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TMI Blog2017 (4) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Bombay after receipt of notice, therefore taking pendency of the suit filed subsequent to receipt of section 8 notice, this IB petition is to be dismissed. But the argument of the corporate debtor counsel not being in consonance with the mandate of the statute u/s 8, this petition can't be dismissed going by the argument of the counsel of Uttam because filing of a suit or arbitration proceedings subsequent to receipt of notice u/s 8 will not amount to existence of dispute as stated u/s 8 of IB Code. Under any stretch of imagination, the argument of the corporate debtor counsel does not make out any case to construe the corporate debtor filing a suit over this claim subsequent to receipt of notice as dispute in existence, henceforth this point is decided against the corporate debtor. Here in the present case, the power of attorney was given only two months before filing this case mentioning what are the actions the attorney holders to take up, against whom it is to be taken up, therefore it can't be said that since it is not a winding up proceeding, this power of attorney cannot be used to file insolvency proceeding IB Code. The nature of proceedings under winding up as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mising to pay the value of goods within 180 days, thereafter Uttam has not made any payment, by now more than three years and six months are over. For the reasons above and the material available on record showing compliance under section 9 of the code, this petition is hereby admitted and Registry is hereby directed to refer it to the Insolvency and Bankruptcy Board to recommend the name of an IRP to appoint him in this case. - C.P. NO. 45/I&BP/NCLT/MAH/2017 - - - Dated:- 10-4-2017 - B.S.V. Prakash Kumar and V. Nallasenapathy, JJ. For The Applicant : Mr. Shyam Kapadia I/b. Mr. Sonu Tandon, Advocatges For The Corporate Debtor : Shri. Janak Dwarkadas, Sr. Counsel, Shri. Ravi Kadam, Sr. Counsel, a/w. Mr. Dhiraj Mhetre, Ms. Smiti Tewari, Advocates ORDER B.S.V. Prakash Kumar, Judicial Member It is a company petition filed u/s 9 of Insolvency and Bankruptcy Code 2016 (IB Code) by operational creditors viz. DF Deutsche Forfait AG (called as Deutsche) Misr Bank Europe GmbH (called as Misr Bank) against a corporate debtor company viz. Uttam Galva Steels Limited (referred as Uttam - whose financial statements have already slipped into brackets) stating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, AIC issued an invoice (Annexure-5) for a sum of USD 10,787,040 for the billets in quantity of 19, 976, 40 MT supplied to Uttam at a rate of USD 540 per MT. A reference was made to two Bills of Exchange dated 18.9.2013 drawn by AIC on Uttam, one (Annexure-7) for USD 5, 387,040 and another (Annexure-8) for USD 5,400,000 to pay on 15th March 2014 (maturity date after 180 days) against these two Bills of Exchange and Uttam unconditionally accepted the Bills. 4. Besides this, Uttam sent confirmation (Annexure-13) stating that the shipment to Chttagong Port Bangladesh has been duly executed by AIC under the sale contract dated 16.8.2013 and received all documents under the contract, therefore buyer (Uttam referred to itself as buyer) accepted AIC (seller) faultless performance without any reservation by confirming that there exists no further obligation or liabilities of seller (AIC), Uttam further confirmed that the amount set out in the invoice represents 100% of the purchase price, therefore buyer (Uttam) irrevocably and unconditionally has undertaken to pay AIC as set out in the invoice waiving all rights of objection and defence and buyer would effect the payment at maturity w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, but this Uttam had not raised any law suit on any of the issues until statutory notice u/s 8 of the Code issued by them. 10. In the meanwhile, having IB Code come into force, Deutsch and Misr Bank issued statutory notice (Annexure - 2) of demand u/s 8 of IB Code on 28th February 2017 calling upon Uttam to pay a sum of USD 16,542,886.33 i.e., a principal sum of USD 10,787,040 and interest of USD 5,755,846.33. On 3 1 March 2017, a reply (Annexure - 3) came from Uttam denying all claims with a caveat that advocates were in the process of obtaining detailed instructions from the corporate debtor and would reply in due course. Another reply notice dated 11th March has been sent by Uttam to the Deutsch and Misr Bank through e-mail (Annexure - Al in additional affidavit) stating that its obligations under the sales contract were dependent on payment by Aartee Commodities Ltd. and Uttam already filed a suit before Honorable High Court of Bombay on 10th March 2017. But this Bench has not noticed any such averment of payment by Uttam is dependent upon payment by Aartee in any of the correspondence with either AIC or Deutsch or Misr Bank until Uttam wrote reply to the notice given by pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight - the counsel argued that since Power of Attorney given to file this case has not specifically authorized to initiate proceedings under IB Code, it has to be dismissed basing on the order dated 30.3.2017 passed by special Bench on reference; lastly - the counsel says Uttam is listed company providing employment to 1, 400 people and it has impeccable track record, hence this Insolvency Resolution Process cannot be thrust upon a company like this. Discussion: 13. As to 14 days' time, we must say that this case has come for hearing within 14 days but whereas the corporate debtor itself argued several times, of course petitioners side also argued and filed written submissions, not once, twice, indeed first time written submissions from Uttam came before this Bench on 1st April 2017, second time submissions came on 5th April 2017, later, for there being several issues to be addressed, this Bench also took three four days' time for passing orders. This Bench cannot simply pass it on to some other forum saying there are many issues to be addressed when answers to all factual aspects are available in the material placed by the petitioners and as to legal issues, when n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the quality of goods; or (c) the breach of representation or warranty; 16. On perusal of this definition, it is evident dispute includes a suit or arbitration proceeding, now the point for determination is as to whether the word includes is extensive as generally understood or in any other way. If we go through section 7, 8, 9 and 10 of this code, this word dispute nowhere appears except in section 8 and 9, therefore this definition primarily meant for application when notice is issued by the operational creditor u/s 8 and when case is filed by an operational creditor u/s 9 of the Code, therefore the definition has to be understood in a meaningful way to cater the intent and purpose behind sections 8 9, not otherwise. 17. To know how it is to be understood, we must also read part of section 8 and section 9, which goes as follows: 8. Insolvency resolution by operational creditor - (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in existence on the footing of suit or arbitration pending or if the debtor fails to repay the unpaid debt within 10 days, then if the notice of the dispute as stated under sub section (2) of section 8 of the code is given to the creditor and other compliances, the operational creditor gets cause of action to file application u/s 9. 22. The argument of the debtor counsel is since the debtor disputed the debt within 10 days by giving reply within 10 days to the creditors, it has to be construed as dispute on two grounds, one - the definition for dispute is inclusive, two - the word and in sub section 2 (a) of section 8, has to be read as or so as to harmonize with the inclusive definition to the word dispute . 23. We respectfully disagree with this view; definition has always to be harmonized with the context in which it is said in the substantive section, not otherwise. This caution is very much implicit in section 2 itself saying it has to be understood as defined unless context otherwise, therefore two things are clear, one - defining section will not govern the substantive section, two - definition has to be construed in the context of substantive section, not oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d includes is extensive in nature, there are equally many number of cases saying that this word has to be understood in the context it is applied. 27. In this line, in South Gujarat Roofing Tiles Manufacturers Association vs. State of Gujarat, [1976] 4 SCC 601, it has been held that there could not be any inflexible rule that the word includes should be read always as a word of extension without reference to the context, in the said case the word includes has been used in the sense of means , this is only construction that the word can bear in the context. In that sense include is not a word of extension, but limitation, it is exhaustive of the meaning which must be given to potteries industry for the purpose of Entry. 28. The use of word includes in the restrictive sense is not unknown. So, the manufacturer of Mangalore Pattern Roofing Tiles is outside the purview of Entry 22. 29. Likewise, in N.D.P. Namboothiripad i. Union of India [2007] 4 SCC 502,it has been held that the word includes has different meanings in different contexts. It can be used in interpretation clauses either generally in order to enlarge the meaning of any word or phrase occurring in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is qualified as the dispute in a suit or arbitration pending not otherwise. 33. In the above discussion we have noticed what is meant by a dispute, now let us see what is meant by the existence of dispute in sub-section 2 of section 8 of the Code. In Section 8 it has been said when notice is given u/s 8 (1) of the Code, the corporate debtor shall, within a period of 10 days of the receipt of demand notice, bring it to the notice of the operational creditor that dispute is in existence by way of suit or arbitration proceeding before the receipt of notice under Sub-section 1 of Section 8 of the Code. If we go by this section, existence of dispute means pendency of either suit or arbitration proceeding before the receipt of section 8 notice from the operational creditor, it has to be understood that pending of suit or arbitration proceeding alone will amount to existence of dispute. In Clause (a) of Sub Section 2 of Section 8, it has been said that the corporate debtor must bring two things to the notice of the operational creditor, one -existence of dispute and record of pendency of the suit or arbitration proceeding before receipt of section 8 notice. In point no. 1 existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing itself up as purchaser giving all kinds of undertakings waiving right of defence. Now, it says that these goods were delivered to some third party, not to it. It is in between the debtor and that third party, what business these creditors have with that third party, it does not appear in any documentation and that third party is privy to any transaction. 35. These are the figures showing on the website of Uttam signed by Managing Director of the company on 9th February 2017. Reconciliation of profit between Ind-AS and previous IGAAP for earlier periods and as at 31.03.2016 Quarter Ended 9 months Ended Year Ended Name of Adjustments 31.12.2015 31.12.2015 31.03.2016 Net Profit as per IGAAP (424.50) (418.56) (1551.51) Capital Incentive from Government of Maharashtra 12.63 42.91 58.61 Other Comprehensive Income (2.33) (73.64) 489.40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute u/s 8, this petition can't be dismissed going by the argument of the counsel of Uttam because filing of a suit or arbitration proceedings subsequent to receipt of notice u/s 8 will not amount to existence of dispute as stated u/s 8 of IB Code. 39. Under any stretch of imagination, the argument of the corporate debtor counsel does not make out any case to construe the corporate debtor filing a suit over this claim subsequent to receipt of notice as dispute in existence, henceforth this point is decided against the corporate debtor. 40. The corporate debtor counsel made a thumping argument saying that since this very Bench dismissed an operational creditor case (M/s Kirusa Software Pvt. Ltd v. M/s Mobilox Innovations Pvt. Ltd dated 27, January 2017) on the ground the claim is disputed in the reply, it is right, it happened in the formative days when this Code has come into existence, moreover this point that dispute means pendency of suit or arbitration, to our remembrance, had not been argued by the counsel of operational creditor, frankly speaking that was not noticed by us. It does not mean a miss out in one case can become a ratio to repeat the same mistake again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -03-2017 passed by Special Bench of NCLT at Guwahati on a direction given by the Hon'ble President of NCLT to decide the matter regarding passing of different orders in a CP 37/2017 u/s of Insolvency and Bankruptcy Code 2016 by Division Bench, NCLT at Kolkata in relation to an issue as to whether Power of Attorney in question had specifically empowered Shri Srinjoy Bhattacharjeet to do variety of acts which included the power to initiate resolution process under IB Code, 2016 as well. 46. Since this point goes to the root of maintainability, this point has also been elaborately discussed. 47. Before going into the above decision of NCLT Guwahati, we mention that Deutsche Misr Bank, separately and independently have given power of attorney to one Pankaj Sachdeva and Vandana S. Saxena on 20th September, 2016 and 11th October,2016 to ask or demand the outstanding amount from the present corporate debtor i.e. Uttam Galva Steels Limited along with overdue interest and costs thereon and also to file and/or defend suits, to sign and verify all the plaints including winding up petitions, pleadings, written statements, affidavits, petitions, objections to file execution applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions that the legal manager is empowered to initiate proceedings under NCLT which automatically includes its role as an adjudicating authority under IBC. In case, this is insistent upon in every petition under IBC, involving a financial creditor that the petition be filed on the basis of a specific power of attorney on a board's resolution, it will defeat the very purpose of IBC, which is for speedy resolution of insolvency cases. He also further held that the facts of the outstanding loan and the defaults have been established by the operational creditor and the same has not been denied by the corporate debtor henceforth the same deserved to be admitted. 51. To say that the power of attorney in the case supra cannot be said to have authorized the attorney to initiate a corporate insolvency resolution proceeding u/s 7 of the Code, Guwahati Bench holds that since it is a new act coming to existence in the year 2016 with enormous changes with a complete new regime, therefore it can't be said that the power of attorney holder can go beyond the covenants under power of attorney by relying upon PM DasappaNayanimVaru v. RamabhaktulaRamaiah (AIR 1952 Madras 559) and Coramand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing winding up proceedings on the ground that the proceedings under 433 of the Act 1956 cannot be equated to suits or for that matter suits for recovery of money because lis in winding up proceedings is not merely between the petitioning party and the company sought to be wound up, once the winding petition is admitted the creditors contributories, shareholders etc. to seek redress in the proceedings and even oppose the winding up. It was further held that the proceedings under Companies Act for winding up are entirely different, a special remedy and a proceeding not to the parties alone, their range is wide and all steps taken on winding up proceedings are in public interest. 54. The rationale behind the finding by Guwahati is, power of attorney must be strictly construed and that the powers given are not to be abused by the agent and his actions are restricted within and only to the extent the power is indicated are given. 55. In the two cases relied on by Guwahati Bench, as to Madras case, the principals had given power to the attorney to proceed with the suit already initiated by them, they had not said to him to proceed any further beyond the said suit already filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not seen anywhere. 60. Here the creditor companies, simultaneously on 20th September 2016 and 11th October 2016, empowered Mr. Pankaj Mrs. Vandana to demand the dues outstanding from the corporate debtor i.e. Uttam Galva Steels Limited and to initiate legal proceedings including winding up proceedings before the courts/tribunals, therefore the intention of the creditors is clear and their authorization is very clear that the attorneys can initiate winding up proceedings as well. The point for consideration is to see whether the attorneys proceeding beyond the power given to him or not. When power was given to the attorneys to initiate proceedings for liquidation by filing winding up petition in the months of September and October 2016, an action under 1956 Act for winding up proceedings was very much available, for that reason alone notice was given under section 434 of the Act 1956, but by the time the attorneys to initiate proceedings of winding up, winding up jurisdiction in respect to 433 (e) of the Act 1956 were metamorphosed into insolvency proceedings under IB Code. In a situation like this, can the application filed under section 8 be simply rejected on the ground sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, this process of restarting the proceedings in the name of want of authority will become hindrance forever in realizing its debt. 61. In winding up proceedings once enquiry is done liquidator will directly be appointed for liquidation, the better part in IB Code is there will be a resolution process to find out as to whether a distressed company can survive if further funds are infused, if at that juncture also, the company fails, then only the action for liquidation will trigger. Therefore, the nature of insolvency proceedings under IB Code cannot be seen as something different from the winding up proceedings. Maybe it is looking new to us but the outcome is one and the same, the main object behind insolvency proceedings for reorganization and insolvency resolution of the companies and individuals in a time bound manner for maximization of value of the assets of the said companies or said persons to promote entrepreneurship availability of credit and balance of interest of all the stakeholders. In a scenario like this, if we narrow down our perception that company will be closed, business will go down if at all insolvency proceedings are initiated, then it will become nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled merely by treating ipsissimaverba of Willes, J., as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished judge . 64. All that is said in the above finding is the words in a judgment is not to be treated as if it were a statutory definition, it will require qualification in new circumstances. There is always a peril in treating the words of a speech or a judgment as if they were words in a legislative enactment and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, if any deviation to the statute is exfacie apparent in any judgment, law governing a particular situation is to be taken abreast. A ratio in a judgment cannot be torn out of context and apply it in a situation where it is not fitting. 65. Here in the present case, the power of attorney was given only two months before filing this case mentioning what are the actions the attorney holders to take up, against whom it is to be taken up, therefore it can't be said that since it is not a wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides this, the assignment by Deutsche to Misr Bank has not been confirmed by Uttam therefore, these two petitioners cannot be recognized as Operational Creditors within the meaning of the Code. 68. The argument of the Corporate Debtor counsel does not stand good for two reasons (1) the debt has been properly assigned to Deutsche and thereafter Deutsche assigned part of the debt to Misr Bank, since the assignment of debt in our country need not be confirmed by the Corporate Debtor, it cannot be said that this Petition is defective, it is two Operational Creditors, who shared debt in between, filed this Company Petition against the debt raised out of one transaction, apart from that since it is only to initiate the insolvency resolutions process, for no prejudice being caused to the Corporate Debtor, this Petition in any sense cannot be treated as defective. As to doctrine of privity of contract, there need not be any separate contract in between the Petitioners and Corporate Debtor, once that debt is assigned to somebody else, then that third party will automatically come into the shoes of the original operational creditor as stated in the definition to operational creditor. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y raises a dispute without any support of pending suit or arbitration proceedings, which will become detrimental for enforcing the mandate of this Code. As we already said, one should not start looking at the IB proceedings as harsh. Here in this case, the Debtor company failed to pay for three years since now, after three years, it is saying that Operational Creditor cannot file this case as it remained silent from March 15, 2014. Can it be an argument to say that since the Operational Creditors did not initiate any proceedings until before filing this Insolvency Petition, they are not supposed to pursue the remedies available to them before the case is hit by limitation? It can't be like that. Therefore, this Bench has not found any reason in the argument of the Corporate Debtor Counsel. 72. The Corporate Debtor Counsel raises another argument saying that since this sales contract in between the Seller (AIC) and the Corporate debtor is governed by English Law, the Petitioner cannot proceed without dealing with English law, to which he relied upon Hari Shanker Jain v. Sonia Gandhi AIR 2001 SC 3689, which is not relevant to the present case. 73. In a reply to the same, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her in cash or kind, to what he has taken, for this; we have to apply law in such a way that claimant is provided remedy. The premise for claim is whether A has taken something from B with a promise to pay back the value or not, if it is prima facie evident that claim has to be paid, then to see what law is applicable to ensure that it is repaid, but not to dismiss the claim on the ground it is not in accordance with law. Legal proposition is to be searched and applied to promote the cause not to negate the cause. We need not say that procedural justice is always subservient to substantial justice. 76. When we see the basic difference to financial debt and operational debt, it is clear that financial debt is money borrowed to repay on future date along with interest, here the money is lent for value addition to the money as agreed between the parties, whereas operational debt is normally based on an agreement to pay to goods or services, it does not mean that interest cannot be claimed in the times to come, it is a normal practice that trade payables are payments deferred for a fixed time, if the party fails to repay within the fixed time, then interest will be claimed over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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