2022 (7) TMI 830 - Tri - Insolvency and Bankruptcy

Director's Investment in Movie Production Not Considered Operational Debt under Insolvency Code

Akshat Pandey Versus Avighna Films Private Limited

The Tribunal dismissed the Company Petition under section 9 of the Insolvency and Bankruptcy Code, 2016, as an investment made by a director in the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors or not - Whether an investment made by the Director of the Company falls under the definition of Operational Debt? - HELD THAT:- As envisaged under section 5(21) of the Code, an Operational Debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the re-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 - Further, section 5(20) of the Code an ‘Operational Creditor’ meaning a person to whom an Operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. However in this instant matter the Petitioner, who is also one of the director of the Corporate Debtor, invested money in the Corporate Debtor for production of a movie. In light of the above facts and circumstances we are of the view that an Investment made by the director of the Company does not fall under the purview of an Operational Debt under the Code. Petition dismissed. Issues involved:Company petition under section 9 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process against a Corporate Debtor based on non-payment of a specified sum. Interpretation of whether an investment made by a director of a company qualifies as an operational debt under the Code.Analysis:The case involved a company petition filed under section 9 of the Insolvency and Bankruptcy Code, 2016 by an Operational Creditor seeking to initiate Corporate Insolvency Resolution Process against a Corporate Debtor due to non-payment of a substantial sum. The Operational Creditor alleged that the Corporate Debtor failed to repay an investment made for the production of a movie. The Operational Creditor contended that the investment was made through legitimate channels for the completion of the cinema, but the Corporate Debtor failed to honor the financial commitment.The submission from the Counsel for the Corporate Debtor challenged the locus standi of the Operational Creditor to initiate the proceeding, claiming that the debt was time-barred and lacked a cause of action against the Corporate Debtor. The Corporate Debtor argued that the Operational Creditor, who became a director after expressing interest in the movie production, abandoned the project prematurely, causing financial loss to the Corporate Debtor.The crucial issue in this matter revolved around the interpretation of whether an investment made by a director of a company qualifies as an operational debt under the Insolvency and Bankruptcy Code. The Tribunal analyzed the definitions of operational debt and operational creditor as per sections 5(21) and 5(20) of the Code, respectively. The Tribunal highlighted that operational debt is limited to claims related to goods, services, or repayment of dues to government entities.After considering the facts and circumstances of the case, the Tribunal concluded that an investment made by a director in the company for movie production did not fall within the scope of operational debt as defined by the Code. Consequently, the Company Petition was dismissed, allowing the Petitioner to seek alternative legal remedies if applicable. The Tribunal emphasized that the investment by the director did not align with the categories specified for operational debt, leading to the dismissal of the petition.In the final order, the Tribunal directed that a certified copy of the judgment would be issued upon formal application. The judgment was pronounced on the 14th day of July 2022.