Macquarie Bank Limited vs Uttam Galva Metallics Limited

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI Company Appeals (AT) (Insol) No. 96 of 2017

Macquarie Bank Limited Appellant

Vs.

Uttam Galva Metallics Limited Respondent

Present: For Appellants: Mr. Vivek Sibal, Advocate

For Respondents: Mr. Puneet Singh Bindra and Mr. Arvind Gupta, Advocates

ORDER

17.07.2017 Appellant "Macquarie Bank Limited", a company

incorporated under the laws of Singapore, having its Office at 10, Marina

Boulevard, # 17.01, Tower-2, Marina Bay Financial Centre, Singapore-

018983 claiming to be the 'Operational Creditor', preferred the application

under Section 9 of Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as 'I & B Code) seeking to set in motion the Corporate Insolvency

Resolution Process against the respondent "Uttam Galva Metallics Limited"

(alleged to be the 'Corporate Debtor').

2. Learned Adjudicating Authority ( National Company Law Tribunal),

Chandigarh Bench, Chandigarh, by impugned order dated 1st June 2017,

having noticed that the demand notice under Section 8 of 'I & B Code' was

issued through an Advocate of Singapore and that the appellant has not

enclosed any certificate from a 'Financial Institution' maintaining the

accounts of the 'Operation Creditor' in terms of Clause (c) of sub-section (3) of Section 9 of the 'I & B Code' held that the petition preferred by appellant, a

foreign company having office at Singapore, under Section 9 was not

maintainable

3 Before deciding the issue, it is desirable to notice the relevant facts and

the provisions of '18; B Code'.

4. The appellant, a foreign company is not constituted under Companies

Act 1956 or/ Companies Act 2013, having account with one 'Macquarie Bank',

Australia. The appellant has no office in India, nor any account with any of

the Bank or 'Financial Institution' as defined under sub-section (14) of Section

3 of 'I & B 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 section

45-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 àfinancial institution;"

5. Admittedly, Macquarie Bank, Australia is not a scheduled bank in India

nor is a 'financial institution' as defined under Section 45-I of Reserve Bank 3

of India Act 1934 (2 of 1934). The Macquarie Bank, Australia 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 Notification specifying 'Macquarie Bank'

for the purpose of sub-section (14) of Section 3 nw Section 9 of 'I & B Code'.

6. Section 9 of 'I & B Code' deals with application for initiation of Corporate

Insolvency Resolution Process by 'Operational Creditor'. Clause (c) of sub-

section (3) of Section 9 mandate the 'Operational Creditor' to file the

application 'in the form and manner accompanied with such fee as may be

prescribed' and also directs the 'Operational Creditor' to furnish along with

application 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 apparent

from the provision, as quoted below:-

"9. Application for initiation of corporate insolvency

resolution process by operational creditor.-

reditor:

(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 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.

(5) The Adjudicating Authority shall, within fourteen

days of the receipt of the application under sub-section

(2), by an order--

(i) admit. the application and communicate such

decision to the operational creditor and the corporate

debtor if--

(a) the application made under sub-section (2) is

complete;

(b) there is no repayment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section

(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if-

(a) the application made under sub-section (2) is

incomplete;

(b) there has been repayment of the unpaid

operational debt;

(c) the creditor has not delivered the invoice or

notice for payment to the corporate debtor;

(d) notice of dispute has been received by the

operational creditor or there is a record of

dispute in the information utility; or

(e) any disciplinary proceeding is pending against

any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting

an application under sub. clause (a) of clause (ii) give a notice

to the applicant to rectify the defect in his application within

seven days of the date of receipt of such notice from the

adjudicating Authority.

(6) The corporate insolvency resolution process shall

commence from the date of admission of the application

under sub-section (5) of this section".

7 The question whether filing of a copy of 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 subsection (3) of Section 9 of the 'I & B Code

is mandatory or directory was considered by this Appellate Tribunal in

"Smart timing Steel Ltd. Vs. National Steel and Agro Industries Ltd." -

Company Appeal (AT) (Insol) 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 2016' 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 '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

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 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 Manilal Shah

Vs. SardarSayed Ahmed (1955) 1 SCR 108, the Hon'ble

Apex Court held that where statute itself provide

consequences of breach or non-compliance, normally the 9

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 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 10

Vs. V.K.Kangan (1976)2 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."

8. Learned counsel appearing on behalf of appellant, tried to distinguish

the judgement in 'Smart Timings Steel Ltd.' on the ground that the said

company had not enclosed any other evidence in support of the debt and

default of debt. Reliance was placed on Form-5 enclosed with Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules 2016 (hereinafter

referred to as "Adjudicating Authority Rules"). As per Rule 6 of 'Adjudicating

Authority Rules', the 'Operational Creditor' is required to make an application

in Form-5. In the said Form-5 at Part V, particulars of operational debt

(documents, records and evidence of default) have been mentioned, as quoted

below: -

Part-V PARTICULARS OF OPERATIONAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF DEFAULT]

1 PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)

2. DETAILS OF RESERVATION / RETENTION OF TITLE ARRANGEMENTS (IF ANY) IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS

3. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH A COPY OF THE ORDER)

4. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF SUCH RECORD)

5. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE),. UNDER THE INDIAN SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

6. PROVISION OF LAW, CONTRACT OR OTHER DOCUMENT UNDER WHICH OPERATIONAL DEBT HAS BECOME DUE

7. A STATEMENT OF BANK ACCOUNT WHERE DEPOSITS ARE MADE OR CREDITS RECEIVED NORMALLY BY THE OPERATIONAL CREDITOR IN RESPECT OF THE DEBT OF THE CORPORATE DEBTOR (ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION 1W ORDER TO PROVE THE EXISTENCE OF 12

9. It was contended that the record of default with the 'information utility'

has been mentioned therein but not the record as a certificate for 'financial

institution' But such submission cannot be accepted for two reasons, the

first being the appellant has not even enclosed 'record of default with the

information utility', as mentioned therein and the second reason is that Form-

5 cannot override the substantive provision of clause (c) of sub-section (3) of

Section 9 of 'I & B Code' which mandates enclosure of certificate from

'Financial Institution' maintaining accounts of 'Operation Creditor' confirming

that there is no payment of unpaid operational debt by the 'Corporate Debtor'.

10. We thereby, hold that 'Macquarie Bank', Australia not being a 'financial

institution' within the meaning of sub-section (14) of Section 3 of the 'I & B

Code', any certificate given by the said bank cannot be relied upon, to decide

default of debt.

11. There is another reason to hold that the application under Section 9 is

not maintainable. We find from the record that the so called application under

Section 8 is not in accordance with law and is defective. The notice under

sub-section (1) of Section 8 of 'I & B Code was not issued by the 'Operational

Creditor' but by a Lawyer of Singapore.

12. Section 8 of 'I & B Code' is 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 13

in the default to the corporate debtor in such form and manner

as may be prescribed. Persons who may initiate corporate

insolvency resolution process. Initiation of corporate insolvency

resolution process by financial creditor. Insolvency resolution

by operational creditor.

(2) The corporate debtor shall, within a period often days

of the receipt of the demand notice or copy of the invoice

mentioned in sub-section (1) bring to the notice of the

operational creditor--

(a) existence of a dispute, if any, and record of the

pendency of the suit or arbitration proceedings

filed before the receipt of such notice or invoice in

relation to such dispute;

(b) the repayment of unpaid operational debt--

(i) by sending an attested copy of the record of

electronic transfer of the unpaid amount from the

bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the

operational creditor has encashed a cheque

issued by the corporate debtor.

Explanation.--For the purposes of this section, a "demand

notice" means a notice served by an operational creditor to the 14

corporate debtor demanding repayment of the operational debt in

respect of which the default has occurred"

13. From the plain reading of sub-section (1) of Section 8 it is clear that

on occurrence of default, the 'Operational Creditor' is required to deliver a

demand notice of unpaid operational debt, copy of invoice, demanding

payment of amount involved in the default to the 'Corporate Debtor' "in such

form and manner as prescribed."

14. Sub-Rule (1) of Rule-5 of the Adjudicating Authority Rules mandates

the 'Operational Creditor' to deliver the 'Corporate Debtor' the demand notice

in Form-3 or invoice attached with the notice in Form-4 as quoted below:-

"5. Demand notice by operational creditor. - (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

(2) The demand notice or the copy of the invoice demanding

payment referred to in sub-section (2) of section 8 of the Code,

may be delivered to the corporate debtor,

(a) at the registered office by hand, registered post or

speed post with acknowledgement due; or

(b) by electronic mail service to a whole time director or

designated partner or key managerial personnel, if

any, of the corporate debtor.

15

(3) A copy of demand notice or invoice demanding payment

served under this rule by an operational creditor shall also

be filed with an information utility, if any."

15. Clause (a) & (b) of sub-Rule (1) of Rule-5 of the Adjudicating Authority

Rules mandates the 'Operational Creditor' to deliver the 'Corporate Debtor'

either the demand notice in Form - 3 or a copy of an invoice attached with a

notice in Form - 4. If the Rule 5 is read with the demand notice Form - 3 or

invoice in Form - 4, it is clear that who are persons authorized to give the

notice under Section 8 of the 'I & B Code', as apparent from last portion of

Form - 3 & Form - 4, as quoted below: -

"6. The undersigned request you to unconditionally

repay the unpaid operational debt (in default) in full

within ten days from the receipt of this letter failing

which we shall initiate a corporate insolvency

resolution process in respect of [name of corporate

debtor].

Yours sincerely,

Signature of person authorised to act in behalf of the operational creditor Name in block letters Position with or in relation to the operational creditor Address of person signing

16. 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 the 'Operational

Creditor' can apply himself or through a person authorized to act on behalf 16

of the 'Operational Creditor', who hold same position with or in relation to

the 'Operational Creditor'. Thereby such person(s) authorized by

'Operational Creditor', holding position with or in relation to the 'Operational.

Creditor' can only apply.

17. In view of such provision we hold that an advocate / lawyer or

Chartered Account or a Company Secretary or any other person in absence

of any authority by the 'Operational Creditor', and if such person do not hold

any position with or in relation to the 'Operational Creditor', cannot issue

notice under Section 8 of 'I & B Code', which otherwise can be treated as a

lawyer's notice/ pleader's notice, as distinct from notice under Section 8 of 'I

& B Code.

18. The demand notice/ invoice Demanding Payment under the I& B Code

required to be issued in Form-3 or Form - 4. By the said notice, 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), as claimed, is to be paid, 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 or Form - 4 is served, the 'Corporate

Debtor' will understand the serious consequences of non-payment of

'Operational Debt', otherwise like any normal pleader notice/Advocate notice

or like notice under Section 80 of C.P.C. or notice for initiation of proceeding

under Section 433 of the Companies Act 1956, the 'Corporate Debtor' may 17

decide to contest the suit/case if filed, as distinct Corporate Resolution

Process, where such claim otherwise cannot be contested, except where

there is an existence of dispute, prior to issuance of notice under Section 8.

19. In the present case, as the notice has been given by an

advocate/lawyer and there is nothing on the record to suggest that the

lawyer was authorized by the appellant, and as there is nothing on the record

to suggest that the said lawyer/ advocate hold any position with or in relation

to the appellant company, we hold that the notice issued by the

advocate/ lawyer on behalf of the appellant cannot be treated as notice under

Section 8 of the 'I & B Code'. And for the said reason also the petition under

Section 9 at the instance of the appellant against the respondent was not

maintainable.

18. 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

(Balvinder Singh) Member(Technical) sm