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2017 (8) TMI 1198

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..... ed 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 mainta .....

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..... (ii) Respondents violated the contractual terms; (iii) Appellant disputed execution of contract; (iv) There is dispute about quantum of default; (v) There is a dispute as to who is the defaulter (whether the default can at all be attributed to Uttam Steels in view of actual liability being that of a 3rd party); (vi) There is a dispute as to whether the Respondents are Operational Creditors of the Appellant etc. 3. It was pointed out that the Respondents had issued a winding up notice on 8th December 2016 much prior to the issuance of so-called notice under Section 8 of the I B Code. Pursuant to which, the Appellant disputed the claim by a detailed reply dated 3rd January 2017. Apart from that, the Respondents are relying on a document dated 27th December 2013 to fix liability on the Appellant, which has not been signed by Appellant and was brought to the notice of the Respondents in the year 2013 itself. The ld. Counsel for the Appellant referred to an e-mail dated 10.4.2014 forwarded by one of the Respondent to demonstrate existence of bona fide dispute between the parties and submitted that in view of bona fide pre-existing dispute, in terms of sub-Section (6) .....

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..... he Appellant with regard to delivery of the goods, either in terms of the quality or quantity. The debt, which was secured by a collateral security in the form of a Bill of Exchange for US$ 5,387,040 and US$ 5,400,000 was thereafter, assigned to 1st Respondent by forfeiting agreement by supplier. 7. He also highlighted facts relating to sale of goods through sale contracts. It was submitted that transaction was single and the same has not been split in two cause of actions as is erroneously contended by the Appellant. It is only the right to receive payment under the Bills of Exchange that has now been vested in the two entities i.e., 1st Respondent and 2nd Respondent. Therefore, in essence, there is no joinder of cause of action but only right to receive the payment under the Bills of Exchange having been vested in two entities and, therefore, a joint petition has been filed by two entities with respect to single cause of action and the same is maintainable under Section 9 of the I B Code. 8. Ld. Counsel for the Respondents submitted that in terms of Rule 10 of the 'Adjudicating Authority Rules, 2016', Rule 20, 21, 22, 23, 24 and 25 of the' NCLT Rules 2016' s .....

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..... icate of an 'financial institution' was filed. On the other hand, in the present case, the Respondents along with their application to the Adjudicating Authority has filed a certificate by a banking company which maintains its operations to prove that no payment has been received in response to the notice for demand issued under Section 8 of the I B Code. Since the requirement of certificate by a financial institution which has been held to be mandatory is only for the purpose of confirming or ascertaining through, a trustworthy source like any financial institution to find out, whether any payment has been received in response to the demand notice or not. Ld. Counsel submitted that in the present case a certificate of bank albeit incorporated under the law of Germany has been produced to affirm that no payment has been received. 12. It was also submitted that the Appellant has accepted that the end customer is Aartee Commodities (UK) Limited which has to make payment (though this assertion is being denied by the Respondents) and such end customer has not made payment to the Appellant, therefore, non-payment of the invoice is an admitted fact and require no further ela .....

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..... ainst a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor^ of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. 16. Unlike Section 7 of the I B Code, before making an application to the Adjudicating Authority under Section 9 of the I B Code, the requirements under Section 8 of the I B Code are required to be fulfilled, as apparent from the said provision, as quoted below:- 8. Insolvency resolution by operational creditor - (1) An operational creditor may, on .....

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..... d by such fee, as may be prescribed. The Operational Creditor along with the application is required to furnish documents as mentioned in clause (a), (b), (c) and (d) of sub-Section (3) of Section 9 of I B Code, and quoted below:- 9. Application for initiation of corporate insolvency resolution process by operational creditor - (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed. (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 corporat .....

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..... perusal of entire Section (3) along with sub-sections and clauses, inclusive of proviso, it would be crystal clear that, the entire provision of sub-clause (3) of Section 9 required to be mandatorily followed and it is not empty statutory formality. 12. Sub-section (2) stipulates filing of an application under Section (1) only in the form and manner and accompanied with such fees as may be prescribed. The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 (hereinafter referred to as Adjudicating Authority Rules 2016' for short) are also enacted in exercise of the power conferred by Clauses (c), (d), (e), (f), of sub-section 239 read with sections 7, 8, 9 and 10 of the 'I B Code'. The rules provide the procedure required to be followed by filing an application by corporate insolvency resolution process. As per Rule 6 of the 'Adjudicating Authority' Rules 2016, an operational creditor shall make an application for initiating the corporate insolvency process under section 9, in Form 5 accompanied with documents and records required therein. As per sub-rule (2) of Rule 6 it is mandatory again to dispatch a copy of application filed .....

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..... SCC 895. In the said case, the Hon'ble Supreme Court specifically held: 10. In determining the question whether a provision is mandatory or directory, one must look into the subject matter and consider the importance of the provision disregarded and the relation of that provision to the general object intended to be secured. No doubt, all laws are mandatory in the sense they impose the duty to obey on those who come within its purview. But it does not follow that every departure from it shall taint the proceedings with a fatal blemish. The determination of the question whether a provision is mandatory or directory would, in the ultimate analysis, depend upon the intent of the law-maker. And that has to be gathered not only from the phraseology of the provision but also by considering its nature, its design and the consequences which would follow from construing it in one way or the other. 16. Therefore, it is clear that the word 'shall' used in sub-section (3) of section 9 of I B Code is mandatory, including clause 3 therein. 24. In this case, we find that the Certificate dated 6th March 2017 attached by Respondents has not been issued by any 'financial .....

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..... rporate debtor. Explanation.-For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. 27. From a plain reading of sub-section (1) of Section 8, it is clear that on occurrence of default, the Operational Creditor is required to deliver the demand notice of unpaid Operational Debt and copy of the invoice demanding payment of the amount involved in the default to the Corporate Debtor in such form and manner as is prescribed. 28. Sub-rule (1) of Rule 5 of the 'Adjudicating Authority Rules' mandates the 'Operational Creditor' to deliver to the 'Corporate Debtor' the demand notice in Form-3 or invoice attached with the notice in Form-4, as quoted below:- Rule 5. (1) An operational creditor shall deliver to the corporate debtor the following documents, namely:- (a) a demand notice in Form-3; or (b) a copy of an invoice attached with a notice in Form-4. 29. Clauses (a) and (b) of sub-rule (1) of Rule 5 of the 'Adjudicating Authority Rules' provides the format in which th .....

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..... 0 of C.P.C. or for proceeding under Section 433 of the Companies Act 1956, the 'Corporate Debtor' may decide to contest the suit/case if filed, distinct Corporate Resolution Process, where such claim otherwise cannot be contested, except where there is an existence of dispute, prior to issue of notice under Section 8. 32. 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. 33. 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 .....

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..... pute , is that it wanted the same to be illustrative (and not exhaustive). If the intent of the Legislature was that a demand by an operational creditor can be disputed only by showing a record of a suit or arbitration proceeding, the definition of dispute would have simply said dispute means a dispute pending in Arbitration or a suit. 21. Admittedly in sub-section (6) of Section 5 of the 'I B Code', the Legislature used the words 'dispute includes a suit or arbitration proceedings'. If this is harmoniously read with Section (2) of Section 8 of the 'I B Code', where words used are 'existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings, 'the result is disputes, if any, applies to all 14 kinds of disputes, in relation to debt and default. The expression used in sub-section (2) of Section 8 of the I B Code' 'existence of a dispute, if any,' is disjunctive from the expression 'record of the pendency of the suit or arbitration proceedings'. Otherwise, the words 'dispute, if any', in sub-section (2) of Section 8 would become surplus usage. 22. Sub-section (2) of Section 8 o .....

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..... nciple of law that multiplicity of proceedings is required to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the I B Code' are confined to a dispute in a pending suit and arbitration in relation to the three classes under sub-section (6) of Section 5 of the 'I B Code', it would violate the definition of operational debt under sub- section (21) of Section 3 of the I B Code' and would become inconsistent thereto, and would bar Operational Creditor from invoking Sections 8 and 9 of the Code. 27. Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also cannot be confined to pending arbitration or a civil suit. It must include disputes pending before every judicial authority including mediation, conciliation etc. as long there are disputes as to existence of debt or default etc., it would satisfy sub-section (2) of Section 8 of the I B Code'. 29. The definition of 'dispute' for the purpose of Section 9 must be read alongwith expression operational debt as defined in Section 5(21) of I B Code, 2016 means: (21) operational debt means a claim in respect of th .....

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..... (1) of Section 8 of the 'I B Code', one can say that a dispute is pending about the debt. Mere raising a dispute for the sake of dispute, unrelated or related to clause (a) or (b) or (c) of Sub-section (6) of Section 5, if not raised prior to application and not pending before any competent court of law or authority cannot be relied upon to hold that there is a 'dispute' raised by the corporate debtor. The scope of existence of 'dispute', if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of Section 5. It must be raised in a court of law or authority and proposed to be moved before the court of law or authority and not any got up or mala fide dispute just to stall the insolvency resolution process. 32. There may be other cases such as a suit relating to existence of amount of debt stands decided and decree is pending for execution. Similarly, existence of amount of debt or qualify of goods or service for which a suit have been filed and decreed; .....

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..... ted 10-4-2017. 39. In effect, order (s), if any, passed by Ld. Adjudicating Authority appointing any Interim Resolution Professional' or declaring moratorium, freezing of account and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the 'Interim Resolution Professional', including the advertisement, if any, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The joint application preferred by Respondent under Section 9 of the I B Code, 2016 is dismissed. Learned Adjudicating Authority will now close the proceeding. The appellant company is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect. 40. Learned Adjudicating Authority will fix the fee of 'Interim Resolution Professional', if appointed and the Respondents will pay the fees of the Interim Resolution Professional, for the period he has functioned. The appeal is allowed with aforesaid observation and direction. However, in the facts and circumstances of the case, there shall be no order as to cost. .....

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