TaxTMI 
TaxTMI 
2018 (9) TMI 1224
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.... 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 is an 'existence of dispute' between the 'appellant' and the 'Corporate Debtor'. 3. The appellant has brought on record the application under Section 9 of the I&B Code which is in Form 5 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 to suggest that the appellant comes within the meaning of 'Operational Creditor'. The relevant evidence in support of the claim is enclosed with Form 5. The claim of appellant, in fact, is based on the letter dated 7th January, 2016 issued by the 'Corporate Debtor'. According to learned counsel for the appellant, by the letter aforesaid, the 'Corporate Debtor' engaged the appellant to provide services in lieu of which retainer fee was chargeable; for advisory and ancillary services separate fees were chargeable on receipt of the term-sheet from the investor. The appellant was also entitled for success fee once the funds were remitted into the accounts of the appellant by the parties. 4. The case of the respondent....
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....he 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 Government or any local authority;" 10. It is not the case of the appellant that he has supplied any goods. According to the appellant, it has rendered services for which 'operational debt' is owed to him by the 'Corporate Debtor' and therefore, the appellant come within the meaning of 'Operational Creditor'. 11. The argument is based on letter dated 7th January, 2016 by the 'Corporate Debtor', relevant of which reads as follows: Mr. Anand Vllayannur, 7th January 2016 Director Tattva & Mittal lifespaces Pvt Ltd B-48 Todi Estate, Sunmill Compound, Lower Parel (W) Mumbai 400013 Dear Mr. Anand, Sub: Advisory and Capital-raising Services for Tattva Mittal Lifespaces We refer to our meeting on the 7th of January 2016 In your office regarding your Interest in finding a financial /strategic partner for Tattva Mittal lifespaces (TML) (the Transaction") This letter (the "Engagement letter") set....
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....entation 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 investors, including as to task allocation and timing, and Identification of data required for due diligence purposes. Structuring: Work with the Company's legal counsel and other professional Consultants to advice on the structure of the Engagement. Negotiations, etc: Assist with negotiations on pricing, deal structure and other terms of the Engagement. Completion: Together with the Company's other Consultants, advise on the steps required to complete the Engagement, including conditions precedent and to coordinate the completion process maybe required by the Company. Any other services, which the Company may require AVON to perform, will be subject to mutual agreement. AVON shall not be responsible for preparing any materials (including any valuation or other financial analysis) that may be required by any law or regulation or by any person (including shareholders or investors) ....
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..../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 beneficially relationship Yours faithfully, AVON CAPITAL Ravindra Gopal Proprietor Accepted and Agreed to as of the date first written below For and on behalf of Tattva & Mittal Lifespaces Pvt. Ltd. Anand Vllayannur, Director 12. The terms of 'engagement' and 'payments' enclose with the said letter, which is as follows : Terms of Engagement Advisory Services to Tattva & Mittal Lifespaces Pvt Ltd These terms form part of the Engagement Letter. 1. The Engagement AVON'S duties under the Engagement are to the Company only and shall be performed with due skill and care In accordance with market practice. The Company authorises AVON to do what AVON considers reasonable or necessary to carry out the Engagement and to comply with laws, regulations or market practices. AVON will consult with t....
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....nsent 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 Engagement Letter shall have the same meaning when used in these Terms. References to a company's "Officers" shall be to such company's directors, officers, employees and agents from time to time. References to "Affiliates" shall be to the subsidiaries and to companies under the same control as such entity from time to time References to "Information" shall include information in whatever form transmitted or stored including any advice, analysis, letter, memorandum, accounts, publication, announcement, notice, circular, prospectus, offering document, company record, contract or otherwise 14. There is a 'dispute resolution' prescribed under Clause 11 therein. The aforesaid letter dated 7th January, 2016 is part of Form 5. The invoices dated 1st August, 2016 and 27th September, 2016 have also been enclosed with the applicat....
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.... 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' or 'break drop dead fees' in US$ 1 lakh plus @ service tax @ 15% as per clause 4 of para 2 of Engagement Agreement has been raised. All those invoices are independent to 'appointment fee' or 'fixed fee' or 'successors fee'. The Adjudicating Authority has noticed the 'engagement letter' dated 7th January, 2016 including the invoices receipt. However, without appreciating the relevant facts, the Adjudicating Authority like a Trial Court observed as under: "The evidences such as the work done by the professional or any due diligence report submitted to the Respondent Company are missing in this case. The Petitioner has not filed a single evidence to demonstrate that by his effort a Corporate Financer has factually invested in the Respondent Company" are missing in this case. The petitioner has not file the evidence to....
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....p; 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 Bank [ Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407] (Civil Appeals Nos. 8337-38 of 2017). In this judgment, we had held that the adjudicating authority under Section 7 of the Code has to ascertain the existence of a default from the records of the information utility or on the basis of evidence f....
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....curring in Section 8(2)(a) must be read as "or" keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as "or". If read as "and", disputes would only stave 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 resolut....