Achenbach Buschhutten Cmbh & Co vs Arcotech Ltd

Achenbach Buschhutten CmbH & Co. Appellant

Versus

Arcotech Ltd. Respondent

Present: For Appellant: Shri Vivek Sibal with Ms. Pooja M. Saigal and Ms. Khyati Sharma, Advocates

For Respondent: Shri Ramesh Singh and Shri A.T. Patra, Advocates

ORDER

31.07.2017 This appeal has been preferred by the appellant

against the order dated 25th May, 2017 passed by the Learned

Adjudicating Authority (National Company Law Tribunal),

Chandigarh Bench, Chandigarh in CP(IB) No. 2 1 / Chd/ Hry/ 2017.

2. Appellant - Achenbach Buschhutten GmbH & Co., is a

company incorporated under the laws of Germany having its office

at 'Siegener Stra1e, 152, 57223, Kreuztal, Germany', claimed to be

'Operational Creditor' and filed an application under Section 9 of

the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to

as 'I&B Code') to initiate Corporate Insolvency Resolution Process 2

in respect of respondent-Arcotech Limited! 'Corporate Debtor'. The

said order is under challenge in the present appeal.

3. One of the plea taken by the learned counsel for the appellant

is that the Learned Adjudicating Authority, referring to clause of

arbitration, has not entertained the application on the ground that

there is an existence of a dispute. We are of the view that mere

clause of arbitration in an agreement cannot be termed to be an

"existence of dispute" pending before the Arbitral Tribunal for the

purpose of refusal of an application preferred under Section 9 of the

I&B Code.

4. Learned counsel for the respondent brought to our notice that

the appellant has not enclosed any certificate granted by the

'Financial Institution' as stipulated under clause (c) of sub-Section

(3) of Section 9 of the I&B Code. From the record, we find that the

appellant has enclosed one letter relating to 'confirmation of receipt

of payment' from foreign institution known as 'Sparkasse Siegen'.

5. The question as to whether filing of a copy of the 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, was considered by this Appellate Tribunal 3

in "Smart Timing Steel Ltd. Vs. National Steel and Agro Industries

Ltd.- [Company Appeal (AT) (Insolvency) No. 28 of 2017]". The

Appellate Tribunal by its judgement dated 19th May 2017 while

held that 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' mandatory, observed and held as follows: -

"11. On 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 201 6'for short) are also enacted in exercise of

the power conferred by Clauses (c), (d), (e), (D of sub-

section 239 read with sections 7, 8, 9 and 10 of the

7 & 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 with the adjudicating authority, by

registered post or speed post to the registered office

of the Corporate Debtor.

13. The provisions of sub-section (3) mandates

the operational creditor to furnish copy of invoice

demanding payment or demand notice delivered by

the operational creditor to the corporate debtor, an

affidavit to the effect that, there is no notice given by

the corporate debtor relating to dispute of unpaid

operational debt, 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 and such other information as may

be stipulated. Sub-section (5) of section 9 is 5

procedure required to be followed by Adjudicating

Authority. One can say that procedural part is not

mandatory but is directory.

14. The provision being "directory" or

"mandatory" has fallen for consideration before

Hon'ble Supreme Court on numerous occasions. In

Manual Shah Vs. Sardar Sayed Ahmed (1955) 1

SCR 108, the Hon'ble Apex Court held that where

statute itselfprovide consequences of breach or non-

compliance, normally the provision has to be

regarded as having mandatory in nature.

15. One of the cardinal principles of

interpretation of statute is that, the words of statute

must prima facie be given their ordinary meaning,

unless of course, such construction leads to

absurdity or unless there is something in the context

or in the object of the statute to the contrary. When

the words of statute are clear, plain and

unambiguous, then, the courts are bound to give

effect to that meaning, irrespective of the

consequences involved. Normally, the words used

by the legislature themselves declare the legislative

intent particularly where the words of the statute are 6

clear, plain and unambiguous. In such case, effort

must be to give a meaning to each and every word

used by the legislature and it is not sound principle

of construction to brush aside words in statute as

being redundant or surplus, and particularly when

such words can have proper application in

circumstances conceivable within the contemplation

of the statute.

16. For determination of the issue whether a

provision is mandatory or not, it will be desirable to

refer to decision of Hon'ble Supreme Court in State

of Mysore Vs. V.K.Kangan (1976)2 SCC 895. In the

said case, the Hon 1ble 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 7

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."

6. In 'Macquarie Bank Limited Vs. Uttam Galva Metallics

Limited' -(Company Appeal (AT) (Insol.) No. 96 of 2017) decided on

17th July, 2017, this Appellate Tribunal, after taking into

consideration that the foreign bank was not incorporated under the

Companies Act, 1956 or Companies Act, 2013 and the bank has no

office in India nor any account with any of the bank or 'Financial

Institution', held that the said bank is not a 'Financial Institution'

as defined under sub-section (14) of Section 3 of the I&B Code. In 8

this regard, we may only refer to sub-section (14) of Section 3 of the

MB Code, which reads as follows:

"Definitions:-

3. In the Code, Unless the context otherwise

requires: -

(14) "financial institution" means--

(a) a scheduled bank;

(b) financial institution as defined in

section45-I of the Reserve Bank of

India Act 1934 (2 of 1934);

(c) public financial institution as

defined in clause (72) of section 2 of

the Companies Act, 2013 (18 of

2013); and

(d) such other institution as the Central

Government may by 'notification

specify as a 'financial institution;"

7. Admittedly, the Bank in question is not a scheduled bank,

nor is a 'financial institution' as defined under Section 45-I of

Reserve Bank of India Act 1934 (2 of 1934). The Bank aforesaid also

do not come within the meaning of 'Public Financial Institution' as

defined in clause (72) of Section 2 of Companies Act 2013 (18 of

2013). The Central Government has also not issued any 9

Notification specifying the Bank in question for the purpose of sub-

section (14) of Section 3 nw Section 9 of 'I & B Code'.

8. In the circumstances, we hold that the application preferred

by the appellant was not maintainable in the absence of record of

'Financial Institution' as defined in sub-section (14) of Section 3 of

the I&B Code.

9. We find no merit in this appeal and it is accordingly

dismissed. However, in the facts and circumstances of the case,

there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Balvinder Singh] Member (Technical]

/ng/