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2017 (6) TMI 880 - AT - Insolvency and BankruptcyInsolvency & Bankruptcy Code - whether filing of a copy of certificate from the Financial Institution maintaining accounts of the Operational Creditor confirming that there is no payment of unpaid operational debt by the Corporate Debtor as prescribed under clause (c) of sub-section 3 of Section 9 of the I & B Code is mandatory or directory? Held that - The word shall used in sub-section (3) of section 9 of 1 & B Code is mandatory, including clause 3 therein. The appellant has enclosed a Final Award given by Sole-Arbitrator, Hong Kong Special Administrative Region, People s republic of China dated 18th August 2014 to suggest that the respondent Corporate Debtor is liable to pay the amount determined by arbitrator but defaulted to pay the amount. Even if such submission is accepted, the Adjudicating Authority cannot assume that the amount has not been paid pursuant to the award till on the basis of evidence on record i.e. copy of certificate from the Financial Institution maintaining accounts of the appellant confirming that there is no payment of an unpaid operational debt by the Corporate Debtor . From the record we find that the appellant was given opportunity to complete the record by enclosing the certificate of Financial Institution and thereby to remove the defects within 7 days but failed to do so. In J.K. Jute Mills Co. Ltd. v. Surendra Trading Co. 2017 (6) TMI 254 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, ALLAHABAD , the Appellate Tribunal was considering whether the time limit prescribed in I & B Code 2016 for admitting or rejecting the petition or initiation of Insolvency Resolution Process is mandatory? The Appellate Tribunal, by Judgment dated 1st May 2017 held that proviso to sub-section (5) of section 7 and proviso to sub-section (5) of section 9 granting Financial Creditor/Operational Creditor to complete the documents, if incomplete is mandatory. This Appellate Tribunal in J.K. Jute Mills Company Limited, the appellant having failed to complete the documents within 7 days, the Tribunal was right in dismissing the application preferred by the Appellant. The argument that the foreign companies having no office in India or no account in India with any Financial Institution will suffer in recovering the debt from Corporate Debtor cannot be accepted as apart from the I & B Code , there are other provisions of recovery like suit which can be preferred by any person. Appeal dismissed.
Issues Involved:
1. Whether the filing of a certificate from a Financial Institution maintaining accounts of the Operational Creditor confirming non-payment of unpaid operational debt by the Corporate Debtor, as prescribed under Section 9(3)(c) of the Insolvency and Bankruptcy Code (I&B Code), is mandatory or directory. Issue-wise Detailed Analysis: 1. Mandatory Nature of Certificate from Financial Institution: The primary issue for determination was whether the filing of a certificate from the Financial Institution maintaining accounts of the Operational Creditor, confirming non-payment of unpaid operational debt by the Corporate Debtor, as required under Section 9(3)(c) of the I&B Code, is mandatory or directory. The appellant, a foreign company with no office or bank account in India, filed an application under Section 9 of the I&B Code for initiation of Corporate Insolvency Resolution Process but failed to annex the required certificate from a Financial Institution. The Adjudicating Authority rejected the application due to this non-compliance. Upon examining Section 9 of the I&B Code, it was evident that the provision mandates the filing of such a certificate. The relevant definitions and provisions were reviewed, including the definition of 'Financial Institution' under Section 3(14) of the I&B Code, which includes scheduled banks, financial institutions as defined under the RBI Act, public financial institutions as defined under the Companies Act, and other institutions notified by the Central Government. The appellant argued that the requirement should be interpreted as directory, not mandatory, citing the Supreme Court decision in "Kailash v. Nanhku and Others" [2005] 4 SCC 480. However, the tribunal distinguished this case, noting that the Supreme Court's decision pertained to procedural time limits, whereas Section 9(3)(c) involves a substantive requirement. 2. Interpretation of Statutory Provisions: The tribunal emphasized that statutory provisions must be interpreted based on their plain and ordinary meaning unless such interpretation leads to absurdity. The words used by the legislature are presumed to declare legislative intent, and courts must give effect to this intent, particularly when the words are clear and unambiguous. The tribunal referred to the Supreme Court's decision in "State of Mysore v. V.K. Kangan" [1976] 2 SCC 895, which held that the determination of whether a provision is mandatory or directory depends on the intent of the law-maker, gathered from the provision's phraseology, nature, design, and consequences of different interpretations. 3. Compliance with Procedural Requirements: The tribunal noted that the I&B Code and the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 prescribe specific procedural requirements for filing an application for corporate insolvency resolution. Rule 6 of the Adjudicating Authority Rules 2016 mandates that an operational creditor must make an application in Form 5, accompanied by the required documents and records, including the certificate from a Financial Institution. The tribunal held that the provisions of Section 9(3) are mandatory and not merely procedural formalities. The appellant was given an opportunity to rectify the defect by submitting the required certificate within seven days but failed to do so. 4. Alternative Remedies for Foreign Creditors: The appellant's argument that foreign companies without an office or bank account in India would suffer in recovering debts from Indian Corporate Debtors was dismissed. The tribunal noted that apart from the I&B Code, other legal provisions, such as filing a suit, are available for debt recovery. Conclusion: The tribunal found no merit in the appeal and dismissed it, upholding the Adjudicating Authority's decision to reject the application due to non-compliance with the mandatory requirement under Section 9(3)(c) of the I&B Code. The tribunal emphasized the importance of adhering to statutory requirements and provided clarity on the mandatory nature of the certificate from a Financial Institution in insolvency proceedings.
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