, Advocate For The Respondent : Shri Aditya Thakkar and Shri Ranjit Shetty, Advocates JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. The appellant preferred an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the I B Code ) for initiation of corporate insolvency resolution process against M/s. Tattva Mittal Lifespaces Pvt. Ltd. (Corporate Debtor); the Adjudicating Authority (National Company law Tribunal), Mumbai Bench by the impugned order dated 11th July, 2017 rejected the same on two grounds namely: (i) That the appellant do not come within the meaning of Operational Creditor ; and (ii) There is an existence of dispute . 2. The question arises for consideration in this appeal is whether the appellant comes within the meaning of Operational Creditor as defined in Section 5(20) r/w (21) of the I B Code and whether there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application is incomplete, the applicant should be asked to remove the defects failing which the application under Section 7 or 9 or 10 can be rejected. 8. In an application under Section 9, it is open to the Corporate Debtor to point out that the applicant is not an Operational Creditor or there is an existence of dispute or there is no debt or there is no default . No other issues can be raised required for determination by the Adjudicating Authority, having no such jurisdiction. 9. To determine the question as to whether the appellant comes within the meaning of Operational Creditor it is relevant to refer Section 5(20) and Section 5(21), which reads as follows: 5. In this Part, unless the context otherwise requires,- ( 20) 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; ( 21) operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their sites under development, carry out a SWOT analysis, conduct a preliminary due diligence and identify areas of concern Discuss risk mitigation Brainstorm the draft business plan with the Company Management / Consultants Prepare an INFORMATION MEMORANDUM. Financial/Strategic Investor: Assist in the introduction of one or more potential financial/strategic partners to the Company. The Company is exploring all options for arising the necessary resources, including private equity, mezzanine, collateral debt, unsecured loans, structured obligations and preference capital from appropriate Indian or International Investors /lenders. Marketing: Advise In respect of the appropriate message to deliver to the potential investor/ lender regarding the Engagement. Documentation: Assist, together with the Company's Senior Management and other professional advisors. In the preparation of business presentation materials and other related documentation for marketing to potential investors / strategic partners to the Engagement. Due diligence: If requested assist (together with the Company's other professional advisors) to coordinate due diligence of the Company by potential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall pay to AVON a free on that additional funding calculated on the same basis as the for the original commitment as defined in this Engagement Letter. If the Engagement terminates (other than at AVON's election or due to a material breach of this Engagement by AVON) prior to the Engagement being completed, due to any deficiency or disability of the company, whether previously known or otherwise, then the Company shall pay to AVON, by way of Break fees/Drop dead fees, an amount equal to USD 100,000. References to completion or closing of the Engagement shall be to any definitive agreement issued by the Investor on terms generally agreed by the Company or shares or assets being transferred, issued, or disposed, or any investment provided or disbursement of fund by the Investor/lender to the Company. 5. Exclusion: The company will disclose the list/names of Institutions/Funds/Arrangements that the company has already initiated talks with including those through Altfort and Avon will be paid no Success Fees on closure of funding with or through such disclosed names. The drop dead fee will be application in the case as above. We lock forward to a long and mutually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a certificate of such deduction and payment within 90 days of such deduction/payment. For the purpose of determining Transaction Value, non-cash consideration shall be valued at its fair market value at the time such consideration is passed The Company and AVON shall mutually agree to this in good faith. 13. Further, the term of agreement relates to termination of engagement. In Clause 9 miscellaneous shown that the appellant is engaged as an independent contractor not as an agent or representative, which is as follows : 9 . Miscellaneous AVON is engaged as an Independent contractor. AVON, its Affiliates and their respective officers shall not be deemed the agent, representative or employee of the Company or its Affiliates. AVON cannot assign any of its obligations hereunder without the prior written consent of the company. These Terms are subject to the provisions of the Engagement Letter, which constitutes the entire agreement between AVON and the Company concerning the Engagement, and any modification shall be in writing and signed by the Company and AVON. The Engagement Letter may be executed in counterparts. Terms defined in the Engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Success Fee for business introduction/marketing alliance, as per mutual agreement. This apart, reimbursements : all out-of-pocket expenses was provided therein excess of USD 1,000 with the prior oral and written approval. The appellant was also entitled for specific assignment fee other than the fees aforesaid. 16. From the aforesaid Clause 3, it is clear that certain amount is payable on performance of specific job like introductions of parties and interest letter from investors/lenders/funds/institutions etc. Apart for the same there are independent fee such as retainer fee @ ₹ 5 Lakhs plus service tax @ 14% in advance on the 1st of every quarter for a period of one year. 17. The appellant while raised professional fee in the invoice of 1st May, 2016 had raised retainer fee for quarter beginning 1st May, 2016 plus @14.5% service tax apart from retainer fee for the quarter beginning 1st August, 2016 along with 15% service tax. By another invoice dated 1st August, 2016 appointment fee has been raised on issue of term sheet by Milestone Advisors which was accepted by TM Group on 30th July, 2016. By another invoice dated 27th September, 2016 break fees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act. xxx xxx xxx 37 . It is now important to construe Section 8 of the Code. The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Government or to a local authority. This has to be contrasted with financial debts that may be owed to financial creditors, which was the subject-matter of the judgment delivered by this Court on 31-8-2017 in Innoventive Industries Ltd. v. ICICI Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve off the bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an Arbitral Tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an Arbitral Tribunal or a court for up to three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended. We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties. 20. The reply letter dated 25th January, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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