2019 (3) TMI 1971 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT - It is to be clarified that to initiate proceeding under Section 9 of the Code, notice under Section 8 is mandatory. After sending the valid notice under Section 8, if the Corporate Debtor fails to make the payment within 10 days, then only the person gets right to file petition under Section 9 of the IB Code, 2016. Admittedly, on the date of issuance of Section 8 notice under IB Code, Petitioner was not authorized for initiation of CIRP. By the implication of the judgement of Hon ble Supreme Court, Ld. Counsel for the Petitioner states that Ms. Meetu Bajaj has got authority for initiation of CIRP retrospectively. Since the proceedings/notice under Section 8 was issued without authority, even if we consider that Ms. Meetu Bajaj has been authorized for initiation of CIRP retrospectively, then demand notice under Section 8 is necessary and if the Corporate Debtor fails to make payment then only Petition under section 9 can be filed. In this case, the Petitioner was not authorized to initiate CIRP on the date of issuance of notice and therefore, by ratification of Board Resolution, Notice under Section 8 of the IB Code cannot be validated. Since Notice under Section 8 of IB Code is not valid, Petition under section 9 is not maintainable therefore, the petition under section 9 filed under I B Code, 2016 is dismissed.

Summary

Issues: Authorization for initiation of Corporate Insolvency Resolution process under Section 9 of the I&B Code.

Analysis:
1. The Company Petition was filed under Section 9 of the I&B Code, 2016 for initiating the Corporate Insolvency Resolution process against the Corporate Debtor, alleging non-payment of dues against three invoices issued on a specific date.
2. The key contention raised by the Corporate Debtor's counsel was the absence of specific authorization for initiating the Corporate Insolvency Resolution process, citing a precedent case where specific authorization was deemed necessary.
3. The National Company Law Appellate Tribunal (NCLAT) had previously ruled that a General Power of Attorney holder is not competent to file an application under the I&B Code without specific authorization for initiation of the Corporate Insolvency Resolution process.
4. The Operational Creditor argued that the Petition was filed based on a Board Resolution dated 5.10.2017, authorizing the Legal Counsel and Company Secretary to issue power of attorney for various matters, including filing petitions in the NCLT and NCLAT.
5. However, the Board Resolution did not explicitly authorize the initiation of Corporate Insolvency Resolution process against the Corporate Debtor, as highlighted in the precedent case referred to by the NCLAT.
6. The Operational Creditor later submitted an additional Affidavit containing a Board Resolution dated 29.1.2019, ratifying the authority of the Legal Counsel and Company Secretary to institute proceedings under the I&B Code before the NCLT.
7. The Operational Creditor contended that the subsequent ratification by the Board validated the earlier authorization for initiation of the Corporate Insolvency Resolution process, drawing parallels with a Supreme Court case emphasizing the concept of retrospective validation through ratification.
8. Despite the subsequent ratification, it was noted that the notice under Section 8 of the I&B Code, a prerequisite for initiating proceedings under Section 9, was issued without the necessary authority for initiation of the Corporate Insolvency Resolution process.
9. Consequently, the Tribunal held that the Petition under Section 9 was not maintainable due to the lack of valid notice under Section 8 and dismissed the petition with liberty to file a fresh one, emphasizing the importance of proper authorization for initiating the Corporate Insolvency Resolution process under the I&B Code.