Investment Made By Director Of A Company Is Not An Operational Debt: NCLT Kolkata

Background Facts

Avighna Films Private Limited ("Corporate Debtor") had two directors till 09.04.2019, namely Pujarini Ghosh and Sohini Ghosh. On 10.04.2019, Mr. Akshat Pandey ("Operational Creditor") was inducted as an Additional Director in the Corporate Debtor for production of a movie.

The Operational Creditor produced the movies and had made a total investment of Rs.1,14,25,000/- for the completion of the cinema. Thereafter, on 22.05.2019 the director Ms. Sohini Ghosh, entered into an agreement ("Agreement") with one another company Editfx Studios Pvt. Ltd., to restrict any other person other than Ms. Sohini Ghosh to allow post production contents of the movie; restrain the director of the movie towards its release; or negate the proposed return on investment to the Operational Creditor.

However, Director Pujarini Ghosh did not accept the terms of the Agreement and consequently, the negation of the proposed return on investment to the Operational Creditor also came to an halt. The Operational Creditor addressed a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 ("IBC") to the Corporate Debtor, demanding return of the amount invested by him. Ms. Sohini Ghosh requested for settlement but without any payment and hence, no repayments were received. The Operational Creditor filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor for a default of Rs.1,14,25,000/-.

Contentions Of The Corporate Debtor

The Corporate Debtor argued that the Operational Creditor has no locus standi to institute the proceeding and no date of default has been mentioned. The alleged debt of the Operational Creditor is barred by limitation and is liable to be rejected. Further, there is no cause of action against the Corporate Debtor, neither does the Petition states any cause of action.

Issue

1. Whether an investment made by the Director of the Company falls under the definition of Operational Debt?

Decision Of NCLT

The Bench observed that under Section 5(21) of the IBC, 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, under Section 5(20) of the IBC an 'Operational Creditor' is a person to whom an Operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

Based on the above, the Bench opined that Operational Creditor is a director of the Corporate Debtor, who had invested money in the latter for production of a movie and an investment made by the Director of the Company does not fall under the purview of an Operational Debt under the IBC. The Bench dismissed the petition while granting liberty to Operational Creditor to pursue its remedy under law, if any.

Case Title: Akshat Pandey v Avighna Films Private Limited, C.P. (IB) No. 178/KB/2021

Counsel For the Operational Creditor: Mr. Sandip Kumar Bhattacharyya, Adv.

Counsel For the Corporate Debtor: Mr. Shounak Mitra, Adv. Mr. Soham Banerjee, Adv. Mr. Aditya Chaturvedi, Adv.

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