Process for initiation of corporate insolvency resolution process by operational creditor [ section 9 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Process for initiation of Corporate Insolvency Resolution Process by operational creditors An operational creditor shall first deliver a demand notice (Form 3) and a copy of invoice (Form 4) demanding payment of the amount involved in the default to the corporate debtor. As per Rule 5(2) of The Insolvency and Bankruptcy (Application to Adjudicatory Authority) Rules, 2016, it may be delivered to the corporate debtor at he registered office by hand, by registered post or speed post with acknowledgement due or by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor. A copy of demand notice or invoice demanding payment served by an operational creditor shall also be filed with information utility, if any. Demand notice means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred. The corporate debtor shall within a period of ten days of receipt of demand notice notify the operational creditor about the existence of a dispute, if any, or roof pendency of any suit or arbitration proceedings filed before receipt of such notice or invoice in relation to such dispute. Corporate Debtor shall also provide the details of payment of unpaid operational debt in case the debt has or is being paid. Application for initiation of corporate insolvency resolution process by operational creditor [ Section 9(1) ] After the expiry of the period of 10 days from the date of delivery of the demand notice or invoice demanding payment under section 8(1), if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under section 8(2), the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. Prescribed Form Fee [ Section 9(2) ] The application under section 9(1) shall be filed in such form and manner and accompanied with such fee as may be prescribed. [ Section 9(2) ] Application by operational creditor [ Rule 6 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 ] An operational creditor, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 9 of the Code in Form 5, accompanied with documents and records required therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The applicant under rule 6(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 shall serve a copy of the application to the registered office of the corporate debtor and to the Board, by registered post or speed post or by hand or by electronic means, before filing with the Adjudicating Authority. Documents to be attached with the application [ Section 9(3) ] The operational creditor shall, along with the application furnish- (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; (d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and (e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed. Propose Name of Resolution Professional [ Section 9(4) ] An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. Admission/Rejection by the adjudicating authority [ Section 9(5) ] The Adjudicating Authority shall, within 14 days of the receipt of the application under section 9(2) , by an order- (i) Admit the application and communicate such decision to the operational creditor and the corporate debtor if,- (a) the application made under section 9(2) is complete; (b) there is no payment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under section 9(4), if any. (ii) Reject the application and communicate such decision to the operational creditor and the corporate debtor, if- (a) the application made under section 9(2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority. Time to rectify the defect in the application [ Section 9(6) ] The corporate insolvency resolution process shall commence from the date of admission of the application under section 9(5) of this section. Some Judicial Interpretation of Section 9 by Supreme Court / NCLAT A copy of the certificate required under section 9(3)(c) of the Code from the financial institution maintaining accounts of the OC confirming that there is no payment of an unpaid operational debt by the CD is certainly not a condition precedent to triggering the insolvency process under the Code. [ Macquarie Bank Ltd. Vs. Shilpi Cable Technologies Ltd . Supreme Court , dated 15.12.2017 ]. The SC upheld the direction of NCLAT which ordered OC to pay the CIRP costs and fees of the IRP/RP, after the dismissal of its section 9 application by NCLAT. [ Rajkumar Brothers and Production Pvt. Ltd. Vs. Harish Amilineni Shareholder and erstwhile Director of Amilionn Technologies Pvt. Ltd. Anr. Supreme Court , dated 22.01.2021 ]. Starting of CIRP against a functional company is a serious matter and parties cannot be allowed to play hide and seek. A cost of Rs. 5 lakh was imposed on the OC. [ Vinod Mittal Vs. Rays Power Experts Anr. NCLAT , dated 18.11.2019 ]. CIRP is not a suit , a litigation or a money claim for any litigation and no one is selling or buying the CD a resolution plan . It is not an auction or a recovery or liquidation. It is a resolution process so that the CD does not default on dues. [ Excel Metal Processors Ltd. Vs. Benteler Trading International GMBH and Anr. NCLAT , dated 21.08.2019 ]. Once an application under sections 7 or 9 is filed, it is not necessary for the AA to await hearing of the parties for passing order of moratorium under section 14 of the Code. To ensure that one or other party may not abuse the process or for meeting the ends of justice, it is always open to the AA to pass appropriate interim order. [ NUI Pulp and Paper Industries Pvt. Ltd. Vs. Roxcel Trading GMBH , NCLAT , dated 17.07.2019 ]. The applicability of Form 3 or Form 4 under of the AA Rules depends on whether invoices were generated during the course of transaction or not. Further, a copy of invoice is not mandatory if the demand notice is issued in Form 3 provided the documents to prove the existence of operational debt and the amount in default is attached with the application. Also, submission of a copy of the invoice along with the application in Form 5 is not a mandatory requirement, if demand notice is delivered in Form 3 and documents to prove the existence of operational debt and the amount in default is attached with the application. [ Neeraj Jain Vs. Cloudwalker Streaming Technologies Pvt. Ltd. Anr. , NCLAT , dated 24.02.2020 ] Unless the decree of a foreign court and decretal amount is adjudicated upon by a Civil Court as a legally payable claim, the same would not constitute a debt in the hands of OC and unless the debt is crystallized and payable in law, the issue of default would not be attracted [ Peter Johnson John (Employee) Vs. KEC International Ltd. , NCLAT , dated 03.07.2019 ]. In view of Rule 8 of AA Rules, it was open to the OC to withdraw the application under section 9 before its admission but once it was admitted, it cannot be withdrawn even by the OC, as other creditors are entitled to raise claim pursuant to public announcement under section 15 read with section 18 of the Code. [ Mother Pride Dairy India Pvt. Ltd. Vs. Portrait Advertising Marketing Pvt. Ltd., NCLAT , dated 13.07.2017 ]. Section 16G (1)(c) of the Tea Act, 1953, relates to winding up, while section 9 of the Code is for initiation of CIRP to ensure revival and continuation of the CD. Therefore, these provisions occupy different fields. Accordingly, no permission of the Central Government is required for initiation of CIRP of the CD in terms of section 16G (1) of the Tea Act, 1953. [ A.J. Agrochem Vs. Duncans Industries Ltd., NCLAT , dated 20.06.2019 ] As the amount is due from the partnership firm, application under section 9 is not maintainable against one of the members of the partnership firm. [ Gammon India Ltd. Vs. Neelkanth Mansions Infrastructure Pvt. Ltd., NCLAT , dated 19.12.2018 ] Since money was paid as advance for supply of goods but the goods were not supplied, the payment cannot be considered to be an operational debt and hence, application under section 9 was not maintainable. [ Roma Infrastructures India Pvt. Ltd. Vs. A.S. Iron Steel (I) Pvt. Ltd., NCLAT , dated 22.04.2019 ]. Proceedings under section 138 of the Negotiable Instruments Act, 1881 as well as Order 37 of the Code of Civil Procedure, 1908, will not prohibit an application under section 9 of the Code. [ Shailendra Sharma Vs. Ercon Composites Ors., NCLAT , dated 13.01.2021 ].