Chharia Holdings Pvt. Ltd vs Brys International Pvt. Ltd. & Ors

Chharia Holdings Pvt. Ltd. Appellant

Vs.

Brys International Pvt. Ltd. & Ors. Respondents

Present: For Appellant:- Mr. Pawan Sharma and Ms. Arpita Yadav, Advocates.

ORDER

30.08.2017- The appellant who claimed to be 'Financial Creditor' filed an

application under section 7 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I & B Code") for initiation of 'Corporate

Insolvency Resolution Process' against the Respondents-A4/s. Brys

International Pvt. Ltd. & Ors. ('Corporate Debtor'). Ld. Adjudicating

Authority (National Company Law Tribunal), Principal Bench, New Delhi,

by impugned order dated 22nd June, 2017 dismissed the application under

section 7 of the 'I & B Code' preferred by appellant with the following

observations: -

"On reading of the above 2 sub-sections, it is apparent that while there is a provision for the Adjudicating Authority to make a reference to the Board for a recommendation of an Insolvency professional, in the case of an operational creditor, there is no such provision in the case of a financial creditor. The instant application has been filed under section 7 of IBC as a financial creditor. The applicant financial creditor has not proposed the name 2

of any insolvency professional and thus, has not fulfilled the requirement as in sub-section 3 (b) of section 7 of the Code, which reads as follows: -

'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 toact as an interim resolution professional; and

(c) any other information as may be specified by the Board."

Hence, we are unable to admit the application for

insolvency as the same is not complete.

Application is dismissed."

2. Ld. Counsel for the appellant submits that the appellant had

proposed the name of the 'Interim Resolution Professional' and referred

to Part-Ill of the application filed under section 7 in format to suggest

that name of one "Mr. Vivek Raheja, R/o CU-49, Pitampura, Delhi-

110088 with e-mail address vivekvpgs.in and Registration No.

IBBI / IPA-0 1 / IP-00006 / 2016-17" along with consent letter of the 'Interim

Resolution Professional' in Annexure A-4 attached thereto. It is also

submitted that non-furnishing the name of proposed 'Interim Resolution

Professional' will not render the application incomplete.

3. The questions arise for consideration in this appeal are: 3

(i) Whether it is mandatory for a 'Financial Creditor' to

propose the name of 'Interim Resolution Professional'

in an application under section 7 of the 'I&B Code'?

(ii) Whether in absence of proposal of name of 'Interim

Resolution Professional' the application is incomplete?

(iii) Whether the impugned order dated 22nd June,

2017 is legal and valid?

4. Before deciding the first two questions, it is desirable to notice the

relevant facts as pleaded by the parties.

5. Appellant has pleaded and not disputed by respondents that the

appellant preferred an application under section 7 in Form-1 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016. In the said Form-1, the appellant has proposed the name of

'Interim Resolution Professional', as apparent from the record and

noticed in the preceding paragraph. In view of such admitted facts, the

impugned order dated 22nd June, 2017 cannot be sustained and the

matter is required to be remitted back to the Ld. Adjudicating Authority

for admission of the case, if the application is otherwise complete.

6. To determine the question as to whether it is mandatory for the

'Financial Creditor' to propose the name of an 'Interim Resolution

ProfessiOnal' in the application under section 7 of the 'I&B Code', it is

desirable to notice the relevant provisions.

7. As per clause (b) of Sub-section (3) of Section 7 the 'Financial

Creditor' required to furnish name of the resolution professional proposed 4

to act as an 'Interim Resolution Professional', the relevant portion of

which reads as follows: -

"7. Initiation of corporate insolvency resolution

process by financial creditor. --(1) A financial

creditor either by itself or jointly with other financial

creditors may file an application for initiating

corporate insolvency resolution process against 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 5

(c) any other information as may be specified

by the Board.

(4) The Adjudicating Authority shall, within fourteen

days of the receipt of the application under sub-section

(2), ascertain the existence of a default from the records

of an information utility or on the basis of other

evidence furnished by the financial creditor under sub-

section (3)."

8. However, under sub-section (4) of Section 9 an 'Operational

Creditor' has been given option to propose the name of any 'Interim

Resolution Professional' of its own choice, which reads as follows:

"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.

6

(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;

and

(d) such other information as may be specified.

(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.

xxx

9. From the aforesaid provision, it is clear that the 'Operational

Creditor' may provide the name of an 'Interim Resolution Professional'

and in a particular case, the 'Operational Creditor' may not provide the

name of the 'Operational Creditor'.

10. In so far the 'Corporate Applicant' is concerned, in their case

provision has been made under clause (b) of sub-section (3) of Section 10 to furnish the name of 'Interim Resolution Professional', as quoted

below: -

"10. Initiation of corporate insolvency resolution

process by corporate applicant. - (1) Where a

corporate debtor has committed a default, a corporate

applicant thereof may file an application for initiating

corporate insolvency resolution process with the

Adjudicating Authority.

(2) The application under sub-section (1) shall be filed in

such form, containing such particulars and in such

manner and accompanied with such fee as may be

prescribed.

(3) The corporate applicant shall, along with the

application furnish the information relating to--

(a) its books of account and such other documents

relating to such period as may be specified; and

(b) the resolution professional proposed to be

appointed as an interim resolution professional.

(4) The Adjudicating Authority shall, within a period of

fourteen days of the receipt of the application, by an

order--

(a) admit the application, if it is complete; or

(b) reject the application, if it is incomplete:

Provided that Adjudicating Authority shall, before

rejecting an application, give a notice to the applicant to rectify the defects in his application

within seven days from the date of receipt of such

notice from the Adjudicating Authority.

w w

11. On bare reading of the provisions aforesaid, it is clear that sub-

section (3)(b) of Section 7 and sub-section (3)(b) of Section 10, are

mandatory and the 'Financial Creditor' and the 'Corporate Applicant' are

required to furnish the name of 'Interim Resolution Professional', failing

which application being defective may be rejected.

12. On the other hand on bare perusal of sub-section (4) of Section 9,

it is clear that for the 'Operational Creditor' it is not mandatory to propose

the name of an 'Interim Resolution Professional', in view of the word 'may'

used in sub-section (4) of Section 9, as distinct from word 'shall' used in

sub-section (3) of Section 7 and sub-section (3) of Section 1Q of 'I&B

Code'.

13. Section 16 relates to appointment and tenure of 'Interim Resolution

Professional' which reads as follows: -

"16. Appointment and tenure of interim resolution

professional. --(1) The Adjudicating Authority shall appoint

an interim resolution professional within fourteen days from

the insolvency commencement date.

(2) Where the application for corporate insolvency resolution

process is made by a financial creditor or the corporate

debtor, as the case may be, the resolution professional, as

proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution

professional, if no disciplinary proceedings are pending

against him.

(3) Where the application for corporate insolvency resolution

process is made by an operational creditor and--

(a) no proposal for an interim resolution professional is

made, the Adjudicating Authority shall make a reference to

the Board for the recommendation of an insolvency

professional who may act as an interim resolution

professional;

(b) aproposal for an interim resolution professional is made

under sub-section (4) of section 9, the resolution

professional as proposed, shall be appointed as the interim

resolution professional, if no disciplinary proceedings are

pending against him.

(4) The Board shall, within ten days of the receipt of a

reference from the Adjudicating Authority under sub-section

(3), recommend the name of an insolvency professional to

the Adjudicating Authority against whom no disciplinary

proceedings are pending.

(5) The term of the interim resolution professional shall not

exceed thirty days from date of his appointment."

14. From sub-section (2) of Section 16, it is clear that the 'Interim

Resolution Professional', who have been proposed by 'Financial Creditor' 10

and 'Corporate Applicant' under section 7(3)(b) and Section 10(3)(b)

respectively are to be appointed as 'Interim Resolution ProfessiOnal', if no

disciplinary proceedings are pending. On the other hand, Clause (b) of

sub-section (3) of Section 16 makes it is clear that if the name of 'Interim

Resolution Professional' is proposed by 'Operational Creditor' as per sub-

section (4) of Section 9, then only such person is to be appointed, if no

disciplinary proceedings are pending, on the other hand, if no name of

'Interim Resolution Professional' is proposed by an 'Operational Creditor',

the Adjudicating Authority is required to make reference to the Board for

recommendation of an 'Interim Resolution Professional' under sub-

section (1) read with sub-section 3(a) of Section 16 who may act as an

'Insolvency Resolution Professional'.

15. If Section 7(3)(b), Section 9(4) and Section 10(3)(b) are read along

with Section 16, it will be clear that while it is mandatory for 'Financial

Creditor' and 'Corporate Applicant' to propose name of an 'Interim

Resolution Professional', but for 'Operational Creditor' it is not mandatory

and the 'Operational Creditor' may or may not propose the name of an

'Interim Resolution Professional'.

16. In view of the findings aforesaid, while we uphold the decision of

the Adjudicating Authority that proposal of name of 'Interim Resolution

Professional' in terms of clause (b) of sub-section (3) of Section 7 is

mandatory, but in the facts and circumstances of the case, as the name

of 'Interim Resolution Professional' has already been proposed by the

Appellant-'Financial Creditor', the impugned order dated 22nd June, 2017

cannot be upheld.

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17. Further, we are of the view that if the application filed by 'Financial'

Creditor' or 'Corporate Applicant' is defective in absence of name of an

'Interim Resolution Professional', then in such case in terms of proviso to

Section 7 and Section 10, the Adjudicating Authority is required to give

a notice to the applicant to rectify the defect within seven days of the

receipt of such notice.

18. For the reasons aforesaid, we set aside the impugned order dated

22nd June, 2017 passed in Company Petition No. IB-80(PB)/2017 and

remit the case to the Ld. Adjudicating Authority, Principal Bench, New

Delhi. If the application is otherwise complete, Ld. Adjudicating

Authority will admit the application. However, in case of any defect, the

appellant be provided with seven days' time to remove the

defects/ complete record.

19. The appeal is allowed with the aforesaid observations. 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) ar