Operational Creditor Application Dismissed for Failure to Meet Criteria

The Tribunal dismissed the application under Section 9 of the Insolvency and Bankruptcy Code as the operational creditor did not meet the criteria to be considered an operational creditor. The claim for non-payment of debt based on the return of an advance in breach of terms was not deemed an operational debt as defined by the Code. The application was dismissed on October 11, 2018.

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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 Rs. 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 Rs. 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.

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