Appellant qualifies as 'Operational Creditor' under Insolvency & Bankruptcy Code. Adjudicating Authority decision overturned.

The appellant qualifies as an 'Operational Creditor' under the Insolvency and Bankruptcy Code, 2016, and there was no existence of a pre-existing dispute with the Corporate Debtor. The Adjudicating Authority's decision was overturned, and the case was remitted for further proceedings. The respondent was granted the chance to settle the claim before the application was admitted. The appeal was successful, and no costs were awarded.

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Issues Involved:
1. Whether the appellant qualifies as an 'Operational Creditor' under Section 5(20) read with Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
2. Whether there is an 'existence of dispute' between the appellant and the Corporate Debtor.

Detailed Analysis:

Issue 1: Qualification as an 'Operational Creditor'

The appellant filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) for initiating the corporate insolvency resolution process against the Corporate Debtor. The Adjudicating Authority rejected the application on the grounds that the appellant does not qualify as an 'Operational Creditor' and that there is an 'existence of dispute'. The appellant's claim is based on a letter dated 7th January 2016 from the Corporate Debtor, which engaged the appellant to provide advisory and ancillary services for a fee. The appellant was entitled to various fees, including a retainer fee, success fee, and reimbursement of expenses.

The relevant sections of the I&B Code define 'Operational Creditor' and 'Operational Debt'. Section 5(20) states, "operational creditor means a person to whom an operational debt is owed," and Section 5(21) defines 'Operational Debt' as "a claim in respect of the provision of goods or services including employment." The appellant's engagement letter and terms of engagement outlined the services to be provided, including business evaluation, introduction of potential investors, and preparation of business presentation materials. The appellant raised invoices for retainer fees, appointment fees, and break fees, which were not paid by the Corporate Debtor.

The Adjudicating Authority failed to appreciate that the appellant had rendered services and was entitled to fees as per the engagement letter. The appellant qualifies as an 'Operational Creditor' since the claim arises from the provision of services.

Issue 2: Existence of Dispute

The Corporate Debtor argued that there was no debt due and that the debt was disputed. The Adjudicating Authority noted that the appellant did not provide sufficient evidence of services rendered. However, the appellant submitted the engagement letter and invoices as evidence. The Supreme Court in 'Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd.' clarified that the adjudicating authority must determine whether there is an 'operational debt' exceeding Rs. 1 lakh, whether the debt is due and payable, and whether there is an existence of a dispute.

The Corporate Debtor's reply to the demand notice raised disputes on imaginary grounds. The Supreme Court held that disputes raised after the demand notice cannot be considered for rejecting the application under Section 9. The appellant provided evidence of the engagement and the services rendered, and there was no pre-existing dispute before the demand notice. Therefore, the appellant qualifies as an 'Operational Creditor', and there was no existence of a genuine dispute.

Conclusion:

The judgment concluded that the appellant qualifies as an 'Operational Creditor' and there was no existence of a pre-existing dispute. The Adjudicating Authority's order was set aside, and the case was remitted to the Adjudicating Authority, Mumbai Bench, to admit the application and pass appropriate orders. The respondent was given the opportunity to settle the claim before the admission of the application. The appeal was allowed, and there was no order as to costs.

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