MACQUARIE BANK LTD VS SHILPI CABLE TECHNOLOGIES LTD. : CASE SUMMARY
The Supreme Court in Macquarie Bank Ltd. Vs Shilpi Cable Technologies Ltd. (2018) 2 SCC 674 held that certificate from financial institution under Section 9 (3) (c) is not mandatory for filing Application under Section 9 IBC. It was also held that an Advocate is competent to send demand notice under Section 8 IBC.
FACTS OF THE CASE
Hamera International Pvt. Ltd. executed an agreement with the Appellant Bank on 27.07.2015 by which Appellant purchased original supplier’s rights, title and interest in a supply agreement in favour of the Respondent. The Respondent entered in agreement dated 02.12.2015 for supply of goods worth US $ 6, 321,337.11 in accordance with terms and conditions contained in the said sales contract. The supplier issued two invoices dated 21.12.2015 and 31.12.2015. Payment terms under the said invoices were 150 days from date of bill. As amounts were not paid , the Appellant issued notices under Sections 433 and 434 of Companies Act, 1956, which was disputed by the Respondent.
After enactment of IBC the Appellant issued demand notice under Section 8 IBC on 14.02.2017 for payment of outstanding amount. The appellant initiated insolvency proceedings under Section 9 IBC. The NCLT rejected the Petition on the ground that certificate under Section 9 (3)(c) has not been submitted. The NCLT also observed that dispute has been raised in the matter.
An appeal was filed before NCLAT which concurred with NCLT and dismissed the Appeal. The NCLAT also held that an advocate/lawyer cannot send notice on behalf of the Operational Creditor.
FINDINGS OF THE SUPREME COURT
Two issues were involved in the matter – (i) Whether certificate from financial institutions under Section 9 (3) (c) of IBC is mandatory for filing Application by Operational Creditor ? and (ii) Whether an advocate is ineligible to send demand notice under Section 8 of the Code ?
Whether certificate under Section 9 (1) (c) is mandatory for filing Application by Operational Creditor ?
The Supreme Court observed that Section 9 (1) contains certain conditions precedent for triggering the code on behalf of the Operational Creditor which are – (i) occurrence of default, (ii) delivery of demand notice or invoice demanding payment of operational debt and (iii) non-payment of unpaid operational debt within 10 days of demand notice or reply which does not indicate existence of dispute or repayment of unpaid operational debt. If only these conditions are met, an application can be filed under Section 9 (2) of the Code.
It is mandatory under Section 9 (3) (a) R/w Rule 5 and 6 of Adjudicating Rules and Form 3 and 5 to attach demand notice/invoice with application. If the Applicant does not receive any notice of dispute, an affidavit to that effect has to be attached under Section 9 (3) (b).
The Supreme Court observed that certificate from the financial institution maintaining accounts of the Operational Creditor confirming that there is no payment of unpaid operational debt by Corporate Debtor is certainly not a condition precedent under Section 9 (3) (c). The expression “confirming” makes it clear that it is only a piece of evidence although certainly an important one. Relevant Form speaks of copies of relevant accounts kept by banks/financial institutions maintaining accounts of the Operational Creditor, confirming that there is no payment of unpaid operational debt only “if available”.
Whether an advocate is ineligible to send demand notice under Section 8 of the Code ?
The Supreme Court observed that Section 8 of IBC speaks of an operational creditor “delivering” demand notice. If the Legislature had wished to restrict sending of demand notice by the Operational Creditor only, the Legislature would have used the word “issued”. The Court noted that signature of person “authorized to act” has to be appended on both demand notice and application in relevant forms. Both the expressions show that an authorized agent or a lawyer acting on behalf of client in included within the aforesaid expression.
The Supreme Court observed that the word “practice” used under Section 30 of Advocates Act includes all preparatory steps including filing of an application before a Tribunal. Advocates Act and IBC have to be harmoniously interpreted. Non-obstante clause in Section 238 does not override the Advocates Act, as there is no inconsistency between Section 9 R/w Adjudicating Authority Rules and Forms and Advocates Act. The Supreme Court concluded that a notice sent on behalf of Operational Creditor would be in order.
The Supreme Court set aside the judgment of NCLAT on both counts.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.