2017 (8) TMI 1198 - AT - Insolvency and Bankruptcy

Initiation of corporate insolvency resolution process - Insolvency Bankruptcy process - existence of dispute , within the meaning of Section 8 read with sub-section (5) of Section 5 of I&B Code - Held that - In this case, we find that the Certificate dated 6th March 2017 attached by Respondents has not been issued by any financial institution as defined in sub-section (14) of Section 3 of the I&B Code, 2016 but has been issued by Misr Bank which is a foreign bank and is not recognised as a financial institution . The said Certificate has been issued by collecting agency as distinct from Financial Institution and genuity of the same can not be verified by the Adjudicating Authority. We also find that the affidavit in support of insolvency application, as prescribed in Form-5 of the Adjudicating Authority Rules has not been filed, which mandates that no notice of dispute received to be returned or it is returned when dispute was raised , has to be enclosed by the operational creditor . In absence of such certificate from notified Financial Institution , and as Form-5 is not complete, we hold that the application under Section 9 of the I&B Code, was not maintainable. In view of provisions of I&B Code, read with Rules, as referred to above, we hold that an Advocate/Lawyer or Chartered Accountant or Company Secretary in absence of any authority of the Board of Directors, and holding no position with or in relation to the Operational Creditor cannot issue any notice under Section 8 of the I&B Code, which otherwise is a lawyer s notice as distinct from notice to be given by operational creditor in terms of section 8 of the I&B Code. In the present case as an advocate/lawyer has given notice and there is nothing on record to suggest that the lawyer has been authorised by Board of Directors of the Respondent - DF Deutsche Forfait AG and there is nothing on record to suggest that the lawyer hold any position with or in relation with the Respondents, we hold that the notice issued by the lawyer on behalf of the Respondents can not be treated as a notice under section 8 of the I&B Code and for that the petition under section 9 at the instance of the Respondents against the Appellant was not maintainable. In view of the decision of Kirusa Software (P.) Ltd s case (2017 (6) TMI 984 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, MUMBAI), as a notice of winding up dated 8th December 2016, was issued by Respondents and the claim was disputed by Appellant by detailed reply dated 3rd January 2017 i.e., much prior to purported notice under Section 8, issued by Lawyer and a suit between the parties is pending, we hold that there is an existence of dispute , within the meaning of Section 8 read with sub-section (5) of Section 5 of I&B Code and, therefore, the petition under Section 9 preferred by Respondents against the Appellant was not maintainable. In view of detailed reasons and finding recorded above, we hold the impugned order is illegal and set aside the impugned order

Issues Involved:
1. Maintainability of a joint application by two or more operational creditors under Section 9 of the I&B Code.
2. Mandatory requirement of filing a certificate from a recognized financial institution along with an application under Section 9 of the I&B Code.
3. Validity of a demand notice under Section 8 of the I&B Code issued by a lawyer on behalf of an operational creditor.
4. Existence of a dispute in the present case.

Issue-wise Detailed Analysis:

1. Maintainability of a Joint Application by Operational Creditors:
The tribunal examined whether a joint application by two or more operational creditors under Section 9 of the I&B Code is maintainable. It was observed that unlike Section 7, which allows financial creditors to file an application either individually or jointly, Section 9 requires operational creditors to act individually. The tribunal concluded that the practicalities of issuing individual claim notices, varying claims, and different dates of notices under Section 8 make joint applications impractical and non-maintainable. The tribunal held that Rule 23A of the NCLT Rules, 2016, which allows joint petitions, is not applicable under the I&B Code, thus a joint application under Section 9 is not maintainable.

2. Mandatory Requirement of Filing a Certificate from a Recognized Financial Institution:
The tribunal reaffirmed its stance from the "Smart Timing Steel Ltd. case," emphasizing that filing a certificate from a recognized financial institution confirming non-payment of unpaid operational debt is mandatory under Section 9(3)(c) of the I&B Code. In this case, the certificate provided by the respondents was from Misr Bank, a foreign bank not recognized as a financial institution under Indian law. The tribunal found the certificate insufficient and the affidavit incomplete, rendering the application under Section 9 non-maintainable.

3. Validity of Demand Notice Issued by a Lawyer:
The tribunal analyzed whether a demand notice under Section 8 of the I&B Code can be issued by a lawyer. It was noted that the demand notice must be issued by the operational creditor or an authorized person holding a position with or in relation to the operational creditor. The tribunal concluded that a lawyer, in the absence of authorization from the board of directors and without holding a relevant position, cannot issue a valid notice under Section 8. In this case, the notice issued by the lawyer was deemed invalid, making the subsequent petition under Section 9 non-maintainable.

4. Existence of a Dispute:
The tribunal considered whether there was an existence of a dispute as per Section 8 read with Section 5(6) of the I&B Code. It was found that the respondents had issued a winding-up notice on December 8, 2016, which was disputed by the appellant through a detailed reply on January 3, 2017. Additionally, a document dated December 27, 2013, relied upon by the respondents, was contested by the appellant as unsigned. The tribunal referenced its decision in "Kirusa Software (P.) Ltd. v. Mobilox Innovations (P.) Ltd.," which clarified that the existence of a dispute includes disputes pending before any judicial authority. The tribunal held that the ongoing dispute and pending suit indicated the existence of a dispute, making the petition under Section 9 non-maintainable.

Conclusion:
The tribunal set aside the impugned order dated April 10, 2017, passed by the Adjudicating Authority, Mumbai Bench, and declared all subsequent orders and actions, including the appointment of an Interim Resolution Professional and any moratorium, as illegal. The joint application under Section 9 was dismissed, and the appellant company was allowed to function independently. The respondents were directed to pay the fees of the Interim Resolution Professional for the period he functioned. The appeal was allowed with no order as to costs.

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