Shriram Epc Limited vs Rio Glass Solar Sa

Company Appeal (AT) (Insolvency) No. 133 of 2017 [Arising out of order dated 10th August, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai in CP/537/(IB)/CB/2017]

IN THE MATTER OF: Shriram EPC Limited ... Appellant Versus Rio Glass Solar SA ... Respondent WITH

Company Appeal (AT) (Insolvency) No. 197 of 2017 [Arising out of order dated 10th August, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai in CP/537/(IB)/CB/2017]

IN THE MATTER OF: T. Shivaraman ... Appellant Versus Rio Glass Solar SA & Anr. ... Respondents

Present: For Appellants : Shri Arun Kathpalia, Senior Advocate with Ms. Pooja M. Saigal, Ms. Khyati Sharma and Shri R. Sridharan, Advocates

For Respondents : Shri Rajshekhar Rao, Ms. Ranu Purohit and Shri Chaitanya Puri, Advocates

JUDGEMENT

SUDHANSHU JYOTI MUKHOPADHAYA, J.

In both these appeals, as common order is under challenge and

common question of law is involved, they were heard together and

disposed of by this common judgement.

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2. Respondents - 'Rio Glass Solar SA' (Operational Creditor), a

company incorporated under the laws of Spain, preferred an application

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

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

Insolvency Resolution Process' against the appellant 'Shriram EPC

Limited -' Corporate Debtor'

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

Division Bench, Chennai, by the impugned order dated 10th August, 2017

in CP/537/(IB)/CB/2017, admitted the application, ordered Moratorium,

appointed 'Interim Resolution Professional' with order of prohibition in

terms of I&B Code against which the appellant-'Corporate Debtor'

preferred one of this appeal (Company Appeal (AT) (Insolvency) No. 133 of

2017).

4. Other appeal (Company Appeal (AT) (Insolvency) No. 197 of 2017)

has been preferred against the same order dated 10th August, 2017 passed

in CP/537/(IB)/CB/2017 by the other aggrieved person.

5. Learned counsel for the appellants submitted that the application

under Section 9 of the I&B Code was not maintainable for different

reasons. According to him, the demand notice under sub-Section (1) of

Section 8 was not given by the respondent -'Operational Creditor' but

through Advocate/Lawyers' Firm, which is not permissible. Reliance has

been placed on the decision of this Appellate Tribunal in "Uttam Galva 3

Steels Limited Vs. DF Deutsche Forfait AG & Anr."- Company Appeal (AT)

(Insolvency) No. 39 of 2017, wherein this Appellate Tribunal by judgement

dated 28th July, 2017 held as follows :

"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. Clause (a) and (b) of sub-rule (1) of Rule 5

of the 'Adjudicating Authority Rules' provides the 4

format in which the demand notice/invoice demanding

payment in respect of unpaid 'Operational Debt' is to be

issued by 'Operational Creditor'. As per Rule 5(1) (a) &

(b), the following person (s) are authorised to act on

behalf of operational creditor, as apparent from the last

portion of Form-3 which reads as follows: -

"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 on behalf of the operational creditor Name in block letters Position with or in relation to the operational creditor Address of person signing "

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 Creditor. The person who is

authorised to act on behalf of Operational 5

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

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 6

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."

6. In the present case, we find that the notice dated 5 th May, 2017

under sub-Section (1) of Section 8 has been issued and signed by a Law

Firm which is at Page 196, namely, 'Advani & Co. - Barristers-At-Law'.

Even in the end portion of the said notice, the signature is made as ' M/s.

Advani & Co.' and not the signature of any individual.

7. Learned counsel for the respondent has also not disputed the

aforesaid fact and there is nothing on record to suggest that the 7

person/Law Firm was authorised by the 'Operational Creditor' or the Law

firm is holding any position within the office of the 'Operational Creditor'.

8. For the reasons aforesaid and in view of the decision in "Uttam Galva

Steels Limited Vs. DF Deutsche Forfait AG & Anr.", we hold that the

application under Section 9 preferred by the respondent-'Operational

Creditor' was not maintainable.

9. The other plea taken by the learned senior counsel for the appellant

is that the application under Section 9 in Form-5 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016

(hereinafter referred to as 'Adjudicating Authority Rules') has not been

signed by the 'Operational Creditor', but by the "Power of Attorney holder".

Reliance has been placed on Form-5 enclosed at Page 206, which has been

signed by four 'Advocates', as is apparent from Serial Nos. 6 and 7 of the

said Form, as quoted below :

6. NAME, ADDRESS AND M/s. S.R. RAJAGOPAL, S. R. AUTHORITY OF PERSON RAGHUNATHAN, ROHAN SUBMITTING APPLICATION RAJASEKARAN AND PREETHI, S. ON BEHALF OF ARAS, Advocates Having Office at : New OPERATIONAL CREDITOR No. 18, Old No. 9, Sadasivam Street (ENCLOSE Gopalapuram, Chennai 600086.

AUTHORISATION) Vakalatnama filed as Annexure VII;

7. NAME AND ADDRESS OF M/s. S.R. RAJAGOPAL, S. R. PERSON RESIDENT IN RAGHUNATHAN, ROHAN INDIA AUTHORISED TO RAJASEKARAN AND PREETHI, S. ARAS, Advocates Having Office at : New 8

ACCEPT THE SERVICE OR No. 18, Old No. 9, Sadasivam Street PROCESS ON ITS BEHALF Gopalapuram, Chennai 600086.

Vakalatnama filed as Annexure VII "

10. The question whether a 'Power of Attorney holder' can file an

application for initiation of 'Corporate Insolvency Resolution Process' fell

for consideration before this Appellate Tribunal in "Palogix Infrastructure

Limited Vs. ICICI Bank Limited"-Company Appeal (AT) (Insol.) No. 30 of

2017. Therein this Appellate Tribunal by judgement dated 20th

September, 2017 held :

"32. The 'I&B Code' is a complete Code by itself. The

provision of the Power of Attorney Act, 1882 cannot

override the specific provision of a statute which

requires that a particular act should be done by a

person in the manner as prescribed thereunder.

33. Therefore, we hold that a 'Power of Attorney

Holder' is not competent to file an application on behalf

of a 'Financial Creditor' or 'Operational Creditor' or

'Corporate Applicant'."

11. In the present case, as the application under Section 9 has been

signed and filed by 'Power of Attorney holders' for the said reason also, we

hold that the application under Section 9 preferred by the Respondent-

'Operational Creditor' was not maintainable. 9

12. The next plea taken by the learned counsel for the appellants is that

the respondent, which is a foreign company of Spain, has not submitted

a copy of any "Certificate from Financial Institutions maintaining

accounts" of the 'Operational Creditor' confirming that there is no

payment of an 'Unpaid Operational Debt' by the 'Corporate Debtor', in

terms of Clause (c) of sub-Section (3) of Section 9 of the I&B Code.

13. From the record, we find that one 'CaixaBank', having its Corporate

Banking Unit at 'Paseo De La Castellana, 7 P1 28046, Madrid', has given

a chart which has been filed by the Respondent, and which is not

recognized as 'Financial Institution of India' under the I&B Code.

14. 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: -

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"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), (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 with the 11

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. Sardar Sayed Ahmed (1955) 1 SCR

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

itself provide consequences of breach or non- 12

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 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 13

Mysore 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." 14

15. Learned counsel appearing on behalf of the respondent has also not

disputed the aforesaid fact that the Report of M/s. CaixaBank is not

recognised and any other record of default has not been enclosed by the

respondent. For the said reason also, the impugned order cannot be

upheld.

16. In view of the finding recorded above, we set aside the impugned

order dated 10th August, 2017 passed by learned Adjudicating Authority

in CP/537/(IB)/CB/2017.

17. 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 application preferred

by Respondent under Section 9 of the I&B Code 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.

18. Learned Adjudicating Authority will fix the fee of 'Interim Resolution

Professional', if appointed, and the appellant company will pay the fees of

the Interim Resolution Professional, for the period he has functioned. The 15

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.

[Justice Bansi Lal Bhat] [Justice S.J. Mukhopadhaya] Member (Judicial) Chairperson

NEW DELHI

2nd November, 2017

/ng/