M/S. J.P. Engineers Pvt. Ltd vs M/S. Indo Alusys Industries Ltd

(Arising out of Order dated 5th September, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi in Company Petition No.(IB)-203(ND)/2017)

IN THE MATTER OF:

M/s. J.P. Engineers Pvt. Ltd. ...Appellant

Vs.

M/s. Indo Alusys Industries Ltd. ...Respondent

Present: For Appellant: -Mr. Sanjeev Sindhwani, Senior Advocate with Mr. P. Nagesh and Mr. Dhruv Gupta, Advocates.

For Respondent: - Mr. Virender Ganda, Senior Advocate with Mr. Ruchi Mahajan, Ms. Anannya Ghosh, Mr. Dushyant M and Mr. Tarun, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant-'Operational Creditor' preferred an application

under Section 9 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code"). The Adjudicating Authority

(National Company Law Tribunal), New Delhi, having rejected the

application by order dated 5th September, 2017 in Company Petition

No.(IB)-203(ND)/2017, the present appeal has been preferred.

Company Appeal (AT) (Insolvency) No. 220 of 2017 2

2. The main ground taken by the Adjudicating Authority is that the

notice under sub-section (1) of Section 8 of the 'I&B Code' has not been

issued by 'Operational Creditor' or its Authorised Representative having

position with or in relation to the 'Operational Creditor' but by an

Advocate. Reliance has been placed on this Appellate Tribunal decision

in "M/s. Uttam Galva Steels Limited v. DF Deutsche Forfait AG &

Anr. Company Appeal (AT) (Insolvency) No. 39 of 2017".

3. Learned counsel appearing on behalf of the Respondent

submitted that the Lawyer notice is permissible and as per Companies

Act, 2013, an act of any Authorised person can be rectified by Board of

Directors, which has been done in the present case. Reliance has been

placed on Hon'ble Supreme Court decision in "Maharashtra State

Mining Corporation Vs. Sunil S/O Pundikaro Pathak, 2006(5) SCC

96", wherein the meaning of ratification is explained by the Hon'ble

Supreme Court and held that a subsequent ratification of an act is

equivalent to a prior authority to perform such act.

4. Learned counsel appearing on behalf of the Respondent-

'Corporate Debtor' submitted that notice under sub-section (1) of

Section 8 of the 'I&B Code' was issued on 9th May, 2017 by one Mr.

Sharad Tyagi, an Advocate on behalf of the Appellant-'Operational

Creditor'. He relied on decision of this Appellate Tribunal in "Uttam

Galva Steel Ltd. (supra)". It was further submitted that the Appellant-

Company Appeal (AT) (Insolvency) No. 220 of 2017 3

'Operational Creditor's' application was not maintainable under Section

9 of the 'I&B Code' on account of notice of dispute to the Appellant. Reliance was placed on Hon'ble Supreme Court's decision in "Mobilox

Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited− 2017 SCC

OnLine SC 1154".

5. According to counsel for the Respondent-'Corporate Debtor', the

application filed by the Appellant-'Operational Creditor' was not only

incomplete and defective in absence of statutory affidavit in terms of

Section 9(3)(b) of the 'I&B Code', there being 'dispute in existence' and

other defects, the application under Section 9 of the 'I&B Code' was not

maintainable.

6. In "Uttam Galva Steel Ltd. (supra)", this Appellate Tribunal

decided the issue whether 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' can issue notice under sub-section (1) of Section

8 of the 'I&B Code' or not. The answer of the Appellate Tribunal is in

negative, as quoted below: -

"30. From bare perusal of Form-3 and Form-4,

read with sub-rule (1) of Rule 5 and Section 8 of

the I&B Code, it is clear that an Operational

Creditor can apply himself or through a person

authorised to act on behalf of Operational

Company Appeal (AT) (Insolvency) No. 220 of 2017 4

Creditor. The person who is authorised to act

on behalf of Operational Creditor is also

required to state "his position with or in

relation to the Operational Creditor",

meaning thereby the person authorised by

Operational Creditor must hold position with

or in relation to the Operational Creditor

and only such person can apply.

31. The demand notice/invoice Demanding

Payment under the I&B Code is required to be

issued in Form-3 or Form - 4. Through the said

formats, the 'Corporate Debtor' is to be informed

of particulars of 'Operational Debt', with a

demand of payment, with clear understanding

that the 'Operational Debt' (in default) required to

pay the debt, as claimed, unconditionally within

ten days from the date of receipt of letter failing

which the 'Operational Creditor' will initiate a

Corporate Insolvency Process in respect of

'Corporate Debtor', as apparent from last

paragraph no. 6 of notice contained in Form - 3,

and quoted above.

Only if such notice in Form-3 is served, the

'Corporate Debtor' will understand the serious

Company Appeal (AT) (Insolvency) No. 220 of 2017 5

consequences of non-payment of 'Operational

Debt', otherwise like any normal pleader

notice/Advocate notice, like notice under Section

80 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."

7. In the present case, admittedly notice has been issued by an

Advocate and there is nothing on the record to suggest that the said

Lawyer has been authorised by Board of Directors of the Appellant or

Company Appeal (AT) (Insolvency) No. 220 of 2017 6

holding any position with or in relation with the Appellant. In this

background, we hold that the Adjudicating Authority rightly held that

the notice issued by the lawyer on behalf of the Appellant cannot be

treated as notice under Section 8 of the 'I&B Code'.

8. In so far as ratification of Power of Attorney is concerned, it will

not cure the defects in preferring the appeal under Section 9 of the 'I&B

Code', which can be preferred by the 'Operational Creditor' only after

ten days of issuance of notice under sub-section (1) of Section 8 of the

'I&B Code' and in the requisite Form-5, in terms of Section 9(3)(b) of the

'I&B Code'. The 'Operational Creditor' is required to mention whether

the 'Corporate Debtor' has raised any dispute pursuant to demand

notice.

9. In "Mobilox Innovations Pvt. Ltd. (supra)", the Hon'ble

Supreme Court while dealing with Section 9 of the 'I&B Code' observed:-

"54. It is clear, therefore, that once the operational

creditor has filed an application, which is

otherwise complete, the adjudicating authority

must reject the application under Section 9(5)(2)(d)

if notice of dispute has been received by the

operational creditor or there is a record of dispute

in the information utility. It is clear that such

notice must bring to the notice of the operational

Company Appeal (AT) (Insolvency) No. 220 of 2017 7

creditor the "existence" of a dispute or the fact

that a suit or arbitration proceeding relating to a

dispute is pending between the parties. Therefore,

all that the adjudicating authority is to see at this

stage is whether there is a plausible contention

which requires further investigation and that the

"dispute" is not a patently feeble legal argument

or an assertion of fact unsupported by evidence. It

is important to separate the grain from the chaff

and to reject a spurious defence which is mere

bluster. However, in doing so, the Court does not

need to be satisfied that the defence is likely to

succeed. The Court does not at this stage examine

the merits of the dispute except to the extent

indicated above. So long as a dispute truly exists

in fact and is not spurious, hypothetical or

illusory, the adjudicating authority has to reject

the application."

10. In the present case, we find that the Appellant-'Operational

Creditor' filed an application but curiously it has not made clear that a

notice of dispute has been received by the Appellant-'Operational

Creditor'. For the reasons aforesaid and in the light of decision in

Company Appeal (AT) (Insolvency) No. 220 of 2017 8

"Mobilox Innovations Pvt. Ltd. (supra)" the Adjudicating Authority

rightly rejected the claim.

11. Even otherwise, on merit the Adjudicating Authority noticed that

the claim as made by the Appellant-'Operational Creditor' is not

sustainable under 'I&B Code'. From the rejoinder's referred by

'Operational Creditor' makes it clear that the petition under Section 9 of

the 'I&B Code' has been filed not on behalf of the 'Operational Creditor'

in relation to its alleged outstanding owed from the Respondent-

'Corporate Debtor', but also for and on behalf of another firm namely

'M/s. J.P.Engineers' allegedly taken over by the Appellant-'Operational

Creditor' since 4th November, 2016.

12. From the record we also find that before purported notice under

sub-section (1) of Section 8 issued by lawyer pursuant to notice under

Section 138 of the Negotiable Instruments Act, 1881, by letter dated 4th

March, 2017, the Respondent-'Corporate Debtor' disputed the claim

and brought to the notice of the Respondent that they did not match

the invoice number of the invoices received and paid by the 'Corporate

Debtor'. In view of the fact there is an 'existence of dispute', we hold

that the petition under Section 9 of the 'I&B Code' was even otherwise

not maintainable.

Company Appeal (AT) (Insolvency) No. 220 of 2017 9

13. For the reasons aforesaid, no interference is called for against the

impugned order dated 5th September, 2017. We find no merit in this

appeal. It is accordingly dismissed. However, in the facts and

circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) (Balvinder Singh) Member (Judicial) Member(Technical)

NEW DELHI 6th December, 2017 AR

Company Appeal (AT) (Insolvency) No. 220 of 2017