Practical Aspects of Insolvency Law
Author: Second Edition
Date: 2018-05-15T06:55:55+00:00

PRACTICAL ASPECTS

OF

INSOLVENCY LAW

(Second Edition)

INSTITUTE OF INSOLVENCY PROFESSIONALS

A Whol y Owned Subsidiary of ICSI and Registered with IBBI

( Formerly known as ICSI Insolvency Professionals Agency)

First Edition April, 2017

Second Edition May, 2018

Price : Rs. 650/- (Postage extra)

ISBN Number 978-93-86676-00-9

©

INSTITUTE OF INSOLVENCY PROFESSIONALS

A Whol y Owned Subsidiary of ICSI and Registered with IBBI

( Formerly known as ICSI Insolvency Professionals Agency)

All rights reserved. No part of this Publication may be translated or
copied in any form or by any means without prior written permission of
the ICSI Institute of Insolvency Professionals.

Disclaimer :

Although due care and diligence have been taken in the publication
of this book, the ICSI Institute of Insolvency Professionals shall
not be responsible for and loss or damage, resulting from any
action taken on the basis of the contents of this book. Any one
wishing to act on the basis of the material contained herein should
do so after cross checking with the original source.

Published by :

INSTITUTE OF INSOLVENCY PROFESSIONALS

A Whol y Owned Subsidiary of ICSI and Registered with IBBI

( Formerly known as ICSI Insolvency Professionals Agency)

4th Floor, ICSI House, 22, Institutional Area, Lodi Road

New Delhi 110 003

Phones : 011-4534 1099/48 Email : info@icsiip.com

Website : www.icsi ip.com

Printed at Chandu Press/500/May, 2018

(ii)

PREFACE

Insolvency Resolution, the term, its relevance in the Indian context and the
activity in its entirety, holds significance for reasons more than one. While
on one hand, the process guides the Indian corporates on the verge
insolvency and bankruptcy to find ground and a befitting future; on the other,
it finds place in the World Bank’s Doing Business Index. The fact that India
has risen up the ladder of this Index is a result of a long list of multifarious
functions is evident but the role played by the eased out corporate resolution
mechanism is inevitable.

The entire process of resolution of corporate insolvency has not only just
undergone a facial makeover but a turnaround of sorts. From forming part of
the Companies Act to being given a dedicated legislation under the garb of
the Insolvency and Bankruptcy Code in 2016, the journey over the past five
decades or so has been quite enthral ing.

However, alike various other legislations, and furthermore, courtesy the
nascent stage of the law and the process entailing, the entire corporate
insolvency resolution mechanism has witnessed plethora of chal enges in
the practical application of the law, ranging from the initiation of the process
to the hurdles facing insolvency professionals in taking over the business
of corporate debtors, conducting meetings of committee of creditors, drafting
and presenting documents before adjudicating authorities, the list seems to
run long.

The book has been developed with the objective to cover al practical aspects
of the legislation including but not limited to regulatory interpretations,
landmark judgements, duties and liabilities of insolvency professionals, etc.

It would surely be of assistance to the resolution professionals as regards
the manner of applying to the National Company Law Tribunal for pursuing
the process of resolution and also in identification of significant aspects,
documents involved, critical issues of resolution process settled through
land mark judgements, etc.

(i i)

I would like to commend the dedicated efforts of the Team - ICSI Institute of

Insolvency Professionals led by CS Lakshmi Arun, Head (Education &

Training) (Designate) and Company Secretary, consisting of Mr. Vinay Kumar

Sanduja, Senior Consultant, Ms. Anchal Jindal, Consultant, Mr. Amarjeet

Singh, ex-senior consultant, Ms. Mehreen Rahman, ex-consultant, ICSI-IIP
in revising this book under the overal supervision of CS Alka Kapoor, Chief

Executive Officer (Designate), ICSI Institute of Insolvency Professionals.

I am sure that this publication wil prove to be extremely helpful to the
insolvency professionals.

CS MAKARAND LELE

President

May 11, 2018

Institute of Company Secretaries of India

(iv)

ABOUT THE BOOK

The Insolvency and Bankruptcy Code, 2016 (Code) and the regulations
framed there under have undergone various changes in the recent past
including the passing of Insolvency and Bankruptcy Code (Amendment)

Act, 2018, Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Amendment) Regulations, 2018, various
circulars issued by Insolvency and Bankruptcy Board of India (IBBI), Reserve

Bank of India (RBI) etc. Besides a number of landmark cases pronounced
by National Company Law Tribunal (NCLT) and National Company Law

Appellate Tribunal (NCLAT) and Supreme Court have contributed towards
development of jurisprudence on the Code.

First edition of the publication “Practical aspects of Insolvency Law” was
very well received and on popular demand ICSI Institute of Insolvency

Professionals (ICSI IIP, formerly known as ICSI Insolvency Professionals

Agency) has come out with this updated second edition of publication

“Practical aspects of Insolvency Law” which covers practical nuances
during a resolution process including various procedural and drafting
aspects.

Present thoroughly revised second edition contains formats of minutes/
agenda for the meeting of Committee of Creditors, Model Information

Memorandum, Model Resolution Plan, format of Expression of Interest etc.

Besides, this second edition contains updated judgements that would help

Insolvency Professionals get an insight into the interpretation of provisions
of the Code by NCLT, NCLAT, High Courts and Supreme Court.

I am certain that this publication will serve as a guide for Insolvency

Professionals when taking up assignments and during the corporate
insolvency resolution process (CIRP) and performing role of Interim

Resolution Professional (IRP), Resolution Professional (RP) or Liquidator.

(v)

In any publication of this kind, there is always cope for further improvement.

I would be personal y grateful to receive feedback/suggestions from the
readers for further refinement in the next edition of this publication.

CS ALKA KAPOOR

May 11, 2018

Chief Executive Officer

ICSI Institute of Insolvency Professionals (ICSI IIP)

(vi)

CONTENTS

Chapter

Topic

Page

No.

No.

I.

Applicability of the Insolvency and Bankruptcy

1

Code, 2016

II

Understanding the basic definitions under the

3

Code & their interpretation through various judgments

III

Eligibility, Qualifications, Duties and Liabilities of

9

Insolvency Professionals

IV

Model Application for initiating CIRP by Financial

29

Creditor, Operational Creditor and Corporate Applicant

V

Check list by NCLT for scrutiny of an Application

71
and Dress Code

VI

Territorial jurisdiction of various benches of NCLT,

76
their Location and Addresses

VII

Role of Interim Resolution Professional

78

• Public announcement and regulatory intimations

79

• Claims and constitution of Committee of Creditors

81

• Committee of Creditors

90

• Conduct of CIRP during the tenure of Interim

93

Resolution Professional

• First Meeting of Committee of Creditors

97

• Voting by the Committee

102

VIII

Information Memorandum

140

IX

Contents of Resolution Plan and Model Resolution

157

Plan

X

Critical Issues Settled Through Landmark Judgments

192

(vii)

(viii)

PRACTICAL ASPECTS OF INSOLVENCY LAW

1

CHAPTER - I

APPLICABILITY OF THE INSOLVENCY AND

BANKRUPTCY CODE, 2016

Applicability of the Insolvency and Bankruptcy Code, 2016, as on date
of notification i.e. 1st December, 2016

Section 2 of the Insolvency and Bankruptcy Code, 2016 (“Code” ), provides
that the provisions of the Code shal apply to:

(a) any company incorporated under the Companies Act, 2013 or under
any previous company law;

(b) any other company governed by any Special Act for the time being
in force, except in so far as the said provisions are inconsistent with
the provisions of such Special Act;

(c) any Limited Liability Partnership incorporated under the Limited

Liability Partnership Act, 2008;

(d) such other body incorporated under any law for the time being in
force, as the Central Government may, by notification, specify in this
behalf; and

(e) partnership firms and individuals, in relation to their insolvency,
liquidation, voluntary liquidation or bankruptcy, as the case may be.

Applicability of the Code vide the Insolvency and Bankruptcy Code

(Amendment) Act, 2017

In view of the amendments brought out in the Code, vide the Insolvency
and Bankruptcy Code (Amendment) Act, 2017 (“Amendment Act” ) dated

18th January, 2018, clause (e) of section 2 of the Code has been substituted
with the following :

(e) personal guarantors to corporate debtors;

(f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e).

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Thus, the Code is applicable to fol owing :

“(a) any company incorporated under the Companies Act, 2013 or under
any previous company law;

(b) any other company governed by any special Act for the time being in
force, except in so far as the said provisions are inconsistent with
the provisions of such special Act;

(c) any Limited Liability Partnership incorporated under the Limited

Liability Partnership Act, 2008;

(d) such other body incorporated under any law for the time being in
force, as the Central Government may, by notification, specify in this
behalf;
e) personal guarantors to corporate debtors;

(f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e),”

PRACTICAL ASPECTS OF INSOLVENCY LAW

3

CHAPTER - II

UNDERSTANDING THE BASIC DEFINITIONS UNDER

THE CODE & THEIR INTERPRETATION THROUGH

VARIOUS JUDGEMENTS

A. “DEBT”

Section 3(11) “debt” means a liability or obligation in respect of a
claim which is due from any person and includes a financial debt and
operational debt.

B. DEFAULT

SECTION 3(12) “default” means non-payment of debt when whole or
any part or instalment of the amount of debt has become due and
payable and is not repaid by the debtor or the corporate debtor, as
the case may be.

In Neelkanth Township and Construction Pvt. Ltd. vs. Urban

Infrastructure Trustees Ltd. [SEE ANNEXURE TO CHAPTER X], a question
arose before the National Company Law Appel ate Tribunal (“NCLAT” )

that in absence of record of default as recorded with information utility
or ‘any other record or evidence of default’ specified by Insolvency
and Bankruptcy Board of India (“IBBI” or “Board” ), whether
application under section 7 of the Code is maintainable? It was held
by NCLAT that:

(i) Under section 239 of the Code, the Central Government
has framed rules known as Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016

(“Adjudicating Authority Rules” ). As per Rule 41 of

Adjudicating Authority Rules, Financial Creditor filing
application under section 7 of the Code is required to apply
under Form I. Part V of Form I deals with Financial Debts,
which includes documents, record and evidence of default.

(ii) IBBI has framed Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons)

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4

PRACTICAL ASPECTS OF INSOLVENCY LAW

Regulations, 2016 (“CIRP Regulations” ) which, under

Regulation 8, provide for filing of claim by Financial Creditor
under Form C.

(iii) The rules framed by Central Government having prescribed
the documents, record and evidence of default, the NCLAT
rejected the contention that in absence of Regulations being
framed by Board, the application deserved to be dismissed.

C. “ADJUDICATING AUTHORITY”

SECTION 5(1) “Adjudicating Authority”, for the purposes of this Part,
means National Company Law Tribunal constituted under section 408
of the Companies Act, 2013.

In J K Jute Mills Company Limited vs. M/s Surendra Trading

Company [SEE ANNEXURE TO CHAPTER X], decided by NCLAT, it was
observed that the Code empowers the ‘Adjudicating Authority’ to pass
orders under section 7, 9 and 10 of the Code and not the National

Company Law Tribunal (“NCLT” ). It is by virtue of definition under
sub-section (1) of section 5 of the Code the NCLT plays its role as

‘Adjudicating Authority’ and not that of a Company Law Tribunal.

Therefore, in strict sense, mandate under section 420 of the

Companies Act cannot be transpose in Code by reading ‘orders of

Tribunal’ as ‘orders of Adjudicating Authority’. The NCLAT thus held
that Adjudicating Authority under the Code plays different roles as
compared to NCLT under the Companies Act.

D. “DISPUTE”

Section 5(6) “dispute” includes a suit or arbitration proceedings relating
to – (a) the existence of the amount of debt; (b) the quality of goods
or service; or (c) the breach of a representation or warranty.

Different opinions have been expressed by different benches of NCLT
with regard to meaning of the term ‘dispute’.

In a judgment delivered in Mobilox Innovations Private Limited
vs. Kirusa Software Pvt. Ltd. [SEE ANNEXURE TO CHAPTER X] by Hon’ble

Supreme Court of India, the issue has been settled and it has been
held that the term ‘dispute’ cannot be limited to a pending suit or
arbitral proceeding and the word ‘and’ has to be read as ‘or’. Thus,
the definition of word ‘dispute’ is inclusive one and not exclusive
one.

PRACTICAL ASPECTS OF INSOLVENCY LAW

5

E. “FINANCIAL DEBT”

Section 5(8) “financial debt” means a debt alongwith interest, if any,
which is disbursed against the consideration for the time value of
money and includes –

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit
facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the
issue of bonds, notes, debentures, loan stock or any similar
instrument;

(d) the amount of any liability in respect of any lease or hire purchase
contract which is deemed as a finance or capital lease under
the Indian Accounting Standards or such other accounting
standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold
on nonrecourse basis;

(f) any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial
effect of a borrowing;

(g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
and for calculating the value of any derivative transaction, only
the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, documentary letter of credit or any other
instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to

(h) of this clause.

F. “OPERATIONAL DEBT”

Section 5(21) “Operational Debt” means a claim in respect of the
provision of goods or services including employment or a debt in
respect of the repayment of dues arising under any law for the time
being in force and payable to the Central Government, any State

Government or any local authority.

6

PRACTICAL ASPECTS OF INSOLVENCY LAW

In Renish Petrochem FZE vs. Ardor Global Pvt. Ltd. [SEE ANNEXURE-

II.1] Renish Petrochem FZE supplied various goods to Ardor

International Limited and the outstanding of Ardor International Limited
was Rs.15,35,40,909. The goods were supplied on the condition that
payment of al and any sums of monies due and payable by Ardor

International Limited shal at all times be guaranteed by Ardor Global

Pvt. Ltd. - Corporate Debtor in this case. In this regard, Deed of

Guarantee dated 01.09.2014 was also entered into between Renish

Petrochem FZE and Ardor Global Pvt. Ltd. It was contended that

Ardor Global Pvt. Ltd was a Principal Borrower from a different bank
i.e. Central Bank of India whereas, it was only a guarantor to Ardor

International Limited, therefore, insolvency proceedings insolvency
could not be initiated by Renish Petrochem FZE, against Ardor Global

Pvt. Ltd. The Adjudicating Authority noted that the provisions of

Contract Act clearly show that liability of Principal Borrower and that
of Guarantor is co-extensive to that of Principal Debtor and thus, it is
wrong to contend that Operational Creditor i.e. Renish Petrochem

FZE could not proceed against Ardor Global Pvt. Ltd.

It was further contended that amount due under a contract of
guarantee from Corporate Debtor is not an ‘operational debt’. The

Adjudicating Authority noted the definition of word ‘claim’, as defined
in section 3(6) and observed that when the definition of ‘claim’ is
inserted into the definition of ‘operational debt’ in section 5(21), it
includes ‘amount payable under Guarantee Agreement’ also and thus
an ‘operational debt’. It was further observed that perusal of Deed of

Guarantee dated 01.09.2014 executed by Corporate Debtor in favour
of applicant showed that Corporate Debtor undertook to pay entire
amount due by Ardor International Limited towards supply of goods
to it not only as a guarantor but also as sole principal obligor.

In M/s Wanbury Ltd. vs. M/s Panacea Biotech Ltd. [SEE ANNEXURE-

II.2], question before the NCLT, Chandigarh Bench was whether the
claim for interest fal s within the term ‘debt’ which the corporate debtor

(in that case) was liable to pay, failing which the operational creditor
is entitled to an order of admission in terms of section 9 of the Code.

The Bench observed that “there is a marked difference between the
definite of term ‘financial debt’ and ‘operational debt’. Under section

5(8) of the Code, the term ‘financial debt’ means a debt along with
interest, if any, which is disbursed against the consideration for time
value of money and that is an inclusive definition. In the definition of
the term ‘operational debt’ under section 5 (21) the word ‘interest’ is

PRACTICAL ASPECTS OF INSOLVENCY LAW

7
not mentioned.” Accordingly, it was held that the term ‘operational
debt’ does not include ‘interest’.

In appeal before the NCLAT however, since the matter was settled,
there is no authoritative pronouncement by NCLAT on this aspect.

G. “FINANCIAL INSTITUTION”

Section 5(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;

(c) public financial institution as defined in clause (72) of section 2
of the Companies Act, 2013; and

(d) such other institution as the Central Government may by
notification specify as a financial institution.

In Smart Timing Steel Ltd. vs. National Seed and Agro Industries

Ltd. [SEE ANNEXURE TO CHAPTER X], NCLAT interpreted the term financial
institution and held that filing of certificate from such financial
institution is mandatory.

In Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd.,

[SEE ANNEXURE TO CHAPTER X], a question arose whether filing of
certificate from a financial institution maintaining accounts of
operational creditor confirming that there is no payment of unpaid
operational debt is mandatory or directory? The question arose in the
backdrop of an operational creditor maintaining accounts with a foreign
banker who failed to file certificate from a financial institution under
section 9(3) (c) of the Code.

Hon’ble Supreme Court observed that there may be situations where
a foreign supplier may have a foreign banker who is not within the
meaning of ‘financial institution’ under section 3(14) of the Code.

However, such foreign supplier would be an operational creditor as
established from reading of definition of ‘person’ contained in section

3(23), as including person resident outside India, together with
definition of ‘operational creditor’ in section 5(20). Thus, the Code
cannot be construed in a discriminatory fashion so as to include only
those operational creditors who are residents outside India who happen
to bank with financial institutions which may be included under section

3(14) of the Code.

8

PRACTICAL ASPECTS OF INSOLVENCY LAW

Thus, Hon’ble Supreme Court held that filing of certificate from a
financial institution maintaining accounts of operational creditor
confirming that there is no payment of unpaid operational debt is not
mandatory but only directory.

H. “FINANCIAL CREDITOR”

Section 5(7) ”financial creditor” means any person to whom a financial
debt is owed and includes a person to whom such debt has been
legally assigned or transferred to.

In Nikhil Mehta & Sons vs. AMR Infrastructure Ltd. [SEE ANNEXURE

TO CHAPTER X], NCLAT interpreted the term ‘financial creditor’ and held
that the buyers (in that case) were “investors” who had chosen the

“committed return plan”. NCLAT noted from the Annual Return and

Form 16-A of the Builder that they had treated the buyers as “investors”

and borrowed amount pursuant to sale purchase agreement for their
commercial purpose treating at par with loan in their return. The amount
disbursed by buyers was thus ‘against the consideration of time value
of money’ and the buyers were ‘financial creditors’.

In Neelkanth Township and Construction Pvt. Ltd. (supra), NCLAT,
while considering the question whether the appel ant, in that case,
was financial creditor or not, considered the definition of ‘financial
creditor’ and ‘financial debt’ and observed that ‘debentures’ come within
the meaning of ‘financial debt’. Since the appel ant in the present
case was a debenture holder, the appel ant was held to be financial
creditor.

I. RESOLUTION APPLICANT

Section 5(25)1 “resolution applicant” means a person, who individually
or jointly with any other person, submits a resolution plan to the
resolution professional pursuant to the invitation made under clause

(h) of sub-section (2) of section 25.

1 Substituted by section 3(a) of the Insolvency and Bankruptcy Code (Amendment) Act,

2017 (w.e.f. 23-11-2017).

PRACTICAL ASPECTS OF INSOLVENCY LAW

9

CHAPTER - III

ELIGIBILITY, QUALIFICATIONS, DUTIES AND

LIABILITIES OF INSOLVENCY PROFESSIONALS

Insolvency Professionals

Section 206 of the Code provides that no person shal render his services
as insolvency professional under this Code without being enrolled as a
member of an insolvency professional agency and registered with the Board.

Section 207 of the Code provides that every insolvency professional shall,
after obtaining the membership of any insolvency professional agency,
register himself with the Board within such time, in such manner and on
payment of such fee, as may be specified by regulations.

Eligibility for Enrolment as an Insolvency Professional

In order to enroll as an Insolvency Professional, a professional needs to
comply with the eligibility criteria as provided under Regulation 4 of Insolvency
and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016

(“IP Regulations” ). The stated Regulations provide that, that no individual
shal be eligible to be registered as an insolvency professional if he-

(a) is a minor;

(b) is not a person resident in India;

(c) does not have the qualification and experience criteria specified in
regulation 5;

(d) has been convicted by any competent court for an offence punishable
with imprisonment for a term exceeding six months or for an offence
involving moral turpitude and a period of five years has not elapsed
from the date of expiry of the sentence;

Provided that if a person has been convicted of any offence and
sentenced in respect thereof to imprisonment for a period of seven
years or more, he shall not be eligible to be registered;

9

10

PRACTICAL ASPECTS OF INSOLVENCY LAW

(e) he is an undischarged insolvent or has applied to be adjudicated as
an insolvent;

(f) has been declared to be of unsound mind; or

(g) he is not a fit and proper person.

For determining, whether an individual is fit and proper under IP Regulations,

2016, IBBI may take account of any consideration as it deems fit, including
but not limited to the fol owing criteria:

(a) Integrity, reputation and character,

(b) Absence of convictions and restraint orders, and

(c) Competence, including financial solvency and net worth.

Further, in addition to the above stated Regulations, professionals also
need to take in consideration Bye-Law 9 of Insolvency and Bankruptcy

Board of India (Model Bye-Laws and Governing Board of Insolvency

Professional Agencies) Regulations, 2016 (“Model Bye-Laws

Regulations” ) which provides that no individual shall be enrol ed as a
professional member if he is not eligible to be registered as an insolvency
professional with the Board.

Proviso to Bye-Law 9 of Model Bye-Laws further provides that the Governing

Board may provide additional eligibility requirements for enrolment.

Second Proviso to Bye-Law 9 of Model Bye-Laws further provides that
such additional requirements shall not discriminate on the grounds of religion,
race, caste, gender, place of birth or professional affiliation.

Qualifications for registration as an Insolvency Professional

In order to enroll as an Insolvency Professional, besides eligibility criteria, a
professional also needs to fulfil the qualification criteria also as specified
under Regulation 5 of IP Regulations which provides that:

An individual shal be eligible for registration, if he –

(a) has passed the National Insolvency Examination (not yet in force);

(b) has passed the Limited Insolvency Examination and has fifteen years
of experience in management after receiving a Bachelor’s degree
from a university established or recognized by law; or

(c) has passed the Limited Insolvency Examination and has ten years
of experience as –

PRACTICAL ASPECTS OF INSOLVENCY LAW

11

• A Chartered Accountant enrol ed as a member of the Institute
of Chartered Accountants of India,

• A Company Secretary enrol ed as a member of the Institute of

Company Secretaries of India,

• A Cost Accountant enrol ed as a member of the Institute of

Cost Accountants of India,

• An advocate enrolled with a Bar Council.

Duties of an Insolvency Professional

While practicing as an insolvency professional, the professional member
has to perform certain sets of duties as illustrated under Regulation 13 of

Model Bye-Laws Regulations which provides that every Insolvency

Professional is mandatorily required :

(a) To act in good faith in discharge of his duties as an Insolvency

Professional.

(b) To maximize the value of assets of the debtor.

(c) To discharge functions with utmost integrity and objectivity.

(d) To act independently and impartial y.

(e) To discharge functions with the highest standards of professional
competence and professional ethics.

(f) To continuously upgrade the professional expertise.

(g) To perform duties as quickly and efficiently as reasonable, subject to
the timelines under the Code.

(h) To comply with applicable laws in the performance of his functions.

(i) To maintain confidentiality of information obtained in the course of
his professional activities unless required to disclose such information
by law.

Further, in addition to the above mentioned duties, every insolvency
professional shall also take in consideration the following duties as prescribed
by IBBI vide its various circulars:

(I) Disclosures by Insolvency Professionals and other Professionals
appointed by Insolvency Professionals conducting Resolution

Processes

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Circular No. IP/005/2018 dated 16th January, 2018 provides that an

Insolvency Professional shal disclose his relationship, if any, with

(i) the Corporate Debtor, (i ) other Professional(s) engaged by him,

(i i) Financial Creditor(s), (iv) Interim Finance Provider(s), and (v)

Prospective Resolution Applicant(s) to the Insolvency Professional

Agency (“IPA” ) of which he is a member, within the time specified
as under

Relationship of the Insolvency

Disclosure to be made within

Professional with
three days of

Corporate Debtor
his appointment.

Other Professionals [Registered
appointment of the other

Valuer(s) / Accountant(s) / Legal

Professional.

Professional(s) / Other

Professional(s)] appointed by him

Financial Creditor(s)

the constitution of Committee
of Creditors.

Interim Finance Provider(s)

the agreement with the

Interim Finance Provider.

Prospective Resolution
the supply of information

Applicant(s)

memorandum to the

Prospective Resolution

Applicant.

If relationship with any of the above
of such notice or arising.

comes to notice or arises
subsequently

The circular further provides that an Insolvency Professional shall
ensure disclosure of the relationship, if any, of the other professional(s)

engaged by him with (i) himself, (ii) the Corporate Debtor, (iii) Financial

Creditor(s), (iv) Interim Finance Provider(s), and (v) Prospective

Resolution Applicant(s) to the IPA of which he is a member, within the
time specified as under:

Relationship of the other

Disclosure to be made within

Professional(s) with
three days of

The Insolvency Professional
the appointment of the other

Professional.

Corporate Debtor
the appointment of the other

Professional.

PRACTICAL ASPECTS OF INSOLVENCY LAW

13

Financial Creditor(s)

constitution of Committee of

Creditors.

Interim Finance Provider(s)

the agreement with the Interim

Finance Provider or three
days of the appointment of the
other Professional, whichever
is later.

Prospective Resolution Applicant(s)

the supply of information
memorandum
to
the

Prospective

Resolution

Applicant or three days of the
appointment of the other

Professional, whichever is
later.

If relationship with any of the above
of such notice or arising.

comes to notice or arises
subsequently

Under this circular, the IPAs have also been cast with a responsibility to
disseminate such disclosures on its website within three working days
of receipt of the disclosure. The circular is annexed as Annexure III.1.

(II) Fees payable to an Insolvency Professional and to other
professionals appointed by an Insolvency Professional

Circular No. IP/004/2018 dated 16th January, 2018 provides that an

Insolvency Professional shal render services for a fee which is a
reasonable reflection of his work, raise bills / invoices in his name
towards such fees, and such fees shal be paid to his bank account.

Any payment of fees for the services of an insolvency professional
to any person other than the insolvency professional shal not form
part of the insolvency resolution process cost. The circular is annexed
as Annexure III.2.

(III) Insolvency Professional to ensure compliance with provisions
of the applicable laws

Circular No. IP/002/2018 dated 3rd January, 2018 provides that a
corporate person undergoing insolvency resolution process, fast track
insolvency resolution process, liquidation process or voluntary
liquidation process under the Code needs to comply with provisions of
the applicable laws during such process. It directs that while acting as
an Interim Resolution Professional (“IRP” ), Resolution Professional

14

PRACTICAL ASPECTS OF INSOLVENCY LAW

(“RP” ) or a Liquidator, an Insolvency Professional shall exercise
reasonable care and diligence and take al necessary steps to ensure
that the corporate person undergoing any process under the Code
complies with the applicable laws.

Further, the circular provides that if a corporate person during any
of the aforesaid processes under the Code suffers any loss,
including penalty, if any, on account of non-compliance of any
provision of the applicable laws, such loss shall not form part of
insolvency resolution process cost or liquidation process cost
under the Code and states that in such a scenario, the Insolvency

Professional will be responsible for the non-compliance of the
provisions of the applicable laws if it is on account of his conduct.

The circular is annexed as Annexure III.3.

(IV) Insolvency Professional not to outsource his responsibilities

This Circular No. IP/003/2018 dated 3rd January, 2018 provides that
an IRP shal not outsource any of his duties and responsibilities under
the Code and that he shal not require any certificate from another
person certifying eligibility of a resolution applicant. The circular is
annexed as Annexure III.4.

(V) Insolvency professional to use Registration Number and

Registered Address in all his communications

This Circular No. IP/001/2018 dated 3rd January, 2018 provides that
an Insolvency Professional shal prominently state: (i) his name,
address and email, as registered with the IBBI, (i ) his Registration

Number as an insolvency professional granted by the IBBI, and (i i)

the capacity in which he is communicating in all his communications,
whether by way of public announcement or otherwise to a stakeholder
or to an authority. The circular is annexed as Annexure III.5.

Obligations of an Insolvency Professional

While undertaking any assignment under the Code, an Insolvency

Professional shall abide by Code of Conduct as provided under Section

208(2)(d) of the Code, which requires an Insolvency Professional:

(a) to take reasonable care and diligence while performing his duties;

(b) to comply with al requirements, terms and conditions sepcified in
the bye-laws of the insolvency professional agency of which he is
member;

PRACTICAL ASPECTS OF INSOLVENCY LAW

15

(c) to al ow the insolvency professional agency to inspect his records;

(d) to submit a copy of the records of every proceeding before the

Adjudicating Authority to the Board as wel as to the Insolvency

Professional Agency of which he is a member; and

(e) to perform his functions in such manner and subject to such conditions
as may be specified.

In addition to above, an Insolvency Professional is also under a mandate to
abide by the First Schedule of the Code of Conduct prescribed under IP

Regulations. The key central areas of Code of Conduct are:

(a) Integrity and Objectivity

(b) Independence and Impartiality

(c) Professional Competence

(d) Representation of correct facts and correcting misapprehensions

(e) Observance of timeliness

(f) Competence to manage information

(g) Maintenance of confidentiality

(h) To always take in consideration occupation, employability and
restrictions

(i) To charge remuneration and costs in a fair and transparent manner

(j) Not to accept gifts and hospitality

16

PRACTICAL ASPECTS OF INSOLVENCY LAW

Annexure III.1

Insolvency and Bankruptcy Board of India

7th Floor, Mayur Bhawan, Connaught Place, New Delhi-110001

CIRCULAR

No. IP/005/2018

16th January, 2018

To

All Registered Insolvency Professionals

All Registered Insolvency Professional Agencies

(By mail to registered email addresses and on web site of the IBBI)

Dear Madam / Sir,

Sub: Disclosures by Insolvency Professionals and other Professionals
appointed by Insolvency Professionals conducting Resolution

Processes.

The Insolvency and Bankruptcy Code, 2016 read with regulations made
thereunder provide for appointment of an insolvency professional [(Interim

Resolution Professional (IRP) / Resolution Professional (RP)] to conduct
the resolution process (Corporate Insolvency Resolution Process and the

Fast Track Process) and discharge other duties. These authorise the

Insolvency Professional to appoint registered valuers, accountants, legal
and other professionals to assist him in discharge of his duties in resolution
process.

2. In the interest of transparency, it has been decided that an insolvency
professional and every other professional appointed by the insolvency
professional for a resolution process shall make disclosures as specified in

Para 3 to 5 hereunder.

3. An insolvency professional shall disclose his relationship, if any, with (i)

the Corporate Debtor, (i ) other Professional(s) engaged by him, (iii) Financial

Creditor(s), (iv) Interim Finance Provider(s), and (v) Prospective Resolution

Applicant(s) to the Insolvency Professional Agency of which he is a member,
within the time specified as under:

PRACTICAL ASPECTS OF INSOLVENCY LAW

17

Relationship of the Insolvency

Disclosure to be made within three

Professional with
days of

Corporate Debtor
his appointment.

Other Professionals [Registered
appointment of the other Professional.

Valuer(s) / Accountant(s) / Legal

Professional(s) / Other

Professional(s)] appointed by him

Financial Creditor(s)

the constitution of Committee of Creditors.

Interim Finance Provider(s)

the agreement with the Interim Finance

Provider.

Prospective Resolution Applicant(s)

the supply of information memorandum
to the Prospective Resolution Applicant.

If relationship with any of the above of such notice or arising.

comes to notice or arises
subsequently

4. An insolvency professional shal ensure disclosure of the relationship, if
any, of the other professional(s) engaged by him with (i) himself, (i ) the

Corporate Debtor, (i i) Financial Creditor(s), (iv) Interim Finance Provider(s),
and (v) Prospective Resolution Applicant(s) to the Insolvency Professional

Agency of which he is a member, within the time specified as under:

Relationship of the other

Disclosure to be made within

Professional(s) with
three days of

The Insolvency Professional
the appointment of the other

Professional.

Corporate Debtor
the appointment of the other

Professional.

Financial Creditor(s)

constitution of Committee of Creditors.

Interim Finance Provider(s)

the agreement with the Interim Finance

Provider or three days of the appointment
of the other Professional, whichever is
later.

Prospective Resolution Applicant(s) the supply of information memorandum
to the Prospective Resolution Applicant
or three days of the appointment of the
other Professional, whichever is later.

If relationship with any of the above of such notice or arising.

comes to notice or arises
subsequently

18

PRACTICAL ASPECTS OF INSOLVENCY LAW

5. For the purpose of Para 3 and 4 above, ‘relationship’ shal mean any one
or more of the four kinds of relationships at any time or during the three
years preceding the appointment:

Kind of

Nature of Relationship

Relationship

A

Where the Insolvency Professional or the Other Professional,
as the case may be, has derived 5% or more of his / its gross
revenue in a year from professional services to the related
party.

B

Where the Insolvency Professional or the Other Professional,
as the case may be, is a Shareholder, Director, Key Managerial

Personnel or Partner of the related party.

C

Where a relative (Spouse, Parents, Parents of Spouse, Sibling
of Self and Spouse, and Children) of the Insolvency

Professional or the Other Professional, as the case may be,
has a relationship of kind A or B with the related party.

D

Where the Insolvency Professional or the Other Professional,
as the case may be, is a partner or director of a company, firm
or LLP, such as, an Insolvency Professional Entity or

Registered Valuer, the relationship of kind A, B or C of every
partner or director of such company, firm or LLP with the
related party.

6. An Insolvency Professional Agency shal facilitate receipt of disclosures
as required above. It shal disseminate such disclosures on its web site
within three working days of receipt of the disclosure. A model schematic
presentation of disclosures for guidance of Insolvency Professional Agencies
and Insolvency Professionals is enclosed at Annexure A.

7. The Insolvency Professional shal provide a confirmation to the Insolvency

Professional Agency to the effect that the appointment of every other
professional has been made at arms’ length relationship.

8. The disclosures shal be made in respect of ongoing resolution processes
as on date and all subsequent resolution processes. The disclosures due
on date in respect of the ongoing processes shall be made to the respective

Insolvency Professional Agency by 31st January, 2018.

9. The Insolvency Professional shall ensure timely and correct disclosures
by him and the other Professionals appointed by him. Any wrong
disclosure and delayed disclosure shall attract action against the

Insolvency Professional and the other Professional as per the provisions
of the law.

PRACTICAL ASPECTS OF INSOLVENCY LAW

19

10. This circular is issued in exercise of powers under section 196 read with
sections 204 and 208 of the Insolvency and Bankruptcy Code, 2016, in
consultation with the Insolvency Professional Agencies.

Yours faithful y,

-Sd-

(I. Sreekara Rao)

Deputy General Manager

Email: sreekararao@ibbi .gov.in

Annexure A

Disclosures by the Insolvency Professionals and other Professionals
appointed by the Insolvency Professionals conducting Resolution

Processes of ............... (Corporate Debtor)

IP/Other

Name

Profes-

PAN Relationship with

Profess
of
sional
ional

Profes- Member-

IRP/ Other

Corpo- Name

Inte-

Name
engaged
sional
ship No.

RP

Profes-
rate
of
rim
of
by the
sional

Debtor Finan-

Fina-

Prospe-

IP

(Regist-
cial
nce
ctive
ered

Credi-

Prov-

Resolu-

Valuer/
tor(s)

ider(s) tion

Accoun-

Appli-
tant/
cant (s)

Advo-
cate/

Any
other

Profes_
sional)

IRP/RP

NA

Regis

NA
tered

Valuer

Accoun-

NA

A
tant

Advocate

NA

Any other

NA

Profes-
sional

(Write
kind of

Profe_
ssion)

20

PRACTICAL ASPECTS OF INSOLVENCY LAW

Notes:

i. NA: Not Applicable.

ii. Additional rows and columns to be inserted, as required, where there
are more than one professional, financial creditor, interim finance
provider or prospective resolution applicant.

i i. Where an Accountant has relationship of kind A with a Financial

Creditor, relevant cell wil display ‘A’, as indicated in the above table.

One may click on ‘A’ to find details of relationship.

PRACTICAL ASPECTS OF INSOLVENCY LAW

21

Annexure III.2

Insolvency and Bankruptcy Board of India

7th Floor, Mayur Bhawan,

Connaught Place, New Delhi-110001

CIRCULAR

No. IP/004/2018

16th January, 2018

To

Al Registered Insolvency Professionals

Al Registered Insolvency Professional Agencies

(By mail to registered email addresses and on web site of the IBBI)

Dear Madam / Sir,

Sub: Fees payable to an insolvency professional and to other
professionals appointed by an insolvency professional.

Section 206 of the Insolvency and Bankruptcy Code, 2016 (Code) provides
that only a person registered as an insolvency professional with the

Insolvency and Bankruptcy Board of India (IBBI) can render services as an
insolvency professional under the Code. Section 23 read with section 5(27)

of the Code requires that an insolvency professional, who is appointed as
an interim resolution professional or a resolution professional, shall conduct
the entire corporate insolvency resolution process, including fast track
process. In terms of section 5(13) of the Code, ‘the fees payable to any
person acting as a resolution professional’ is included in ‘insolvency resolution
process cost’, which needs to be paid in priority.

2. The Code of Conduct for Insolvency Professionals under the IBBI

(Insolvency Professionals) Regulations, 2016 require that an insolvency
professional must provide services for remuneration which is charged in a
transparent manner, and is a reasonable reflection of the work necessarily
and properly undertaken. He shal not accept any fees or charges other
than those which are disclosed to and approved by the persons fixing his
remuneration.

3. In view of the above, it is clarified that an insolvency professional shall
render services for a fee which is a reasonable reflection of his work, raise
bills / invoices in his name towards such fees, and such fees shal be paid
to his bank account. Any payment of fees for the services of an insolvency

22

PRACTICAL ASPECTS OF INSOLVENCY LAW
professional to any person other than the insolvency professional shal not
form part of the insolvency resolution process cost.

4. Similarly, any other professional appointed by an insolvency professional
shal raise bil s / invoices in his / its (such as registered valuer) name towards
such fees, and such fees shall be paid to his / its bank account.

5. This circular is issued in exercise of powers under section 196 read with
section 208 of the Insolvency and Bankruptcy Code, 2016.

Yours faithful y,

-Sd-

(I. Sreekara Rao)

Deputy General Manager

Email: sreekararao@ibbi.gov.in

PRACTICAL ASPECTS OF INSOLVENCY LAW

23

Annexure III.3

Insolvency and Bankruptcy Board of India

7th Floor, Mayur Bhawan

Connaught Place, New Delhi-110001

CIRCULAR

No. IP/002/2018

3rd January, 2018

To

Al Registered Insolvency Professionals

Al Registered Insolvency Professional Agencies

(By mail to registered email addresses and on the web site of the IBBI)

Dear Madam / Sir,

Sub: Insolvency professional to ensure compliance with provisions of
the applicable laws.

A corporate person undergoing insolvency resolution process, fast track
insolvency resolution process, liquidation process or voluntary liquidation
process under the Insolvency and Bankruptcy Code, 2016 (Code) needs to
comply with provisions of the applicable laws (Acts, Rules and Regulations,

Circulars, Guidelines, Orders, Directions, etc.) during such process. For
example, a corporate person undergoing insolvency resolution process, if
listed on a stock exchange, needs to comply with every provision of the

Securities and Exchange Board of India (Listing Obligations and Disclosure

Requirements) Regulations, 2015, unless the provision is specifically
exempted by the competent authority or becomes inapplicable by operation
of law for the corporate person.

2. It is hereby directed that while acting as an Interim Resolution Professional,
a Resolution Professional, or a Liquidator for a corporate person under the

Code, an insolvency professional shal exercise reasonable care and diligence
and take all necessary steps to ensure that the corporate person undergoing
any process under the Code complies with the applicable laws.

3. It is clarified that if a corporate person during any of the aforesaid processes
under the Code suffers any loss, including penalty, if any, on account of
non-compliance of any provision of the applicable laws, such loss shal not
form part of insolvency resolution process cost or liquidation process cost
under the Code. It is also clarified that the insolvency professional wil be

24

PRACTICAL ASPECTS OF INSOLVENCY LAW
responsible for the non-compliance of the provisions of the applicable laws if
it is on account of his conduct.

4. This circular is issued in exercise of powers under section 196 read with
section 208 of the Insolvency and Bankruptcy Code, 2016.

Yours faithful y,

-Sd-

(I. Sreekara Rao)

Deputy General Manager

Email: sreekararao@ibbi.gov.in

PRACTICAL ASPECTS OF INSOLVENCY LAW

25

Annexure III.4

Insolvency and Bankruptcy Board of India

7th Floor, Mayur Bhawan

Connaught Place, New Delhi-110001

CIRCULAR

No. IP/003/2018

3rd January, 2018

To

Al Registered Insolvency Professionals

Al Registered Insolvency Professional Agencies

(By mail to registered email addresses and on web site of the IBBI)

Dear Madam / Sir,

Sub: Insolvency professional not to outsource his responsibilities.

The Insolvency and Bankruptcy Code, 2016 (Code) read with regulations
made thereunder cast specific duties and responsibilities on an insolvency
professional. An insolvency professional is required to perform certain
tasks under the Code while acting as an Interim Resolution Professional,
a Resolution Professional, a Liquidator or a Bankruptcy Trustee for various
processes. For example, an insolvency professional is required to manage
the operations of the corporate debtor as a going concern. He is also
required to invite resolution plans, examine them and present to the
committee of creditors for its approval such resolution plans which comply
with the provisions of the Code. To assist him in carrying out his
responsibilities, the Code read with regulations allow an insolvency
professional to appoint accountants, legal or other professionals, as may
be necessary.

2. It has been observed that a few insolvency professionals are advising
the prospective resolution applicants to submit a certificate from another
person to the effect that they are eligible to be resolution applicants. This
requirement amounts to outsourcing responsibilities of an insolvency
professional to another person. Further, this adds to cost of the resolution
applicant and delays submission of resolution plans. The Code read with
regulations do not envisage such a certification from a third person.

3. It is hereby directed that an insolvency resolution professional shal not
outsource any of his duties and responsibilities under the Code. He shall

26

PRACTICAL ASPECTS OF INSOLVENCY LAW
not require any certificate from another person certifying eligibility of a
resolution applicant.

4. This circular is issued in exercise of powers under section 196 read with
section 208 of the Insolvency and Bankruptcy Code, 2016.

Yours faithful y,

-Sd-

(I. Sreekara Rao)

Deputy General Manager

Email: sreekararao@ibbi.gov.in

PRACTICAL ASPECTS OF INSOLVENCY LAW

27

Annexure III.5

Insolvency and Bankruptcy Board of India

7th Floor, Mayur Bhawan

Connaught Place, New Delhi-110001

CIRCULAR

No. IP/001/2018

3rd January, 2018

To

All Registered Insolvency Professionals

All Registered Insolvency Professional Agencies

(By mail to registered email addresses and on web site of the IBBI)

Dear Madam / Sir,

Sub: Insolvency professional to use Registration Number and

Registered Address in all his communications.

It has been observed that a few insolvency professionals are using different
addresses and emails while communicating with the stakeholders, despite
repeated advice from the Insolvency Bankruptcy Board of India (IBBI) to
use the addressees and emails registered with the IBBI in all their
communications.

2. It is hereby directed that in al his communications, whether by way of
public announcement or otherwise to a stakeholder or to an authority, an
insolvency professional shal prominently state: (i) his name, address and
email, as registered with the IBBI, (i ) his Registration Number as an
insolvency professional granted by the IBBI, and (iii) the capacity in which
he is communicating (Example: As Interim Resolution Professional of XYZ

Limited, As Resolution Professional of ABC Limited, etc.).

3. Additional y, an insolvency professional may use a process (Example:

CIRP, Liquidation, etc.) specific address and email in its communications,
if he considers it necessary subject to the conditions that: (i) the process
specific address and email are in addition to the details required in Para 2
above, and (i ) the insolvency professional continues to service the process
specific address and email for at least six months from conclusion of his
role in the process.

28

PRACTICAL ASPECTS OF INSOLVENCY LAW

4. This circular is issued in exercise of powers under section 196 read with
section 208 of the Insolvency and Bankruptcy Code, 2016.

Yours faithful y,

-Sd-

(I. Sreekara Rao)

Deputy General Manager

Email: sreekararao@ibbi.gov.in

PRACTICAL ASPECTS OF INSOLVENCY LAW

29

CHAPTER IV

MODEL APPLICATION FOR INITIATING CIRP BY

FINANCIAL CREDITOR, OPERATIONAL CREDITOR

AND CORPORATE APPLICANT

I. APPLICATION BY FINANCIAL CREDITOR

Regulatory Framework For Initiating Corporate Insolvency Resolution

Process By Financial Creditor

Financial Creditor to File Application Either Singly or Jointly

Sub-Section (1) to Section 7 of the Code reads as under:

“(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”.

Section 4 of the Code provides that Part II (Insolvency Resolution and

Liquidation For Corporate Persons) of the Code shall apply to matters relating
to the insolvency and liquidation of corporate debtors where the minimum
amount of the default is one lakh rupees.

Explanation to sub-section (1) of section 7 of the Code further provides that
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.

Application To Be Accompanied With Requisite Fee and Documents

Sub-Section (2) to Section 7 of the Code states that the financial creditor
shal make an application under sub-section (1) in such form and manner
and accompanied with such fee as may be prescribed.

Schedule I to the Adjudicating Authorities Rules provides that an application
by financial creditor to initiate corporate insolvency resolution process shall
be accompanied with a fee of Rs. 25,000/-.

Further, Rule 4 of the Adjudicating Authority Rules provides that a financial

29

30

PRACTICAL ASPECTS OF INSOLVENCY LAW
creditor making application for initiating corporate insolvency resolution
process shall make the application in Form 1 and shal be accompanied
with documents and records as specified in CIRP Regulations.

Regulation 8 to CIRP Regulations provides that a financial creditor may
prove the existence of a financial debt on the basis of fol owing records:

(a) the records available with an information utility, if any; or

(b) other relevant documents, including –

(i) a financial contract supported by financial statements as
evidence of the debt;

(i ) a record evidencing that the amounts committed by the financial
creditor to the corporate debtor under a facility has been drawn
by the corporate debtor;

(iii) financial statements showing that the debt has not been repaid;
or

(iv) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any.

Sub-rule 2 of Rule 4 of the Adjudicating Authority Rules states as under:

“(2) Where the applicant under sub-rule (1) is an assignee or transferee of
a financial contract, the application shal be accompanied with a copy of
the assignment or transfer agreement and other relevant documentation
to demonstrate the assignment or transfer.”

Sub-rule 3 of Rule 4 of the Adjudicating Authority Rules further reads as
under:

(3) The applicant shal dispatch forthwith, a copy of the application filed
with the Adjudicating Authority, by registered post or speed post to the
registered office of the corporate debtor.

Documents to be furnished along with the application

Sub-Section (3) of Section 7 of the Code provides as under:

“(3) The financial creditor shal , 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

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

PRACTICAL ASPECTS OF INSOLVENCY LAW

31

Adjudicating Authority to ascertain default within 14 days of receipt of
application

Sub-Section (4) of Section 7 of the Code provides as under:

(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).

Adjudicating Authority to admit or reject the application

Sub-Section (5) of Section 7 of the Code provides as under:

“(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against
the proposed resolution professional, it may, by order, admit such
application; or

(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application.

Provided that the Adjudicating Authority shal , before rejecting the
application under clause (b) of sub-section (5), give a notice to the
applicant to rectify the defect in his application within seven days of
receipt of such notice from the Adjudicating Authority.”

Date of Commencement of Corporate Insolvency Resolution Process

Sub-Section (6) of Section 7 of the Code provides as under

“(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5).”

Communication of Decision by Adjudicating Authority

Sub-Section (7) of Section 7 of the Code provides as under

“(7) The Adjudicating Authority shal communicate –

(a) the order under clause (a) of sub-section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as
the case may be.”

32

PRACTICAL ASPECTS OF INSOLVENCY LAW

MODEL APPLICATION FOR INITIATING CORPORATE INSOLVENCY

RESOLUTION PROCESS BY FINANCIAL CREDITOR

FORM 1

(See sub-rule (1) of Rule 4)

APPLICATION BY FINANCIAL CREDITOR(S) TO INITIATE

CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER THE

CODE

[ Under section 7 of the Insolvency and Bankruptcy Code, 2016 read with

Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016]

To, September 14, 2017

The National Company Law Tribunal

Principal Bench

Block 3, CGO Complex,

Pragati Vihar, New Delhi

Delhi -110014

From,

ABC Bank of India

1st Floor, XYZ Complex

Delhi-110081

In the matter of XYZ Limited

Subject: Application to initiate corporate insolvency resolution process
in respect of XYZ Limited under the Insolvency and Bankruptcy Code,

2016

Madam/Sir,

ABC Bank of India, hereby submits this application to initiate a corporate
insolvency resolution process in the matter of XYZ Limited. The details for
the purpose of this application are set out below:

PRACTICAL ASPECTS OF INSOLVENCY LAW

33

Part-I

PARTICULARS OF APPLICANT

(FOR EACH FINANCIAL CREDITOR MAKING THE APPLICATION)

1. NAME OF FINANCIAL CREDITOR

ABC Bank of India

2. DATE OF INCORPORATION OF

01.01.1978

FINANCIAL CREDITOR

3. IDENTIFICATION NUMBER OF

U00000MA1836PTC009552

FINANCIAL CREDITOR

4. ADDRESS OF THE REGISTERED

1st Floor, XYZ Complex

OFFICE OF FINANCIAL CREDITOR

Delhi-110081

5. NAME AND ADDRESS OF THE

Mr. ABC

PERSON AUTHORISED TO SUBMIT

X-999, XXX Road,

APPLICATION ON ITS BEHALF

New Delhi-110056

(ENCLOSE AUTHORISATION)

6. NAME AND ADDRESS OF THE

Mr. ABC

PERSON RESIDENT IN INDIA

X-999, XXX Road,

AUTHORISED TO ACCEPT THE

New Delhi-110056

SERVICE OF PROCESS ON ITS

BEHALF (ENCLOSE AUTHORISATION)

Part II

PARTICULARS OF CORPORATE DEBTOR

1. NAME OF THE CORPORATE DEBTOR

XYZ LIMITED

2. IDENTIFICATION NUMBER OF

V2929GF2001PTC0024152

CORPORATE DEBTOR

3. DATE OF INCORPORATION OF

JANUARY 01, 2001

CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND

NOMINAL SHARE CAPITAL:-

THE PAID UP SHARE CAPITAL OF

Rs. 10,00,000

THE CORPORATE DEBTOR AND/OR

PAID UP SHARE CAPITAL:-

DETAILS OF GUARANTEE CLAUSE

Rs. 10,00,000

AS PER MEMORANDUM OF

ASSOCIATION (AS APPLICABLE)

5. ADDRESS OF THE REGISTERED

4th FLOOR, PMM BUILDING,

OFFICE OF THE CORPORATE

STREET NO.1, DELHI-

DEBTOR

110044

34

PRACTICAL ASPECTS OF INSOLVENCY LAW

PART-III

PARTICULARS OF THE PROPOSED

INTERIM RESOLUTION PROFESSIONAL

1. NAME, ADDRESS, E-MAIL

NAME:-Mr. PQR

ADDRESS AND THE REGISTRATION

ADDRESS FOR

NUMBER OF THE PROPOSED

CORRESPONDENCE: -

INSOLVENCY PROFESSIONAL

OFFICE NO. 3, ABC

COMPLEX, DELHI

E-MAIL:-info@abc.com

IP REGISTRATION

NUMBER: -IBBI/IPA-004/IP-

09054/2017-18/5151

Part-IV

PARTICULARS OF FINANCIAL DEBT

1. TOTAL AMOUNT OF DEBT

TOTAL AMOUNT OF DEBT:-

GRANTED

Term loan of Rs. 1,00,53,000

DATE OF DISBURSEMENT
was given for a period of 5
years.

The aforesaid loan was
disbursed in three trenches in
the fol owing manner:

1. Rs 33,51,000 was
disbursed vide sanction
letter dated 15 January

2011

2. Rs 33,51,000 was further
disbursed vide sanction
letter dated 15 July

2011

3. Rs 33,51,000 was further
disbursed vide sanction
letter dated 15 December

2011

PRACTICAL ASPECTS OF INSOLVENCY LAW

35

2. AMOUNT CLAIMED TO BE IN

TOTAL AMOUNT OF

DEFAULT AND THE DATE ON WHICH

DEFAULT:-

THE DEFAULT OCCURRED (ATTACH

Rs. 1,15,60,950/-

THE WORKINGS FOR COMPUTATION

DATE ON WHICH DEFAULT

OF AMOUNT AND DATES OF DEFAULT

OCCURRED

IN TABULAR FORM)

January 15, 2017

Part-V

PARTICULARS OF FINANCIAL DEBT

[DOCUMENTS, RECORDS AND EVIDENCE OF DEFAULT]

1. PARTICULARS OF SECURITY HELD,

Security Held:

IF ANY, THE DATE OF ITS CREATION,

1. Deed of Hypothecation

ITS ESTIMATED VALUE AS PER
of movables dated

CREDITOR

15.01.2011 for a value

ATTACH A COPY OF CERTIFICATE
of Rs. 50 crores.

OF REGISTRATION OF CHARGE

(EXHIBIT-1)

ISSUED BY THE REGISTRAR OF

2. Equitable Mortgage of

COMPANIES (IF THE CORPORATE
immovable property

DEBTOR IS A COMPANY)

vide mortgage deed
dated 15.01.2011 for a
value of Rs. 50,53,000

(EXHIBIT-2)

3. Term Loan Agreement
dated 15 January, 2011

4. Term Loan Agreement
dated 15 July, 2011

5. Term Loan Agreement
dated 15 December,

2011 (EXHIBIT-3)

2. PARTICULARS OF AN ORDER OF

NA

A COURT, TRIBUNAL OR ARBITRAL

PANEL ADJUDICATING ON

DEFAULT, IF ANY (ATTACH A COPY

OF THE ORDER)

3. RECORD OF DEFAULT WITH THE

NA

INFORMATION UTILITY, IF ANY

(ATTACH A COPY OF SUCH

RECORD)

36

PRACTICAL ASPECTS OF INSOLVENCY LAW

4. DETAILS OF SUCCESSION

NA

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)

5. THE LATEST AND COMPLETE COPY

EXHIBIT-3

OF THE FINANCIAL CONTRACT

REFLECTING ALL AMENDMENTS

AND WAIVERS TO DATE

(ATTACH A COPY)

6. A RECORD OF DEFAULT AS

EXHIBIT-4

AVAILABLE WITH ANY CREDIT

INFORMATION COMPANY

(ATTACH A COPY)

7. COPIES OF ENTRIES IN A

EXHIBIT-5

BANKERS BOOK IN ACCORDANCE

WITH THE BANKERS BOOKS

EVIDENCE ACT, 1891 (18 OF 1891)

(ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS

NA

ATTACHED TO THIS APPLICATION IN

ORDER TO PROVE THE EXISTENCE

OF FINANCIAL DEBT, THE AMOUNT

AND DATE OF DEFAULT.

I, hereby certify that, to the best of my knowledge, Mr. PQR is fully qualified
and permitted to act as an insolvency professional in accordance with the

Insolvency and Bankruptcy Code, 2016 and the associated rules and
regulations.

ABC Bank of India has paid the requisite fee of Rs. 25000 for this application
through a Demand Draft issued in favour of “Pay & Accounts Officer, Ministry
of Corporate Affairs, New Delhi” on September 14, 2017.

Yours sincerely,

PRACTICAL ASPECTS OF INSOLVENCY LAW

37

Signature of person authorised to act on behalf of the financial creditor

Name in block letters: ABC

Position with or in relation to the financial creditor:

Address of person signing: X-999, XXX Road, New Delhi-110056

Annexure I (Documents to be attached with the application)

EXHIBIT-1: Deed of Hypothecation of movables dated January 15, 2011

EXHIBIT-2: Equitable Mortgage deed dated January 15, 2011

EXHIBIT-3: Copy of the term loan agreements dated January 15, 2011,

15 July, 2011 & 15 December, 2011

EXHIBIT-4: Copy of CRILC Report

EXHIBIT-5: Copy of certificate in accordance with Bankers Books

Evidence Act, 1891

Annexure II

FORM 2

[See sub-rule (1) of rule 9]

[ Under rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

WRITTEN COMMUNICATION BY

PROPOSED INTERIM RESOLUTION PROFESSIONAL

September 14, 2017

To,

The National Company Law Tribunal

Principal Bench

Block 3, CGO Complex,

Pragati Vihar, New Delhi

Delhi -110014

From,

Mr. PQR

Office No.3, ABC Complex,

Delhi

In the matter of XYZ Limited

38

PRACTICAL ASPECTS OF INSOLVENCY LAW

Subject : Written communication in connection with an application
to initiate corporate insolvency resolution process in respect of XYZ

Limited

Madam/Sir,

I, Mr. PQR, an insolvency professional registered with ICSI Insolvency

Professionals Agency having registration number IBBI/IPA-004/IP-09054/

2017-18/5151 have been proposed as the interim resolution professional by

Mr. XXX in connection with the proposed corporate insolvency resolution
process of XYZ Limited.

In accordance with rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016, I hereby:

(i) agree to accept appointment as the interim resolution professional if
an order admitting the present application is passed;

(i ) state that the registration number allotted to me by the Board is IBBI/

IPA-004/IP-09054/2017-18/5151 and that I am currently qualified to
practice as an insolvency professional;

(iii) disclose that I am currently serving as an interim resolution
professional/resolution professional/liquidator in 1 proceeding;

(iv) certify that there are no disciplinary proceedings pending against me
with the Board or ICSI Insolvency professionals agency;

(v) affirm that I am eligible to be appointed as a resolution professional in
respect of the corporate debtor in accordance with the provisions of
the Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate persons) Regulations, 2016 ;

(vi) make the following disclosures in accordance with the code of conduct
for insolvency professionals as set out in the Insolvency and Bankruptcy

Board of India (Insolvency Professionals) Regulations, 2016.

(Signature of insolvency professional)

PQR

(Name of insolvency professional entity, if applicable)

[Optional certification, if required by the applicant making an application
under these Rules]

I, hereby, certify that the facts averred by the applicant in the present
application are true, accurate and complete and a default has occurred in
respect of the relevant corporate debtor. I have reached this conclusion based
on the following facts and/or opinion:-

[please give details]

PRACTICAL ASPECTS OF INSOLVENCY LAW

39

(Signature of insolvency professional)

PQR

(Name of insolvency professional entity, if applicable)

Annexure III: Copy of demand draft as a proof that the specified fee has
been paid

Annexure IV: Affidavit inrespect of the application which is filed by
one Financial Creditor only

Verifying affidavit in Form No. NCLT-6

Form No. NCLT-6

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL,

PRINCIPAL BENCH

IN THE MATTER OF INSOLVENCY AND BANKRUPTCY CODE, 2016

AND

IN THE MATTER OF XYZ LIMITED

FINANCIAL CREDITOR APPLICATION NO ______________ OF 2017

GENERAL AFFIDAVIT VERIFYING PETITION

1. I, ABC, son of XXXXX, aged 55 years, authorised representative of

ABC Bank of India, residing at X-999, XXX Road, New Delhi-110056,
do solemnly affirm and state as fol ows:

(i) I am an employee of ABC Bank of India working in the capacity
of General Manager;

(i ) The statements made in the application filed by the applicant in
the above matter are true to my knowledge and are based on
the information received by me.

VERIFICATION

Verified at New Delhi on September 14, 2017 that the contents of the above
affidavit are true to best of my knowledge and belief and nothing material
has been concealed therefrom.

Place: New Delhi

Date: 14.09.2017

Deponent identified by___________

Signature of identifier ___________

SWORN BEFORE

40

PRACTICAL ASPECTS OF INSOLVENCY LAW

II. APPLICATION BY OPERATIONAL CREDITOR

Regulatory Framework For Initiating Corporate Insolvency Resolution

Process By Operational Creditor

Operational Creditor to Deliver Demand Notice/Copy of Invoice

Sub-section (1) of Section 8(1) of the Code reads as under:

“(1) An operational creditor may, on the occurrence of a default, deliver a
demand notice of unpaid operational debt or copy of an invoice
demanding payment of the amount involved in the default to the
corporate debtor in such form and manner as may be prescribed.”

Explanation to Section 8 of the Code provides that for the purposes of
section 8, a “demand notice” means a notice served by an operational creditor
to the corporate debtor demanding repayment of the operational debt in
respect of which the default has occurred.

Rule 5 of the Adjudicating Authority Rules provides that an operational creditor
shall deliver a demand notice to the corporate debtor in Form 3 or a copy of
an invoice attached with a notice in Form 4 as provided in the Adjudicating

Authority Rules.

Further, Rule 5 states that the demand notice or the copy of the invoice
demanding payment may be delivered to the corporate debtor,

(1) at the registered office by hand, registered post or speed post with
acknowledgement due; or

(2) by electronic mail service to a whole-time director or designated
partner or key managerial personnel if any, of the corporate debtor.

A copy of demand notice or invoice demanding payment served under this rule
by an operational creditor shal also be filed with an information utility, if any.

In Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd., [SEE

ANNEXURE TO CHAPTER X], one of the issue raised before Hon’ble Supreme

Court was whether a demand notice of an unpaid operational debt can be
issued by a lawyer on behalf of the operational creditor in terms of section

8 of the Code read with Adjudicating Authority Rules.

Hon’ble Supreme Court observed that demand notice as provided under
section 8 of the Code can be sent by a lawyer on behalf of operational
creditor. In this regard, Supreme Court noted that Section 8 of the Code
speaks of an operational creditor “delivering” the demand notice and not

“issuing” it and in this sense, delivery, therefore, would postulate that such

PRACTICAL ASPECTS OF INSOLVENCY LAW

41
notice could be made by an authorized agent. Further, Supreme Court also
took note of Form 3 and Form 5 of Adjudicating Authority Rules,which require
the person serving demand notice to “state position with or in relation to the
operational creditor”.

Hon’ble Supreme Court observed that in “relation to” is a very wide expression
which specifical y includes a position which is outside or indirectly related
to the operational creditor, including a lawyer. In view of aforesaid, Hon’ble

Supreme Court observed that expression “an operational creditor may on
the occurrence of a default deliver a demand notice…” under section 8 of
the Code must be read as including an operational creditor’s authorized
agent and lawyer, as has been stated in Forms 3 and 5 appended to the

Adjudicatory Authority Rules.

Operational Creditor to raise existence of Dispute or Repayment of
unpaid Operational Debt in reply to Demand Notice/Copy of Invoice by

Operational Creditor

Sub-Section (2) of Section 8 of the Code reads as under:

“(2) The corporate debtor shal , within a period of ten 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.”

Operational Creditor to File Application in case there is no existence
of dispute or no repayment of unpaid operational debt by corporate
debtor

Sub-Section (1) and (2) of Section 9 of the Code read as under:

“9. (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

42

PRACTICAL ASPECTS OF INSOLVENCY LAW

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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.”

Application to be accompanied with Requisite Fee and Form

Rule 6 of Adjudicating Authority Rules provides that an operational creditor
shal make an application in Form 5 as prescribed in Adjudicating Authority

Rules for initiating the corporate insolvency resolution process against a
corporate debtor under section 9 of the Code.

Schedule to the Adjudicating Authority Rules provides that the application
by operational creditor shal be accompanied by a fee of Rs. 2,000/-.

Sub-Rule 4 of Rule 10 of the Adjudicating Authority Rules provides that the
application and accompanying documents shal be filed in electronic form,
as and when such facility is made available and as prescribed by the

Adjudicating Authority. However, til the time such facility is made available,
the applicant may submit the accompanying documents, and wherever they
are bulky, in electronic form, in scanned, legible portable document format
in a data storage device such as a compact disc or a USB flash drive
acceptable to the Adjudicating Authority.

Documents to be furnished with the application

Sub-Section (3) of Section 9 of the Code reads as under:

“(3) The operational creditor shal , 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.”

As per Regulation 7 of the CIRP Regulations the following documents should
be submitted by an operational creditor:

(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

(i) a proof of employment such as contract of employment for the
period for which such workman or employee is claiming dues;

PRACTICAL ASPECTS OF INSOLVENCY LAW

43

(i ) evidence of notice demanding payment of unpaid dues and any
documentary or other proof that payment has not been made;
or

(iii) an order of a court or tribunal that has adjudicated upon the
non-payment of a dues, if any.

(iv) Financial Accounts

Operational Creditor May Recommend the Name of a Resolution
professional To Act as an Interim Resolution Professional

As per Sub-Section (4) to Section 9 of the Code, an operational creditor
initiating a corporate insolvency resolution process under this section, may
propose a resolution professional to act as an interim resolution professional.

Regulation 3 of CIRP Regulations provides that an Insolvency Professional
shall be eligible to be appointed as a resolution professional for a corporate
insolvency resolution process of a corporate debtor if he, and al partners
and directors of the insolvency professional entity of which he is a partner
or director, are independent of the corporate debtor.

Explanation to Regulation 3 of the above Regulations provide that a person
shal be considered independent of the corporate debtor, if he:

(a) is eligible to be appointed as an independent director on the board of
the corporate debtor under section 149 of the Companies Act, 2013

(18 of 2013), where the corporate debtor is a company;

(b) is not a related party of the corporate debtor; or

(c) is not an employee or proprietor or a partner:

(i) of a firm of auditors or secretarial auditors in practice or cost
auditors of the corporate debtor; or

(i ) of a legal or a consulting firm, that has or had any transaction
with the corporate debtor amounting to ten per cent or more of
the gross turnover of such firm,
in the last three financial years.

(d) A Resolution Professional shal make disclosures at the time of his
appointment and thereafter in accordance with the Code of Conduct.

(e) A Resolution Professional, who is a director or a partner of an
insolvency professional entity, shal not continue as a resolution
professional in a corporate insolvency resolution process if the
insolvency professional entity or any other partner or director of such
insolvency professional entity represents any of the other stakeholders
in the same corporate insolvency resolution process.

44

PRACTICAL ASPECTS OF INSOLVENCY LAW

Adjudicating Authority May Admit or Reject The Application

Sub-Section (5) of Section 9 of the Code reads as under:

“(5) The Adjudicating Authority shal , 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 (4), if
any.

(i ) 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 (i ) 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.”

Commencement of Insolvency Resolution Process

Sub-Section (6) of Section 9 of the Code provides that the corporate
insolvency resolution process shall commence from the date of admission
of the application by the Adjudicating Authority.

PRACTICAL ASPECTS OF INSOLVENCY LAW

45

MODEL APPLICATION FOR INITIATING CORPORATE INSOLVENCY

RESOLUTION PROCESS BY OPERATIONAL CREDITOR

FORM 5

(See sub-rule (1) of Rule 6)

APPLICATION BY OPERATIONAL CREDITOR TO INITIATE

CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER THE

CODE

[Under Rule 6 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

September 11, 2017

To,

The National Company Law Tribunal

Principal Bench

Block 3, CGO Complex,

Pragati Vihar, New Delhi

Delhi -110014

From,

Mr. ABC

1st Floor, XYZ Apartments

Delhi-110081

In the matter of XYZ Limited

Subject: Application to initiate corporate insolvency resolution process
in respect of XYZ Limited under the Insolvency and Bankruptcy Code,

2016

Madam/Sir,

Mr. ABC, hereby submits this application to initiate a corporate insolvency
resolution process in the case of XYZ Limited. The details for the purpose
of the application are set out below:

46

PRACTICAL ASPECTS OF INSOLVENCY LAW

Part-I

PARTICULARS OF APPLICANT

1. NAME OF OPERATIONAL CREDITOR

Mr. ABC

2. IDENTIFICATION NUMBER OF

NA

OPERATIONAL CREDITOR, (IF ANY)

3. ADDRESS FOR THE

1st Floor, XYZ Apartments

CORRESPONDENCE OF

Delhi-110081

OPERATIONAL CREDITOR

Part II

PARTICULARS OF CORPORATE DEBTOR

1. NAME OF THE CORPORATE DEBTOR

XYZ LIMITED

2. IDENTIFICATION NUMBER OF

V2929GF2001PTC0024152

CORPORATE DEBTOR

3. DATE OF INCORPORATION OF

JANUARY 01, 2001

CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND

NOMINAL SHARE CAPITAL:-

THE PAID UP SHARE CAPITAL OF

Rs. 10,00,000

THE CORPORATE DEBTOR AND/OR

PAID UP SHARE CAPITAL:-

DETAILS OF GUARANTEE CLAUSE

Rs. 10,00,000

AS PER MEMORANDUM OF

ASSOCIATION (AS APPLICABLE)

5. ADDRESS OF THE REGISTERED

4th FLOOR, PMM BUILDING,

OFFICE OF THE CORPORATE

STREET NO.1, DELHI-

DEBTOR

110044

Part-III

PARTICULARS OF THE PROPOSED INTERIM RESOLUTION PROFESSIONAL [IF

PROPOSED]

1. NAME, ADDRESS, E-MAIL

NAME:-Mr. PQR

ADDRESS AND THE REGISTRATION

ADDRESS FOR

NUMBER OF THE PROPOSED

CORRESPONDENCE: -

INSOLVENCY PROFESSIONAL

OFFICE NO. 3, ABC

COMPLEX, DELHI

E-MAIL:-info@abc.com

PRACTICAL ASPECTS OF INSOLVENCY LAW

47

IP REGISTRATION

NUMBER: -IBBI/IPA-004/IP-

09054/2017-18/5151

Part-IV

PARTICULARS OF OPERATIONAL DEBT

1. TOTAL AMOUNT OF DEBT, DETAILS

TOTAL AMOUNT OF DEBT:-

OF TRANSACTIONS ON ACCOUNT

Rs. 1,57,596/-

OF WHICH DEBT FELL DUE AND THE

DETAILS OF

DATE FROM WHICH SUCH DEBT

TRANSACTIONS : The

FELL DUE
amount fell due on account
of unpaid salary for the month
of April 2017, May 2017 and

June, 2017.

DATE ON WHICH SUCH

DEBT FELL DUE:-

1. Rs. 52,532 fell due on

May 01, 2017

2. Rs. 52,532 fell due on

June 01, 2017

3. Rs. 52,532 fell due on

July 01, 2017

2. AMOUNT CLAIMED TO BE IN

TOTAL AMOUNT OF

DEFAULT AND THE DATE ON

DEFAULT:-

WHICH THE DEFAULT OCCURRED

Rs. 1,57,596/-

(ATTACH THE WORKINGS FOR

DATE ON WHICH DEFAULT

COMPUTATION OF AMOUNT AND

OCCURRED

DATES OF DEFAULT IN TABULAR

1. Default in respect of Rs.

FORM)

52,532 occurred on May

07, 2017

2. Default in respect of Rs.

52,532 occurred on

June 07, 2017

3. Default in respect of Rs.

52,532 occurred on July

07, 2017

48

PRACTICAL ASPECTS OF INSOLVENCY LAW

Part-V

PARTICULARS OF OPERATIONAL DEBT [DOCUMENTS, RECORDS AND

EVIDENCE OF DEFAULT]

1. PARTICULARS OF SECURITY HELD,

NA

IF ANY, THE DATE OF ITS CREATION,

ITS ESTIMATED VALUE AS PER

CREDITOR

(ATTACH A COPY OF CERTIFICATE

OF REGISTRATION OF CHARGE

ISSUED BY THE REGISTRAR OF

COMPANIES (IF THE CORPORATE

DEBTOR IS A COMPANY)

2. DETAILS OF RESERVATION/

NA

RETENTION OF TITLE

ARRANGEMENTS (IF ANY) IN

RESPECT OF GOODS TO WHICH THE

OPERATIONAL DEBT REFERS

3. PARTICULARS OF AN ORDER OF A

NA

COURT, TRIBUNAL OR ARBITRAL

PANEL ADJUDICATING ON THE

DEFAULT, IF ANY (ATTACH A COPY

OF THE ORDER)

4. RECORD OF DEFAULT WITH THE

NA

INFORMATION UTILITY, IF ANY

(ATTACH A COPY OF SUCH RECORD)

5. DETAILS OF SUCCESSION

NA

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

“Contract of Employment

OTHER DOCUMENT UNDER WHICH
with XYZ Limited dated

OPERATIONAL DEBT HAS BECOME

January 15, 2001”

DUE

Copy of the said contract has
been enclosed herewith and
marked as exhibit 1

PRACTICAL ASPECTS OF INSOLVENCY LAW

49

7. A STATEMENT OF BANK ACCOUNT

Bank certificate in original has

WHERE DEPOSITS ARE MADE OR
been enclosed herewith and

CREDITS RECEIVED NORMALLY BY
marked as exhibit 2

THE OPERATIONAL CREDITOR IN

RESPECT OF THE DEBT OF THE

CORPORATE DEBTOR

(ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS

1. E-mail dated May 07,

ATTACHED TO THIS APPLICATION IN

2017 from Mr. ABC to Mr.

ORDER TO PROVE THE EXISTENCE

DEF, Chief Financial

OF OPERATIONAL DEBT AND THE

Officer of XYZ Limited.

AMOUNT IN DEFAULT.

2. E-mail dated June 07,

2017 from Mr. ABC to Mr.

DEF, Chief Financial

Officer of XYZ Limited

3. E-mail dated July 07,

2017 from Mr. ABC to Mr.

DEF, Chief Financial

Officer of XYZ Limited

4. Copy
of
financial
statements for the year
ended March 31, 2017,

March 31, 2016 and

March 31, 2015 showing
the mounting losses
having been incurred by
the corporate debtor

5. Reply of Mr. DEF to the
demand notice expressing
their inability to make the
payment

I, ABC, operational creditor hereby certify that, to the best of my knowledge,

Mr. PQR is fully qualified and permitted to act as an insolvency professional
in accordance with the Code and the rules and regulations made thereunder.

ABC has paid the requisite fee of Rs. 2000 for this application through a

Demand Draft issued in favour of “Pay & Accounts Officer, Ministry of

Corporate affairs, New Delhi” on September 12, 2017.

Yours sincerely,

50

PRACTICAL ASPECTS OF INSOLVENCY LAW

Signature of person authorised to act on behalf of the operational creditor

Name in block letters: ABC

Position with or in relation to the operational creditor: Operational Creditor

Address of person signing: 1st Floor, XYZ Apartments, Delhi-110081

Annex. I

FORM 3

[See clause (a) of sub-rule (1) of rule 5]

FORM OF DEMAND NOTICE/ INVOICE DEMANDING PAYMENT UNDER

THE INSOLVENCY AND BANKRUPTCY CODE, 2016

[Under rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

September 01, 2017

To,

XYZ Limited

4th FLOOR, PMM Building,

Street NO.1,

Delhi-110044

From,

Mr. ABC

1st Floor, XYZ Apartments

Delhi-110081

Subject: Demand notice demanding payment of an unpaid operational
debt due from XYZ Limited under the Code.

Madam/Sir,

1. This letter is a demand notice demanding payment of an unpaid
operational debt due from XYZ Limited.

2. Please find particulars of the unpaid operational debt below:

PRACTICAL ASPECTS OF INSOLVENCY LAW

51

PARTICULARS OF OPERATIONAL DEBT

AMOUNT IN DEFAULT.

1. TOTAL AMOUNT OF DEBT,

TOTAL AMOUNT OF DEBT:-

DETAILS OF TRANSACTIONS ON

Rs. 1,57,596/-

ACCOUNT OF WHICH DEBT

DETAILS OF TRANSACTIONS:-

FELL DUE AND THE DATE FROM

The amount fel due on account

WHICH SUCH DEBT FELL DUE
of unpaid salary for the month of

April 2017, May 2017 and June,

2017.

DATE ON WHICH SUCH DEBT

FELL DUE:-

1. Rs. 52,532 fel due on May

01, 2017

2. Rs. 52,532 fell due on June

01, 2017

3. Rs. 52,532 fell due on July

01, 2017

2. AMOUNT CLAIMED TO BE IN

TOTAL AMOUNT OF DEFAULT:-

DEFAULT AND THE DATE ON

Rs. 1,57,596/-

WHICH THE DEFAULT

DATE ON WHICH DEFAULT

OCCURRED

OCCURRED

(ATTACH THE WORKINGS FOR

1. Default in respect of Rs.

COMPUTATION OF AMOUNT AND

52,532 occurred on May 07,

DATES OF DEFAULT IN TABULAR

2017

FORM)

2. Default in respect of Rs.

52,532 occurred on June 07,

2017

3. Default in respect of Rs.

52,532 occurred on July 07,

2017

3. PARTICULARS OF SECURITY

NA

HELD, IF ANY, THE DATE OF ITS

CREATION, ITS ESTIMATED VALUE

AS PER CREDIT OR ATTACH A

COPY OF CERTIFICATE OF

REGISTRATION OF CHARGE

52

PRACTICAL ASPECTS OF INSOLVENCY LAW

ISSUED BY THE REGISTRAR OF

COMPANIES (IF THE CORPORATE

DEBTOR IS A COMPANY)

4. DETAILS OF RETENTION OF TITLE

NA

ARRANGEMENTS (IF ANY) IN

RESPECT OF GOODS TO WHICH

THE OPERATIONAL DEBT REFERS

5. RECORD OF DEFAULT WITH THE

NA

INFORMATION UTILITY, IF ANY

(ATTACH A COPY OF SUCH

RECORD)

6. PROVISION OF LAW, CONTRACT

“Contract of Employment with

OR OTHER DOCUMENT UNDER

XYZ Limited dated January 15,

WHICH OPERATIONAL DEBT

2001”

HAS BECOME DUE

Copy of the said contract has
been enclosed herewith and
marked as exhibit 1

7. LIST OF OTHER DOCUMENTS

1. Copy of e-mail dated May 07,

ATTACHED TO THIS APPLICATION

2017 from Mr. ABC to Mr. DEF,

IN ORDER TO PROVE THE

Chief Financial Officer of

EXISTENCE OF OPERATIONAL

XYZ Limited demanding the

DEBT AND THE AMOUNT IN
unpaid salary for the month

DEFAULT
of April 2017.

2. Copy of e-mail dated June 07,

2017 from Mr. ABC to Mr. DEF,

Chief Financial Officer of

XYZ Limited demanding the
unpaid salary for the month
of April and May 2017

3. Copy of e-mail dated July 07,

2017 from Mr. ABC to Mr. DEF,

Chief Financial Officer of

XYZ Limited demanding the
unpaid salary for the month
of April, May and June

2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

53

4. Copy of financial statements
for the year ended March 31,

2017, March 31, 2016 and

March 31, 2015 showing the
mounting losses having
been incurred by the
company.

3. If you dispute the existence or amount of unpaid operational debt (in
default) please provide the undersigned, within ten days of the receipt
of this letter, of the pendency of the suit or arbitration proceedings in
relation to such dispute filed before the receipt of this letter/notice.

4. If you believe that the debt has been repaid before the receipt of this
letter, please demonstrate such repayment by sending to us, within
ten days of receipt of this letter, the fol owing:

(a) an attested copy of the record of electronic transfer of the unpaid
amount from the bank account of the corporate debtor; or

(b) an attested copy of any record that Mr. ABC has received the
payment.

5. 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 XYZ Limited.

Yours sincerely,

Signature of person authorised to act on behalf of the operational creditor

Name in block letters: ABC

Position with or in relation to the operational creditor: Operational Creditor

Address of person signing: 1st Floor, XYZ Apartments, Delhi-110081

Annexure II (Documents to be attached with the application)

1. Exhibit 1: Copy of contract of Employment with XYZ Limited dated

January 15, 2001

2. Exhibit 2: Copy of e-mail communications

3. Exhibit 3: Copy of financial statements for the year ending March

31, 2017 , March 31, 2016 and March 31, 2015

54

PRACTICAL ASPECTS OF INSOLVENCY LAW

Annexure-III (Certificate from the banker that the operational creditor
has not received any payment towards the operational debt)

Annexure IV (Affidavit in support of the application in accordance with
the Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL,

PRINCIPAL BENCH

IN THE MATTER OF INSOLVENCY AND BANKRUPTCY CODE, 2016

AND

IN THE MATTER OF

Section 9 of the Insolvency and Bankruptcy Code, 2016

AND

IN THE MATTER OF

Mr. ABC

1st Floor, XYZ Apartments

Delhi-110081

........ Applicant

Versus

XYZ Limited

4th FLOOR, PMM Building,

Street NO.1, Delhi-110044

........ Respondent

Company Application No. _______ of 2017

AFFIDAVIT

I, ABC, son of XXXXX, aged 55 years, employee of XYZ Limited, residing at

1st Floor, XYZ Apartments, Delhi-110081, do solemnly affirm and state as
fol ows:-

1. I am an employee of XYZ Limited working in the capacity of Executive

(Purchase); operational creditor in the above matter. XYZ Limited is
the corporate debtor on the 12th day of September of 2017. The
corporate debtor, justly and truly indebted to me in the sum of Rs.

1,57,596/- (Rs. One Lac Fifty Seven Thousand Five Hundred and

Ninety Six Only) which is an operational debt.

PRACTICAL ASPECTS OF INSOLVENCY LAW

55

2. In respect of my claim I have relied on:

a) Contract of Employment according to which I am entitled to a
salary of Rs. 52,532 per month on 1st day of next month.

b) E-mail reminders sent to Chief Financial Officer, Mr. DEF of

XYZ Limited.

c) Form-3 duly acknowledged by the corporate debtor.

d) Certificate from banks along with the bank statements.

3. I have gone through the captioned application and signed the same
after verifying its contents and supporting documents. I submit that
the same are true and correct to my knowledge and I believe them to
be true.

4. I have not received any notice from the corporate debtor disputing
the unpaid operational debt.

5. The said documents are true, valid and genuine to the best of my
knowledge, information and belief.

6. In respect of the said sum or any part thereof, I have not nor has any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever.

Solemnly affirmed at New Delhi on 12th day, the Tuesday of September 2017

ABC

Executive (Purchase)

XYZ Limited

56

PRACTICAL ASPECTS OF INSOLVENCY LAW

Annexure V: Written Communication by proposed Interim Resolution

Professional in Form 2

FORM 2

[See sub-rule (1) of rule 9]

[ Under rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

WRITTEN COMMUNICATION BY PROPOSED INTERIM RESOLUTION

PROFESSIONAL

September 12, 2017

To,

The National Company Law Tribunal

Principal Bench

Block 3, CGO Complex,

Pragati Vihar, New Delhi

Delhi -110014

From,

Mr. PQR

Office No.. 3, ABC Complex, Delhi

In the matter of XYZ Limited

Subject: Written communication in connection with an application to
initiate corporate insolvency resolution process in respect of XYZ

Limited

Madam/Sir,

I, Mr. XXXXXXX, an insolvency professional registered with ICSI Insolvency

Professionals Agency having registration number IBBI/IPA-004/IP-09054/

2017-18/5151 have been proposed as the interim resolution professional by

Mr. ABC in connection with the proposed corporate insolvency resolution
process of XYZ Limited.

In accordance with rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016, I hereby:

(i) agree to accept appointment as the interim resolution professional if
an order admitting the present application is passed;

(i ) state that the registration number al otted to me by the Board is

PRACTICAL ASPECTS OF INSOLVENCY LAW

57

IBBI/IPA-004/IP-09054/2017-18/5151 and that I am currently qualified
to practice as an insolvency professional;

(iii) disclose that I am currently serving as an interim resolution
professional/resolution professional/liquidator in 1 proceeding;

(iv) certify that there are no disciplinary proceedings pending against me
with the Board or ICSI Insolvency Professionals Agency;

(v) affirm that I am eligible to be appointed as a resolution professional
in respect of the corporate debtor in accordance with the provisions
of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate persons) Regulations, 2016;

(vi) make the following disclosures in accordance with the code of conduct
for insolvency professionals as set out in the Insolvency and Bankruptcy

Board of India (Insolvency Professionals) Regulations, 2016.

(Signature of insolvency professional)

ABC

(Name of insolvency professional entity, if applicable)

[Optional certification, if required by the applicant making an application
under these Rules]

I, hereby, certify that the facts averred by the applicant in the present
application are true, accurate and complete and a default has occurred in
respect of the relevant corporate debtor. I have reached this conclusion
based on the fol owing facts and/or opinion:-

[please give details]

(Signature of insolvency professional)

ABC

(Name of insolvency professional entity, if applicable)

Annexure VI: Copy of the demand draft as proof of payment of court
fees

Annexure VII: Affidavit inrespect of the application filed by the operation
creditor

Verifying affidavit in Form No. NCLT-6

Form No. NCLT-6

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL,

PRINCIPAL BENCH

58

PRACTICAL ASPECTS OF INSOLVENCY LAW

IN THE MATTER OF INSOLVENCY AND BANKRUPTCY CODE, 2016

AND

IN THE MATTER OF XYZ LIMITED

OPERATIONAL CREDITOR APPLICATION NO __________ OF 2017

GENERAL AFFIDAVIT VERIFYING PETITION

1. I, ABC, son of XXXXX, aged 55 years, employee of XYZ Limited,
residing at 1st Floor, XYZ Apartments, Delhi-110081, do solemnly affirm
and state as fol ows:

(i) I am an employee of XYZ Limited working in the capacity of

Executive (Purchase);

(iii) I am duly authorised by the XYZ Limited by way of Board
resolution dated ............ to file the present application.

(iii) The statements made in the application filed by the applicant in
the above matter are true to my knowledge and are based on
the information received by me.

VERIFICATION

Verified at New Delhi on September 12, 2017 that the contents of the above
affidavit are true to best of my knowledge and belief and nothing material
has been concealed therefrom.

Place: New Delhi

Date: 12.09.2017

Deponent identified by___________

Signature of identifier ___________

SWORN BEFORE

PRACTICAL ASPECTS OF INSOLVENCY LAW

59

III. APPLICATION BY CORPORATE APPLICANT

Regulatory Framework for Initiating Corporate Insolvency Resolution

Process by Corporate Applicant

Corporate Applicant to File Application to Adjudicating Authority on
behalf of Corporate Debtor

Sub-Section (1) & (2) of Section 10 of the Code read as under:

“10. (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) shal be filed in such form,
containing such particulars and in such manner and accompanied with
such fee as may be prescribed.”

Application to be Accompanied with Requisite Fee and Documents

Sub-Section (3) of Section 10 of the Code provides that the corporate applicant
shal , 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.

Schedule to the Adjudicating Authority Rules provides that an application
by Corporate Debtor to initiate corporate insolvency resolution process shall
be accompanied with a fee of Rs. 25,000/-.

Further Rule 7 of the Adjudicating Authority Rules reads as under:

“(1) A corporate applicant shal make an application for initiating the
corporate insolvency resolution process against a corporate debtor under
section 10 of the Code in Form 6, accompanied with documents and
records required therein and as specified in the Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016.

(2) The applicant under sub-rule(1) shal dispatch forthwith, a copy of the
application filed with the Adjudicating Authority, by registered post or speed
post to the registered office of the corporate debtor.”

Adjudicating Authority to Admit or Reject the Application Within 14

Days of Receipt of Application

60

PRACTICAL ASPECTS OF INSOLVENCY LAW

Sub-Section (4) and (5) of Section 10 of the Code reads as under:

“(4) The Adjudicating Authority shal , 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.

(5) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (4) of his
section.”

PRACTICAL ASPECTS OF INSOLVENCY LAW

61

MODEL APPLICATION FOR INITIATING CORPORATE INSOLVENCY

RESOLUTION PROCESS BY CORPORATE APPLICANT

FORM 6

[ see Sub-rule (1) of rule 7]

APPLICATION BY CORPORATE APPLICANT TO INITIATE CORPORATE

INSOLVENCY RESOLUTION PROCESS UNDER THE CODE

[ Under Rule 7 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

14.06.2017

To,

The National Company Law Tribunal

6TH Floor, Fountain Telecom,

Building 1, Mahatma Gandhi Road,

Fort, Mumbai, Maharashtra 400001

From,

M/s ABC Pvt. Ltd., House No. ..., Building ....... 7th floor, Ashok Nagar,

Mumbai, Maharashtra.

IN THE MATTER OF M/s ABC PVT. LTD.

Subject: Application to initiate corporate insolvency resolution process in
respect of M/s ABC Pvt. Ltd.

Madam/Sir,

We, hereby submit this application to initiate a corporate insolvency resolution
process in respect of ABC Pvt. Ltd. The details for the purpose of this
application are set out below:

PART-I

PARTICULARS OF THE CORPORATE APPLICANT

1.

NAME, ADDRESS, EMAIL

M/s ABC Pvt. Ltd.

ADDRESS, IDENTIFICATION

Uxxxxxxxxxx220122

Ltd.

House no. – –, Building – – –

7th floor, Ashok Nagar,

Mumbai, Maharashtra.

2. NAME ADDRESS, EMAIL

M/s ABC Pvt. Ltd.

ADDRESS, IDENTIFICATION

Uxxxxxxxxxx220122

NUMBER AND ADDRESS OF

House no. – –, Building – – –

62

PRACTICAL ASPECTS OF INSOLVENCY LAW

THE REGISTERED OFFICE OF

7th floor, Ashok Nagar,

CORPORATE DEBTOR.

Mumbai, Maharashtra.

3. NAMES AND ADDRESSES OF

1. Mr. A, House no. – –,

ALL DIRECTORS, PROMOTERS,

Building – – –7th floor,

DESIGNATED PARTNERS OF

Ashok Nagar, Mumbai,

THE CORPORATE DEBTOR.

Maharashtra.

2. Mr. B, House no. – –,

Building – – –7th floor,

Ashok Nagar, Mumbai,

Maharashtra.

4.

DATE OF INCORPORATION OF

05.02.2xxx

CORPORATE DEBTOR.

5. NOMINAL SHARE CAPITAL AND

Authorised Capital- Rs. 2.00

THE PAID-UP SHARE CAPITAL
crores

OF THE CORPORATE DEBTOR

Paid up Capital- Rs. 10.00

AND/OR DETAILS OF

Lacs

GUARANTEE CLAUSE AS PER

MEMORANDUM OF

ASSOCIATION.

6. NAME, ADDRESS AND AUTHORITY

Mr. A, House no. – –, Building

OF PERSON SUBMITTING

– – –7th floor, Ashok Nagar,

APPLICATION ON BEHALF OF

Mumbai, Maharashtra.

CORPORATE APPLICANT.

7. NAME AND ADDRESS OF PERSON Same as above.

RESIDENT IN INDIA AUTHORISED

TO ACCEPT THE SERVICE OF

PROCESS ON ITS BEHALF

8. DOCUMENTATION TO SHOW THAT

Annexed

THE CORPORATE APPLICANT IS

AUTHORISED TO INITIATE THE

CORPORATE INSOLVENCY

RESOLUTION PROCESS

PRACTICAL ASPECTS OF INSOLVENCY LAW

63

PART-II

PARTICULARS OF PROPOSED INTERIM

RESOLUTION PROFESSIONAL

1.

NAME, ADDRESS, EMAIL

Mr. P

ADDRESS AND THE
p@gmail.com

REGISTRATION NUMBER OF

IBBI/IPA-XX/Nxxx/2016-17/

THE PROPOSED INTERIM

100xx

RESOLUTION PROFESSIONAL

PART-III

PARTICULARS OF FINANCIAL / OPERATIONAL DEBT

1.

NAME OF FINANCIAL /

Bank of Maharashtra, Lower

OPERATIONAL CREDITOR

Parel Branch, Mumbai

Bank of India, Thane, Mumbai

2.

ADDRESS OF CORRESPONDENCE 1. 80, Solatire, SV Road,

OF THE FINANCIAL /

Lower Parel Mumbai.

OPERATIONAL CREDITOR

2. 26, Thane west, Mumbai.

3.

TOTAL DEBT RAISED AND

Rs. 15,85,60,000

AMOUNT IN DEFAULT

4.

DATE WHEN THE FINANCIAL /

01.04.2008

OPERATIONAL DEBT WAS

INCURRED

5.

PARTICULARS OF SECURITY HELD, 1. 501, Building- 12B, 1st

IF ANY, THE DATE OF ITS CREATION,

Floor, SV Road, Thane,

ITS ESTIMATED VALUE AS PER THE

Maharashtra, 421302.

CREDITOR. ATTACH A COPY OF A

Equitable Mortgage

CERTIFICATE OF REGISTRATION
created vide Deed of

OF CHARGE ISSUED BY THE

Mortgage dated

REGISTRAR OF COMPANIES

01.04.2009,

Estimated value Rs.

30,25,000.

2. 101, Building- 25B, 1st

Floor, SV Road, Thane,

Maharashtra, 421302.

Equitable Mortgage created
vide Deed of Mortgage
dated 01.06.2009,

Estimated Value Rs.

25,50,000.

64

PRACTICAL ASPECTS OF INSOLVENCY LAW

3. S.No. 22/11, Village Churu,

Taluka Balesar.

Equitable Mortgage created
vide Deed of Mortgage
dated 01.04.2010,

Estimated value

Rs. 2,55,00,000

6.

DETAILS OF RETENTION OF

N.A.

TITLE ARRANGEMENTS (IF ANY)

IN RESPECT OF GOODS TO WHICH

THE OPERATIONAL DEBT REFERS

7.

RECORD OF DEFAULT WITH THE

INFORMATION UTILITY

8.

LIST OF DOCUMENTS ATTACHED

Demand Notice by Bank of

TO THIS APPLICATION IN ORDER

India

TO PROVE THE EXISTENCE OF

FINANCIAL / OPERATIONAL DEBT

AND THE AMOUNT IN DEFAULT

I, certify that, to the best of my knowledge, Mr. P is ful y qualified and
permitted to act as an insolvency professional in accordance with the Code
and the associated rules and regulations.

Mr. A on behalf of M/s ABC Pvt. Ltd. has paid the requisite fee for this
application through demand draft on date.

Sincerely

(Signature)

Mr. A

Director of ABC Pvt. Ltd.

Mr. A, House no. – –, Building – – –7th floor,

Ashok Nagar, Mumbai, Maharashtra.

ANNEXURE I: DEMAND NOTICE BY BANK OF INDIA BY REGISTERED

POST A.D.

To

1. M/s ABC Pvt. Ltd.

2. Mr. A

3. Mr. B

PRACTICAL ASPECTS OF INSOLVENCY LAW

65

4. Mr. C

Al having Address at:

House no. xx, Building xxx, 7th floor, Ashok Nagar, Mumbai, Maharashtra.

And also at:

House no. xx, Building xxx, 7th floor, Ashok Nagar, Mumbai, Maharashtra.

And also at:

House no. xx, Building xxx, 7th floor, Ashok Nagar, Mumbai, Maharashtra.

Dear Sir/Madam

Subject: Legal Notice for recall of outstanding dues Under credit facilities
granted to you by Bank of India, Malad (west) Branch, Mumbai 4000xx.

Under instructions from my Clients, bank of India, having address at xx, SV

Road, Malad (West). I have to address you as under:

1. This Notice is served upon You No.1 in your capacity as the principal
borrowers of my Clients and as such liable to repay the dues to my

Clients, under the various credit facilities granted to you No. 1.

2. This Notice is served upon You No. 2, 3, & 4 in you capacity as

Guarantors, having personally guaranteed the repayment of al the
debts and liabilities of You No. 1 to my Clients.

3. The liability of You No. 2, 3 and 4 is co-extensive with that of You No. 1
and is joint and several along with You No. 1 and You No. 2, 3 & 4 are
jointly and severally liable to repay the entire outstanding dues of my

Client.

4. That on your request, on or about July, 2xx5, my clients sanctioned
to You No. 1 the various credit facilities which were lastly reviewed on
xx.xx.xxxx on the terms and conditions incorporated in bank’s sanction

Letter No. xxxxxxxxxx dated xx/xx/xxxx.

5. That the above credit facilities are secured inter alia by the charge
created by you on your assets as under:

i) Hypothecation of Stocks and Book debts belonging to you No. 1
i ) Hypothecation of al Plant & Machinery belonging to you No. 1
i i) Pledge on term deposits of present value NIL.

iv) Pledge of recurring deposits (monthly deposit of Rs. *****) present
value is Rs. *******

66

PRACTICAL ASPECTS OF INSOLVENCY LAW
v) Equitable Mortgage over the fol owing properties:

a) On Land & Building on S. No. xx/xx at village xxxx
admeasuring xx sq. fts. in the name of Mr. A (Guarantor)

b) On Flat No. xx/xx, A Wing, Building xx, admeasuring xx
sq. ft. In the name of Mr. B (Guarantor)

6. To secure the above facilities You Nos. 1, 2, 3 & 4 have executed the
required documents in favour of my clients from time to time. You No.

2, 3 & 4 have executed valid and subsisting Deed of Guarantee in
favour of my Clients guaranteeing due repayments of the dues and
the liabilities of You No. 1 to my Client.

7. My Clients state that as you failed to honour the commitment of
repayment of dues as per the terms of sanction, your account has
been classified as Non-Performing Asset in books of my Client with
effect from xx/xx/xxxx

8. My clients state that as on xx/xxx/xxxx a sum of Rs. xx,xx,xxx is
due and payable by you to my Clients in respect of the said Cash

Credit Facility plus further interest on the above outstanding dues at
contractual rate, presently @ xx.xx% p.a. plus penal interest at x%
p.a. with monthly rests w.e.f xx/xx/xxxx with monthly rests.

9. Under the aforesaid circumstances as instructed by my Clients, I do
hereby call upon You No. 1 your capacity as the principal borrowers
and You Nos. 2, 3 & 4 as the guarantors to the said credit facilities,
whose valid and subsisting guarantees are here by invoked, to pay
to my Clients the outstanding amount of Rs. xx,xx,xxxx which is due
and payable by you to my Clients in respect of the said cash credit
facility plus further interest on the above outstanding dues on
contractual rate, presently @ xx.xx% p.a. plus penal interest @ x.xx%
p.a. with monthly rest w.e.f. xx/xx/xxxx with monthly rests within 7
days of the receipt of this Notice, failing which my Clients wil be
constrained to take such legal action and proceedings against each
of you, as my Clients may be advised, including proceeding for
recovery, injunction, attachment, seizure and sale of your assets,
encumbered or otherwise, as to the cost and consequences thereof,
which you may please note.

Yours Faithfully

(Advocate Mr. P)

Advocates for Bank of India

PRACTICAL ASPECTS OF INSOLVENCY LAW

67

ANNEXURE II: No operational Debt

ANNEXURE III: WRITTEN COMMUNICATION DATED **/**/**** BY

PROPOSED INTERIM RESOLUTION PROFESSIONAL

FORM 2

[See sub-rule (1) of rule 9]

[ Under rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

WRITTEN COMMUNICATION BY PROPOSED INTERIM RESOLUTION

PROFESSIONAL

Dated: xx/xx/xxxx

To

The National Company Law Tribunal

6TH Floor, Fountain Telecom,

Building 1, Mahatma Gandhi Road,

Fort, Mumbai, Maharashtra 400001.

From,

Mr. P

Office No. xx, ABC Complex,

Mumbai, 400002

In the matter of M/s ABC Pvt. Ltd.

Subject : Written communication in connection with an application to
initiate corporate insolvency resolution process in respect of M/s ABC

Pvt. Ltd.

Madam/Sir,

I, Mr. P, an insolvency professional registered with ICSI Insolvency

Professionals Agency having registration number IBBI/IPA-00x/IP-0xxxx/

2017-18/xxxx have been proposed as the interim resolution professional by

Mr. A in connection with the proposed corporate insolvency resolution process
of M/s ABC Pvt. Ltd.

In accordance with rule 9 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016, I hereby:

68

PRACTICAL ASPECTS OF INSOLVENCY LAW

(i) agree to accept appointment as the interim resolution professional if
an order admitting the present application is passed;

(i ) state that the registration number al otted to me by the Board is

IBBI/IPA-xxx/IP-xxxxx/2017-18/xxxx and that I am currently qualified
to practice as an insolvency professional;

(iii) disclose that I am currently serving as an interim resolution
professional/resolution professional/liquidator in 1 proceeding;

(iv) certify that there are no disciplinary proceedings pending against me
with the Board or ICSI Insolvency Professionals Agency;

(v) affirm that I am eligible to be appointed as a resolution professional
in respect of the corporate debtor in accordance with the provisions
of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate persons) Regulations, 2016 ;

(vi) make the following disclosures in accordance with the code of conduct
for insolvency professionals as set out in the Insolvency and Bankruptcy

Board of India (Insolvency Professionals) Regulations, 2016.

(Signature of insolvency professional)

MR. P

(Name of insolvency professional entity, if applicable)

[Optional certification, if required by the applicant making an application
under these Rules]

I, hereby, certify that the facts averred by the applicant in the present
application are true, accurate and complete and a default has occurred in
respect of the relevant corporate debtor. I have reached this conclusion
based on the fol owing facts and/or opinion:-

[please give details]

(Signature of insolvency professional)

PQR

(Name of insolvency professional entity, if applicable)

Copy of the relevant books of account of the corporate debtor
evidencing the defualt to creditor

ANNEXURE V: Audited financial statements for the last two financial
years and provisional financial statements for the current financial year
is attached

PRACTICAL ASPECTS OF INSOLVENCY LAW

69

Annexure VI:

(a) List of Assets and Liabilities of Corporate Applicant is attached

(b) The details of the property on which charge was created is detailed
below

(c) List of financial Creditors of the Corporate Applicant is mentioned below

Annexure VII: Certified Copy of the Resolution of the Board of Directors
authorizing Mr. A, Director, to initiate Corporate Insolvency Resolution

Process against the company and to take further actions necessary to
effect the same.

[ON LETTER HEAD OF THE CORPORATE APPLICANT]

CERTIFIED TRUE COPY OF THE RESOLUTIONS PASSED BY THE

GOVERNING BOARD OF XYZ LIMITED IN THEIR 10TH MEETING HELD

ON FRIDAY, THE 30TH JUNE, 2017 AT ITS REGISTERED OFFICE

Ref No. 25

Dated 10.06.2017

Resolved that during the board meeting of XYZ Limited held on 10th June,

2017, it has been decided that the company shal approach the National

Company Law Tribunal for initiating corporate insolvency resolution process
against itself under the Insolvency and Bankruptcy Code, 2016.

In pursuance thereof, Mr. ABC, in his capacity as the Director is being
authorized to file an affidavit under the law before the National Company

Law Tribunal.

Mr. ABC is duly authorized to swear on the Affidavit supporting the application
that is to be submitted before the National Company Law Tribunal.

(stamp of XYZ Limited)

Sd/-

Director

(ABC)

ANNEXURE VIII: AFFIDAVIT OF THE AUTHORISED PERSON OF THE

CORPORATE DEBTOR

IN THE NATIONAL COMPANY LAW TRIBUNAL

APPLICATION No. XX/XXX OF 2017

IN THE MATTER OF

M/s ABC Pvt. Ltd.

70

PRACTICAL ASPECTS OF INSOLVENCY LAW

AFFIDAVIT IN SUPPORT OF APPLICATION UNDER SECTION 10 OF

INSOLVENCY AND BANKRUPTCY CODE, 2016.

I, Mr. A, Director of ABC Pvt. Ltd. having my office at (insert complete
address) do hereby solemnly affirm and states as under:

1. I say that I am working as director and being well conversant with the
facts of the Application and also duly authorized by the Board
resolution dated xx/xx/xxxx, I am competent to make this Affidavit
for the Applicant mentioned above.

2. I state that I have gone through the Application No. ** of 2017 and all
the documents attached with the same. I have also perused the
records, files and documents pertaining to the above matter available
in my office and on the information derived there form, I am making
this affidavit to support the initiation of corporate insolvency resolution
by this corporate applicant.

3. It is stated on solemn affirmation that in the knowledge of the
corporate Applicant:

(a) There is no circumstances which would give rise to possibility
of any offence being committed by the Corporate Applicant or
any officer of the Corporate Applicant under section 68, 71, 77
of the Insolvency and Bankruptcy Code, 2016.

(b) Further it is stated that no order section 44 or section 51 of the

Insolvency and Bankruptcy Code, 2016 has been made by the
adjudicating authority against the Corporate Applicant.

4. It is further stated that on solemn affirmation that the corporate
applicant is ful y competent to file this application under section 10
of the Insolvency and Bankruptcy Code, 2016 and in no manner
whatsoever is disentitled under section 11 of the Insolvency and

Bankruptcy Code, 2016.

5. In the circumstances it is prayed that the Application be allowed.

Mr. A

(Deponent)

Mr. X

Advocate for the Corporate Applicant.

PRACTICAL ASPECTS OF INSOLVENCY LAW

71

CHAPTER V

CHECKLIST FOR SCRUTINY OF PETITION/

APPEAL/REPLY

No. 25/2/2016-NCLT

Government of India

National Company

Reference NCLT Rules, 2016 notified on 21st July, 2016 by the Ministry of

Corporate Affairs.

2. A uniform check list for scrutiny of the petition/application/appeal to be
filed before al Benches of the National Company Law Tribunal as per the

NCLT Rules, 2016 is attached (Annexure ‘A’) for necessary action.

ANNEXURE ‘A’

(Order No. 25/2/2016-NCLT dated 28th July, 2016)

National Company Law Tribunal New Delhi

Diary No....

Check List for Scrutiny of Petition, Application, Appeal/Reply

Sl. To be Ascertained

Yes/No

Reference

No.

Page No.

1. Whether the petition/application appeal falls
under the territorial jurisdiction of New Delhi

Bench of NCLT?

2. Whether petition/application/appeal/reply)-
and all enclosures are legible and in English
language?

3. Whether petition/application/appeal/reply
has been printed in double spacing on one
side of standard petition paper with an inner
margin of about four centimetre width on
top and with a right margin of 2.5 cm. left
margin of 5 cm and duly pagenated, indexed
and stitched together in paper book form?

71

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PRACTICAL ASPECTS OF INSOLVENCY LAW

4. Whether the relevant provisions of the

Companies Act, 2013/NCLT Rules, 2016
have been clearly mentioned in the petition/
application/appeal?

5. Whether petitioner/applicant/appel ant is
entitled to and have the requisite
qualification to file the petition, e.g. , under
sections 241 and 242 of the Companies

Act, 2013 in accordance with section 244
of the Act & attached documentary proof
of entitlement?

6. Whether the petition/application/appeal/
reply has been signed at the foot of each
page by all the petitioners/applicants/
appel ants/respondents and their name(s)

has also been mentioned?

7. Whether name of the petitioner/applicant
appel ant/respondent, complete address,
viz. , the name of the road street lane and
municipal division or ward, municipal door
and other number of the house; the name
of the town or village ; the post office, postal
district and PIN Code has been mentioned
in the petition/application/appeal reply?

8. Whether fax number, mobile number, valid
email address of the petitioner/applicant/
appel ant/respondent have been mentioned?

9. Whether in every interlineations, eraser
or correction or deletion in petition/
application/ appeal/ document/ reply has
been initiated by the party or his
authorised representative?

10. Whether affidavits (Form NCLT-6) verifying
the petition/application/appeal/reply from all
the petitioner/applicant/appel ant/respondent
drawn on non-judicial/stamp paper of

PRACTICAL ASPECTS OF INSOLVENCY LAW

73
requisite value duly attested by Notary

Public/Oath Commissioner have been
filed?

11. Whether full name, parentage, age,
description of each part, date, address and
in case a party sues or being sued in a
representative character, has been set out
in accordance to rule 20(5) of NCLT Rules,

2016?

12. Whether petition /application/appeal reply
has been drawn in prescribed form as per

Annexure ‘A’ of NCLT, Rules, 2016 with
stipulated fee given in the Schedule of
these rules’? The fee is to be paid by way
of demand draft/IPO drawn in favour of “The

Pay & Accounts Officer, Ministry of

Corporate Affairs, New Delhi”.

13. Whether documents accompanied to
petition/application/appeal reply have been
duly certified by the authorised
representative or advocate filing the petition
or application or appeal?

14. Whether the accompanied documents to the
petition/application/appeal/reply has been
verified from the originals and are in line with
the provisions of rule 23 NCLT, Rules, 2016?

The original should be brought before the

Deputy Registrar for verification?

15. Whether petition application/appeal/reply
has been filed in three authenticated copies
and delivered to the opposite party?

16. Whether all relevant enclosures to the
petition/application/appeal/reply have been
attached as per the Annexure ‘B’ of NCLT

Rules, 2016?

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PRACTICAL ASPECTS OF INSOLVENCY LAW

17. Whether Annexures to the petition/
application/appeal/reply has been
numbered serial y?

18. Whether Vakalatnama (with enrolment No.)

filed, is bearing court fee stamp of Rs. 2.75
and in accordance with the Circular No.13/

Rules DHC/ dated 26th October, 2009
issued by the Registrar General, Delhi High

Court?

19. Whether documents with regard to
shareholding/paid-up capital/balance sheet
of the petitioner/applicant/appel ant have
been attached?

20. Whether notice to be given to the Central

Government along with copy of petition/
application/appeal under the relevant
provisions of the Companies Act, 2013?

21. Whether proof of service of the petition/
application/appeal/ reply on the concerned

Registrar of Companies and Regional

Director, Ministry of Corporate Affairs has
been filed?

22. Whether proof of service of the petition/
application/appeal/reply on all the
respondents as well as caveat or(s), if any
has been filed?

23. Whether brief of synopsis within two or
three pages has been filed?

24. Whether date of events within two or three
pages has been filed?

PRACTICAL ASPECTS OF INSOLVENCY LAW

75

DRESS CODE FOR NCLT

File 25/2/2016-NCLT dated 2nd August 2016, issued by NCLT

In exercise of the powers conferred on Tribunal by rule 51 of National Company

Law Tribunal Rules, 2016. It has been decided to issue following dress code
for President, Members, Authorized Representatives and for the parties in
person to be followed during the proceeding of the Tribunal.

( i) For President and Member : The dress of the President and Members
shal be white or striped or black trouser with black coat over white
shirt and band or buttoned- up black coat and band. In the case of a
female President or Member, the dress shal be black coat over a
white saree.

( ii) For Authorised Representatives : Every authorized Representative
as provided in section 432 of the Act shal appear before the Tribunal
in his-her professional dress if any, and if there is no such dress, a
male in a suit buttoned-up coat over a trouser or national dress that
is a long buttoned-up coat and a female in a coat over white or any
other sober coloured saree or in any other sober and decent dress.

( iii) For Parties in Person : Parties appearing in person before the Tribunal
shal be properly dressed.

2. The dress code shal be followed with immediate effect.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

CHAPTER VI

LOCATION AND POSTAL ADDRESS OF NCLT AND ITS

BENCHES AND NCLAT

No. A-45011/14/2016-Ad IV

Government of India

Ministry of Corporate Affairs

The National Company Law Tribunal (NCLT) and National Company Law

Appellate Tribunal (NCLAT) have been constituted w.e.f. 1st June, 2016. The
location and postal address of NCLT/NCLAT Benches are as under

SI.

Title of the Bench

Location and Postal Address

No.

1.

National Company Law

“B” Wing, 3rd Floor, Paryavaran

Appellate Tribunal New

Bhawan, CGO Complex, Lodhi Road,

Delhi.

New Delhi-110003

SI.

Title of the Bench

Location and Postal Address

No.

(1)

(2)

(3)

1.

(a) National Company Law Block No.3, GF, 5th, 6th 7th & 8th Floors,

Tribunal, Principal Bench.

CGO Complex, Lodhi Road, New Delhi

(b) National Company Law 110003

Tribunal, New Delhi Bench.

2.

National Company Law

Anand House, Ground, 1st and 2nd

Tribunal, Ahmedabad

Floors, SG Highway, Thaltej, Ahmedabad

Bench.

380054

3.

National Company Law

9th Floor, Sangam Place, Civil Lines,

Tribunal, Al ahabad Bench. Allahabad - 211001

4.

National Company Law

Corporate Bhawan, 12th Floor, Raheja

Tribunal, Bengaluru Bench. Towers, M G Road, Bengaluru - 560001

5.

National Company Law

Ground Floor, Corporate Bhawan, Sector

Tribunal, Chandigarh

- 27-B, Madhya Marg, Chandigarh -

Bench

160019.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

77

6.

National Company Law

Corporate Bhawan (UTI Building), 3rd

Tribunal, Chennai Bench.

Floor, No. 29 Rajaji Salai, Chennai -

600001

7.

National Company Law

4th Floor, Prithvi Planet, Behind Hanuman

Tribunal, Guwahati Bench. Mandir, G S Road, Guwahati - 781007.

8.

National Company Law

Corporate Bhawan, Bandlaguda,

Tribunal, Hyderabad Bench Lattiannaram Village, Hayatnagar

Mandal, Rangareddy District, Hyderabad

500068

9.

National Company Law

5, Esplanade Row (West), Town Hall

Tribunal, Kolkata Bench

Ground and First Floor, Kolkata - 700001.

10.

National Company Law

6th Floor, Fountain Telecom Building

Tribunal, Mumbai Bench

No.1, Near Central Telegraph, M G Road,

Mumbai - 400001

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PRACTICAL ASPECTS OF INSOLVENCY LAW

CHAPTER VII

ROLE OF INTERIM RESOLUTION

PROFESSIONAL

The IRP has a very important role under the Insolvency and Bankruptcy

Code. The role of an IRP commences from the day he/she is appointed as
such by an order of the Adjudicating Authority. During his tenure, the IRP has
to deal with tasks of great responsibility and that has the potential to impact
the entire Corporate Insolvency Resolution Process.

The IRP has been empowered to manage the affairs of corporate debtor
and is required to take control of the assets of the corporate debtor. Code
casts a duty on IRP to ensure that during corporate insolvency resolution
process corporate debtor, every endeavour is made to protect and preserve
the value of property of corporate debtor and manage the operations of
corporate debtor as a going concern. Code provides that during the corporate
insolvency resolution process powers of the Board of Directors of corporate
debtor shal stand suspended and be exercised by IRP. In this regard, it is
pertinent to note that only powers of the Board are suspended and not their
duties. As regards conducting the process of corporte insolvency resolution
process, the IRP shall make a public announcement pertaining to his
appointment and invites creditors for submission of proof of claims. On
receipt of claims from various creditors, he is also entrusted with the task
of verification of the claims, on the basis of which, he prepares the list of
creditors. Once the list of creditors is prepared, the IRP shal constitute
the Committee of Creditors (“Committee”) and file a report in this behalf
with the Adjudicating Authority. Subsequently, the first meeting of the

Committee is to be convened.

With the conclusion of the first meeting of the Committee, the role of the

IRP also comes to an end. At the first meeting of the Committee, the
role of the IRP comes to an end either by change of his role into a
resolution professional, subject to approval of his appointment by a
majority of seventy five percent of the voting share of the financial
creditors in the Committee or by termination of his role as an IRP and
appointment of another resolution professional, where his appointment
is not approved by the Committee.

The role of an IRP under the Code read with Rules and Regulations made
thereunder is as follows:

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PRACTICAL ASPECTS OF INSOLVENCY LAW

79

I. PUBLIC ANNOUNCEMENT AND REGULATORY INTIMATIONS

One of the key aspects of the Corporate Insolvency Resolution Process

(‘CIRP’) under the Code is the provision relating to Public Announcement
contained in Section 13 and Section 15 of the Code and in Chapter III of the

CIRP Regulations.

Action to be taken by IRP on initiation of CIRP

Section 13(1) of the Code lists the actions that the Adjudicating Authority
i.e. the NCLT shal take once an application for initiating the CIRP has been
initiated. The Adjudicating Authority shall:

(a) declare a moratorium in accordance with Section 14 of the Code;

(b) cause a public announcement of the initiation of the CIRP with respect
to the corporate debtor to be made and cal for claims in the manner
laid down in Section 15 of the Code; and

(c) appoint the interim resolution professional for the corporate debtor in
accordance with Section 16 of the Code.

Section 13(2) of the Code mandates that the public announcement shal be
made “immediately” after the appointment of the interim resolution
professional. The term “immediately” has been explained under Chapter III,

Regulation 6 of the CIRP Regulations whereby “immediately” means not
later than three days from the date of appointment of the interim resolution
professional.

Information to be contained in a Public Announcement

Section 15 of the Code lists the particulars that a public announcement of
the CIRP for the corporate debtor shal contain. In particular, the public
announcement shall include information relevant to the creditors such as
the last date for the submission of claims and details of the interim resolution
professional responsible for receiving claims. The details of the information
to be contained in the Public Announcement referred to in Section 13 of the

Code are elaborated herein below:

(a) name and address of the corporate debtor under the CIRP;

(b) name of the authority with which the corporate debtor is incorporated
or registered;

(c) the last date for submission of claims;

(d) details of the interim resolution professional who shal be vested
with the management of the corporate debtor and be responsible for
receiving the claims;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(e) penalties for false or misleading claims; and

(f) the date* on which the CIRP shal close.

*the date on which the CIRP shal close shal be the 180th day from the
date of the admission of the application u/s 7, 9 or 10 of the Code, as the
case may be.

Time limit of making Public Announcement by IRP

Regulation 6 of the CIRP Regulations stipulates that public announcement
by an IRP pertaining to his/her appointment shal be made within three (3)

days of such appointment.

Modes for making Public Announcement

Regulation 6 of the CIRP Regulationss provides that Public Announcement
shal be made:

(i) in one English newspaper and one regional language newspaper with
wide circulation at the location of the registered office and principal
office, if any, of the corporate debtor and any other location where in
the opinion of the interim resolution professional, the corporate debtor
conducts material business operations;

(i ) on the website, if any, of the corporate debtor; and

(iii) on the website, if any, designated by Insolvency and Bankruptcy

Board of India for the purpose.

IBBI has, vide circular dated 23.02.2018, prescribed www.ibbi.gov.in as the
designated website for publishing forms on the designated website. As per
the circular, the IRP, RP or the liquidator, as the case may be, shal send
the forms to the Board for publishing the same on the designated website,
namely, www.ibbi.gov.in in the manner specified. For example, for making
public announcement the pdf format of same shal be sent by mail to the

Board at public.ann@ibbi.gov.in

The Public Announcement shal invite creditors for submission of proof of
claims and give them fourteen (14) days to submit the same from the date
of appointment of the interim resolution professional.

IBBI Circular relating to use of Registration Number and Registered

Address by Insolvency Professional in all his communications
including Public Announcement

Pursuant to the IBBI Circular dated 3rd January, 2018, every insolvency

PRACTICAL ASPECTS OF INSOLVENCY LAW

81
professional is under obligation to use the addressees and emails registered
with the IBBI. The circular provides that in all their communications whether
by way of public announcement or otherwise to a stakeholder or to an
authority, an insolvency professional shal prominently state: (i) his name,
address and email, as registered with the IBBI, (i ) his Registration Number
as an insolvency professional granted by the IBBI, and (iii) the capacity in
which he is communicating (Example: As Interim Resolution Professional
of XYZ Limited, As Resolution Professional of ABC Limited, etc.).

Expenses of Public Announcement

The expenses of the public announcement shal be borne by applicant and
the same may be reimbursed by the Committee of creditors to the extent it
ratifies them. It is pertinent to mention that the expenses of the public
announcement shal not form part of the insolvency resolution process costs.

Format of Public Announcement

The public announcement shall be made in the manner specified in Form A
of the Schedule to the CIRP Regulations. The prescribed format is enclosed
as Annexure VII.1.

Intimation of initiation of CIRP and appointment of IRP to concerned
authorities

The Interim Resolution Professional may intimate to al the concerned
authorities such as banks dealing with the corporate debtor; stock exchange,
if any; registrar of companies; depositories of securities; etc., that the CIRP
has been initiated against a corporate person and an IRP has been appointed.

The sample format of such intimation for reference is enclosed as Annexure

VII.2.

II. CLAIMS AND CONSTITUTION OF COMMITTEE OF CREDITORS

After Public Announcement by IRP inviting claim fol owing steps are taken
by IRP.

1. Col ation of Claims

2. Verification of Claims

3. Preparation of List of Creditors

4. Constitution of Creditors Committee

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PRACTICAL ASPECTS OF INSOLVENCY LAW

5. Cal ing of first Meeting of Creditors Committee

6. Appointment of two Registered Valuers

In the aforesaid context, CIRP Regulations prescribe for:-

1. Manner of submission of claims

2. Classification of Claims

3. Proof of Claims

4. Last Date for submission of claims

5. Reporting requirements of Interim Resolution Professionals with
respect to verification of claims

For the purposes of col ation, verfication of claims, etc., following definitions
may be noted.

The definition of term ‘Claim’

As per section 3(6) of the Code, “claim” means –

(a) a right to payment, whether or not such right is reduced to judgment,
fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time
being in force, if such breach gives rise to a right to payment, whether
or not such right is reduced to judgment, fixed, matured, unmatured,
disputed, undisputed, secured or unsecured.

The definition of the term ‘Financial Creditor’

As per section 5(7) of the Code, “financial creditor” means any person to
whom a financial debt is owed and includes a person to whom such debt
has been legal y assigned or transferred to;

The definition of the term ‘Operational Creditor’

As per section 5(20) of the Code “operational creditor” means a person to
whom an operational debt is owed and includes any person to whom such
debt has been legally assigned or transferred.

The definition of the term ‘Workman’

As per section 3(36) of the Code ‘workman’ shall have the same meaning as
assigned to it in clause(s) of section 2 of the Industrial Disputes Act, 1947

(14 of 1947).

PRACTICAL ASPECTS OF INSOLVENCY LAW

83

The definition of the term ‘Financial Debt’

As per section 5(8) of the Code “financial debt” means a debt along with
interest, if any, which is disbursed against the consideration for the time
value of money and includes –

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility
or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue
of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase
contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as
may be prescribed;

(e) receivables sold or discounted other than any receivables sold on
nonrecourse basis;

(f) any amount raised under any other transaction, including any forward
sale or purchase agreement, having the commercial effect of a
borrowing;

(g) any derivative transaction entered into in connection with protection
against or benefit from fluctuation in any rate or price and for
calculating the value of any derivative transaction, only the market
value of such transaction shal be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, documentary letter of credit or any other instrument issued by
a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause;

The definition of the term ‘Operational Debt’

As per section 5(21) of the Code “operational debt” means a claim in respect
of the provision of goods or services including employment or a debt in
respect of the repayment of dues arising under any law for the time being in
force and payable to the Central Government, any State Government or
any local authority.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Proof of Claims

(Chapter IV of CIRP Regulations)

Proof of Claims

Claims by Financial

Claims by Operational

Claims by workmen

Creditors

Creditors (other than
and employees
workmen and
employees)

Claims by Operational Creditors

(i) Mode and manner of submission of proof of claims

Regulation 7(1) of CIRP Regulations states that a person claiming to be an
operational creditor, other than workman or employee of the corporate debtor,
shal submit proof of claim to the interim resolution professional in person,
by post or by electronic means in Form B of the Schedule.

Format Enclosed as Annexure VII.3

(i ) All supplementary documents in support of claims to be submitted before
constitution of Committee of Creditors

Person claiming to be an operational creditor may submit supplementary
documents or clarifications in support of the claim before the constitution of
the committee.

(i i) Basis of proof of claims

As per Regulation 7(2) of the CIRP Regulations, the existence of debt due
to the operational creditor under this Regulation may be proved on the basis
of –

(a) the records available with an information utility, if any; or

(b) other relevant documents, including –

(i) a contract for the supply of goods and services with corporate
debtor;

PRACTICAL ASPECTS OF INSOLVENCY LAW

85

(ii) an invoice demanding payment for the goods and services
supplied to the corporate debtor;

(iii) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any; or

(iv) financial accounts.

Claims by Financial Creditors

(i) Mode and manner of submission of proof of claims

As per Regulation 8(1) of CIRP Regulations person claiming to be a financial
creditor of the corporate debtor shal submit proof of claim to the interim
resolution professional in electronic form in Form C of the Schedule.

Format enclosed as Annexure VII.4

(i ) All supplementary documents in support of claims to be submitted before
constitution of Committee of Creditors

The Financial Creditor may submit supplementary documents or clarifications
in support of the claim before the constitution of the committee.

(i i) Basis of Proof of claims

As per Regulation 8(2) of CIRP Regulations the existence of debt due to the
financial creditor may be proved on the basis of –

(a) the records available with an information utility, if any; or

(b) other relevant documents, including –

(i) a financial contract supported by financial statements as
evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial
creditor to the corporate debtor under a facility has been drawn
by the corporate debtor;

(i i) financial statements showing that the debt has not been repaid; or

(iv) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any.

Claims by workmen and employees

(i) Mode and manner of submission of proof of claims

As per Regulation 9(1) of the CIRP Regulations, a person claiming to be a

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PRACTICAL ASPECTS OF INSOLVENCY LAW
workman or an employee of the corporate debtor shall submit proof of claim
to the interim resolution professional in person, by post or by electronic
means in Form D of the Schedule.

As per Regulation 9(2) of CIRP Regulations where there are dues to numerous
workmen or employees of the corporate debtor, an authorised representative
may submit one proof of claim for al such dues on their behalf in Form E of
the Schedule.

Formats of the claim are enclosed as Annexure VII.5 and Annexure VII.6.

(i ) All supplementary documents in support of claims to be submitted before
constitution of Committee of Creditors

Workman or an employee may submit supplementary documents or
clarifications in support of the claim, on his own or if required by the interim
resolution professional, before the constitution of the committee.

(i i) Basis of Proof of claims

As per Regulation 9(3) of the CIRP Regulations, the existence of dues to
workmen or employees may be proved by them, individually or col ectively
on the basis of –

(a) records available with an information utility, if any; or

(b) other relevant documents, including –

(i) a proof of employment such as contract of employment for the
period for which such workman or employee is claiming dues;

(ii) evidence of notice demanding payment of unpaid dues and
any documentary or other proof that payment has not been
made; or

(iii) an order of a court or tribunal that has adjudicated upon the
non-payment of a dues, if any.

Claims by other creditors

IBBI vide notification dated 16th August, 2017 had amended the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 to include claims by creditors, other than financial
and operational creditor.

(i) Mode and manner of submission of proof of claims

As per Regulation 9A(1) of the CIRP Regulations, a person claiming to be a
creditor, other than those covered under regulations 7, 8, or 9, shall submit

PRACTICAL ASPECTS OF INSOLVENCY LAW

87
proof of its claim to the interim resolution professional or resolution
professional in person, by post or by electronic means in Form F of the

Schedule.

Such creditors may submit the proof of claims in person, by post or by
electronic means.

Formats of the claim are enclosed as Annexure VII.7

(i ) Basis of Proof of claims

As per Regulation 9A(2) of Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) (Amendment)

Regulations, 2016, the existence of the claim of such creditor may be proved
on the basis of –

(a) the records available in an information utility, if any, or

(b) other relevant documents sufficient to establish the claim, including
any or al of the fol owing: -

(i) documentary evidence demanding satisfaction of the claim;

(ii) bank statements of the creditor showing non-satisfaction of
claim;

(iii) an order of court or tribunal that has adjudicated upon non-
satisfaction of claim, if any.

Interim Resolution Professional may seek further evidence for
substantiation of claims

As per regulation 10 of the CIRP Regulations, the interim resolution
professional or the resolution professional, as the case may be, may call
for such other evidence or clarification as he deems fit from a creditor for
substantiating the whole or part of its claim.

Creditor shall bear the cost of proving the claims

As per Regulation 11 of the CIRP Regulations, a creditor shall bear the cost
of proving the debt due to such creditor.

Submission of proof of claims before the last date mentioned in the
public announcement

As per Regulation 12(1) of the CIRP Regulations, a creditor shal submit
proof of claim on or before the last date mentioned in the public
announcement.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Submission of claims by Creditors till the approval of Resolution Plan

Regulation 12(2) of the CIRP Regulations states that a creditor, who failed
to submit proof of claim within the time stipulated in the public announcement,
may submit such proof to the interim resolution professional or the resolution
professional, as the case may be, till the approval of a resolution plan by
the committee.

Financial creditor who has submitted claims after public announcement
and before approval of resolution plan shall form part of Committee of

Creditors

Regulation 12(3) of the CIRP Regulations states that where the creditor in
sub-regulation (2) is a financial creditor, it shall be included in the committee
from the date of admission of such claim. However, such inclusion shal not
affect the validity of any decision taken by the committee prior to such
inclusion.

Verification of claims by Interim Resolution Professional

As per Regulation 13(1) of the CIRP Regulations the interim resolution
professional or the resolution professional, as the case may be, shal verify
every claim, as on the insolvency commencement date (i.e. date on which
the application for Insolvency Resolution is admitted by NCLT), within seven
days from the last date of the receipt of the claims, and thereupon maintain
a list of creditors containing names of creditors along with the amount claimed
by them, the amount of their claims admitted and the security interest, if
any, in respect of such claims, and update it.

Points to be noted:

• Date for the purposes of verification of Claims – Verification of Claims
to be made as on the insolvency commencement date i.e. date on
which the CIRP application is admitted by NCLT.

• Last date of receipt of Claims - Not later than 14 days from the date
of appointment of Interim Resolution Professional (NCLT to appoint
interim professional within 14 days from insolvency commencement
date. However, in general NCLT, especially when application is made
by financial creditor or corporate debtor, appoints interim professional
along with the order admitting CIRP Application.

• Interim professional to verify claims within seven days from the last
date of receipt of claims.

PRACTICAL ASPECTS OF INSOLVENCY LAW

89

Disclosure and filing requirements with respect to list of creditors

As per Regulation 13(2) of the CIRP Regulations, the list of creditors shall
be –

(a) available for inspection by the persons who submitted proofs of claim;

(b) available for inspection by members, partners, directors and
guarantors of the corporate debtor;

(c) displayed on the website, if any, of the corporate debtor;

(d) filed with the Adjudicating Authority (i.e. NCLT); and

(e) presented at the first meeting of the committee.

A suggested format of list of creditors in compliance with Regulation 13 of
the CIRP Regulations is enclosed as Annexure VII.8.

Determination of amount of claim

Regulation 14(1) of the CIRP Regulations, states that when the amount
claimed by a creditor is not precise due to any contingency or other reason,
the interim resolution professional or the resolution professional, as the
case may be, shal make the best estimate of the amount of the claim
based on the information available with him.

Regulation 14(2) of the CIRP Regulations, states that the interim resolution
professional or the resolution professional, as the case may be, shall revise
the amounts of claims admitted, including the estimates of claims made
under sub-regulation (1), as soon as may be practicable, when he comes
across additional information warranting such revision.

Claims denominated in foreign currency

Regulation 15 of the CIRP Regulations, states that the claims denominated
in foreign currency shal be valued in Indian currency at the official exchange
rate as on the insolvency commencement date.

Explanation- “official exchange rate” is the reference rate published by the

Reserve Bank of India or derived from such reference rates.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

III. COMMITTEE OF CREDITORS

Constitution of Committee of Creditors

Committee of Creditors to contain financial Creditors

Section 21(1) of the code states that the IRP shal after collation of all
claims received against the corporate debtor and determination of the
financial position of the corporate debtor, constitute a committee of creditors.

Section 21(2) of the code states that the committee of creditors shall
comprise al financial creditors of the corporate debtor:

Related party shal not be representing the committee of creditors

A related party to whom a corporate debtor owes a financial debt shal not
have any right of representation, participation or voting in a meeting of the
committee of creditors.

Related Party is defined under Section 5(24) of the Code as under : “related
party”, in relation to a corporate debtor, means –

(a) a director or partner of the corporate debtor or a relative of a director
or partner of the corporate debtor;

(b) a key managerial personnel of the corporate debtor or a relative of a
key managerial personnel of the corporate debtor;

(c) a limited liability partnership or a partnership firm in which a director,
partner, or manager of the corporate debtor or his relative is a partner;

(d) a private company in which a director, partner or manager of the
corporate debtor is a director and holds along with his relatives, more
than two per cent of its share capital;

(e) a public company in which a director, partner or manager of the
corporate debtor is a director and holds along with relatives, more
than two per cent of its paid-up share capital;

(f) anybody corporate whose board of directors, managing director or
manager, in the ordinary course of business, acts on the advice,
directions or instructions of a director, partner or manager of the
corporate debtor;

(g) any limited liability partnership or a partnership firm whose partners
or employees in the ordinary course of business, acts on the advice,
directions or instructions of a director, partner or manager of the
corporate debtor;

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91

(h) any person on whose advice, directions or instructions, a director,
partner or manager of the corporate debtor is accustomed to act;

(i) a body corporate which is a holding, subsidiary or an associate
company of the corporate debtor, or a subsidiary of a holding company
to which the corporate debtor is a subsidiary;

(j) any person who controls more than twenty percent of voting rights in
the corporate debtor on account of ownership or a voting agreement;

(k) any person in whom the corporate debtor controls more than twenty
per cent of voting rights on account of ownership or a voting agreement;

(l) any person who can control the composition of the board of directors
or corresponding governing body of the corporate debtor;

(m) any person who is associated with the corporate debtor on account
of –

(i) participation in policy making processes of the corporate debtor;
or

(ii) having more than two directors in common between the corporate
debtor and such person; or

(iii) interchange of managerial personnel between the corporate
debtor and such person; or

(ii) provision of essential technical information to, or from, the
corporate debtor.

Committee with only Operational Creditors

Regulation 16(1) of the CIRP Regulations states that where the corporate
debtor has no financial debt or where al financial creditors are related parties
of the corporate debtor, the committee shal be set up in accordance with

CIRP Regulations.

(2) The committee formed under this Regulation shal consist of members
as under –

(a) eighteen largest operational creditors by value :

Provided that if the number of operational creditors is less than
eighteen, the committee shal include al such operational creditors;

(b) one representative elected by al workmen other than those workmen
included under sub-clause (a); and

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(c) one representative elected by all employees other than those
employees included under sub-clause (a).

(3) A member of the committee formed under this Regulation shall have
voting rights in proportion of the debt due to such creditor or debt represented
by such representative, as the case may be, to the total debt.

Explanation- For the purposes of this sub-regulation, ‘total debt’ is the sum
of –

(a) the amount of debt due to the creditors listed in sub-regulation 2(a);

(b) the amount of the aggregate debt due to workmen under sub-regulation

2(b); and

(c) the amount of the aggregate debt due to employees under sub-
regulation 2(c).

(4) A committee formed under this Regulation and its members shall have
the same rights, powers, duties and obligations as a committee comprising
financial creditors and its members, as the case may be.

First meeting of the committee

Regulations 17 (1) of the CIRP Regulations states that the interim resolution
professional shall file a report certifying constitution of the committee to
the Adjudicating Authority on or before the expiry of thirty days from the
date of his appointment. Regulation 17(2) of the CIRP Regulations, states
that the IRP shall convene the first meeting of the committee within seven
days of filing the report under this Regulation.

However, it is pertinent to note here that, as per section 16(5) of the Code,
the term of the IRP shall not exceed thirty days from date of his appointment
and whereas Regulation 17(1) of the CIRP Regulations provides thirty days
time for filing report certifying constitution of Committee and thereafter
convening the meeting of Committee within seven days thereafter.

Thus, the report certifying constitution of committee shal be submitted
with Adjudicating Authority in such a manner that the first meeting of
committee shal be convened within the period of thirty days from the date
of appointment of interim resolution professional i.e. before the expiry of the
office of interim resolution professional.

Points to be noted

• IRP to file a report with NCLT certifying the Constitution of Committee
of Creditors.

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93

• The First meeting of the Committee of Creditors is to be convened
within 7 days of filing the report with NCLT certifying the constitution
of Committee of Creditors.

• Both 1 and 2 above shall be completed within 30 days of the
appointment of Interim Resolution Professional.

Specimen Report Certifying the Constitution of Committee of Creditors is
enclosed as Annexure VII.9

IV. CONDUCT OF CIRP DURING THE TENURE OF INTERIM

RESOLUTION PROFESSIONAL

The various provisions pertaining to the conduct of the CIRP during the
tenure of the IRP are covered under Sections 17, 18, 19, 20 of the Code
read with Chapter VIII of the CIRP Regulations.

Management of Affairs of Corporate Debtor

Section 17 of the Code provides that once the Interim resolution Professional
has been appointed:

(a) The management of the affairs of the corporate debtor is to be taken
over by him/her;

(b) The powers of the Board of Directors or the partners of the Corporate

Debtor, as the case may be, are suspended and be exercised by the

IRP;

(c) The officers and managers of the corporate debtor shall report to the

IRP and co-operate with him/her in providing access to documents
and records of the corporate debtor;

(d) The financial institutions maintaining accounts of the corporate debtor
shal furnish al information relating to the corporate debtor available
with them to the IRP.

Section 17(2) of the Code lists out the various powers that an IRP shall
have, including the power to:

(a) do al acts and execute documents in the name of and on behalf of
corporate debtor;

(b) take such actions, in the manner and subject to such restrictions, as
may be specified by the Board;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(c) access the electronic records of the corporate debtor from the

Information Utility;

(d) access the books of account, records and other relevant documents
of corporate debtor available with the Government authorities,
statutory auditors, accountants and such other persons as may be
specified.

The above powers vested with the IRP are important for effectively
discharging his/her responsibilities. A sample of the intimation to be sent by
the IRP to the employees of the corporate debtor is enclosed as Annexure

VII.10

Duties of Interim Resolution Professional

Section 18 of the Code lists out the various duties bestowed on an IRP.

These include:

(a) col ection of al the financial information relating to the corporate
debtor;

(b) receipt and col ation of debt claims submitted by creditors to the

IRP;

(c) constitution of the committee of creditors;

(d) taking over control and monitoring the assets of the corporate debtor;

(e) filing the information col ected with an information utility;

(f) take control and custody of any asset over which the corporate debtor
has ownership rights as recorded in the balance sheet of the corporate
debtor, or with the information utility or the depository of securities or
any other registry that records the ownership of assets.

The below table enlists the assets which can or cannot be taken over by an

IRP as contemplated under section 18 of the Code:

Assets which can be taken over

Assets which cannot be taken over

• Assets over which the corporate

• Assets owned by a third party in
debtor has ownership rights as
possession of the corporate debtor
recorded in the balance sheet of
held under trust or under contractual
the corporate debtor including
arrangements including bailment;

(i) Assets over which the

• Assets of any Indian or foreign
corporate debtor has
subsidiary of the corporate
ownership rights which may
debtor;
be located in a foreign

Such other assets as may be notified
country;
by the Central Government in

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95

(ii) Assets that may or may not
consultation with any financial sector
be in possession of the
regulator.

corporate debtor;

(iii) Tangible assets, whether
movable or immovable

(iv) Intangible assets including
intellectual property

(v) Securities including shares
held in any subsidiary of the
corporate debtor, financial
instruments, insurance
policies;

(vi) Assets subject to the
determination of ownership
by a court or authority

Obligations of the Personnel and Promoters of the Corporate Debtor

Section 19 of the Code imposes an obligation on the personnel and promoters
of the corporate debtor to extend al assistance and co-operation required
by the IRP in the management of the affairs of the corporate debtor. The
said provision is to help IRP discharge his duties effectively.

Personnel is defined under section 5 (23) of the Code to mean:

(a) employee;

(b) directors;

(c) managers;

(d) key managerial personnel and

(e) designated partners, if any of the corporate debtor.

Where the personnel of the corporate debtor or any other person required to
cooperate with the IRP (such other person may include a contractual counter
party, supplier, service provider and auditor) do not extend co-operation or
assistance to the IRP, the IRP may apply to the Adjudicating Authority for
an order. A sample application is enclosed as Annexure VII.11.

The Adjudicating Authority may by an order, direct the person to comply
with the instructions of the IRP or to provide information to the IRP.

Powers of an IRP

Section 20 of the Code lays down that the IRP has to manage the operations

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PRACTICAL ASPECTS OF INSOLVENCY LAW
of the corporate debtor as a going concern to enable him to protect and
preserve the value of the property of the corporate debtor. These include the
power to:

(a) appoint accountants, legal counsel or such other professionals who
may provide specialist advice to the IRP. Such professionals may
include turnaround specialists and management experts.

(b) Enter into contracts on behalf of the corporate debtor or to amend or
modify the contracts or transactions which were entered into before
the commencement of the CIRP;

(c) Raise interim finance. However, any interim finance raised by providing
security of an encumbered property of the corporate debtor will require
prior permission of the concerned creditor;

(d) Issue instructions to personnel of the corporate debtor as may be
necessary for keeping the corporate debtor as a going concern;

(e) Take all such actions as are necessary to keep the corporate debtors
as a going concern.

Sale of Assets outside the ordinary course of business

Regulation 29 of CIRP Regulations stipulates that the IRP may sell
unencumbered assets of the corporate debtor, other than in the ordinary
course of business, if he is of the opinion that such a sale is necessary for
a better realisation of value under the facts and circumstances of the case.

However, the book value of al the assets sold under this sub-regulation
shal not exceed 10% of the total claims admitted by the IRP. Further, such
a sale shal require the approval of the committee.

Notwithstanding the terms of the constitutional documents of the corporate
debtor, shareholders’ agreement, joint venture agreement or other document
of a similar nature, the title of a bonafide purchaser under this regulation
shal be free and marketable.

Assistance of local district administration

Regulation 30 of the Chapter VIII of CIRP Regulations enables the IRP to
seek the assistance of the local administration in discharging his duties
under the Code or the Regulations by making an application to the Adjudicating

Authority for an order seeking such assistance. A sample application is
enclosed as Annexure VII.12.

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97

V. FIRST MEETING OF COMMITTEE OF CREDITORS

Cal ing of first meeting of Committee of Creditors is one of the primary and
vital role of IRP on collation and verification of claims. It involves secretarial
and regulatory aspects including preparation and despatch of notice to the
required notices, mode of service of notice, identifying necessary agenda
items, providing video conferencing facility, voting through electronic means
and so on.

First meeting to be held within seven days of the constitution of committee
of creditors.

• Section 22(1) of the Code states that the first meeting of the

Committee of Creditors shal be held within seven days from the
constitution of committee of creditors.

• Regulation 17(2) of CIRP Regulations the interim resolution
professional shal convene the first meeting of Committee of creditors
within 7 days of filing the report of constitution of committee of creditors
with National Company Law Tribunal.

Notice Period and mode of delivery

Regulation 19 (1) of CIRP Regulations states that a meeting of the
committee shal be cal ed by giving not less than seven days’ notice in
writing to every participant, at the address provided to the RP and such
notice may be sent by hand delivery, or by post but in any event, be
served on every participant by electronic means in accordance with

Regulation 20. Regulation 19(2) further states that the committee may
reduce the notice period from seven days to such other period of not less
than twenty four hours, as it deems fit.

To whom notice is to be served

As per section 24(3) of the Code, the RP shal give notice of each meeting
of the committee of creditors to -

(a) members of Committee of Creditors;

(b) members of the suspended Board of Directors or the partners of the
corporate persons, as the case may be;

(c) operational creditors or their representatives if the amount of their
aggregate dues is not less than ten per cent. of the debt.

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Service of notice by electronic means

Regulation 20 of CIRP Regulations stipulates the fol owing with respect to
service of notice by electronic means:

(1) A notice by electronic means may be sent to the participants through
email as a text or as an attachment to email or as a notification
providing electronic link or Uniform Resource Locator for accessing
such notice.

(2) The subject line in e-mail shal state the name of the corporate debtor,
the place, if any, the time and the date on which the meeting is
scheduled.

(3) If notice is sent in the form of a non-editable attachment to an e-
mail, such attachment shall be in the Portable Document Format or
in a non-editable format together with a ‘link or instructions’ for recipient
for downloading relevant version of the software.

(4) When notice or notifications of availability of notice are sent by an e-
mail, the resolution professional shal ensure that it uses a system
which produces confirmation of the total number of recipients e-mailed
and a record of each recipient to whom the notice has been sent and
copy of such record and any notices of any failed transmissions and
subsequent re-sending shal be retained as ‘ proof of sending’’.

(5) The obligation of the resolution professional shal be satisfied when
he transmits the e-mail and he shal not be held responsible for a
failure in transmission beyond its control.

(6) The notice made available on the electronic link or Uniform Resource

Locator shall be readable, and the recipient should be able to obtain
and retain copies and the resolution professional shall give the
complete Uniform Resource Locator or address of the website and
ful details of how to access the document or information.

(7) If a participant, other than a member of the committee, fails to provide
or update the relevant e-mail address to the resolution professional,
the non-receipt of such notice by such participant of any meeting
shal not invalidate the decisions taken at such meeting.

Contents of the notice for meeting

Regulation 21 of CIRP Regulations stipulates the fol owing conditions with
respect to contents of the Notice.

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99

(1) The notice shal inform the participants about

• the venue,

• the time,

• date of the meeting,

• the option available to them to participate through video
conferencing or other audio and visual means, and

• al the necessary information to enable participation through
video conferencing or other audio and visual means.

(2) The notice of the meeting shal provide that a participant may attend
and vote in the meeting either in person or through an authorised
representative: Provided that such participant shall inform the
resolution professional, in advance of the meeting, of the identity of
the authorised representative who wil attend and vote at the meeting
on its behalf.

(3) The notice of the meeting shall-

(a) contain an agenda of the meeting with the fol owing-

(i) a list of the matters to be discussed at the meeting;

(ii) a list of the issues to be voted upon at the meeting; and

(iii) copies of al documents relevant to the matters to be
discussed and the issues to be voted upon at the meeting;
and

(b) state that a vote of the members of the committee shal not be
taken at the meeting unless al members are present at such
meeting.

(4) The notice of the meeting shall-

(a) state the process and manner for voting by electronic means
and the time schedule, including the time period during which
the votes may be cast;

(b) provide the login ID and the details of a facility for generating
password and for keeping security and casting of vote in a
secure manner; and

(c) provide contact details of the person who wil address the queries
connected with the electronic voting.

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( A specimen format of the Notice of meeting along with suggested agenda
items for the meeting is enclosed as Annexure VII.13)

Quorum at the meeting

As per Regulation 22 of CIRP Regulations:

(1) A meeting of the committee shall be quorate if members of the
committee representing at least thirty three percent of the voting
rights are present either in person or by video conferencing or other
audio and visual means:

Provided that the committee may modify the percentage of voting
rights required for quorum in respect of any future meetings of the
committee.

(2) Where a meeting of the committee could not be held for want of
quorum, unless the committee has previously decided otherwise,
the meeting shal automatically stand adjourned at the same time
and place on the next day.

(3) In the event a meeting of the committee is adjourned in accordance
with sub-regulation (2), the adjourned meeting shal be quorate with
the members of the committee attending the meeting.

Participation through video conferencing

As per Regulation 23 of CIRP Regulations:

(1) The notice convening the meetings of the committee shal provide
the participants an option to attend the meeting through video
conferencing or other audio and visual means in accordance with
this Regulation.

(2) The resolution professional shal make necessary arrangements to
ensure uninterrupted and clear video or audio and visual connection.

(3) The resolution professional shal take due and reasonable care-

(a) to safeguard the integrity of the meeting by ensuring sufficient
security and identification procedures;

(b) to ensure availability of proper video conferencing or other audio
and visual equipment or facilities for providing transmission of
the communications for effective participation of the participants
at the meeting;

(c) to record proceedings and prepare the minutes of the meeting;

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101

(d) to store for safekeeping and marking the physical recording(s)

or other electronic recording mechanism as part of the records
of the corporate debtor;

(e) to ensure that no person other than the intended participants
attends or has access to the proceedings of the meeting through
video conferencing or other audio and visual means; and

(f) to ensure that participants attending the meeting through audio
and visual means are able to hear and see, if applicable, the
other participants clearly during the course of the meeting:

Provided that the persons, who are differently abled, may make
request to the resolution professional to al ow a person to accompany
him at the meeting.

(4) Where a meeting is conducted through video conferencing or other
audio and visual means, the scheduled venue of the meeting as set
forth in the notice convening the meeting, which shal be in India,
shal be deemed to be the place of the said meeting and al recordings
of the proceedings at the meeting shall be deemed to be made at
such place.

Conduct of meeting

As per Regulation 24 of CIRP Regulations:

(1) The resolution professional shall act as the chairperson of the meeting
of the committee.

(2) At the commencement of a meeting, the resolution professional shall
take a rol call when every participant attending through video
conferencing or other audio and visual means shal state, for the
record, the fol owing, -

(a) his name;

(b) whether he is attending in the capacity of a member of the
committee or any other participant;

(c) whether he is representing a member or group of members;

(d) the location from where he is participating;

(e) that he has received the agenda and al the relevant material
for the meeting; and

(f) that no one other than him is attending or has access to the
proceedings of the meeting at the location of that person.

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(3) After the roll call, the resolution professional shall inform the
participants of the names of al persons who are present for the
meeting and confirm if the required quorum is complete.

(4) The resolution professional shal ensure that the required quorum is
present throughout the meeting.

(5) From the commencement of the meeting till its conclusion, no person
other than the participants and any other person whose presence is
required by the resolution professional shal be al owed access to the
place where meeting is held or to the video conferencing or other audio
and visual facility, without the permission of the resolution professional.

(6) The resolution professional shal ensure that minutes are made in
relation to each meeting of the committee and such minutes shall
disclose the particulars of the participants who attended the meeting
in person, through video conferencing, or other audio and visual means.

(7) The resolution professional shall circulate the minutes of the meeting
to all participants by electronic means within forty eight hours of the
said meeting.

V. VOTING BY THE COMMITTEE

Voting by the committee

As per Regulation 25 of CIRP Regulations:

(1) The actions listed in section 28(1) of the Code shal be considered in
meetings of the committee.

(2) Any action other than those listed in section 28(1) of the Code requiring
approval of the committee may be considered in meetings of the
committee.

(3) Where all members are present in a meeting, the resolution
professional shal take a vote of the members of the committee on
any item listed for voting after discussion on the same.

(4) At the conclusion of a vote at the meeting, the resolution professional
shal announce the decision taken on items along with the names of
the members of the committee who voted for or against the decision,
or abstained from voting.

(5) If all members are not present at a meeting, a vote shall not be taken
at such meeting and the resolution professional shal -

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103

(a) circulate the minutes of the meeting by electronic means to all
members of the committee within forty eight hours of the
conclusion of the meeting; and

(b) seek a vote on the matters listed for voting in the meeting, by
electronic voting system where the voting shal be kept open
for twenty four hours from the circulation of the minutes.

Voting through electronic means

As per Regulation 26 of CIRP Regulations:

(1) The resolution professional shal provide each member of the committee
the means to exercise its vote by either electronic means or through electronic
voting system in accordance with the provisions of this Regulation.

Explanation- For the purposes of these Regulations -

(a) the expressions ‘ voting by electronic means’ or “electronic voting
system’ means a “secured system” based process of display of
electronic bal ots, recording of votes of the members of the committee
and the number of votes pol ed in favour or against, such that the
voting exercised by way of electronic means gets registered and
counted in an electronic registry in a centralized server with adequate
cyber security;

(b) the expression ‘secured system’’ means computer hardware, software,
and procedure that -

(i) are reasonably secure from unauthorized access and misuse;

(ii) provide a reasonable level of reliability and correct operation;

(iii) are reasonably suited to perform the intended functions; and

(iv) adhere to general y accepted security procedures.

(2) Once a vote on a resolution is cast by a member of the committee, such
member shal not be al owed to change it subsequently.

(3) At the end of the voting period, the voting portal shall forthwith be blocked.

(4) At the conclusion of a vote held under this Regulation, the resolution
professional shall announce and make a written record of the summary of
the decision taken on a relevant agenda item along with the names of the
members of the committee who voted for or against the decision, or abstained
from voting.

(5) The resolution professional shall circulate a copy of the record made
under sub-regulation (4) to al participants by electronic means within twenty
four hours of the conclusion of the voting.

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ANNEXURE VII.1

SCHEDULE

FORM A

PUBLIC ANNOUNCEMENT

( Under Regulation 6 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations,

2016)

FOR THE ATTENTION OF THE CREDITORS OF

[ Name of Corporate Debtor]

RELEVANT PARTICULARS

1. NAME OF CORPORATE DEBTOR

2. DATE OF INCORPORATION OF

CORPORATE DEBTOR

3. AUTHORITY

UNDER

WHICH

CORPORATE

DEBTOR

IS

INCORPORATED / REGISTERED

4. CORPORATE IDENTITY NUMBER /

LIMITED LIABILITY IDENTIFICATION

NUMBER OF CORPORATE DEBTOR

5. ADDRESS OF THE REGISTERED

OFFICE AND PRINCIPAL OFFICE (IF

ANY) OF CORPORATE DEBTOR

6. INSOLVENCY COMMENCEMENT DATE

IN RESPECT OF CORPORATE DEBTOR

7. ESTIMATED DATE OF CLOSURE OF

INSOLVENCY RESOLUTION PROCESS

1[8

NAME AND REGISTRATION NUMBER

OF

THE

INSOLVENCY

1. Substituted by Notification No. IBBI/2017-18/GN/REG030, dated 27th March, 2018

(w.e.f. 01-04-2018) for entries 8 & 9.

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105

PROFESSIONAL ACTING AS INTERIM

RESOLUTION PROFESSIONAL

9 ADDRESS AND E-EMAIL OF THE

INTERIM

RESOLUTION

PROFESSIONAL, AS REGISTERED

WITH THE BOARD

10 ADDRESS AND E-MAIL TO BE USED

FOR CORRESPONDENCE WITH THE

INTERIM

RESOLUTION

PROFESSIONAL, IF DIFFERENT FROM

THOSE GIVEN AT SL. NO.9.

11 LAST DATE FOR SUBMISSION OF

CLAIMS]

Notice is hereby given that the National Company Law Tribunal has ordered
the commencement of a corporate insolvency resolution process against
the [ name of the corporate debtor] on [ insolvency commencement date].

The creditors of [ name of the corporate debtor], are hereby called upon to
submit a proof of their claims on or before [ insert the date falling fourteen
days from the appointment of the interim resolution professional] to the
interim resolution professional at the address mentioned against item 8.

2[The financial creditors shal submit their proof of claims by electronic
means only. Al other creditors may submit the proof of claims in person, by
post or by electronic means.]

Submission of false or misleading proofs of claim shal attract penalties.

Name and Signature of Interim Resolution Professional :

Date and Place :

2. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG013, dated 16th August, 2017

(w.e.f. 16-8-2017). Prior to its substitution, it stood as under :

“The financial creditors shal submit their proof of claims by electronic means only. The
operational creditors, including workmen and employees, may submit the proof of
claims by in person, by post or electronic means.”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.2

SAMPLE FORMAT FOR INTIMATION OF INITIATION OF CIRP TO

REGULATORY AUTHORITIES

[ On the letterhead of the Corporate Debtor]

Date: ___________

To,

(a) National Stock Exchange of India and/or (b) Bombay Stock Exchange

Limited and/or (c) NSDL/CDSL and/or (d) MCX/NCDEX and/or (e) Registrar
of Companies and/or (f) Reserve Bank of India and/or (g) Regional Directors-

Ministry of Corporate Affairs and/or (h) Banks where the account of the
corporate debtor is maintained [as applicable in the particular case]

Dear Sir/Madam,

Subject: Intimation of initiation of Corporate Insolvency Resolution Process

(CIRP) and appointment of Interim Resolution Professional (IRP)

I/We hereby intimate your good office that CIRP has been initiated in respect
of [name of the corporate debtor] under the provisions of Insolvency and

Bankruptcy Code, 2016 (“Code”) by an order of National Company Law

Tribunal (“NCLT”) with effect from [ insolvency commencement date].

As per section 17 of the Code, the powers of the [ Board of Directors] or

[ Partners] of [ name of the corporate debtor] stands suspended and such
powers shal be vested with me, [ name of the Insolvency Resolution

Professional], having IP Registration no. [ IP Registration no. ], appointed as
the Insolvency Resolution Professional.

It may further be noted that in consonance with the stipulations contained
in Section 14 of the Code, a moratorium has been declared vide the
aforesaid order passed by NCLT, whereby, inter alia, the following shall be
prohibited:-

(a) the institution of suits or continuation of pending suits or proceedings
against the corporate debtor including execution of any judgment,
decree or order in any court of law, tribunal, arbitration panel or other
authority;

(b) transferring, encumbering, alienating or disposing of by the corporate
debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest
created by the corporate debtor in respect of its property including

PRACTICAL ASPECTS OF INSOLVENCY LAW

107
any action under the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property
is occupied by or in the possession of the corporate debtor.

The instant intimation w.r.t initiation of CIRP and appointment of Interim

Resolution Professional is for your information and record. I/We shal keep
the statutory authorities posted on further developments in this regard.

Kindly acknowledge the receipt of this document.

Thanking you,

Yours faithful y,

[ name of the Insolvency Resolution Professional]

[ IP Registration no. ]

Enclosed :

(a) A copy of the NCLT order dated [date of order]

(b) A copy of the Public Announcement made under Regulation 6 of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016.

108

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.13

SCHEDULE

FORM B

PROOF OF CLAIM BY OPERATIONAL CREDITORS EXCEPT

WORKMEN AND EMPLOYEES

[ Under regulation 7 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons)

Regulations, 2016]

[Date]

To

The Interim Resolution Professional / Resolution Professional

[ Name of the Insolvency Resolution Professional / Resolution

Professional]

[ Address as set out in public announcement]

From

[ Name and address of the operational creditor]

Subject : Submission of proof of claim.

Madam/Sir,

[ Name of the operational creditor], hereby submits this proof of claim in
respect of the corporate insolvency resolution process in the case of [ name
of corporate debtor]. The details for the same are set out below:

PARTICULARS

1. NAME OF OPERATIONAL CREDITOR

2. IDENTIFICATION NUMBER OF OPERATIONAL

CREDITOR (IF AN INCORPORATED BODY

PROVIDE IDENTIFICATION NUMBER AND

PROOF OF INCORPORATION. IF A

PARTNERSHIP OR INDIVIDUAL PROVIDE

IDENTIFICATION RECORDS* OF ALL THE

PARTNERS OR THE INDIVIDUAL)

3. ADDRESS AND EMAIL ADDRESS OF

OPERATIONAL

CREDITOR

FOR

CORRESPONDENCE

PRACTICAL ASPECTS OF INSOLVENCY LAW

109

4. TOTAL AMOUNT OF CLAIM (INCLUDING ANY

INTEREST AS AT THE INSOLVENCY

COMMENCEMENT DATE)

5. DETAILS OF DOCUMENTS BY REFERENCE TO

WHICH THE DEBT CAN BE SUBSTANTIATED.

6. DETAILS OF ANY DISPUTE AS WELL AS THE

RECORD OF PENDENCY OR ORDER OF SUIT

OR ARBITRATION PROCEEDINGS

7. DETAILS OF HOW AND WHEN DEBT INCURRED

8. DETAILS OF ANY MUTUAL CREDIT, MUTUAL

DEBTS, OR OTHER MUTUAL DEALINGS

BETWEEN THE CORPORATE DEBTOR AND

THE CREDITOR WHICH MAY BE SET-OFF

AGAINST THE CLAIM

9. DETAILS OF ANY RETENTION OF TITLE

ARRANGEMENTS IN RESPECT OF GOODS OR

PROPERTIES TO WHICH THE CLAIM REFERS

10. DETAILS OF THE BANK ACCOUNT TO WHICH

THE AMOUNT OF THE CLAIM OR ANY PART

THEREOF CAN BE TRANSFERRED PURSUANT

TO A RESOLUTION PLAN

11. LIST OF DOCUMENTS ATTACHED TO THIS

PROOF OF CLAIM IN ORDER TO PROVE THE

EXISTENCE AND NON-PAYMENT OF CLAIM

DUE TO THE OPERATIONAL CREDITOR

Signature of operational creditor or person authorised to act on his behalf

[ Please enclose the authority if this is being submitted on behalf of an
operational creditor]

Name in BLOCK LETTERS

Position with or in relation to creditor

Address of person signing

*PAN number, passport, Aadhaar Card or the identity card issued by the

Election Commission of India

110

PRACTICAL ASPECTS OF INSOLVENCY LAW

1[DECLARATION

I, [ Name of claimant], currently residing at [ insert address], hereby declare
and state as fol ows :

1. [ Name of corporate debtor], the corporate debtor was, at the
insolvency commencement date, being the…………..day
of………………20….., actually indebted to me in the sum of Rs. [ insert
amount of claim].

2. In respect of my claim of the said sum or any part thereof, I have
relied on the documents specified below: [ Please list the documents
relied on as evidence of claim].

3. The said documents are true, valid and genuine to the best of my
knowledge, information and belief and no material facts have been
concealed therefrom.

4. In respect of the said sum or any part thereof, neither I nor any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever, save
and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other mutual
dealings between the corporate debtor and the creditor which may be set- off
against the claim].

Date:

Place:

( Signature of the claimant)

VERIFICATION

I, [Name] the claimant hereinabove, do hereby verify that the contents of
this proof of claim are true and correct to my knowledge and belief and no
material fact has been concealed therefrom.

Verified at … on this …… day of ………., 20…

( Signature of the claimant)

[ Note: In the case of company or limited liability partnership, the declaration
and verification shall be made by the director/manager/secretary and in the
case of other entities, an officer authorised for the purpose by the entity]. ]

1. Substituted by Notification No. IBBI/2017-18/GN/REG030, dated 27th March, 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

PRACTICAL ASPECTS OF INSOLVENCY LAW

111

ANNEXURE VII.4

SCHEDULE

FORM C

PROOF OF CLAIM BY FINANCIAL CREDITORS

[ Under Regulation 8 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for CorporatePersons) Regulations, 2016]

[ Date]

To

The Interim Resolution Professional / Resolution Professional,

[ Name of the Insolvency Resolution Professional /

Resolution Professional] [ Address as set out in public announcement]

From

[ Name and address of the registered office and principal office of the financial
creditor]

Subject: Submission of proof of claim.

Madam/Sir,

[ Name of the financial creditor], hereby submits this proof of claim in respect
of the corporate insolvency resolution process in the case of [ name of
corporate debtor]. The details for the same are set out below:

PARTICULARS

1. NAME OF FINANCIAL CREDITOR

2. IDENTIFICATION NUMBER OF

FINANCIAL

CREDITOR(IF

AN

INCORPORATED BODY PROVIDE

IDENTIFICATIONNUMBER AND PROOF

OF

INCORPORATION.

IF

A

PARTNERSHIP OR INDIVIDUAL

PROVIDE IDENTIFICATION RECORDS*

OF ALL THE PARTNERS OR THE

INDIVIDUAL)

3. ADDRESS AND EMAIL ADDRESS OF

112

PRACTICAL ASPECTS OF INSOLVENCY LAW

FINANCIALCREDITOR

FOR

CORRESPONDENCE.

4. TOTAL AMOUNT OF CLAIM(INCLUDING

ANY INTEREST AS AT THE

INSOLVENCYCOMMENCEMENT DATE)

5. DETAILS OF DOCUMENTS BY

REFERENCE TO WHICH THE DEBT

CAN BE SUBSTANTIATED

6. DETAILS OF HOW AND WHEN DEBT

INCURRED

7. DETAILS OF ANY MUTUAL CREDIT,

MUTUAL DEBTS, OR OTHER MUTUAL

DEALINGS

BETWEEN

THE

CORPORATE DEBTOR AND THE

CREDITOR WHICH MAY BE SET-OFF

AGAINST THE CLAIM

8. DETAILS OF ANY SECURITY HELD,

THE VALUE OF THE SECURITY, AND

THE DATE IT WAS GIVEN

9. DETAILS OF THE BANK ACCOUNT TO

WHICH THEAMOUNT OF THE CLAIM

OR ANY PART THEREOF CAN BE

TRANSFERRED PURSUANT TO A

RESOLUTION PLAN

10. LIST OF DOCUMENTS ATTACHED TO

THIS PROOF OFCLAIM IN ORDER TO

PROVE THE EXISTENCE AND NON-

PAYMENT OF CLAIM DUE TO THE

[FINANCIAL CREDITOR]1

Signature of financial creditor or person authorised to act on his behalf

[ Please enclose the authority if this is being submitted on behalf of an
operational creditor]

Name in BLOCK LETTERS

Position with or in relation to creditor

Address of person signing

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March, 2018

(w.e.f. 01-04-2018). Item 10, before substitution, stood as under :

“OPERATIONAL CREDITOR”

PRACTICAL ASPECTS OF INSOLVENCY LAW

113

*PAN number, passport, AADHAAR Card or the identity card issued by the

Election Commission of India.

1[DECLARATION

I, [ Name of claimant], currently residing at [ insert address], do hereby
declare and state as follows :

1. [ Name of corporate debtor], the corporate debtor was, at the
insolvency commencement date, being the……………..day
of…………..20……., actually indebted to me in the sum of Rs. [ insert
amount of claim].

2. In respect of my claim of the said sum or any part thereof, I have
relied on the documents specified below: [ Please list the documents
relied on as evidence of claim].

3. The said documents are true, valid and genuine to the best of my
knowledge, information and belief and no material facts have been
concealed therefrom.

4. In respect of the said sum or any part thereof, neither I, nor any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever, save
and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other
mutual dealings between the corporate debtor and the creditor which
may be set- off against the claim].

5. I am / I am not a related party in relation to the corporate debtor, as
defined under section 5(24) of the Code.

Date:

Place:

( Signature of the claimant)

VERIFICATION

I, [Name] the claimant hereinabove, do hereby verify that the contents of
this proof of claim are true and correct to my knowledge and belief and no
material fact has been concealed therefrom.

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

114

PRACTICAL ASPECTS OF INSOLVENCY LAW

Verified at … on this …… day of ………., 20…

( Signature of claimant)

[ Note: In the case of company or limited liability partnership, the declaration
and verification shall be made by the director/manager/secretary and in the
case of other entities, an officer authorised for the purpose by the entity]. ]

PRACTICAL ASPECTS OF INSOLVENCY LAW

115

ANNEXURE VII.5

SCHEDULE

FORM D

PROOF OF CLAIM BY A WORKMAN OR AN EMPLOYEE

[ Under Regulation 9 of the Insolvency and Bankruptcy (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016]

[Date]

To

The Interim Resolution Professional / Resolution Professional

[ Name of the Insolvency Resolution Professional / Resolution

Professional]

[ Address as set out in public announcement]

From

[ Name and address of the workman / employee]

Subject: Submission of proof of claim.

Madam/Sir,

[ Name of the workman / employee], hereby submits this proof of claim in
respect of the corporate insolvency resolution process in the case of [ name
of corporate debtor]. The details for the same are set out below:

PARTICULARS

1. NAME OF WORKMAN / EMPLOYEE

2. PAN NUMBER, PASSPORT, THE

IDENTITY CARD ISSUED BY THE

ELECTION COMMISSION OF INDIA OR

AADHAAR CARD OF WORKMAN /

EMPLOYEE

3. ADDRESS AND EMAIL ADDRESS (IF

ANY) OF WORKMAN/EMPLOYEE FOR

CORRESPONDENCE

4. TOTAL AMOUNT OF CLAIM (INCLUDING

ANY INTEREST AS AT THE

INSOLVENCY COMMENCEMENT DATE)

116

PRACTICAL ASPECTS OF INSOLVENCY LAW

5. DETAILS OF DOCUMENTS BY

REFERENCE TO WHICH THE CLAIM

CAN BE SUBSTANTIATED.

6. DETAILS OF ANY DISPUTE AS WELL

AS THE RECORD OF PENDENCY OR

ORDER OF SUIT OR ARBITRATION

PROCEEDINGS

7. DETAILS OF HOW AND WHEN CLAIM

AROSE

8. DETAILS OF ANY MUTUAL CREDIT,

MUTUAL DEBTS, OR OTHER MUTUAL

DEALINGS

BETWEEN

THE

CORPORATE DEBTOR AND THE

CREDITOR WHICH MAY BE SET-OFF

AGAINST THE CLAIM

9. DETAILS OF THE BANK ACCOUNT TO

WHICH THE AMOUNT OF THE CLAIM

OR ANY PART THEREOF CAN BE

TRANSFERRED PURSUANT TO A

RESOLUTION PLAN

10. LIST OF DOCUMENTS ATTACHED TO

THIS PROOF OF CLAIM IN ORDER TO

PROVE THE EXISTENCE AND NON-

PAYMENT OF CLAIM DUE TO THE

OPERATIONAL CREDITOR

Signature of workman / employee or person authorised to act on his
behalf

[ Please enclose the authority if this is being submitted on behalf of an
operational creditor]

Name in block letters

Position with or in relation to creditor

Address of person signing

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

PRACTICAL ASPECTS OF INSOLVENCY LAW

117

1[DECLARATION

I, [ Name of claimant], currently residing at [ insert address], do hereby declare
and state as fol ows: -

1. [ Name of corporate debtor], the corporate debtor was, at the
insolvency commencement date, being the……………..day
of…………..20……., actually indebted to me in the sum of Rs. [ insert
amount of claim].

2. In respect of my claim of the said sum or any part thereof, I have
relied on the documents specified below: [ Please list the documents
relied on as evidence of claim].

3. The said documents are true, valid and genuine to the best of my
knowledge, information and belief and no material facts have been
concealed therefrom.

4. In respect of the said sum or any part thereof, neither I, nor any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever, save
and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other mutual
dealings between the corporate debtor and the creditor which may be set- off
against the claim].

Date:

Place:

( Signature of the claimant)

VERIFICATION

I, [Name] the claimant hereinabove, do hereby verify that the contents of
this proof of claim are true and correct to my knowledge and belief and no
material fact has been concealed therefrom.

Verified at … on this …… day of ………., 20…

( Signature of claimant). ]

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

118

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.6

SCHEDULE

FORM E

PROOF OF CLAIM SUBMITTED BY AUTHORISED REPRESENTATIVE

OF WORKMEN AND EMPLOYEES

( Under Regulation 9 of the Insolvency and Bankruptcy (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016)

[ Date]

To

The Interim Resolution Professional / Resolution Professional,

[ Name of the Insolvency Resolution Professional / Resolution

Professional]

[ Address as set out in public announcement]

From

[ Name and address of the duly authorised representative of the workmen /
employees]

Subject : Submission of proofs of claim.

Madam/Sir,

I, [ name of authorised representative of the workmen / employees], currently
residing at [ address of authorised representative of the workmen / employees],
on behalf of the workmen and employees employed by the above named
corporate debtor and listed in Annexure A, solemnly affirm and say:

1. That the above named corporate debtor was, at the insolvency
commencement date, being the ________ day of ______ 20 ___,
justly truly indebted to the several persons whose names, addresses,
and descriptions appear in the Annexure A below in amounts severally
set against their names in such Annexure A for wages, remuneration
and other amounts due to them respectively as workmen or/ and
employees in the employment of the corporate debtor in respect of
services rendered by them respectively to the corporate debtor during
such periods as are set out against their respective names in the
said Annexure A.

2. That for which said sums or any part thereof, they have not, nor has

PRACTICAL ASPECTS OF INSOLVENCY LAW

119
any of them, had or received any manner of satisfaction or security
whatsoever, save and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other
mutual dealings between the corporate debtor and the creditor which
may be set-off against the claim. ]

Deponent

ANNEXURE

1. Details of Employees/Workmen

Sl.

Name of

Identification

Total

Period over

No.

Employee/
number (pan
amount
which amount
workman
number,
due (Rs.)

due
passport or
aadhaar card)

1.

2.

3.

4.

2. Particulars of how debt was incurred by the corporate debtor, including
particulars of any dispute as well as the record of pendency of suit or
arbitration proceedings (if any).

3. Particulars of any mutual credit, mutual debts, or other mutual dealings
between the corporate debtor and the creditor which may be set-off
against the claim.

Attachments:

1[Documents relied as evidence as proof of debt and as proofs of non-
payment of debt.]

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March, 2018

(w.e.f. 01-04-2018).

120

PRACTICAL ASPECTS OF INSOLVENCY LAW

2[DECLARATION

I, [ Name of claimant], currently residing at [ insert address], do hereby
declare and state as fol ows: -

1. [ Name of corporate debtor], the corporate debtor was, at the
insolvency commencement date, being the……………..day
of…………..20……., actually indebted to me in the sum of Rs. [ insert
amount of claim].

2. In respect of my claim of the said sum or any part thereof, I have
relied on the documents specified below: [ Please list the documents
relied on as evidence of claim].

3. The said documents are true, valid and genuine to the best of my
knowledge, information and belief and no material facts have been
concealed therefrom.

4. In respect of the said sum or any part thereof, neither I, nor any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever, save
and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other mutual
dealings between the corporate debtor and the creditor which may be set- off
against the claim].

Date:

Place:

( Signature of the claimant)

VERIFICATION

I, [Name] the claimant hereinabove, do hereby verify that the contents of
this proof of claim are true and correct to my knowledge and belief and no
material fact has been concealed therefrom.

Verified at … on this …… day of ………., 20…

( Signature of the claimant)]

2. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March, 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

PRACTICAL ASPECTS OF INSOLVENCY LAW

121

ANNEXURE VII.7

1[FORM F]

PROOF OF CLAIM BY CREDITORS (OTHER THAN FINANCIAL

CREDITORS AND OPERATIONAL CREDITORS)

[ Under Regulation 9A of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations,

2016]

Date ………..

To

The Interim Resolution Professional / Resolution Professional

[ Name of the Insolvency Resolution Professional / Resolution Professional]

[ Address as set out in public announcement]

From

[ Name and address of the creditor]

Subject : Submission of proof of claim.

Madam / Sir,

I, [ Name of the creditor], hereby submit the fol owing proof of claim in respect
of the corporate insolvency resolution process in the case of [ name of
corporate debtor]. The details of the same are set out below:

PARTICULARS

1. NAME OF THE CREDITOR

2. IDENTIFICATION NUMBER OF THE CREDITOR

(IF AN INCORPORATED BODY CORPORATE,

PROVIDE IDENTIFICATION NUMBER AND

PROOF OF INCORPORATION. IF A

PARTNERSHIP OR INDIVIDUAL, PROVIDE

IDENTIFICATION RECORD* OF ALL PARTNERS

OR THE INDIVIDUALS)

3. ADDRESS AND EMAIL ADDRESS OF THE

CREDITOR FOR CORRESPONDENCE

4. DESCRIPTION OF THE CLAIM (INCLUDING THE

1. Inserted by Notification No. IBBI/2017-18/ GN/REG013, dated 16th August, 2017 (w.e.f.

16-8-2017).

122

PRACTICAL ASPECTS OF INSOLVENCY LAW

AMOUNT OF THE CLAIM AS AT THE

INSOLVENCY COMMENCEMENT DATE)

5. DETAILS OF DOCUMENTS BY REFERENCE TO

WHICH CLAIM CAN BE SUBSTANTIATED

6. DETAILS OF HOW AND WHEN THE CLAIM

AROSE

7. DETAILS OF ANY MUTUAL CREDIT, MUTUAL

DEBTS, OR OTHER MUTUAL DEALINGS

BETWEEN THE CORPORATE DEBTOR AND THE

CREDITOR WHICH MAY BE SET-OFF AGAINST

THE CLAIM

8. DETAILS OF :

A. ANY SECURITY HELD, THE VALUE OF

SECURITY AND ITS DATE, OR

B. RETENTION TITLE ARRANGEMENT IN

RESPECT OF GOODS OR PROPERTIES TO

WHICH THE CLAIM REFERS

9. DETAILS OF BANK ACCOUNT TO WHICH THE

AMOUNT OF THE CLAIM OR ANY PART

THEREOF CAN BE TRANSFERRED PURSUANT

TO A RESOLUTION PLAN

10. LIST OF DOCUMENTS ATTACHED TO THIS

CLAIM IN ORDER TO PROVE THE EXISTENCE

AND NON-SATISFACTION OF CLAIM DUE TO THE

CREDITOR

Signature of the creditor or any person authorised to act on his behalf

( Please enclose the authority if this is being submitted signed on behalf
of the creditor)

Name in BLOCK LETTERS

Position with or in relation to the creditor

Address of the person signing

* PAN, Passport, AADHAAR or the identity card issued by the Election

Commission of India.

PRACTICAL ASPECTS OF INSOLVENCY LAW

123

1[DECLARATION

I, [ Name of claimant], currently residing at [ insert address], do hereby
declare and state as fol ows: -

1. [ Name of corporate debtor], the corporate debtor was, at the
insolvency commencement date, being the ……….. day of…..20…….,
actual y indebted to me in the sum of Rs. [ insert amount of claim].

2. In respect of my claim of the said sum or any part thereof, I have
relied on the documents specified below: [ Please list the documents
relied on as evidence of claim].

3. The said documents are true, valid and genuine to the best of my
knowledge, information and belief and no material facts have been
concealed therefrom.

4. In respect of the said sum or any part thereof, neither I, nor any
person, by my order, to my knowledge or belief, for my use, had or
received any manner of satisfaction or security whatsoever, save
and except the fol owing:

[ Please state details of any mutual credit, mutual debts, or other mutual
dealings between the corporate debtor and the creditor which may be set- off
against the claim].

Date:

Place:

( Signature of the claimant)

VERIFICATION

I, [Name] the claimant hereinabove, do hereby verify that the contents of
this proof of claim are true and correct to my knowledge and belief and no
material fact has been concealed therefrom.

Verified at … on this …… day of ………., 20…

( Signature of the claimant)

[Note: In the case of company or limited liability partnership, the declaration
and verification shall be made by the director/manager/secretary and in the
case of other entities, an officer authorised for the purpose by the entity]. ]

1. Substituted by Notification No. IBBI/ 2017-18/ GN/ REG030, dated 27th March, 2018

(w.e.f. 01-04-2018) for Affidavit and Verification.

124

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.8

SUGGESTED FORMAT OF LIST OF CREDITORS

BEFORE THE HON’BLE NATIONAL COMPANY LAW TRIBUNAL

........................BENCH

Case No........................................

In the Matter of

M/s.........................................Limited (name of Corporate Debtor)

...Financial Creditor/Operational Creditor or the Corporate

Debtor (to fil the name of applicant of CIRP)

List of Creditors under Regulation 13(2)(d) of IBBI (Insolvency Resolution

Process for Corporate Persons) Regulations by ....................................

(name of interim Professional) under the Insolvency and Bankruptcy Code

2016.

1. The application for Corporate Insolvency Resolution Process filed
by .............................. (please fill the name of applicant)

..................... ( Corporate Debtor/Financial Creditor or operational
debtor as the case may be) under .................. (Section 7, section 9
or section 10 as the case may be) of the Insolvency and Bankruptcy

Code read with .................. (please fill Rule 4, Rule 6 or Rule 7 as
the case may be) of Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules 2016 was admitted by

............................... (please fill the details of NCLT Bench) vide
order no.................. dated ...................... wherein ......................,
the undersigned (Please fil in the name of the Interim Professional)

was appointed as Interim Resolution Professional who is directed to
take necessary actions in accordance with the relevant provisions of
the Insolvency and Bankruptcy Board of India.

2. In Compliance with Regulation 13(2)(d) of Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulation 2016, a list of creditors along with amount claimed, claims
admitted, security interest in respect of claims is enclosed at Annexure

A in quadruplicate

INTERIM RESOLUTION PROFESSIONAL

In the matter of .............................(Name of the Corporate Debtor)

PRACTICAL ASPECTS OF INSOLVENCY LAW

125

(Name of Interim Professional)

Registration Number

Place

Date

ANNEXURE A

(Name of the debtor)

List of creditors
as on ______________ (date of Insolvency Commencement Date)

S.

Name of

Address

Amount

Amount

Security

No.

Creditors
claimed by
admitted
interest, if
the Creditors

(in Rs.

any, in

(in Rs. Crore)

Crore)

respect of
such claim

(in

Rupees)

1.

2.

3.

TOTAL

Note :

Specific details relating to assignment of debt may be specified.

126

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.9

SUGGESTED FORMAT OF REPORT CONSTITUTING

COMMITTEE OF CREDITORS

BEFORE THE HON’BLE NATIONAL COMPANY LAW TRIBUNAL

........................BENCH

Case No........................................

In the Matter of

M/s.........................................Limited (name of Corporate Debtor)

...Financial Creditor/Operational Creditor or
the Corporate Debtor (to fill the name of applicant of CIRP)

List of Creditors under Regulation 13(2)(d) of IBBI (Insolvency Resolution

Process for Corporate Persons) Regulations by .......................(name of
interim Professional) under the Insolvency and Bankruptcy Code 2016

The application for Corporate Insolvency Resolution Process filed by

.......................... (please fill the name of applicant) .....................( Corporate

Debtor/Financial Creditor or operational debtor as the case may be) under

.................. (Section 7, section 9 or section 10 as the case may be) of the

Insolvency and Bankruptcy Code read with ..................(please fil Rule 4,

Rule 6 or Rule 7 as the case may be) of Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules 2016 was admitted by

...............................(please fil the details of NCLT Bench) vide order
no..................dated......................wherein......................, the undersigned

(Please fill in the name of the Interim Professional) was appointed as Interim

Resolution Professional who is directed to take necessary actions in
accordance with the relevant provisions of the Insolvency and Bankruptcy

Board of India.

In Compliance with Regulation 17(1) of Insolvency and Bankruptcy Board
of India (Insolvency Resolution Process for Corporate Persons) Regulations

2016 a report certifying the Constitution of Creditors is enclosed at Annexure

A in quadruplicate.

INTERIM RESOLUTION PROFESSIONAL

In the matter of .................. (Name of the Corporate Debtor)

(Name of Interim Professional)

Registration Number

Place :

Date :

PRACTICAL ASPECTS OF INSOLVENCY LAW

127

ANNEXURE A

REPORT CERTIFYING THE CONSTITUTION OF

COMMITTEE OF CREDITORS

1. The application for Corporate Insolvency Resolution Process filed
by.............................. (please fill the name of applicant).....................

(Corporate Debtor/Financial Creditor or operational debtor as the case may
be) under .................. (Section 7, section 9 or section 10 as the case may
be) of the Insolvency and Bankruptcy Code read with ..................(please
fill Rule 4, Rule 6 or Rule 7 as the case may be) of Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules 2016 was admitted
by ...............................(please fill the details of NCLT Bench) vide order
no..................dated......................wherein......................, the undersigned

(Please fill in the name of the Interim Professional) was appointed as Interim

Resolution Professional who is directed to take necessary actions in
accordance with the relevant provisions of the Insolvency and Bankruptcy

Board of India.

2. The registered office of the ...................(corporate Debtor) is situated at

............................... (address of the Registered Office)

3. In Compliance with Section 13, Section 15 and other applicable sections
of the Code read with Regulation 6 of Insolvency and Bankruptcy Board of

India (Insolvency Resolution Process for Corporate Persons) Regulations

2016 (here in after cal ed ‘Regulations’), a public announcement
a. intimating the commencement of Corporate insolvency Resolution

Process against...................... (insert the name of Corporate Debtor)

and
b. calling the creditors to submit the proof of claims was made on

......................(date) in...................... (name of the national and
details of edition...) and on .........................(name of the vernacular
newspaper where the registered office of the corporate Debtor is
situated).

4. The last date of submission of claims was...................(fill in the last date
of submission of claims as stated in the public announcement and should not
be later than 14 days from the date of insolvency commencement date)

5. The public notice sought proof of claims from financial creditors in form C
as stipulated in Regulation 8. Til the last date of claim (i.e..............) the
undersigned interim professional has received claims from the following
financial creditors

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Sl No. Name of the Creditor

Amount of claim

Details of Security
interest

6. The public notice sought proof of claims from operational creditors in
form B as stipulated in Regulation 7. Till the last date of claim (i.e..............)

the undersigned interim professional has received claims from the following
operational creditors

Sl. No. Name of the Creditor

Amount of claim

7. The public notice sought proof of claims from operational creditors in form

D/Form E as stipulated in Regulation 9. Till the last date of claim (i.e..............)

the undersigned interim professional has received claims from the fol owing
workman /employee/Authorised representative of workmen and employees

Sl. No. Name of the Creditor

Amount of claim

8. The undersigned interim Resolution professional has duly verified the
claims of the aforesaid creditors.

9. The list of creditors was filed with Hon’ble National Company Law Tribunal

(Bench) in compliance with Regulation 13 (2)(d)

10. In compliance with Section 21(1) of the Code the undersigned interim
resolution professional certifies the constitution of the Committee of Creditors
which consists of the fol owing creditors.

a ........................

b ........................

c ........................

PRACTICAL ASPECTS OF INSOLVENCY LAW

129

ANNEXURE VII.10

Intimation to the Employees of the Corporate Debtor

Date: ___________

To,

The employees of [ name of the corporate debtor]

Dear Sir/Madam,

Subject: Intimation to the Employee(s)/ Officer(s)/ Manager(s) of
initiation of Corporate Insolvency Resolution Process (CIRP) against

[name of the corporate debtor] and appointment of Interim Resolution

Professional

I/We hereby intimate you that CIRP has been initiated in respect of [ name
of the corporate debtor] under the provisions of Insolvency and Bankruptcy

Code, 2016 (“Code”) by an order of National Company Law Tribunal (“NCLT”)

with effect from [ insolvency commencement date].

As per section 17 of the Code, the powers of the [ Board of Directors] or

[ Partners] of [ name of the corporate debtor] stands suspended, and such
powers shall be vested with me/us, [ name of the Interim Resolution

Professional], having IP Registration no. [ IP Registration no. ], appointed as
the Insolvency Resolution Professional.

It may further be noted that as per the stipulations contained in Section 17
of the Code, once the Interim resolution Professional has been appointed:

(a) The management of the affairs of the corporate debtor is taken over
by him/her;

(b) The powers of the Board of Directors or the partners of the Corporate

Debtor, as the case may be, are suspended and be exercised by the

IRP;

(c) The officers and managers of the corporate debtor shall report to the

IRP and co-operate with him/her in providing access to documents
and records of the corporate debtor;

(d) The financial institutions maintaining accounts of the corporate debtor
shal furnish al information relating to the corporate debtor available
with them to the IRP.

In accordance with the above mentioned provision you are advised to co-
operate with me/us in providing access to documents and records pertaining

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PRACTICAL ASPECTS OF INSOLVENCY LAW
to [ corporate debtor] as and when requisitioned by me/us for the smooth
conduct of the corporate insolvency resolution process.

The instant intimation w.r.t initiation of CIRP and appointment of Interim

Resolution Professional is for your information.

Thanking you,

Yours faithful y,

[ name of the Insolvency Resolution Professional]

[ IP Registration no.]

Enclosed:

(a) A copy of the NCLT order dated [date of the order]

(b) A copy of the Public Announcement made under Regulation 6 of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016.

PRACTICAL ASPECTS OF INSOLVENCY LAW

131

ANNEXURE VII.11

Application to the Adjudicating Authority for non-cooperation by

Personnel

Before the National Company Law Tribunal

Bench

IN THE MATTER OF:

[Name of the Financial Creditor/Operational Creditor/Corporate Applicant]

.....Petitioner

AND

[Name of the Interim Resolution Professional]

.....Applicant

VERSUS

[Name of the Corporate Debtor]

.....Respondent

APPLICATION U/S 19(2) AND 19(3) OF THE INSOLVENCY AND

BANKRUPTCY CODE, 2016 (“CODE”) FOR ISSUANCE OF NECESSARY

DIRECTIONS TO THE PERSONNEL OF THE RESPONDENT TO COMPLY

WITH THE INSTRUCTIONS OF THE APPLICANT AND/OR TO PROVIDE

THE REQUISITE INFORMATION TO THE APPLICANT IN DISCHARGING

HIS DUTIES AS AN INTERIM RESOLUTION PROFESSIONAL UNDER

THE CODE

Most Respectfully Showeth:

1. That the instant petition has been filed by [ name of the Financial Creditor/

Operational Creditor/Corporate Applicant] hereinafter referred to as the

[“Financial Creditor/Operational Creditor/Corporate Applicant”, as the case
may be] u/s [7 of the Code read with rule 4 of the Insolvency and Bankruptcy

Board of India (Application to Adjudicating Authority) Rules, 2016 / 8 of the

Code read with rule 6 of the Insolvency and Bankruptcy Board of India

(Application to Adjudicating Authority) Rules, 2016 / 9 of the Code read with
rule 7 of the Insolvency and Bankruptcy Board of India (Application to

Adjudicating Authority) Rules, 2016, as the case may be] for initiating

Corporate Insolvency resolution Process (“CIRP”) against [ name of the

Corporate Debtor] hereinafter referred to as the “Corporate Debtor”, claiming

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the dues amounting to Rs. [ amount of financial debt/operational debt, as
the case may be]/- owed to [ Name of the Financial Creditor/ Operational

Creditor/Corporate Applicant, as the case may be] by the [ Name of the

Corporate Debtor].

2. That the aforesaid petition was heard on [ date of hearing] by the Hon’ble

National Company Law Tribunal, [ name of the relevant Bench] Bench

(hereinafter referred to as the “Hon’ble Bench”) and upon the said hearing,
the Hon’ble Bench was pleased to pass an order on [ date of order] appointing
the Applicant as the Interim Resolution professional to carry out the functions
mentioned under the Code. A copy of the order dated [date of order] is
enclosed herewith as Annexure-1.

3. That pursuant to the receipt of the aforesaid order on [ date of receipt of
order], the Applicant made a Public Announcement in accordance with

Section 15 of the Code read with Regulation 6 of Chapter III of the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 in the newspapers viz. [ name of the newspapers]

and also on the website of the Corporate Debtor and the Insolvency and

Bankruptcy Board of India. A copy of the aforesaid Public Announcement is
enclosed herewith as Annexure-2.

4. That the Applicant also intimated the Employee(s)/ Officer(s)/ Manager(s)

of the [ name of the corporate debtor] about the initiation of Corporate

Insolvency Resolution Process (CIRP) against [ name of the corporate debtor]

and appointment of the Applicant as the Interim Resolution Professional.

The copy of the aforesaid intimation is enclosed herewith as Annexure-3.

5. That the Applicant submits that the Personnel of the [ name of the corporate
debtor] are not extending assistance and co-operation to the Applicant which
is imperative for the Applicant to manage the affairs of the Corporate Debtor.

The Applicant further submits that under the circumstances the Applicant
is not able to carry out his duties and responsibilities as Interim Insolvency

Professional as mandated under the law.

6. The Applicant further submits that the present application is made bonafide
and in the ends of justice.

PRAYER

In the aforesaid facts and circumstances, it is most humbly and respectfully
prayed that this Hon’ble Bench may graciously be pleased to:

(a) issue necessary directions to the Personnel of the Corporate Debtor

[name of the corporate debtor] to extend assistance and co-operation

PRACTICAL ASPECTS OF INSOLVENCY LAW

133
to the Applicant which is imperative for the Applicant to manage the
affairs of the Corporate Debtor and to carry out his duties and
responsibilities as Interim Insolvency Professional as mandated under
the law;

(b) pass such other order/directions as this Hon’ble Bench may deem fit
and proper in the facts and circumstances of the case.

AND FOR THIS ACT OF KINDNESS, THE APPLICANT AS IN DUTY

BOUND, SHALL EVER PRAY.

APPLICANT

[ Name of the Interim Resolution Professional]

[ Address of the Applicant]

Place:

Date:

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PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE VII.12

APPLICATION FOR TO THE ADJUDICATING AUTHORITY FOR

SEEKING ASSISTANCE OF LOCAL DISTRICT ADMINISTRATION

Before the National Company Law Tribunal

Bench

IN THE MATTER OF:

[ Name of the Financial Creditor/Operational Creditor/Corporate Applicant]

.....Petitioner

AND

[ Name of the Interim Resolution Professional]

.....Applicant

VERSUS

[ Name of the Corporate Debtor]

.....Respondent

APPLICATION UNDER REGULATION 30 OF THE INSOLVENCY AND

BANKRUPTCY BOARD OF INDIA (INSOLVENCY RESOLUTION

PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2016 FOR

ISSUANCE OF NECESSARY DIRECTIONS TO THE LOCAL DISTRICT

ADMINISTRATION TO EXTEND ASSISTANCE TO THE APPLICANT IN

DISCHARGING HIS DUTIES AS AN INTERIM RESOLUTION

PROFESSIONAL UNDER THE INSOLVENCY AND BANKRUPTCY CODE,

2016 (“CODE”)

Most Respectfully Showeth:

1. That the instant petition has been filed by [ name of the Financial Creditor/

Operational Creditor/Corporate Applicant] hereinafter referred to as the

[“Financial Creditor/Operational Creditor/Corporate Applicant”, as the case
may be] u/s [7 of the Code read with rule 4 of the Insolvency and Bankruptcy

Board of India (Application to Adjudicating Authority) Rules, 2016 / 8 of the

Code read with rule 6 of the Insolvency and Bankruptcy Board of India

(Application to Adjudicating Authority) Rules, 2016 / 9 of the Code read with
rule 7 of the Insolvency and Bankruptcy Board of India (Application to

Adjudicating Authority) Rules, 2016, as the case may be] for initiating

Corporate Insolvency resolution Process (“CIRP”) against [name of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

135

Corporate Debtor] hereinafter referred to as the “Corporate Debtor”, claiming
the dues amounting to Rs. [ amount of financial debt/operational debt, as
the case may be]/- owed to [ Name of the Financial Creditor/ Operational

Creditor/Corporate Applicant, as the case may be] by the [Name of the

Corporate Debtor].

2. That the aforesaid petition was heard on [date of hearing] by the Hon’ble

National Company Law Tribunal, [ name of the relevant Bench] Bench

( hereinafter referred to as the “Hon’ble Bench” ) and upon the said hearing,
the Hon’ble Bench was pleased to pass an order on [ date of order] appointing
the Applicant as the Interim Resolution professional to carry out the functions
mentioned under the Code. A copy of the order dated [date of order] is
enclosed herewith as Annexure-1.

3. That pursuant to the receipt of the aforesaid order on [ date of receipt of
order], the Applicant made a Public Announcement in accordance with

Section 15 of the Code read with Regulation 6 of Chapter III of the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 in the newspapers viz. [ name of the newspapers]

and also on the website of the Corporate Debtor and the Insolvency and

Bankruptcy Board of India. A copy of the aforesaid Public Announcement is
enclosed herewith as Annexure-2.

4. That the Applicant submits that the Local District Administration is not
extending assistance and co-operation to the Applicant in discharging his
duties as an Interim Resolution Professional under the Code. The Applicant
further submits that under the circumstances the Applicant is not able to
carry out his duties and responsibilities as Interim Insolvency Professional
as mandated under the law.

5. The Applicant further submits that the present application is made bonafide
and in the ends of justice.

PRAYER

In the aforesaid facts and circumstances, it is most humbly and respectfully
prayed that this Hon’ble Bench may graciously be pleased to:

(a) issue necessary directions to the local district administration to extend
assistance and co-operation to the Applicant which is imperative for
the Applicant to carry out its duties and responsibilities as Interim

Insolvency Professional as mandated under the law;

(b) pass such other order/directions as this Hon’ble Bench may deem fit
and proper in the facts and circumstances of the case.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

AND FOR THIS ACT OF KINDNESS, THE APPLICANT AS IN DUTY

BOUND, SHALL EVER PRAY.

APPLICANT

[ Name of the Interim Resolution Professional]

[ Address of the Applicant]

Place:

Date:

PRACTICAL ASPECTS OF INSOLVENCY LAW

137

ANNEXURE VII.13

SPECIMEN NOTICE OF FIRST MEETING OF THE COMMITTEE OF

CREDITORS Notice

Notice is hereby given that the 1st Meeting of the Committee of Creditors of

(Name of the Corporate Debtor) will be held on at at to transact the following
business:

1. Chairman (Interim Professional) to preside over the Meeting.

2. To ascertain quorum for the meeting.

3. To consider and take note of the list of Creditors.

4. To discuss and deliberate on the statement of claim submitted by
interim Resolution Professional.

5. To discuss and deliberate on the Information Memorandum.

6. To ratify the expenses incurred by the interim professional.

7. To ratify the expenses incurred by Applicant of CIRP.

8. To ratify the remuneration paid to interim professional.

9. To appoint Resolution Professional (either interim professional or other
resolution professional as the case may be).

10. To approve any following agenda (as applicable)

(a) raise any interim finance in excess of the amount as may be
decided by the committee of creditors in their meeting;

(b) create any security interest over the assets of the corporate
debtor;

(c) change the capital structure of the corporate debtor, including
by way of issuance of additional securities, creating a new
class of securities or buying back or redemption of issued
securities in case the corporate debtor is a company;

(d) record any change in the ownership interest of the corporate
debtor;

(e) give instructions to financial institutions maintaining accounts
of the corporate debtor for a debit transaction from any such
accounts in excess of the amount as may be decided by the
committee of creditors in their meeting;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(f) undertake any related party transaction;

(g) amend any constitutional documents of the corporate debtor;

(h) delegate its authority to any other person;

(i) dispose of or permit the disposal of shares of any shareholder
of the corporate debtor or their nominees to third parties;

(j) make any change in the management of the corporate debtor
or its subsidiary;

(k) transfer rights or financial debts or operational debts under
material contracts otherwise than in the ordinary course of
business;

(l) make changes in the appointment or terms of contract of such
personnel as specified by the committee of creditors; or

(m) make changes in the appointment or terms of contract of
statutory auditors or internal auditors of the corporate debtor.

11. To discuss on the Information Memorandum.

12. To discuss such other matters with the permission of majority of

Members of the Committee of Creditors as may be deemed necessary
for the smooth functioning of the corporate insolvency resolution
process.

A statement of claim as on ........................... (please insert insolvency
commencement date) (the day of NCLT order) is enclosed for your reference.

Notes:

1. A Member of the Committee of Creditors entitled to attend and vote
at the Meeting is entitled to appoint its/his authorised representative
to attend and vote instead of itself / himself. Such member shall
inform IRP ........................... hours in advance of the meeting along
with identity of authorized representative and such authorized
representative shal carry is valid identity card.

2. The Members of suspended Board of Directors of Corporate Debtor
and operational creditors or their representatives if any are not entitled
to vote at the meeting.

3. The vote of members of the Committee shal not be taken at the
meeting unless all members are present at the meeting and are ready
for voting

PRACTICAL ASPECTS OF INSOLVENCY LAW

139

4. If al the members are not present at a meeting, a vote shall not be
taken at such meeting and the resolution professional shal circulate
the minutes of the meeting by electronic means to al members of
the committee within forty eight hours of the conclusion of the meeting;
and seek a vote on the matters listed for voting in the meeting, by
electronic voting system where the voting shall be kept open for
twenty four hours from the circulation of minutes.

5. Members of the Committee of Creditors can participate through video
conferencing and audio visual means. If so, the same may be
intimated to the interim resolution professional hours before the
meeting at the ........................... (e-mail address).

The details of electronic voting system is as under (please provide the time
duration, log in and other e-voting process).

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PRACTICAL ASPECTS OF INSOLVENCY LAW

CHAPTER - VIII

INFORMATION MEMORANDUM

When an application for initiation of Corporate Insolvency Resolution Process

(‘CIRP’) is admitted by the NCLT and an IRP is appointed, his role starts
with issue of Public Announcement inviting claims. The major functions of

IRP include, amongst others :

(1) Col ection and verification of claims

(2) Appointment of Registered Valuer

(3) Preparation of Information Memorandum

(4) Conducting first meeting of Committee of Creditors

‘Information Memorandum’ is the basis for preparing the resolution plan and
consists of information including list of creditors and the amount of claims
admitted, debt due from related parties, number of workers and employees
and liabilities due to them, latest audited financial statements and audited
financial statements for the last two years, provisional financial statements
upto a date which is not earlier than fourteen days from the date of
application, liquidation value etc.

The objectives of Information Memorandum

Excerpts from the Report of Bankruptcy Legislative Reforms Committee in
the context of Information Memorandum in para 5.3.2.

“2. The information collected on the entity is used to compile an information
memorandum, which is signed off by the debtor and the creditors
committee, based on which solutions can be offered to resolve the
insolvency. In order for the market to provide solutions to keep the entity
as a going concern, the information memorandum must be made available
to potential financiers within a reasonable period of time from her
appointment to the IRP. If the information is not comprehensive, the RP

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PRACTICAL ASPECTS OF INSOLVENCY LAW

141
must put out the information memorandum with a degree of completeness
of the information that she is wil ing to certify.

For example, as part of the information memorandum, the RP must clearly
state the expected shortfal in the coverage of the liabilities and assets
of the entity presented in the information memorandum. Here, the asset
and liabilities include those that the RP can ascertain and verify from the
accounts of the entity, the records in the information system, the liabilities
submitted at the start of the IRP, or any other source as may be specified
by the Regulator.

3. Once the information memorandum is created, the RP must make
sure that it is readily available to whoever is interested to bid a solution
for the IRP. She has to inform the market

(a) that she is the RP in charge of this case, (b) about a transparent
mechanism through which interested third parties can access the
information memorandum, (c) about the time frame within which possible
solutions must be presented and (d) with a channel through which solutions
can be submitted for evaluation.

The Code does not specify details of the manner or the mechanism in
which this should be done but rather emphasises that it must be done in
a time-bound manner and that it is accessible to al possible interest
parties.”

Information Memorandum - Definition

Section 5(10) “information memorandum” means a memorandum prepared
by resolution professional under sub-section (1) of section 29;

Resolution Professional to prepare Information Memorandum (Section

29)

Information Memorandum to contain certain mandatory information

(1) RP shall prepare an information memorandum in such form and manner
containing such relevant information as may be specified by the Board for
formulating a resolution plan. The mandatory contents of information
memorandum are stated in Regulation 36 of CIRP Regulations.

Sub-regulation (1) of Regulation 36 of the CIRP Regulations has been
substituted by CIRP Amendment Regulations, 2018 and the same reads
that:

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PRACTICAL ASPECTS OF INSOLVENCY LAW

“(1) Subject to sub-regulation (4), the resolution professional shal submit
the information memorandum in electronic form to (a) each member of
the committee within two weeks of his appointment as resolution
professional; and (b) to each prospective resolution applicant latest by
the date of invitation of resolution plan under clause (h) of sub-section (2)

of section 25 of the Code.”

It is also mandated now that the information memorandum shal contain,
inter alia, description of the assets and liabilities of corporate debtor. In the

CIRP regulations, for clause (a) of sub-regulation (2) of regulation 36, the
fol owing clause has been substituted, namely: -

“(a) assets and liabilities with such description, as on the insolvency
commencement date, as are general y necessary for ascertaining
their values.

Explanation: “Description” includes the details such as date of
acquisition, cost of acquisition, remaining useful life, identification
number, depreciation charged, book value, and any other relevant
details.”

Sub-regulation (4) of Regulation 36 of the CIRP Regulations has been
substituted as under:

“(4) The resolution professional shall share the information memorandum
after receiving an undertaking from a member of the committee or a
prospective resolution applicant to the effect that such member or
resolution applicant shal maintain confidentiality of the information and
shal not use such information to cause an undue gain or undue loss to
itself or any other person and comply with the requirements under sub-
section (2) of section 29.”

Resolution Applicant is to be provided with information subject to
confidentiality agreement

(2) RP shall provide to the resolution applicant access to all relevant
information in physical and electronic form, provided such resolution applicant
undertakes –

(a) to comply with provisions of law for the time being in force relating to
confidentiality and insider trading;

(b) to protect any intel ectual property of the corporate debtor it may
have access to; and

PRACTICAL ASPECTS OF INSOLVENCY LAW

143

(c) not to share relevant information with third parties unless clauses (a)

and (b) of this sub-section are complied with.

Explanation.– For the purposes of this section, “relevant information” means
the information required by the resolution applicant to make the resolution
plan for the corporate debtor, which shall include the financial position of the
corporate debtor, all information related to disputes by or against the corporate
debtor and any other matter pertaining to the corporate debtor as may be
specified.

Resolution applicant to submit Resolution Plan on the basis of information

Memorandum

30. (1) A resolution applicant may submit a resolution plan to the resolution
professional prepared on the basis of the information memorandum.

Seciton 5(25) “resolution applicant” 1 means a person who, individually or
jointly with any other person, submits a resolution plan to the resolution
professional pursuant to the invitation made under clause (h) of sub-
section (2) of Section 25;

Section 5(26) “resolution plan” means a plan proposed by resolution
applicant2 for insolvency resolution of the corporate debtor as a going
concern in accordance with Part II of the Code.

Contents of Information Memorandum (Regulation 36 of CIRP

Regulations)

(1) Subject to sub-regulation (4), the resolution professional shall submit
the information memorandum in electronic form to-

(a) each member of the committee within two weeks of his appointment
as resolution professional; and

(b) to each prospective resolution applicant latest by the date of invitation
of resolution plan under clause (h) of sub-section (2) of section 25 of
the Code.3

1. Substituted by section 3(a) of the Insolvency and Bankruptcy Code (Amendment) Act,

2017 (w.e.f. 23-11-2017) for the definition of ‘resolution applicant’ under section 5(25) of the

Code.

2. Substituted by section 3(a) of the Insolvency and Bankruptcy Code (Amendment) Act,

2017 (w.e.f. 23-11-2017) for the words “any person”.

3. Substituted vide Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Amendment) Regulations, 2018

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(2) The information memorandum shal contain the fol owing details of the
corporate debtor-

(a) assets and liabilities with such description, as on the insolvency
commencement date, as are general y necessary for ascertaining
their values.

Explanation: “Description” includes the details such as date of
acquisition, cost of acquisition, remaining useful life, identification
number, depreciation charged, book value, and any other relevant
details.4

(b) the latest annual financial statements;

(c) audited financial statements of the corporate debtor for the last two
financial years and provisional financial statements for the current
financial year made up to a date not earlier than fourteen days from
the date of the application;

(d) a list of creditors containing the names of creditors, the amounts
claimed by them, the amount of their claims admitted and the security
interest, if any, in respect of such claims;

(e) particulars of a debt due from or to the corporate debtor with respect
to related parties;

(f) details of guarantees that have been given in relation to the debts of
the corporate debtor by other persons, specifying which of the
guarantors is a related party;

(g) the names and addresses of the members or partners holding at
least one per cent stake in the corporate debtor along with the size of
stake;

(h) details of all material litigation and an ongoing investigation or
proceeding initiated by Government and statutory authorities;

(i) the number of workers and employees and liabilities of the corporate
debtor towards them; and

4. Substituted vide Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Amendment) Regulations, 2018

PRACTICAL ASPECTS OF INSOLVENCY LAW

145

(j) other information, which the resolution professional deems relevant
to the committee.5

(3) A member of the committee may request the resolution professional for
further information of the nature described in this Regulation and the
resolution professional shal provide such information to all members within
reasonable time if such information has a bearing on the resolution plan.

(4) The resolution professional shal share the information memorandum
after receiving an undertaking from a member of the committee or a
prospective resolution applicant to the effect that such member or resolution
applicant shal maintain confidentiality of the information and shal not use
such information to cause an undue gain or undue loss to itself or any other
person and comply with the requirements under sub-section (2) of section

29.6

Sources of information for preparation of information memorandum

1. Publicly available sources such as Ministry of Corporate Affairs, Stock
exchanges where the securities of the Company if any listed.

2. Companies Financial Statements and internal Sources

5. Information regarding the liquidation value and the liquidation value due to operation
creditors have been omitted by the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) (Fourth Amendment) Regulations, 2017,

Regulation 4 (w.e.f. 31-12-2017). Prior to its omission, it read as fol ows:

“(j) the liquidation value;

(k) the liquidation value due to operational creditors;

6. Substituted vide Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Amendment) Regulations, 2018

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PRACTICAL ASPECTS OF INSOLVENCY LAW

MODEL INFORMATION MEMORANDUM

Specimen application form for receiving Information Memorandum

(Name and address of the Corporate Debtor)

(Phone No. of the Corporate Debtor)

(Contact details of the resolution professional)

1. Name of the person seeking information memorandum :

................................................................................................

....................................

2. Status of the person:

Individual

Company

Partnership firms/LLP

Any other entity

3. Correspondence address of the person seeking information
memorandum:

................................................................................................

....................................

................................................................................................

....................................

4. PAN of the person seeking information memorandum (please enclose
a copy):

................................................................................................

....................................

5. E-mail ID of the person seeking information memorandum:

................................................................................................

....................................

6. Phone No.:

................................................................................................

....................................

7. Relationship of the person with the Corporate Debtor, if any:

................................................................................................

....................................

PRACTICAL ASPECTS OF INSOLVENCY LAW

147

UNDERTAKING

I/We ............................................ , resident of/having principal place of
business at/having registered office at ................................................

........................................................................................ hereby
solemnly declare that the information provided herein is true and correct to
the best of my knowledge. I/we have read and understood all the terms and
conditions relating to information memorandum under the provisions of the

Insolvency and Bankruptcy Code, 2016 read with regulations there under
and hereby express our interest in the receiving the information memorandum
for the said Company.

I/We also hereby solemnly affirm, declare and undertake that I/we shall
maintain the confidentiality of the information of the Corporate Debtor and
shall not use such information to cause an undue gain or undue loss to itself
or any other person and comply with the requirements under Section 29(2)

of the Insolvency and Bankruptcy Code, 2016, viz.,

(a) to comply with provisions of law for the time being in force relating to
confidentiality and insider trading;

(b) to protect any intel ectual property of the corporate debtor it may
have access to; and

(c) not to share relevant information with third parties unless clauses (a)

to (b) of this sub-section are complied with.

............................................

(Signature of the person)

(Name & address of the person)

Date:

Place:

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PRACTICAL ASPECTS OF INSOLVENCY LAW

MODEL INFORMATION MEMORANDUM

[ Pursuant to Section 29 of Insolvency and Bankruptcy Code, 2016 read
with Regulation 36(1) of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons)

Regulations, 2016]

IN THE MATTER OF............................................ (NAME OF THE

CORPORATE DEBTOR)

Vide Case No:

...........................................................................................................

(ADDRESS OF THE CORPORATE DEBTOR)

(PHONE NO. OF THE CORPORATE DEBTOR)

(CONTACT DETAILS OF THE INSOLVENCY RESOLUTION

PROFESSIONAL/RESOLUTION PROFESSIONAL)

INDEX

S.

Particulars

Annexure

No.

No.

1.

About the Corporate Debtor

A

2.

About the Promoters & Board of Directors

B

3.

Shareholding Pattern

C

4.

Assets and liabilities Statement as on

D

................ (insolvency commencement date)

5.

Latest annual financial statements

E

6.

Audited financial statements of the Corporate

F

Debtor for the last two financial years &
provisional financial statements for the current
financial year made up to ................... (date
not earlier than fourteen days from the date of
application)

7.

List of creditors

G

8.

Particulars of debt due from or due to corporate

H
debtor with respect to related parties

9.

Details of guarantees that have been given in

I

PRACTICAL ASPECTS OF INSOLVENCY LAW

149
relation to debts of the corporate debtor by
other persons

10.

Names and addresses of members or partners

J
holding at least one per cent stake in the
corporate debtor

11.

Details of al material litigations and ongoing

K
investigations or proceedings initiated by

Government and statutory authorities

12.

Details of number of workers and employees

L
and liabilities of the corporate debtor towards
them

13.

Copy of the Order passed by National Company

M

Law Tribunal (NCLT) admitting the application of
the Corporate Debtor

14.

Any other information relevant to the

N

Committee of Creditors

IN THE MATTER OF ....................................................... (NAME OF

THE CORPORATE DEBTOR)

(ADDRESS OF THE CORPORATE DEBTOR)

(PHONE NO. OF THE CORPORATE DEBTOR)

(CONTACT DETAILS OF THE INSOLVENCY RESOLUTION

PROFESSIONAL/RESOLUTION PROFESSIONAL)

ANNEXURE–A

1. About the Corporate Debtor

1.1 Incorporation details

1.2 Detail about the business and activities of the corporate debtor

1.3 Detail of its past performance and recent developments

1.4 Detail of any change in the status of the company (e.g.- from private
to public, merger, demerger etc.)

1.5 Details of its products/services and the aspects of competitiveness
therein

1.6 Details of al offices, branches and factories along with the names,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
addresses and contact numbers of Directors, Principal Officers and

Key Management Personnel of the Organisation

1.7 Detail of its key suppliers

1.8 Detail of its key customers

1.9 Details of its marketing strategy

1.10 Comparison of information col ected from the officers of the Corporate

Debtor with the information col ected from public sources. Also state
the reasons of deviation, if any.

ANNEXURE–B

2. About the Promoters & Board of Directors

2.1 Details of promoters (specify detail of each promoter on an individual
basis)

2.2 Details of directors/partners

S.

Name & address

Designation

Director

Date of

No. of the Directors/

Identification appointment

Designated

Number

Partners/

(DIN)

Partners

1.

2.

2.3 Details of Key Managerial Personnel (please specify details of each

KMP on an individual basis)

2.4 Details of transfer of shares from/to the promoters or KMPs (during
the current financial year and last two financial years)

ANNEXURE–C

3. Shareholding Pattern

3.1 Shareholding pattern as on 31st March, 20_____

S.

Name of

Type of

Number

Amount

Percentage

No. the
shares
of shares of share
of
shareholder
held
held
capital
share-
held (Rs.) holding

PRACTICAL ASPECTS OF INSOLVENCY LAW

151

3.2 Details of companies or firms in which the Corporate Debtor is a
member

S.

Name of the

No. of shares

Percentage

No.

company/firm
of shareholding

ANNEXURE - D

4. Assets and Liabilities Statement as on .................. (insolvency
commencement date)

LIABILITIES

Notes

As on

__________

(Rs.)

Shareholders’ funds:

(a) Share Capital

(b) Reserve and surplus

(c) Money received against warrants

Share application money pending allotment

Non-current liabilities:

(a) Long term borrowings

(b) Deferred tax liabilities (net)

(c) Other Long term liabilities

(d) Long-term provisions

Current Liabilities:

(a) Short-term borrowings

(b) Trade payables

(c) Other current liabilities

(d) Short-term provisions

TOTAL

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ASSETS

Notes

As on

__________

(Rs.)

Non-current assets:

(a) Fixed assets:

(i) Tangible assets

(ii) Intangible assets

(iii) Capital work-in-progress

(iv) Intangible assets under development

(b) Non-current investments

(c) Deferred tax assets (net)

(d) Long term loans and advances

(e) Other non-current assets

Current Assets:

(a) Current Investments

(b) Inventories

(c) Trade receivables

(d) Cash and cash equivalents

(e) Short term loans and advances

(f) Other current assets

TOTAL

*Kindly specify description of each asset such as date of acquisition, cost of acquisition,
remaining useful life, identification number, depreciation charged, book value, and any
other relevant details.

PRACTICAL ASPECTS OF INSOLVENCY LAW

153

ANNEXURE-E

5. Latest Annual Financial Statements

Annual Financial Statements for the year ended 31st March, ....................

(Please attach the latest annual financial statement of the Corporate Debtor)

ANNEXURE - F

6. Audited financial statements of the Corporate Debtor for the last
two financial years and provisional financial statements for the current
financial year made up to .................... (date not earlier than fourteen
days from the date of application)

6.1. Audited financial statements of the Corporate Debtor for the year
ended .................... & ....................

6.2 Provisional financial statements for the current financial year made
up to .................... (date not earlier than fourteen days from the
date of application)

(Please attach the audited financial statements of the Corporate

Debtor for the last two financial years and Provisional financial
statements for the current financial year up to a date not earlier than
fourteen days from the date of application, either jointly or individually)

ANNEXURE-G

7. List of creditors

S.

Name of

Nature of

Amount of

Amount

Particulars

No. the Creditor creditor
claim (Rs.)

admitted
of security

(Financial/

(Rs.)

interest, if

Operational/
any

Other)

1.

2.

ANNEXURE - H

8. Particulars of debt due from or due to corporate debtor with respect
to related parties

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PRACTICAL ASPECTS OF INSOLVENCY LAW

S.

Name

Nature

Detail

Amount of debt involved

Amount

No. and
of
of

(Rs.)

due to/due
address relation- transa-
from
of the
ship
ction

Corporate
related

Debtor
party

Principal Interest Total

1.

2.

ANNEXURE - I

9. Details of guarantees that have been given in relation to debts of the
corporate debtor by other persons

S.

Name of the

Nature and detail

Name of the Amount

No. financial creditor
relating to
party
guaranteed
to whom guarantee transaction of
extending
by the party
has been issued
the debt in respect guarantee

(Rs.)

of which guarantee
has been given

1.

2.

ANNEXURE - J

10. Names and addresses of members or partners holding at least
one per cent stake in the corporate debtor

Sl.

Name of the Address of

Number

Amount

Percentage

No. member/
the member/ of shares
of share
of
partner
partner
held
capital
shareholding
held (Rs.) (%)

PRACTICAL ASPECTS OF INSOLVENCY LAW

155

ANNEXURE-K

11. Details of all material litigations and ongoing investigations or
proceedings initiated by Government and statutory authorities

S.

Name of the

Period

Amount involved (Rs.)

Details

No.

Government
involved
of the
or statutory
material
authority
litigation/
which has
investigation/
initiated the
proceeding
material
litigation/
investigation/
proceedings

Penalty Interest Total

1.

2.

ANNEXURE-L

12. Details on number of workers and employees and liabilities of the
corporate debtor towards them

S.

Name of the Designation

Address

Amount of

Amount

No. worker/
of the worker/
of the
dues
admitted
employee
employee
worker/
subsisting

(Rs.)

employee
as on

_____(Rs.)

1.

2.

ANNEXURE-M

13. Copy of the Order passed by National Company Law Tribunal

(NCLT) admitting the application of the Corporate Debtor

The copy of Order passed by NCLT admitting the application of the Corporate

Debtor must be attached.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE - N

14. Any other information relevant to the Committee of Creditors

Any other information that is considered relevant by the interim resolution
professional/resolution professional to be furnished to the Committee of

Creditors to facilitate them in the preparation and better understanding of
the resolution plan must be provided herein.

.......................................................

(Signature of the IRP/RP)

(Name & address of the IRP/RP)

(IP Registration No. with IBBI: .......................................)

Date:

Place:

PRACTICAL ASPECTS OF INSOLVENCY LAW

157

CHAPTER - IX

CONTENTS OF RESOLUTION PLAN AND MODEL

RESOLUTION PLAN

Introduction

The entire paradigm of CIRP rests on the foundation of an effective resolution
plan. Resolution plan form an integral part of an insolvency resolution process
which lists down detailed strategies for quick and efficient resolution of
corporate debtor.

Section 5(26) of the Code defines ‘Resolution Plan’ as a plan proposed by
resolution applicant1 for insolvency resolution of the corporate debtor as a
going concern in accordance with Part II of the Code. Part II of the Code, in
turn, lays down the provisions relating to CIRP of companies and limited
liability partnership firms. In the absence or non-approval of a workable
resolution plan, the entire CIRP crumbles and liquidation process sets in for
the corporate debtor.

Deemed Resolution Plans

The Ministry of Corporate Affairs vide Order dated 24th May, 2017 provided
that any Scheme sanctioned under sub-section (4) or any Scheme under
implementation under sub-section (12) of Section 18 of the Sick Industrial

Companies (Special Provisions) Act, 1985 shal be deemed to be an approved
resolution plan under Section 31(1) of the Code and the same shall be dealt
with, in accordance with the provisions of Part II of the Code.

In brevity, the schemes sanctioned or implemented under the Sick Industrial

Companies (Special Provisions) Act, 1985 shal be deemed as resolution
plans under the Code and be dealt with accordingly under the provisions of
the Code.

1. Substituted by section 3(b) of the Insolvency and Bankruptcy Code (Amendment) Act,

2017 (w.e.f. 23-11-2017)

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Who can submit a Resolution Plan?

Section 5(25)2 of the Code defines ‘resolution applicant’ as a person who,
individually or jointly with any other person, submits a resolution plan to the
resolution professional pursuant to the invitation made under clause (h) of
sub-section (2) of Section 25.

Thereby, a resolution plan may be submitted by any member(s) of the

Committee of Creditors, prospective lender(s), investor(s) or any other person
pursuant to the invitation made by the RP.

Identification of Resolution Applicant

Newly inserted Regulation 35A of the CIRP regulations provides that the

Resolution Professional shal identify the prospective resolution applicants
on or before the 105th day from the insolvency commencement date.

Regulation 36A has been inserted in the CIRP Regulations which provides
for invitation of resolution plans. This regulation mandates, inter alia, that
the RP shall issue an invitation, including evaluation matrix to the prospective
resolution applicants, to submit resolution plan at least thirty days before
the last date of submission of resolution plans.

Regulation 36A of the CIRP Regulations states as under:

“36A. Invitation of resolution plans. – (1) The resolution professional shall
issue an invitation, including evaluation matrix, to the prospective
resolution applicants in accordance with clause (h) of sub-section (2) of
section 25, to submit resolution plans at least thirty days before the last
date of submission of resolution plans.

(2) Where the invitation does not contain the evaluation matrix, the
resolution professional shal issue, with the approval of the committee,
the evaluation matrix to the prospective resolution applicants at least
fifteen days before the last date for submission of resolution plans.

(3) The resolution professional may modify the invitation, the evaluation
matrix or both with the approval of the committee within the timelines
given under sub-regulation (1) or sub-regulation (2), as the case may be.

(4) The timelines specified under this regulation shal not apply to an
ongoing corporate insolvency resolution process-

(a) where a period of less than thirty-seven days is left for submission
of resolution plans under sub-regulation (1);

(b) where a period of less than eighteen days is left for submission of
resolution plans under sub-regulation (2).

2. Substituted by section 3(a) of the Insolvency and Bankruptcy Code (Amendment) Act,

2017 (w.e.f. 23-11-2017)

PRACTICAL ASPECTS OF INSOLVENCY LAW

159

(5) The resolution professional shall publish brief particulars of the invitation
in Form G of the Schedule:

(a) on the website, if any, of the corporate debtor; and

(b) on the website, if any, designated by the Board for the purpose.”

‘Evaluation matrix’ has been inserted as clause (ga) in sub-regulation (1)

of regulation 2 of CIRP Regulations, 2018 to mean as ‘such parameters
to be applied and the manner of applying such parameters, as approved
by the committee, for consideration of resolution plans for its approval.’

Similar to the amendments made in CIRP Regulations, 2016, IBBI has also
amended the Insolvency and Bankruptcy Board of India (Fast Track

Insolvency Resolution Process for Corporate Persons) Regulations, 2016

(“Fast Track Regulations” ) by way of Insolvency and Bankruptcy Board of

India (Fast Track Insolvency Resolution Process for Corporate Persons)

(Amendment) Regulations, 2018 (“Fast Track Amendment Regulations” )

dated 7th February, 2018. The amendments introduced by way of Fast Track

Amendment Regulations are in line with the amendments brought out by

CIRP Amendment Regulations, 2018.

Mandatory contents of the Resolution Plan

Regulation 38 of the CIRP Regulations lists down the mandatory contents
of the resolution plan as follows :

(1) A resolution plan shal identify specific sources of funds that wil be
used to pay the –

(a) insolvency resolution process costs and provide that the insolvency
resolution process costs will be paid in priority to any other creditor;

(b) liquidation value due to operational creditors and provide for such
payment in priority to any financial creditor which shal in any event
be made before the expiry of thirty days after the approval of a
resolution plan by the Adjudicating Authority; and

(c) liquidation value due to dissenting financial creditors and provide
that such payment is made before any recoveries are made by the
financial creditors who voted in favour of the resolution plan.

(1A) A resolution plan shal include a statement as to how it has dealt with
the interests of al stakeholders, including financial creditors and operational
creditors, of the corporate debtor. 3

(2) A resolution plan shal provide:

3. Inserted by the Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Second Amendment) Regulations, 2017, Regulation 2

(w.e.f. 5-10-2017)

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(a) the term of the plan and its implementation schedule;

(b) the management and control of the business of the corporate debtor
during its term; and

(c) adequate means for supervising its implementation.

[(3) A resolution plan shal contain details of the resolution applicant and
other connected persons to enable the committee to assess the credibility
of such applicant and other connected persons to take a prudent decision
while considering the resolution plan for its approval.

Explanation : For the purposes of this sub-regulation, –

(i) ‘details’ shall include the following in respect of the resolution applicant
and other connected person, namely:-

(a) identity;

(b) conviction for any offence , if any, during the preceding five
years;

(c) criminal proceedings pending, if any;

(d) disqualification, if any, under Companies Act, 2013, to act as a
director;

(e) identification as a wil ful defaulter, if any, by any bank or financial
institution or consortium thereof in accordance with the
guidelines of the Reserve Bank of India;

(f) debarment, if any, from accessing to, or trading in, securities
markets under any order or directions of the Securities and

Exchange Board of India; and

(g) transactions, if any, with the corporate debtor in the preceding
two years.

(i ) the expression ‘connected persons’ means-

(a) persons who are promoters or in the management or control of
the resolution applicant;

(b) persons who wil be promoters or in management or control of
the business the corporate debtor during the implementation of
the resolution plan;

(c) holding company, subsidiary company, associate company and
related party of the persons referred to in items (a) and (b).]4

4. Inserted by the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) (Third Amendment) Regulations, 2017, Regulation 2 (w.e.f.

7.11.2017)

PRACTICAL ASPECTS OF INSOLVENCY LAW

161

Measures required for the implementation of the Resolution Plan

Regulation 37(1) of CIRP Regulations provides that a resolution plan may
also provide for measures required for its implementation.

The measures required for implementing a resolution plan may include but
not limited to the fol owing –

(a) transfer of al or part of the assets of the corporate debtor to one or
more persons;

(b) sale of al or part of the assets whether subject to any security interest
or not;

(c) the substantial acquisition of shares of the corporate debtor, or the
merger or consolidation of the corporate debtor with one or more
persons;

(d) satisfaction or modification of any security interest;

(e) curing or waiving of any breach of the terms of any debt due from the
corporate debtor;

(f) reduction in the amount payable to the creditors;

(g) extension of a maturity date or a change in interest rate or other
terms of a debt due from the corporate debtor;

(h) amendment of the constitutional documents of the corporate debtor;

(i) issuance of securities of the corporate debtor, for cash, property,
securities, or in exchange for claims or interests, or other appropriate
purpose; and

(j) obtaining necessary approvals from the Central and State

Governments and other authorities.

Marketability of Resolution Plans

Asset is more valuable when taken over on going concern basis and generates
adequate cash flow as compared to an asset under liquidation. Essence of
the Code is to prevent liquidation of assets that are capable of generating
economies of scale. IBBI has come out with request for proposal (RFP) in
relation to invitation of Resolution Plans from prospective resolution
applicants who wish to bid for business of a corporate debtor undergoing

CIRP. RFP provides relevant information, excluding those prescribed in law,
to help market participant make informed bids and clearly articulate the
process evaluation criteria and timelines to bring transparency and efficiency
to the process.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

In this context, it is relevant to quote the fol owing paragraphs from the

Report of Bankruptcy Legislative Reforms Committee (BLRC Report).

Assessing viability Para 3.2.1 of the BLRC Report relating to “Assessing
viability” states that an enterprise that is facing financial failure is considered
a viable enterprise: there is a possible financial rearrangement that can earn
the creditors a higher economic value than shutting down the enterprise. On
the other hand, where the cost of the financial arrangement required to keep
the enterprise going wil be higher than the NPV of future expected cash
flows. In this case, the enterprise is considered unviable or bankrupt and is
better shut down as soon as possible. However, the assessment of viability
is difficult. There is no fixed or unique approach to answer this question. In
an ideal environment, the assessment will be the outcome of a col ective
decision. Here, creditors and debtor wil negotiate a potential new financial
arrangement. Each of them wil balance al available information, including
al future possibilities of the economic environment under which the enterprise
wil operate, as wel as al alternative investment opportunities available to
the creditors as wel as the debtor.”

Para 3.2.3 of the BLRC Report relating to “what can a sound bankruptcy law
achieve” provides “Avoid destruction of Value” which states that a sound
legal process also provides flexibility for parties to arrive at the most efficient
solution to maximize value during negotiations. If the enterprise is insolvent,
the payment failure implies a loss which must be borne by some of the
parties involved. From the viewpoint of the economy, some firms undoubtedly
need to be closed down. But many firms possess useful organizational
capital. Across a restructuring of liabilities, and in the hands of a new
management team and a new set of owners, some of this organizational
capital can be protected. The objective of the bankruptcy process is to
create a platform for negotiation between creditors and external financiers
which can create the possibility of such rearrangements.

That said, it may be noted that during the negotiations, the debtor is likely to
request that creditors restructure their liabilities so as to ease the liquidity
stress of future repayments. The proposal may contain the need for fresh
financing, either from existing creditors or from new financiers. In exchange,
the debtor may offer to reorganize the operations of the enterprise by giving
up some rights in management or to change the size of operations. Creditors
wil evaluate the proposal and offer modifications on their own. If both sides
see the possibility of value in the enterprise, these negotiations wil settle on
a new financial arrangement. On the other hand, if they cannot agree on a
solution, it wil be optimal for the creditors to sel the assets available and
shut down the enterprise.

PRACTICAL ASPECTS OF INSOLVENCY LAW

163

Resolution plans must be made with an aim to run the business prudently,
proactively manage risks and must strive to exceed the standards regulators
have set for the industry.

Strategies that may be adopted as a part of Resolution Plan

RP invites resolution plan from resolution applicant which may have the
fol owing as part of resolution plan.

1. Compromise/arrangement

2. Financial Restructuring

3. Takeover

4. Merger

5. Demerger

6. Sale of an Undertaking

7. Issue of Corporate Bonds

8. Sale of Brands

9. Government Subsidies

The formal procedure for restructuring encompasses, within its ambit,
schemes of reconstruction, takeovers, mergers, demergers, transfer of
undertakings and restructuring of debts as provided in Section 230–240 of
the Companies Act, 2013 by way of which the liabilities of the distressed
companies can be restructured.

The resolution plan is subject to the compliance of the conditions as laid
down under Section 30(2) of the Code read with Regulation 38 of CIRP

Regulations. The indicative strategies for resolution plan are also listed in

Regulation 37 of CIRP Regulations which includes transfer/sale of part of
assets, satisfaction/modification of security interest, extension of maturity
dates, issue of securities etc.,

Debt-for-equity swaps as a tool for restructuring in Resolution Plan

Debt-for-equity swaps can be used as a tool for restructuring and the same
is duly recognised/provided for in restructurings undertaken under sections

230–231 of the Companies Act, 2013 as well as the resolution plans that
may be submitted by the Resolution Applicants to the RP for approval by

Committee of Creditors and thereafter the approval of the Adjudicating

Authority. Debt for equity swaps is done to bring the debt to a sustainable

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PRACTICAL ASPECTS OF INSOLVENCY LAW
level either by waiver of excess debt or conversion into equity, or a
combination of both.

As per BLRC Report “the natural financing strategy in all countries is for
large companies (e.g. the top 500 firms) to obtain al their debt financing
from the bond market. This channel has been choked off in India, partly
owing to the fact that corporate bond holders obtain particularly bad recovery
rates under the present arrangements. Bankruptcy reform would yield higher
recovery rates for corporate bond holders, and remove one barrier that
impedes the corporate bond market. It is important to emphasise, however,
that this is not the only barrier which holds back the corporate bond market.”

Role of Asset Reconstruction Companies (ARCs)

Apart from the above, the ARCs set up under the statutory provisions of

SARFAESI Act, may also acquire the debts of the corporate debtor from
the lending Banks/Financial Institutions (FIs) and subsequently restructure
the same in post discussions and arrangement with the debtor. ARCs have
been allowed to use a part of their funds raised from Qualified Institutional

Buyers (‘QIBs’) to restructure financial assets. The provisions of SARFAESI

Act also empower the lenders/ARCs to effect a change in management as
a restructuring mechanism.

Facilitations by Regulators supporting the Code

To create a market for stressed assets, the market regulator (SEBI) has
made the fol owing relaxations.

• SEBI has directed listed companies to inform stock exchanges about
loan default, if any, within one working day (the implantation of this
order was deferred by SEBI until further order).

• Open offer being part of Resolution plan has relaxation norms under

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

2011

• Relaxations from preferential issue requirements under SEBI (Issue
of Capital and Disclosure Requirements) Regulations, 2009

• Banking Regulation (Amendment) Act, 2017 facilitates RBI to direct
banks to initiate action under the Code in case of larger defaults as
specified.

• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

2011 has made relaxations for acquisitions pursuant to resolution
plans approved by NCLT under the Insolvency and Bankruptcy Code,

2016.

PRACTICAL ASPECTS OF INSOLVENCY LAW

165

Duties and responsibilities of a Resolution Professional under the Code
with respect to Resolution Plans

The Code has enshrined the following duties and responsibilities upon a RP
with respect to resolution plans:

• appointing two registered valuers to determine the fair value and
liquidation value of corporate debtor

• inviting prospective resolution applicants, who fulfill such criteria as
may be laid down by him with the approval of committee of creditors,
having regard to the complexity and scale of operations of the business
of the corporate debtor and such other conditions as may be specified
by the Board, to submit a resolution plan or plans. [Section 25(2)(h)]

• preparing an Information Memorandum in such form and manner
containing such relevant information as may be specified by the Board
for formulating a resolution plan [Section 29(1)]

• providing information of the nature described in Regulation 36 with regard
to Information Memorandum as sought by the members of the

Committee of Creditors within reasonable time if such information has
bearing on the resolution plan [Regulation 36(3) of CIRP Regulations]

• sharing Information Memorandum after receiving undertaking from a
member of the committee or a prospective resolution applicant to the
effect that such member or resolution applicant shall maintain
confidentiality of the information and shal not use such information
to cause an undue gain or undue loss to itself [Regulation 36(4) of the

CIRP Regulations]

• issue invitation including evaluation matrix, to the prospective
resolution applicants to submit resolution plan at least thirty days
before the last date of submission of resolution plans [Regulation

36A(1) of CIRP Regulations]

• examination of each resolution plan received by him to confirm that
the resolution plan:

(a) provides for the payment of insolvency resolution process costs
in priority to the repayment of other debts of the corporate debtor;

(b) provides for the repayment of the debts of operational creditors
which shall not be less than the amount to be paid to the
operational creditors in the event of a liquidation of the corporate
debtor under Section 53;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(c) provides for the management of the affairs of the Corporate
debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the
time being in force;

(f) conforms to such other requirements as may be specified by
the Board. [Section 30(2)]

• submitting to the committee of creditors al resolution plans which
comply with the requirements of the Code and regulations made
thereunder along with the details of following, if any, observed, found
or determined by him:-

(a) preferential transactions under section 43;

(b) undervalued transactions under section 45;

(c) extortionate credit transactions under section 50; and

(d) fraudulent transactions under section 66, and

(e) the orders, if any, of the Adjudicating Authority in respect of
such transactions [Section 25(2)(i) and 30(3) of the Code read
with Regulation 39(2) of the CIRP Regulations, 2017]5

• submission of the resolution plan as approved by the Committee of

Creditors to the Adjudicating Authority atleast 15 days before the
expiry of the maximum period permitted under section 12 of the Code6,
with the certification that :

(a) The contents of the resolution plan meet all the requirements of
the Code and the Regulations; and

(b) The resolution plan has been approved by the Committee of

Creditors. [Section 30(6) of the Code read with Regulation 39(4)

of the CIRP Regulations]

• sending a copy of the order of the Adjudicating Authority approving

5. Substituted by the Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) (Third Amendment) Regulations, 2017, Regulation 3

(w.e.f. 7-11-2017). Prior to this substitution, Regulation 39(2) read as under: -

“39(2) The resolution professional shall present all resolution plans that meet the
requirements of the Code and these Regulations to the committee for its consideration”

6. Inserted by Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corproate Persons) (Amendment) Regulations, 2018, Regulation 11 (w.e.f 06.02.2018)

PRACTICAL ASPECTS OF INSOLVENCY LAW

167
or rejecting a resolution plan to the participants and the resolution
applicant. [Regulation 39(5) of the CIRP Regulations]

• forwarding al records relating to the conduct of the corporate
insolvency resolution process and the resolution plan, after the order
of approval, to the Board to be recorded on its database[Section

31(3)(b)]

• complying with IBBI circulars from time to time such as, an

Insolvency Professional shall not outsource any of his duties and
responsibilities under the Code. Further, an Insolvency Professional
shall not require any certificate from another person certifying
eligibility of a resolution applicant [Clarification by IBBI dated

January 3, 2018]

Eligibility of resolution applicants

Section 29A7 of the Code prescribes the eligibility criteria of resolution
applicants. As per the provision, a person shal not be eligible to submit a
resolution plan, if such person or any other person acting jointly or in concert
with such person –

(a) is an undischarged insolvent;

(b) is a wil ful defaulter in accordance with the guidelines of the Reserve

Bank of India issued under the Banking Regulation Act, 1949;

(c) has an account, or an account of a corporate debtor under the
management or control of such person or of whom such person is a
promoter, classified as non-performing asset in accordance with the
guidelines of the Reserve Bank of India issued under the Banking

Regulation Act, 1949 and at least a period of one year has lapsed
from the date of such classification till the date of commencement of
the corporate insolvency resolution process of the corporate debtor:

Provided that the person shal be eligible to submit a resolution plan
if such person makes payment of al overdue amounts with interest
thereon and charges relating to non-performing asset accounts before
submission of resolution plan;

(d) has been convicted for any offence punishable with imprisonment
for two years or more;

(e) is disqualified to act as a director under the Companies Act, 2013;

7. Inserted by section 5 of the Insolvency and Bankruptcy Code (Amendment) Act, 2017

(w.e.f. 23-11-2017).

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(f) is prohibited by the Securities and Exchange Board of India from
trading in securities or accessing the securities markets;

(g) has been a promoter or in the management or control of a corporate
debtor in which a preferential transaction, undervalued transaction,
extortionate credit transaction or fraudulent transaction has taken
place and in respect of which an order has been made by the

Adjudicating Authority under this Code;

(h) has executed an enforceable guarantee in favour of a creditor in respect
of a corporate debtor against which an application for insolvency
resolution made by such creditor has been admitted under this Code;

(i) has been subject to any disability, corresponding to clauses (a) to

(h), under any law in a jurisdiction outside India; or

(j) has a connected person not eligible under clauses (a) to (i).

Explanation – For the purposes of this clause, the expression “connected
person” means:

(i) any person who is the promoter or in the management or control of
the resolution applicant; or

(i ) any person who shall be the promoter or in management or control of
the business of the corporate debtor during the implementation of the
resolution plan; or

(iii) the holding company, subsidiary company, associate company or
related party of a person referred to in clauses (i) and (i ) :

Provided that nothing in clause (iii) of this Explanation shal apply to –

(A) a scheduled bank; or

(B) an asset reconstruction company registered with the Reserve Bank
of India under section 3 of the Securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002; or

(C) an Alternate Investment Fund registered with the Securities and

Exchange Board of India.”

Expression of interest (EOI) issued by Resolution Professionals

Pursuant to Section 25(1)(h) of the Code, RP shall invite prospective lenders,
investors and any other persons to put forward resolution plans by issuing

Expression Of Interest (EOI) to invite prospective resolution applicants to submit
viable resolution plans for the insolvency resolution of the Corporate Debtor.

PRACTICAL ASPECTS OF INSOLVENCY LAW

169

In common parlance, EOI is a document describing requirements or
specifications and seeking information from potential investors/bidders
that demonstrate their ability to meet those requirements. In the field of
insolvency and bankruptcy, EOIs are invited from investors or consortium
of investors (also known as bidders) meeting the specified eligibility criteria
in terms of financial and technical capabilities to submit resolution plans
for the Corporate Debtor undergoing corporate insolvency resolution
process or fast track insolvency resolution process under the provisions
of the Code.

The EOI is issued by the RP on behalf of the Committee of Creditors in the
form of a public advertisement. The document prescribes the last date for
receipt of EOI from potential investors or bidders. Subsequently, the

Committee of Creditors shal discuss and finalize the best resolution plan
that shall lead to a favourable outcome for all the stakeholders of the

Corporate Debtor.

A specimen EOI has been annexed as Annexure IX.1

Time-frame for submission of Resolution Plan by an applicant

A prospective resolution applicant shal submit resolution plan(s) prepared
in accordance with the Code and regulations there under to the resolution
professional atleast 30 days before the last date of submission of resolution
plan.8

Disclosure of fair value and liquidation value

The newly inserted Regulation 35 of the CIRP Regulations, reads as under:

“35. Fair value and Liquidation value. – (1) Fair value and liquidation value
shall be determined in the following manner:-

(a) the two registered valuers appointed under regulation 27 shal submit
to the resolution professional an estimate of the fair value and of the
liquidation value computed in accordance with internationally accepted
valuation standards, after physical verification of the inventory and
fixed assets of the corporate debtor;

(b) if in the opinion of the resolution professional, the two estimates of a
value are significantly different, he may appoint another registered
valuer who shal submit an estimate of the value computed in the

8. Inserted by Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corproate Persons) (Amendment) Regulations, 2018, Regulation 8 (w.e.f 06.02.2018)

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PRACTICAL ASPECTS OF INSOLVENCY LAW
same manner; and (c) the average of the two closest estimates of a
value shal be considered the fair value or the liquidation value, as
the case may be.

(2) After the receipt of resolution plans in accordance with the Code and
these regulations, the resolution professional shall provide the fair value
and the liquidation value to every member of the committee in electronic
form, on receiving an undertaking from the member to the effect that such
member shall maintain confidentiality of the fair value and the liquidation
value and shal not use such values to cause an undue gain or undue loss
to itself or any other person and comply with the requirements under sub-
section (2) of section 29:

(3) The resolution professional and registered valuers shal maintain
confidentiality of the fair value and the liquidation value.”

Approval of Resolution Plan by Committee of Creditors

Section 30(4) of the Code stipulates that the committee of creditors may
approve a resolution plan by a vote of not less than seventy-five per cent of
voting share of the financial creditors, after considering its feasibility and
viability, and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan,
submitted before the commencement of the Insolvency and Bankruptcy Code

(Amendment) Ordinance, 2017, where the resolution applicant is ineligible
under section 29A and may require the resolution professional to invite a fresh
resolution plan where no other resolution plan is available with it :

Provided further that where the resolution applicant referred to in the first
proviso is ineligible under clause (c) of section 29A, the resolution applicant
shal be al owed by the committee of creditors such period, not exceeding
thirty days, to make payment of overdue amounts in accordance with the
proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shal be construed as
extension of period for the purposes of the proviso to sub-section (3) of
section 12, and the corporate insolvency resolution process shal be
completed within the period specified in that sub-section. 9

9. Substituted by the Insolvency and Bankruptcy Code (Amendment) Act, 2017 (w.e.f. 23-

11-2017).

PRACTICAL ASPECTS OF INSOLVENCY LAW

171

Effect of any provision in the Resolution Plan requiring the consent of
the members or partners of corporate debtor

A resolution plan may contain a provision requiring the consent of the
members or partner of the corporate debtor under the terms of the
constitutional documents of the corporate debtor, shareholders’ agreement,
joint venture agreement or any other document of similar nature. In such a
case, such provisions shal take effect notwithstanding that such consent
has not been obtained.

A clarification was also sought by stakeholders regarding approval of
resolution plans under Section 30 and 31 of the Code that whether approval
of shareholders/members of the corporate debtor is required for a resolution
plan at any stage during the process for its consideration, approval and
implementation. It was clarified vide general Circular No. IBC/01/2017by the

Ministry of Corporate Affairs that there is no requirement for obtaining approval
of shareholders/members of the corporate debtor during this process. Further,
it was also clarified that the approval of shareholders/members of the
corporate debtor for a particular action required in the resolution plan for its
implementation, which would have been required under the Companies Act,

2013 or any other law if the resolution plan of the company was not being
considered under the Code, is deemed to have been given on its approval
by the Adjudicating Authority.

Assistance of local district administration in implementing the terms
of a Resolution Plan

As per Regulation 39(8) of the CIRP Regulations, a person in charge of the
management or control of the business and operations of the corporate
debtor may make an application to the Adjudicating Authority for an order
seeking the assistance of the local district administration in implementing
the terms of a resolution plan post its approval.

Appeal against an order approving a Resolution Plan

Forum for appeal: The forum for filing of appeals, in case of corporate
insolvency resolution process, is NCLAT.

Grounds of appeal: An appeal may be filed against an order by
the Adjudicating Authority approving a resolution plan on the fol owing
grounds:

(i) the approved resolution plan is in contravention of the provisions of
any law for the time being in force;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(i ) there has been material irregularity in exercise of the powers by the
resolution professional during the corporate insolvency resolution period;

(iii) the debts owed to operational creditors of the corporate debtor have
not been provided for in the resolution plan in the manner specified by
the Board;

(iv) the insolvency resolution process costs have not been provided for
repayment in priority to al other debts; or

(v) the resolution plan does not comply with any other criteria specified
by the Board.

Provisions relating to contravention of any terms of Resolution Plan

Where the corporate debtor, any of its officers or creditors or any person on
whom the approved resolution plan is binding under section 31, knowingly
and wilfully contravenes any of the terms of such resolution plan or abets
such contravention, such corporate debtor, officer, creditor or person shall
be punishable with imprisonment of not less than one year, but may extend
to five years, or with fine which shall not be less than one lakh rupees, but
may extend to one crore rupees, or with both.

International practices with respect to Resolution Plans

There are number of different strategies that companies may consider while
formulating resolution plans. The resolution strategies may range from
relatively simple to more complex mechanisms.

The Milliman Research Report on ‘Recover and Resolution Plans: Dealing
with financial distress’ provides various factors that must be considered
when deciding on the most appropriate course of action that would be taken
in a resolution situation. The key considerations are as fol ows:

PRACTICAL ASPECTS OF INSOLVENCY LAW

173

Liquidity or

• Will the plan improve the company's liquidity

Solvency
or solveny position?

• Is the company facing a recovery or a resolution

Recovery or
scenario?

Resolution

• Will the plan help restore the company's financial
position or is it a resolution strategy?

• Has the company time to implement the plan and

Time
for its benefits to materialise?

Availability

• Is the plan available to the company i.e. are
the thrid parties willing to facilitate it?

Cost

• Can the company afford the cost of the plan and
is it the most cost-efficient approach?

Complexity, ease

• Has the company access to the necessary skills,
of
expertise and resources in order to implement the plan
implementation
and carry out any ongoing maintenance required in

& ongoing
terms of its complexity and ease of implementation?

maintenance

The above considerations must be kept in mind while preparing a robust
resolution plan and to ensure that al necessary aspects have been analyzed
to revive the insolvent organizations.

However, preparation and approval of a resolution plan is just half the battle
won in the corporate insolvency resolution process. The main hurdle comes
in the implementation of the resolution plan which is critical for the absolute
success of the resolution process. Thus, proper measures must be taken
by the related stakeholders to ensure that all requirements under the
resolution plan are complied with.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Applying FSB’s Key Attributes Paper in the Indian context, resolution plans
should strive to include the following for its faster and effective
implementation:

• a resolution strategy and operational plan that is agreed by top
officials of the Corporate Debtor

• the strategic analysis that underlies the resolution strategies

• details of any potential material impediments to an effective and
timely implementation of the plan

• responsibilities for executing and implementing the plan and actual
measures.

A well drafted and thought-out resolution plan helps in maximizing the value
of al stakeholders and eventually results in the success of the insolvency
resolution process.

Specimen application form for submission of resolution plan along with a
model resolution plan has been annexed as Annexure IX.2

PRACTICAL ASPECTS OF INSOLVENCY LAW

175

ANNEXURE IX.1

Form G

Invitation of Resolution Plans

(Under sub-regulation (5) of regulation 36A of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016)

FOR THE ATTENTION OF THE PROSPECTIVE RESOLUTION

APPLICANTS OF (Name of Corporate Debtor)

Sl.

Particulars

No.

1

NAME OF CORPORATE DEBTOR

2

DATE OF INCORPORATION OF CORPORATE DEBTOR

3

AUTHORITY UNDER WHICH CORPORATE DEBTOR IS

INCORPORATED / REGISTERED

5

CORPORATE IDENTITY NUMBER / LIMITED LIABILITY

IDENTIFICATION NUMBER OF CORPORATE DEBTOR

5

ADDRESS OF THE REGISTERED OFFICE AND PRINCIPAL

OFFICE (IF ANY) OF CORPORATE DEBTOR

6

INSOLVENCY COMMENCEMENT DATE IN RESPECT OF

CORPORATE DEBTOR

7

ESTIMATED DATE OF CLOSURE OF INSOLVENCY

RESOLUTION PROCESS

8

DATE OF ISSUE OF INFORMATION MEMORANDUM

9

MANNER OF OBTAINING THE INFORMATION MEMORANDUM

BY THE PROSPECTIVE RESOLUTION APPLICANTS

10

DATE OF ISSUE OF INVITATION FOR RESOLUTION PLANS

11

MANNER OF OBTAINING THE INVITATION BY THE

PROSPECTIVE RESOLUTION APPLICANTS

12

DATE OF ISSUE OF EVALUATION MATRIX

13

MANNER OF OBTAINING THE EVALUATION MATRIX BY THE

PROSPECTIVE RESOLUTION APPLICANTS

14

LAST DATE FOR SUBMISSION OF RESOLUTION PLANS

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PRACTICAL ASPECTS OF INSOLVENCY LAW

15

MANNER OF SUBMITTING RESOLUTION PLANS BY A

PROSPECTIVE RESOLUTION APPLICANT

16

NAME, ADDRESS AND EMAIL OF THE RESOLUTION

PROFESSIONAL, AS REGISTERED WITH THE BOARD

17

ADDRESS AND EMAIL, IF ANY, OTHER THAN GIVEN AT SL.

NO. 16 TO BE USED FOR CORRESPONDENCE WITH THE

RESOLUTION PROFESSIONAL

18

REGISTRATION NUMBER OF RESOLUTION PROFESSIONAL,

AS GRANTED BY THE BOARD

Signature of Resolution Professional

For …………….(Name of Corporate Debtor)

Date and Place………………..

Specimen Request for Proposal for inviting resolution plans

INVITATION FOR SUBMISSION OF RESOLUTION PLANS FOR _________

__________________ (Name of the Corporate Debtor undergoing CIRP)

Issued on behalf of ___________________________________ (Name of
the Corporate Debtor undergoing CIRP) and the Committee of Creditors
of ___________________________ (Name of the Corporate Debtor
undergoing CIRP) by _____________________, Resolution Professional

Dated:

Table of contents

Sl.

Details

Page No.

No.

1.

Details of the Corporate Debtor

2.

Details of ongoing Corporate Insolvency

Resolution Process

3.

Bid process

4.

Compliance requirements

5.

Information dissemination

6.

Apportioning of cost

7.

Credentials of Resolution Applicant

8.

Evaluation Matrix

9.

Miscellaneous

PRACTICAL ASPECTS OF INSOLVENCY LAW

177

1. DETAILS OF THE CORPORATE DEBTOR

( If Information Memorandum is not provided with RFP or does not capture
such information, then the fol owing information may be provided)

i. Name of legal entity (CD)

ii. Office address – Corporate office, Registered Office – (if different,
primary location for correspondence)

i i. Key locations (with segregation of geographic locations/ activities/
no. of employees/ subsidiary operations)

iv. Group structure with ownership (Shareholding) – Holding Company,

Operating Company, Subsidiaries etc.

v. Promoters – Names, Board Positions – (Any relevant detail to help
ascertain related party relationships)

vi. Details of principal business activities
vi . Details of its main products/services and aspects of its
competitiveness
vii . Last publicly available financial details if any (with comments that
current and othernon-public financial position wil be provided through
data room after confidentiality undertaking)

A. Details of ongoing CIRP

( If Information Memorandum is not provided with RFP or does not capture
such information, then the fol owing information may be provided)

i. Date of Admission of CIRP Application in NCLT
ii. Amount & number of Claims (Segregated by categories of claims)

i i. Details of material litigation by or against the Corporate Debtor
iv. Last Date (180th/ 270th Day)

v. Name of RP, Address of RP,Email of RP
vi. Members of CoC (Represented Institutions/ Key Individuals)

vi . Tentative Location (City) for due-diligence/ meetings/ presentations

B. Bid Process
i. Last date for receipt of proposals with cut-off time in IST
ii. Communication protocol in case of revised timelines/ RFP with
reference to regulation 36A

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PRACTICAL ASPECTS OF INSOLVENCY LAW
i i. Communication protocol for evaluation matrix (if to be issued
separately)

iv. Process for responding to queries raised by CoC
v. Process, if any, for revising bids/ reverse bidding/ open bidding
vi. Process for opening of bids &due-diligence by CoC
vi . Protocol for sharing bid details, including amounts among bidders – if
at all.

vii . Process for raising query by CoC to potential bidders
ix. Communication modus operandi to selected bidders with reference
to regulation 36A
x. Statement on right to revise RFP with reference to regulation 36A, if
intended

C. Compliance Requirements
i. Confidentiality undertakings for non-disclosure of information
ii. Legally binding undertaking from authorised person/s to ascertain
mandate to participate in the bidding process. For example – Board

Resolution, PoA, authorized signatories.

i i. Credentials of individuals/ entities representing RAs such as – PAN/

TAN/ DIN
iv. Ernest money deposit/ guarantee for protection against withdrawal
during and after the process
v. Bank guarantee for payment obligations, if required

D. Information Dissemination
i. Access to data room – conditions precedent
ii. Process for raising queries/ asking for additional information from

RP/ CoC/ CD
i i. Response timelines/ process to respond to queries raised by RAs
iv. Process for 101 between Management of CD & RAs
v. Schedule and modus-operandi of any pre-bid conference
vi. Protocol for scheduling and conduct of site visits, if proposed
vi . Obligations of the RP towards requests of RAs with/ without consent
of CoC

PRACTICAL ASPECTS OF INSOLVENCY LAW

179

E. Apportioning of Cost
i. Cost to be apportioned to resolution cost
ii. Cost to be borne by Resolution Applicant

F. Credentials of Resolution Applicant
i. Financial health of the RA - Last 3 Years Annual Report, TTM financials,

Auditors Report
ii. Promoters’/ significant stakeholders’ credentials (Individuals) –

Directorship/ Ownership in other companies to ascertain fit and proper
and credibility
i i. Promoters’ Credentials (Group Companies – Hold Co. OpCos.

Subsidiaries), Last 3 Year Annual Reports of HoldCo, TTM Financials,

Auditor Reports
iv. Debt of the Group - Guarantees and crossobligations relevant to
assess group’s financial leverage and obligations
v. Relevant Experience –A brief description on industry knowhow,
investing credentials, turnaround/ M&A experience, if any
vi. Key Management Personnel
vi . Synergies from Product, geography, technology, supply chain, cross-
selling, diversification, integration etc.

vii . Details of material litigations against the resolution applicant with
respect to payment of debts, if any

G. Evaluation Matrix

The CoC may use the fol owing criteria to specify suitable matrix for evaluation
of resolution plan:

i. Confirmation with IBC and CIRP regulations (Mandatory):

a. IBC Section 29A
b. IBC Section 30(2)

c. IBBI Regulation 36(4)

d. IBBI Regulation 38
ii. Projections for sources of cash:

a. Internal business operations –cash generation from continuing
business of resolved entity
b. Upfront cash infusion proposed by the prospective RA

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PRACTICAL ASPECTS OF INSOLVENCY LAW
c. Future/ periodic cash infusion proposed by the prospective RA
d. Asset sale/ Business divestiture of the resolved entity envisaged
as part of resolution plan and amount of cash generated
e. PV of cash infusion @ x% discount rate

CoC may prescribe differentiated discount factors to incentivize
upfront cash infusion. For example, cash pay-out in year 2 can be
discounted @ 10% or PLR+x%, while pay-out in year 5 can be
discounted @ 18% or PLR + Y%.

i i. Credibility of projection for business operations of resolved entity:

a. Show drivers for revenues and costs for x years (assumptions
behind projections). For example – a telecom operator wil show
revenue growth driven by addition to subscribers’ base and
average revenue per user (ARPU).

b. Show projected cash flows and balance sheet for x years
c. Projection of capital structure leading to target capital structure
and sustainable debt

For example: A resolution plan may peg sustainable leverage of

2:1 and sustainable coverage of 1.5x for the resolved entity
after completion of resolution plan period, say 5 years.

d. Planned sources and usage of cash for x years

For example: A resolution plan should segregate future usage of
cash for agreed repayments to claimants, ongoing financial and
operational obligations, capex with segregationfor maintenance
capex. This information is important to protect potential diversion
of cash during resolution period.

iv. Projectedpay-out to claimants:

a. Distinguish pay-out in cash &through financial instruments (e.g.

equity/ debt instruments)

b. Distinguish upfront and deferred cash payments
c. Disclose PV of deferred cash payments with x% discount factor
d. Disclose intrinsic value/ PV of financial instruments issued in
lieu of cash/ claims on maturity/ conversion date along with
underlying assumptions
e. Present PVof pay-out as % of admitted claims across categories

@ x% discount rate

PRACTICAL ASPECTS OF INSOLVENCY LAW

181

Annexure – A

Expression of Interest

Date:

To,

……………………………………….

………………………………………

………………………………………

( Name of the Resolution Professional & address of the Corporate Debtor)

Subject: Expression of Interest for submission of Resolution Plan for

…………………………………………. (Name of the Corporate Debtor)

Dear Sir,

This is in regard to the advertisement published in ………………………………

(Name of the newspaper or website) dated …………………… inviting

Expression of Interest (EOI) for submission of resolution plan for

………………………………….

…………………………………………………. (Name of the Corporate Debtor)

undergoing corporate insolvency resolution process under the provisions of
the Insolvency and Bankruptcy Code, 2016 including the rules and regulations
made thereunder.

We set out the fol owing details ascertaining our eligibility for the submission
of resolution plan:

1. ................................................................................................

................................................................................................

................................................

2. ................................................................................................

................................................................................................

................................................

3. ................................................................................................

................................................................................................

................................................

(provide affirmation to the eligibility conditions as mentioned in the
advertisement)

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PRACTICAL ASPECTS OF INSOLVENCY LAW

We also provide the fol owing additional information that may be necessary
to evaluate and determine our bid for the purpose of short listing:

1. Name of the Company/Firm/Any other corporate body:

................................................................................................

................................................

2. Address of the Registered Office/principal place of business:

................................................................................................

................................................

3. CIN/LLPIN: ................................................

PAN: ................................................

4. E-mail ID:

................................................................................................

5. Date of incorporation/establishment: ................................................

6. Details of contact person:

................................................................................................

................................................

7. Background of the Company/Firm/any other Corporation (in terms of
its status – whether private, public, listed etc., persons who have
incorporated it, history and its present standing):

8. Details of activities undertaken along with its core competencies:

PRACTICAL ASPECTS OF INSOLVENCY LAW

183

9. Details of its key suppliers and lenders:

10. Financial Statements of preceding 3 financial years to be attached.

11. Any other details as may be relevant to evaluate and determine the
bid for the purpose of shortlisting by the Resolution Professional.

Place:

Sd/-

Date:

(Name of the person making the bid on behalf of
the company/firm)

(Designation of such person)

9. The expression ‘connected persons’ means –

( a) persons who are promoters or in the management or control of the resolution
applicant;

( b) persons who will be promoters or in management or control of the business of the
corporate debtor during the implementation of the resolution plan;

( c) holding company, subsidiary company, associate company and related party of
the persons referred to in items (a) and (b).

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Annexure IX.2

Specimen application form for submission of Resolution Plan

(Name and address of the Corporate Debtor)

(Phone No. of the Corporate Debtor)

(Contact details of the resolution professional)

1. Name of the resolution applicant : ................................................

2. Status of the applicant:

Individual

Company

Partnership firms/LLP

Any other entity

3. Correspondence address of the resolution applicant:

................................................................................................

................................................................................................

................................................................................................

4. PAN of the resolution applicant (please enclose a copy) :

................................................................................................

5. E-mail ID of the resolution applicant:

................................................................................................

6. Phone No.:

................................................................................................

7. Relationship of the resolution applicant with the Corporate Debtor, if
any:

................................................................................................

8. Details of connected persons9

9. Details of conviction for any offence , if any, during the preceding five
years:

PRACTICAL ASPECTS OF INSOLVENCY LAW

185

10. Details of criminal proceedings pending, if any:

11. Details of disqualification, if any, under Companies Act, 2013, to act
as a director:

12. Identification as a wil ful defaulter, if any, by any bank or financial
institution or consortium thereof in accordance with the guidelines of
the Reserve Bank of India:

13. Details of debarment, if any, from accessing to, or trading in, securities
markets under any order or directions of the Securities and Exchange

Board of India:

14. Details of transactions, if any, with the corporate debtor in the
preceding two years:

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PRACTICAL ASPECTS OF INSOLVENCY LAW

15. Date of submission of Resolution Plan : .......................................

DECLARATION

I/We hereby declare that we have read and understood al the terms and
conditions relating to the formulation of resolution plan and hereby express
our interest in the submission of resolution plan for the said Company. We
further declare that we do not fal under the category of persons listed under

Section 29A of the Code and thereby eligible to provide a resolution plan.

We also hereby declare that any confidential information of the Corporate

Debtor that has come to our knowledge or might come to our knowledge
during the insolvency resolution process shal not be divulged by us.

..................................

(Signature of the resolution applicant)

Model Resolution Plan

(Pursuant to Section 31 of the Insolvency and Bankruptcy Code, 2016 read
with Regulation 37, 38 & 39 of the Insolvency and Bankruptcy Board of

India (Insolvency Resolution Process for Corporate Persons) Regulations,

2016)

IN THE MATTER OF .................................. (name of the Corporate Debtor)

Pursuant to an advertisement/letter/notice issued by ..................................

(name of the issuing person/agency) on .................................. (date of
issue) inviting resolution plan from potential resolution applicants for

..................................................... (name of the Corporate Debtor), I/we,

.................................. (name of the resolution applicant), hereby present
a resolution plan based on the information memorandum and documents
available in the public domain. The resolution plan complies with the
provisions of Section 31 of the Insolvency and Bankruptcy Code, 2016 read
with Regulation 37, 38 & 39 of the Insolvency and Bankruptcy Board of

India (Insolvency Resolution Process for Corporate Persons) Regulations,

2016.

The Resolution Plan broadly covers the following aspects:

1. Specify the main strategy proposed: compromise or arrangement/
financial restructuring/takeover/merger/demerger/sale of an
undertaking/issue of corporate bonds/sale of brands/government
subsidies etc.

2. Specify the procedure of payment with respect to:

PRACTICAL ASPECTS OF INSOLVENCY LAW

187

• Insolvency resolution process costs in priority to al other debts

• Payment to financial creditors

• Payment to operational creditors

• Payment of Statutory dues

3. Any other material provision that is covered in the Resolution Plan.

Details of the resolution plan:

1. Background of the Resolution Applicant

(Brief background of the resolution applicant must be provided)

1.1 Incorporation details (in case of Company/LLP/any other entity)

1.2 Details of directors/ partners (in case of Company/LLP/any other
entity)

S. No.

Name of the directors/partners

Designation

1.3 Details of Key Managerial Personnel (in case of Company)

1.4 Details of companies or firms in which the applicant is a director
or KMP (in case of individuals):

S. No.

Name of the company/firm

Designation

1.5 Details of relationship with the Corporate Debtor, if any

1.6 Shareholding Pattern as on 31st March, 20....... (in case of

Company/LLP/any other entity)

Sl. Name of the

Type

Number

Amount Percent-

No. shareholder
of
of
of share age of
shares shares
capital
share-
held
held
held
holding

(Rs.)

1.7 Details of its main activity and recent developments (in case of

Companies/LLPs/any other entities)

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1.8 Details of its key suppliers (in case of Companies/LLPs/any
other entities)

1.9 Details of its key customers (in case of Companies/LLPs/any
other entities)

1.10 Details of its marketing strategy (in case of Companies/LLPs/
any other entities)

1.11 Details of its products/services and the aspects of
competitiveness therein (in case of Companies/LLPs/any other
entities)

1.12 Details of its manufacturing facilities and operating plants (in
case of Companies/LLPs/any other entities)

1.13 Past Performance (in case of Companies/LLPs/any other
entities)

Performance of the company in the last three financial years
must be provided (including the balance sheet and profit and
loss statements of the company)

2. Background of the Corporate Debtor

(Brief background of the Corporate Debtor must be provided)

2.1 Brief facts of the Corporate Debtor

2.2 Details of litigations (prior to commencement of IBC) by or
against the Corporate Debtor with respect to payment of debts

2.3 Details of application filed with National Company Law Tribunal
for insolvency resolution process

2.4 Details of the creditors and the amount of credit therein

3. Details of past performance of the Corporate Debtor

Performance of the Corporate Debtor in the last three financial years
must be provided (including the balance sheet and profit and loss
statements of the company). Any remarks by the resolution applicant
on the same may also be provided.

4. Resolution Plan

On the basis of information memorandum, documents available in
the public domain and additional information provided by the resolution
professional, I/we hereby submit the fol owing resolution plan.

PRACTICAL ASPECTS OF INSOLVENCY LAW

189

• Proposal for capital and financial restructuring such as
recapitalization, reorganization, leveraged buyout etc.

• Proposal for operational restructuring such as joint venture,
divestiture, merger etc.

• Proposal for payment of insolvency resolution process

• Proposal for payment of financial creditors

• Proposal for payment of operational creditors after al the financial
creditors are paid off

• Proposal for payment of statutory dues

• Proposal relating to infusion of capital by promoters,
management, employees, subsidiaries etc.

• Proposal relating to concessional payment

• Any other proposal

4.1 Proposal for capital and financial restructuring

4.1.1. Details of the creditors along with details of suchdebt
and amount of debt.

4.1.2. The strategy that may be adopted to restructure the
financial and capital requirements of the Corporate

Debtor.

4.1.3. The structure and method of payment to each of the
creditor.

4.1.4. Provision, if any, for making repayment to dissenting
minority creditors.

4.2 Proposal for operating restructuring

4.2.1 The operating restructuring strategy that may be
adopted by the Corporate Debtor.

4.2.2 The benefits of adoption of such strategy to various
stakeholders.

4.3 Proposal for payment of insolvency resolution process

4.3.1 The amount of insolvency resolution process cost along
with the means of financing such costs and
identification of sources of funds.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

4.4 Proposal for payment of financial creditors

4.4.1 The sources of financing the financial creditors.

4.4.2 Provisions relating to payment of dues equivalent to
the liquidation value of dissenting financial creditors
in priority to consenting financial creditors.

4.4.3 Waiver, if any, to be sought from the financial creditors.

4.4.4 Payment schedule of the financial creditors.

4.5 Proposal for payment of operational creditors after al the financial
creditors are paid off

4.5.1 The sources of financing the operational creditors.

4.5.2 Provisions relating to payment of dues equivalent to
the liquidation value of operational creditors in priority
to any financial creditor.

4.5.3 Waiver, if any, to be sought from the operational
creditors.

4.5.4 Payment schedule of the operational creditors.

4.6 Proposal for payment of statutory dues

4.6.1 The amount of outstanding statutory dues.

4.6.2 The sources of financing the statutory dues.

4.6.3 Waiver, if any, to be sought from the statutory dues.

4.6.4 Payment schedule of statutory dues.

4.7 Proposal relating to infusion of capital by promoters,
management, employees, subsidiaries etc.

4.7.1 Details of parties that have infused the capital

4.7.2 Details of the amount of capital infused

4.7.3 Utilization of such capital

4.8 Proposal relating to concessional payment

4.8.1 Details of concessions or reliefs to be sought by the

Corporate Debtor from various parties

4.8.2 Obligation of parties

4.8.3 Any other terms

PRACTICAL ASPECTS OF INSOLVENCY LAW

191

4.9 Statement as to how the interests of al stakeholders, including
financial creditors and operational creditors, of the corporate
debtor have been dealt:

Stakeholders

Name of the

Amount

Resolution

Outcome of the
party

(Rs.)

provided
resolution
involved

Financial

1. XYZ

Creditors

2. ABC

3. TUV Ltd.

Operational

1. XYZ

Creditors

2. ABC

3. TUV Ltd.

Other

1. XYZ (Deposit
creditors
holder)

2. ABC (Home
buyer)

Equity

1. Mr. A
shareholders

2. XYZ Ltd.

Preference

1. Mr. A
shareholders

2. XYZ Ltd.

4.10 Proposal relating to term of the resolution plan and its
implementation schedule

4.11 Proposal relating to the management and control of the business
of the corporate debtor during its term

4.12 Proposal relating to adequate means for supervising its
implementation

4.13 Any other proposal

4.14 Conclusion

*Annexures to the Resolution Plan may be attached separately.

** The Model Resolution Plan provided herein is illustrative and indicative in
nature and not exhaustive.

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CHAPTER – X

CRITICAL ISSUES SETTLED THROUGH LANDMARK

JUDGEMENTS

A. MEANING OF ‘DISPUTE’

(I) M/s One Coat Plaster vs. M/s Ambience Private

Limited[01.03.2017], NCLT, Principal Bench held that:

i. Use of the expression ‘includes’ in section 5(6) of the Code
which defines the term ‘dispute’ shows that the definition
of term ‘dispute’ is an inclusive one.

ii. In this case, the debtor, in reply to a notice issued under
section 8 of the Code, had disputed the satisfactory
execution of the work.

[Annexure – X.1]

(II) Philips India Ltd vs. Goodwill Hospital & Research Centre

Ltd. [02.03.2017], NCLT, Principal Bench held that:

i. Use of the expression ‘includes’ in section 5(6) of the Code
which defines the term ‘dispute’ shows that the definition
of term ‘dispute’ is an inclusive one.

ii. In this case, the debtor, in reply to a notice issued under
section 8 of the Code, had disputed the satisfactory
execution of the work.

(III) M/s DF Deutsche Forfait AG and Anr. vs. M/s Uttam Galva

[10.04.2017], NCLT, Mumbai Bench held that:

i. The definition of the term ‘dispute’ is exclusive and the
term ‘includes’ should be read as ‘means’.

ii. If reply is given denying the claim despite default
occurrence is clear, does it mean that no application can
be filed by any operational creditor even though the
operational creditor makes the case of default occurrence?

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PRACTICAL ASPECTS OF INSOLVENCY LAW

193

If that is so, it wil virtually ousting operation creditor filing
any case under section 9
i i. ‘Existence of dispute’ would mean pendency of either suit
or arbitration proceedings before receipt of section 8 notice
from the operational creditor

[Annexure - X.2]

(IV) Kirusu Software Private Ltd. vs. Mobilox Innovations Private

Ltd. [24.05.2017], NCLAT held that:

i. The word ‘dispute’, as defined in section 5(6) of the Code
cannot be limited to a pending proceeding or ‘lis’, within
the limited ambit of suit or arbitration proceedings
ii. The word ‘includes’ ought to be read as ‘means and includes’

including proceedings initiated or pending before consumer
court, tribunal, labour court or mediation, conciliation etc.

i i. However, merely raising a dispute for the sake of raising
it, unrelated or related to clause (a) to (c) of section 5(6)

i.e. relating to existence of amount of debt, quality of goods
or service, breach of representation or warranty, if not raised
prior to application and not pending before any competent
court of law or authority cannot be relied upon to hold that
there is a ‘dispute’ raised by corporate debtor.

[Annexure - X.3]

(V) Philips India Ltd. vs. Goodwill Hospital & Research Centre

Ltd. [31.05.2017]

i. NCLAT noted that the question as to what constitutes

‘dispute’ fell for consideration before it in the case of “Kirusa

Software (P) Ltd. versus Mobilox Innovations Pvt. Ltd. –

Company Appeal (AT)(Insol.) 06/2017.

ii. It was observed that the corporate debtor in the present
case, much prior to issuance of notice under section 8 of

I & B Code, 2016 had raised disputes relating to quality of
service/maintenance pursuant to notice under section

433(e) and section 434(1)(a) of Companies Act, 2013 issued
by Philips.

i i. NCLAT was of the opinion that the objection raised by
corporate debtor, which was not raised for the first time

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PRACTICAL ASPECTS OF INSOLVENCY LAW
while replying to notice issued under section 8 by Philips,
cannot be termed to be mere objection raised for sake of

‘dispute’ and/or unrelated to clause (a) or (b) or (c) of sub-
section (6) of section 5 of I & B Code, 2016.

iv. Accordingly, the Appellate Authority dismissed the appeal
and upheld the order of the Adjudicating Authority.

[Annexure - X.4]

(VI) M/s MCL Global Steel Pvt. Ltd. vs. M/s Essar Projects India

Ltd. & Anr. [31.05.2017]

i. In this case, corporate debtor had appointed the operational
creditor to carry out civil work, structural fabrication and
erection of building and sheds as wel as the erection of
technological equipment as part of construction of 0.2

MTPA Steel Melt Shop Complex at Pithampur, Madhya

Pradesh.

ii. Operational creditor raised invoices for the work
successfully completed, however, the corporate debtor
failed to make the payment. Operational creditor issued
statutory notice under the Code to which the corporate
debtor disputed satisfactory completion of the work
regarding quality of construction, timeline of construction
etc. NCLT admitted the application.

i i. The appeal before NCLAT was preferred on two grounds
viz.,
a. violation of principles of natural justice and
b. existence of dispute raised by debtor

First Issue (would be dealt at appropriate place)

Second Issue
a. NCLAT, relying upon its judgment in Kirusa Software

Pvt. Ltd. vs. Mobilox Innovations Pvt. Ltd. observed
that the corporate debtor had in fact disputed the
claim filed by operational creditor by raising disputed
claims by way of various emails and reply to section

8 notice. These documents proved that there was ‘a
dispute in existence’ in terms of section 8 of the

Code.

PRACTICAL ASPECTS OF INSOLVENCY LAW

195
b. The second issue was also decided in favour of the
corporate debtor
iv. Accordingly, NCLAT allowed the appeal, set aside the order
of the NCLT. The order of Moratorium, freezing bank
accounts, appointment of IRP was also set aside.

[Annexure –X.5]

(VII) M/s Annapurna Infrastructure Pvt. Ltd. & Anrs. vs. M/s SORIL

Infa Resources Ltd. [29.08.2017]

i. The NCLAT was considering a question, inter alia, that, in
case where award has been passed by Arbitrator/Arbitral

Tribunal and even application under section 34 of the

Arbitration and Conciliation Act, 1996 had been disposed
of, whether a dispute could be said to be existing between
the parties?

ii. It was held that Section 36 of the Arbitration Act makes
arbitral award executable as decree but it can be enforced
only after the time for filing application under section 34 of
the Act has expired and no application has been made or
such application having been made, has been rejected.

Thus, arbitral award reaches finality after expiry of
enforceable time under section 34 and/or if application under
section 34 is filed and rejected. Accordingly, for the purpose
of ‘dispute’ as ‘existence of dispute’, only pendency of
arbitral proceedings has been accepted as one of the ground
of dispute whereas, as can be seen from Form 5 of the

Rules, Arbitral Award has been held to be a document of
debt and non-payment of awarded amount amounts to

‘default’ debt. Thus, NCLAT held that dispute was not
pending and the decision of Adjudicating Authority holding
that dispute was existing was against the provisions of
law as well as against the decision in Kirusa Software Pvt.

Ltd.

[Annexure - X.6]

(VIII) Mobilox Innovations Private Limited vs. Kirusa Software

Private Limited [21.09.2017]

i. The Hon’ble Supreme Court, after going into the history of
the Code and the evolution of the provisions therein, noted

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PRACTICAL ASPECTS OF INSOLVENCY LAW
that in the first Insolvency and Bankruptcy Bill, 2015 that
was annexed to the Bankruptcy Law Reforms Committee

Report, section 5(4) defined ‘dispute’ as meaning a ‘bona
fide suit or arbitration proceedings...’. In the present avatar,
section 5(6) excludes the expression ‘bona fide’ which is
of significance. It held that the definition of dispute has
thus become an inclusive one, after the phrase “bona fide”

has been deleted after the phrase “suit or arbitration
proceedings”.

ii. Further, the Bench held that, keeping in mind the legislative
intent, the word “and” in Section 8(2) must be read as “or”.

It was observed that “...if read as “and”, disputes would
only stave off the bankruptcy process if they are already
pending in a suit or arbitration proceedings and not
otherwise. This would lead to great hardship; in that a dispute
may arise a few days before triggering of the insolvency
process, in which case, though a dispute may exist, there
is no time to approach either an arbitral tribunal or a court.

Further, given the fact that long limitation periods are
al owed, where disputes may arise and do not reach an
arbitral tribunal or a court for upto three years, such persons
would be outside the purview of Section 8(2) leading to
bankruptcy proceedings commencing against them. Such
an anomaly cannot possibly have been intended by the
legislature nor has it so been intended...”

i i. Coming to its interpretation of the term “existence of
dispute”, the Court held that once the same has been
brought to the notice of the operational creditor, “…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… 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.”

iv. Applying this to the facts of the present case, the Supreme

Court agreed with the submissions of appel ant i.e., the
corporate debtor that a dispute between the parties clearly

PRACTICAL ASPECTS OF INSOLVENCY LAW

197
existed, and that the application ought to have been
dismissed by the NCLT.

v. Thus, the Hon’ble Supreme Court al owed the appeal and
set aside the ruling of the NCLAT.

[Annexure - X. 7]

B. PRINCIPLES OF NATURAL JUSTICE

(I) Sree Metaliks Ltd. vs. UOI[07.04.2017], Hon’ble High Court of

Calcutta held that:

i. NCLT is obliged to afford a reasonable opportunity of
hearing to the corporate debtor prior to admitting the
application under section 7 of the Code’.

ii. However, at the same time, the High Court held that NCLT
is not required to hear the debtor every time

[Annexure - X.8]

(II) M/s Innoventive Industries vs. ICICI Bank & Anr. [15.05.2017],

NCLAT held that:

i. NCLT is bound to issue a limited notice to the corporate
debtor before admitting a case for ascertainment of existence
of default based on material submitted by corporate debtor
and to find out whether the application is complete or there
is any other defect required to be removed.

ii. However, adherence to principles of natural justice would
not mean that in every situation NCLT is required to afford
reasonable opportunity of hearing to the corporate debtor
before passing its order.

i i. In the present case, since the debtor had already appeared
before the admission of the application and was heard at
length, there was no violation of the principles of natural
justice.

[Annexure - X.9]

(III) M/s Starlog Enterprises Limited vs. ICICI Bank

Limited[24.05.2017], NCLAT held that
i. Before admitting an application under section 9 of the Code,
it is mandatory for the NCLT to issue notice to the corporate
debtor.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

[Annexure - X.10]

(IV) MCL Global Steel Pvt. Ltd. (supra)

Of the two issues raised in this Case, one pertained to non-
observance of Principles of Natural Justice. NCLAT held that
i. The operational creditor contended that corporate debtor
has no right to be heard before the stage of admission of
application under the Code.

ii. NCLAT noticed that the issue whether prior notice before
admission of an application for corporate insolvency
resolution process is required or not was considered in M/
s Innoventive Industries Ltd. wherein it was held that NCLT
is bound to issue limited notice before admission of
application.

i i. NCLAT accordingly decided the first issue in favour of the
corporate debtor holding that there was violation of
principles of natural justice as no notice was issued to
corporate debtor before admission of application.

C. MANDATORY OR DIRECTORY TIME PERIOD UNDER CODE

(I) J K Jute Mills Company Limited vs. M/s Surendra Trading

Company [01.05.2017], NCLAT held that:

i. The time period of 14 days under section 7, 9 and 10 of
the Code which is to be counted from the ‘date of receipt
of application’ means ‘date on which the application is listed
for admission / order’

ii. The nature of provisions, contained in section 7, 9 and 10
with regard to time limit for admission/rejection of an
application by NCLT, being procedural in nature, cannot be
treated to be a mandate of law and the object behind these
provisions is only to prevent delay in hearing and disposal
of cases.

i i. However, the period of 7 days granted to an applicant to
remove defects is mandatory and on failure to observe
this, application is fitted to be rejected.

iv. The time limit of 180 days + 90 days (extension) for
completion of insolvency resolution process under section

12 is mandatory.

PRACTICAL ASPECTS OF INSOLVENCY LAW

199
v. Since a regular Insolvency Professional starts functioning
on completion of period of interim resolution professional,
the performance of duties of IRP cannot be held to be
mandatory though the period is required to be counted for
completion of resolution process i.e. 180 days + 90 days

(extension)

vi. It is not mandatory for ‘operational creditors’ to propose
the resolution professional to act as an interim resolution
professional.

[Annexure - X.11]

(II) M/s Surendra Trading Company vs. M/s Juggilal Kamlapat

Jute Mills Company Limited & Ors. [19.09.2017], the issue
before the Hon’ble Supreme Court was whether the time period
of 7 days, as held by NCLAT above, is mandatory? The Hon’ble

Supreme Court observed as under:

i. Time is the essence of the Code. Despite that, NCLAT
held that fourteen days time period is not mandatory. Even
though\ said part of the order (i.e. with regard to fourteen
days period) was not under chal enge, the Hon’ble Supreme

Court observed that it was apposite to see the reasoning
for holding such by NCLAT.

ii. It was observed that right after analysing the provisions of
fourteen days time within which NCLT is to pass the order,

NCLAT jumped to another conclusion viz., the period of
seven days and there was no discussion on this aspect.

Hon’ble Supreme Court observed that there was no valid
reason given by NCLAT to come to such conclusion. The
period of 180 days starts from admission of application.

Period prior to that is not to be counted. Thus, no purpose
is served by treating the period of seven days as
mandatory.

i i. Looked at from another angle, Hon’ble Supreme Court
observed that it has to be seen whether the rejection would
be treated as rejection of application on merits thereby
debarring filing of fresh application or the same is merely
an administrative order. In the former case, it would lead
to travesty of justice as even though the case may have
merits, the applicant would be shown the door without

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PRACTICAL ASPECTS OF INSOLVENCY LAW
adjudication. If it is the latter case, then rejection of
application in the first instance is not going to serve any
purpose as applicant would be entitled to file fresh
application which would have to be entertained. Thus, in
either case, no purpose is served by treating the aforesaid
provision as mandatory.

iv. However, Hon’ble Supreme Court also put a rider. It noted
that many frivolous applicants would file the application
but would not cure the defects. In such case, a caveat
has been put and that is, that if objections are not removed
within seven days, the applicant, while refilling the
application after removing objections, would be required
to file an application in writing showing sufficient case as
to why the applicant could not remove the objections within
seven days. When such an application comes, Adjudicating

Authority is to decide whether sufficient cause is shown
or not.

[Annexure - X.12]

D. Certificate from Financial Institution – whether Mandatory or

Directory

(I) Smart Timing Steel Ltd. vs. National Seed and Agro

Industries Ltd. [19.05.2017], NCLAT held that:

i. The word ‘shal ’ used in sub-section (3) of section 9 of

Code is mandatory. To determine whether a provision is
mandatory or directory, one must look into the subject
matter and consider the importance of the provision, the
relation of that provision to the general object intended to
be secured. 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 fol ow from construing
it in one way or the other.

ii. In this case, NCLT, Mumbai Bench had dismissed an
application because the appel ant, a foreign company of

Hong-Kong having no office or bank account in India, did
not file any certificate from a financial institution, certifying

PRACTICAL ASPECTS OF INSOLVENCY LAW

201
that no payment of unpaid operational debt had been made.

[Annexure - X.13]

(II) In Uttam Galva Steels Limited vs. DF Deutsche Forfait AG

& Anr., [28.07.2017], NCLAT, while relying upon Smart Timing

(supra) reaffirmed that certificate from Financial Institution is
mandatory. In Uttam Galva, the certificate was issued by a
foreign bankand is not recognised as a ‘financial institution’.

The said Certificate has been issued by ‘collecting agency’ as
distinct from ‘Financial Institution” and genuity of the same
cannot be verified by the Adjudicating Authority.

[Annexure - X.14]

(III) In Macquarie Bank Limited vs. Shilpi Cable Technologies

Ltd. [15.12.2017], Hon’ble Supreme Court has settled the law
and held that a certificate under 9(3)(c) of the Code is
certainly not a “condition precedent” and the expression

“confirming” in section 9(3)(c) makes it clear that it is only a
piece of evidence, which “confirms” that there is no payment of
an unpaid operational debt. It was held that the words ”if
available” shows that filing of certificate is not a pre-condition.

It was observed that there may be situations where a foreign
supplier may have a foreign banker who is not within section

3(14) of the Code. The fact that such foreign supplier is an
operational creditor is established from reading of definition of

“person” contained in section 3 (23), as including person resident
outside India, together with definition of ‘operational creditor’ in
section 5(20). The Code cannot be construed in a discriminatory
fashion so as to include only those operational creditors who
are residents outside India who happen to bank with financial
institutions which may be included under section 3(14) of the

Code.

[Annexure - X.15]

E. Prior consent of Joint Lender Forum by Financial Creditor –
whether required before filing application

(I) Innoventive Industries (supra), NCLAT held that:

i. Beyond the fact regarding existence of dispute and ensuring
that the application is complete, the adjudicating authority
was not required to look into any other factor, including the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
question whether permission or consent has been obtained
from one or other authority, including JLF.

ii. Therefore, the contention that prior to filing of an application
under the Code, an applicant is required to obtain permission
or consent of JLF as it wil adversely affect loan of other
members was rejected.

F. Applicability Of Limitation Act To Proceedings Under Code

(I) Neelkanth Township and Construction Pvt. Ltd. vs. Urban

Infrastructure Trustees Ltd., [11.08.2017], NCLAT has observed
that “there is nothing on the record that Limitation Act, 2013 is
applicable to the Code. Moreover, the Code is not an Act for
recovery of money claim, it relates to initiation of corporate
insolvency resolution process hence default in payment of debt
with continuous course of action cannot be barred by limitation. ”

[Annexure - X.16]

Neelkanth Township and Construction Pvt. Ltd. chal enged
the above judgment of Appellate Authority before the Hon’ble

Supreme Court of India. The Hon’ble Supreme Court dismissed
the appeal filed by corporate debtor. However, it observed that
the question of law viz. whether limitation act is applicable to

Insolvency proceedings is left open.

(II) M/s Speculum Plast Pvt. Ltd. vs. PTC Techno Pvt. Ltd.,

[07.11.2017], NCLAT looked at the legislative intent of the Code
and noted that that a completely different time frame has been
provided under the Code for various stages and held that

Limitation Act was not applicable for initiation of corporate
insolvency resolution process. However, at the same time,

NCLAT held that the Doctrine of Limitation and Prescription is
necessary to be looked into for determining the question whether
the application under section 7 or section 9 can be entertained
after long delay, amounting to laches, and thereby the person
forfeited his claim. The NCLAT accordingly, remanded the case
back to NCLT.In the above case, two more appeals were clubbed
and heard together including an appeal filed against one B. K.

Educational Services Pvt. Ltd.

[Annexure – X.17]

Subsequent Development

PRACTICAL ASPECTS OF INSOLVENCY LAW

203

(III) B. K. International Services Pvt. Ltd. filed an appeal before the

Hon’ble Supreme Court and the Hon’ble Supreme Court, in an
interim order dated 10.01.2018 has stayed the above judgment
passed by NCLAT.

[Annexure – X.18]

G. Whether Notice under section 8 of the Code is mandatory to be
given

(I) Era Infra Engineering Ltd. [03.05.2017], NCLAT held that:

i. Issuance of notice under section 8 of the Code is mandatory
and the contention that earlier notice issued to the debtor
under section 271 of the Companies Act, 2013 for winding
up should be treated to be a notice for purpose of section

8 of the Code was rejected.

ii. The issuance of notice under section 8 of the code is
mandatory and is not a curable defect.

[Annexure - X.19]

H. Whether Buyers can approach NCLT in case of default in “assured
returns”

(I) Nikhil Mehta and Sons V/s AMR Infrastructure Ltd.

[21.07.2017],
i. NCLAT was considering an issue “Whether the buyers who
entered into agreements/Memorandum of Understandings
with Builder for the purchase of three units being a
residential flat, shop and office space in the projects
developed, promoted and marketed by the Builder come
within the meaning of ‘Financial Creditor’ as defined under
the provisions of sub-section (5) of Section 7 of the Code?”

ii. NCLAT held that the buyers (in that case) were “investors”

and had chosen the “committed return plan”. The Builder
in their turn agreed upon to pay monthly committed return
to the investors. Thus, the amount due to the buyers came
within the meaning of “debt” defined under section 3(11) of
the Code. Furthermore, NCLAT noted from the Annual

Return and Form 16-A of the Builder that they had treated
the buyers as “investors” and borrowed amount pursuant
to sale purchase agreement for their commercial purpose

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treating at par with loan in their return. Thus, NCLAT held
that the amount invested by buyers came within the
meaning of ‘Financial Debt’ as defined under section 5(8)(f)

of the Code, subject to satisfaction of as to whether such
disbursement against consideration is for “time value of
money”.

[Annexure - X.20]

I. Whether a joint application by two or more ‘operational creditors’

under Section 9 of the IBC is maintainable

(I) In Uttam Galva Steels Limited (supra), NCLAT held that filing
of joint application by two or more operational creditors under
section 9 is not permissible. The language of section 7 of IBC
provides that application for initiation of insolvency resolution
process may be filed by Financial Creditor either by itself or
jointly with other Financial Creditors, whereas, such language
is not used in section 9 of IBC. Otherwise also, it is not practical
for more than one ‘operational creditor’ to file a joint petition.

Individual ‘operational creditors’ will have to issue their individual
claim notice under section 8. The claim will vary which wil be
different in each case. The notice under section 8 wil have to
be issued in format. Separate Form-3 or Form-4 wil be filed.

J. Whether the demand notice with invoice under Section 8 of IBC
can be issued by any lawyer on behalf of an Operational Creditor?

(I) In Uttam Galva Steels Limited (supra), NCLAT held that notice
under section 8 of the Code cannot be given by an Advocate/

CA/CS.

i. 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.

ii. Sub-Rule (1) of Rule 5 of Adjudicating Authority Rules
mandates ‘operational creditor’ to deliver to the ‘corporate
debtor’ the demand notice in Form-3 or invoice attached
with notice in Form-4.

i i. Rule 5(1) (a) & (b) lists out person (s) who are authorised

PRACTICAL ASPECTS OF INSOLVENCY LAW

205
to act on behalf of operational creditor. 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 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.

(II) However, the Hon’ble Supreme Court, in Macquarie Bank

Limited (supra), settled the law and held that a lawyer can
issue a demand notice under section 8 of the Code on behalf of
the operational creditor. It was observed that the language used
in section 8 of the Code speaks of an operational creditor

“delivering” the demand notice and not “issuing” it. Delivery,
therefore, would postulate that such notice could be made by
an authorized agent. It was observed that the word “practice” in

Section 30 of the Advocates Act is an expression of extremely
wide import that would include al preparatory steps leading to
the filing of an application before a Tribunal, including NCLT and

NCLAT. To remove any doubts, the Hon’ble Supreme Court ruled
that the non-obstant e provision in Section 238 of the Code will
not override the Advocates Act since there is no inconsistency
between the Adjudicating Authority Rules and Advocates Act.

The Supreme Court therefore observed that “Therefore, a
conjoint reading of Section 30 of the Advocates Act and

Sections 8 and 9 of the Code together with the Adjudicatory

Authority Rules and Forms thereunder would yield the result
that a notice sent on behalf of an operational creditor by a
lawyer would be in order. ”

K. Whether NCLAT has power to order withdrawal of an application
that has been admitted, upon settlement between the parties?

(I) Lokhandwala Kataria Construction Private Limited vs. Nisus

Finance & Investment Manager LLP [13.07.2017], a prayer
was made before the NCLAT to order withdrawal of application
as the matter was settled between the parties.

i. The NCLAT noted the provisions of Rule 8 of IBBI (Application

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PRACTICAL ASPECTS OF INSOLVENCY LAW
to Adjudicating Authority) Rules, 2016 (“Adjudicating

Authority Rules”) which empowers the Adjudicating

Authority to permit withdrawal of the application on a
request of the applicant before its admission. Thus, it was
held that an application made under Section 7 can be
withdrawn only before its admission by the Adjudicating

Authority but once the application is admitted, it cannot
be withdrawn and the procedures laid down under Sections

13 to 17 of the Code need to be fol owed.

ii. A submission was made that NCLAT can exercise inherent
power under Rule 11 of the National Company Law

Appel ate Tribunal Rules, 2016 (“NCLAT Rules”) which
empowers the NCLAT to make such orders or give such
directions as may be necessary for meeting the ends of
justice or to prevent abuse of the process of law.

i i. NCLAT noted that Rule 11 of the NCLAT Rules, which talk
of inherent powers of NCLAT, have not been adopted for
the purposes of Insolvency and Bankruptcy Code and only

Rule 20 to 26 of the National Company Law Tribunal Rules,

2016 have been adopted. In absence of any specific
inherent power and where there is not merit the question
of exercising inherent power does not arise.

[Annexure – X.21]

iv. The appel ant filed statutory appeal before the Hon’ble

Supreme Court of India vide Civil Appeal No. 9279/2017

[Annexure - X.22] wherein, the Hon’ble Supreme Court,
even though observed that prima facie it seems that NCLAT
does not have inherent powers (while exercising powers
under the Code), however, since both the parties were
before the Hon’ble Supreme Court, the Apex Court,
exercising its power to do complete justice under Article

142 of the Constitution of India, recorded the consent terms
and put a quietus to the matter.

(II) Recently, the Hon’ble Supreme Court in Uttara Foods and

Feeds Private Limited vs. Mona Pharmachem (13.11.2017)

observed that in view of Rule 8 of the Adjudicating Authority

Rules, NCLAT prima facie could not avail of the inherent powers
recognised by Rule 11 of the National Law Appel ate Tribunal

Rules, 2016 to allow a compromise to take effect after admission

PRACTICAL ASPECTS OF INSOLVENCY LAW

207
of the insolvency petition. Accordingly, the Hon’ble Supreme

Court was of the view that instead of al such orders coming to
the Supreme Court as only the Supreme Court may utilise its
powers under Article 142 of the Constitution of India, the relevant

Rules be amended by the competent authority so as to include
such inherent powers. The court was of the view that this would
obviate unnecessary appeals being filed before the Supreme

Court in matters where such agreement has been reached.

[Annexure - X. 23]

L. Whether the Insolvency and Bankruptcy Code, 2016 would prevail
over the State Laws

(I) In a landmark judgment delivered by Hon’ble Supreme Court in

M/s Innoventive Industries Ltd. vs. ICICI Bank & Anr.,

[31.08.2017], Hon’ble Supreme Court held that the Code would
prevail over the Maharashtra Relief Undertakings (Special

Provisions) Act, 1958.

The Hon’ble Supreme Court observed that once an insolvency
professional is appointed to manage the company, the erstwhile
directors who are no longer in management, cannot maintain
an appeal on behalf of the company.

On the issue of repugnancy between the State law and the
subsequently enacted Central Act i.e. the Code, observed that
the earlier State Law is repugnant to the Code as, under the

State Law, the State Government may take over the
management of the relief undertaking, after which a temporary
moratorium comes into effect in much the same manner as
contained in section 13 and 14 of the Code. Thus, by giving
effect to the State law, the plan or scheme which is adopted
under the Code, wil directly be hindered and/or obstructed to
that extent in that the management of relief undertaking, which,
if taken over by the State Government, would directly impede
or come in way of taking over the management of corporate
body by IRP. Further, the moratorium declared under the State

Act would directly clash with the moratorium under the Code.

Thus, it was held that the Central Act would prevail over State

Act.

[Annexure – X. 24]

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M. Whether a ‘Corporate Debtor’ can prefer an appeal under
section 61 of the Code through the Board of Directors, which
stands suspended after admission of an application by

Adjudicating Authority?

NCLAT in Steel Konnect (India) Pvt. Ltd. vs. M/s Hero Fincorp

Limited (29.08.2017) held that
i. A perusal of section 17(1) (a) of the Code, makes it clear that
the Management of affairs of the ‘corporate debtor’ stands vested
with the ‘Interim Resolution Professional’ & such vesting is
limited and restricted to the extent of power vested under section

17(1) of the Code which empowers the IRP to act and execute
in the name of corporate debtor al deeds, receipts and other
documents, if any, to take such action in the manner and subject
to such restrictions, as may be specified by Board. However,
the IRP has not been vested with any specific power to sue
any person on behalf of the corporate debtor.

ii. When an application under section 7 or 9 of the Code is admitted,
corporate debtor is a party to such proceedings. It is only after
hearing the corporate debtor, the Adjudicating Authority can
pass an order under section 7 or 9, admitting or rejecting an
application.

i i. Once the application under section 7 or 9 is admitted, CIRP
starts. In such case, one of the aggrieved party, being corporate
debtor, has a right to prefer an appeal under section 61 of the

Code, apart from any other aggrieved person like Director(s) of
the company or members, who do not cease to be Director(s)

or member(s), as they are not suspended but their function as

‘Board of Director(s)’ is suspended. They continue to remain as

Directors and members of the Board of Directors for al purpose
in the records of Registrar of Companies under the Companies

Act, 2013.

[Annexure - X.25]

N. Whether resolution plan can be approved for a particular unit of
a Corporate Debtor?

(I) In the matter of Roofit Industries Limited (22.01.2018), NCLT,

Mumbai Bench, an application was filed by Resolution

Professional for liquidation of the Roofit Industries Ltd. (Corporate

Debtor). The Corporate Debtor had filed an application under

PRACTICAL ASPECTS OF INSOLVENCY LAW

209
section 10 of the Code for initiating CIRP against itself which
was admitted on 28.06.2017. The period of 180 days expired on

26.12.2017 and no expansion of CIRP period was sought for.

Corporate Debtor had nine (9) immoveable properties. No
resolution plan was received except for one of the units of

Corporate Debtor viz., B-42 Gummidipoondi Factory, which was
submitted by Gummidipoondi Roofit Employees’ Association
on the last day of completion of CIRP.

Since the CIRP period of 180 days ended on 26.12.2017 and
no resolution plan for Corporate Debtor was received except for
one property, resolution professional filed application for
liquidation under section 33 of the Code.

Considering the fact that resolution plan was submitted only in
respect of one property, NCLT was of the view that the resolution
plan could not be considered as a resolution plan under the

Code and accordingly, NCLT ordered liquidation of Corporate

Debtor.

[Annexure - X.26]

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ANNEXURE X.1

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL,

PRINCIPAL BENCH NEW DELHI

Company Application No. (I.B.)07/PB/2017

Company Application No (I.B.)08/PB/2017

Present: CHIEF JUSTICE (Retd.) SHRI M.M. KUMAR, HON’BLE

PRESIDENT & SHRI R. VARADHARAJAN, MEMBER (JUDICIAL)

In the matter of:

Section 9 and other applicable provisions of the Insolvency and Bankruptcy

Code, 2016 read with the Rule 6 of the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016.

In the matter of:

1. M/s.One Coat Plaster

182/183, Indra Bhawan,

V.P.O. Sikhrali, Sector-17a,

Gurgaon-122 001

Operational Creditor/Applicant

2. M/s.Ambience Private Limited

Company registered under the Companies Act, 1956

Having Registered Office at:

L-4, Green Park Extension,

New Delhi-110016

CIN: U51503DL1986PTC023886

Corporate Debtor

AND

In the matter of:

1. M/s.Shivam Construction Company

Plot No.SO-110, Khasra No.1965

Iqbal Colony, Garima Garden,

Ghaziabad-201 005

Operational Creditor/Applicant

2. M/s.Ambience Private Limited

Company registered under the Companies Act, 1956

Having Registered Office at:

L-4, Green Park Extension,

New Delhi-110016

CIN: U51503DL1986PTC023886

Corporate Debtor

PRACTICAL ASPECTS OF INSOLVENCY LAW

211

Counsel for the Petitioners:

(i) Shri Dushyant K. Mahant, Advocate

(i ) Shri Gaurav Dubey, Advocate

Counsel for the Respondent:

Shri Sushant Kumar, Advocate

COMMON ORDER

The above petitions have been filed by the petitioners seeking to set in
motion the corporate insolvency resolution process (‘IRP’) as contemplated
under section 9 of the Insolvency and Bankruptcy Code, 2016 in relation to
one M/s. Ambience (P.) Ltd. (for brevity herein referred to as the 'company')

however described in the petition as “corporate debtor”. Brief facts as can
be discerned from the petition filed by the petitioners describing themselves
as an “operational creditor” against the company giving rise to the filing of
the petition are as fol ows :

In relation to CA No. (IB)07(PB)/2017.

(a) That the company is engaged in real estate business including real
estate development and in pursuance of its business had initially issued
a work order dated 1st October, 2015 bearing No. Ambience/15-16/363
for a specified sum of Rs.204,000 in favour of the operational creditor
which happens to be a partnership firm carrying its business under the
name and style of One Coat Plaster. Subsequently it is averred that
two more work orders dated 13th October, 2015 and 13th November,

2015 were also placed on the operational creditor by the company as
works contract for Gypsum Plaster for the Wal s/Ceiling at their site at

Noida and the payment in relation to the same was to be made as per
actual work measurement at site. Further, the payments to be released
against bills. Al the work orders placed by the company on the
operational creditor, have been annexed. (Annexure B, colly).

(b) It is claimed that the operational creditor pursuant to the work orders
had executed the work subsequent to which bil s were raised. It is
contended that in relation to the work carried out at a site named

‘Pushpanjali’ out of the total billing of Rs.2,69,507.44 a sum of Rs.

1,00,085 has been paid thereby leaving a balance of Rs.1,69,422.44
and that in relation to the site at Noida where the work had been
carried out and as against the bil ed amount of Rs.55,60,242.74 the
company has paid only Rs.24,68,832 leaving a balance of

Rs.30,91,410.74. Thus, in aggregate the company owes the
operational creditor a sum of Rs.32,60,833.18 it is claimed and despite
reminders have failed to pay the balance outstanding.

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(c) That the non-payment of the balance outstanding since July 2016
forced the operational creditor to serve a notice of demand as
contemplated under section 8 of the Code through its counsel on

25th January, 2017 at the registered office of the company as well as
through e-mail and til the date of filing of the above petition on 8th

February, 2017, no reply has been received despite service nor any
payment has been made. This has given rise to the above petition
being filed under the Code for unleashing the corporate insolvency
resolution process as against the company.

In relation to Company Application No. (IB)08/PB/2017, the following
fact emerges :

(d) That the company engaged in real estate business including real
estate development and in pursuance of its business had initially
issued a work order dated 25th November, 2015 bearing No. Ambience/

15-16/480-A for a specified sum in favour of the operational creditor
which happens to be a sole proprietary concern carrying business
under the name and style M/s. Shivam Construction Company.

Subsequently, it is averred that one more work order dated 25th

November, 2015 bearing No. Ambience/15-16/480-B was also placed
on the operational creditor by the company as work contract for

Gypsum Plaster for the Wal s/Ceiling without supply of material at
their site at Noida and the payment in relation to the same to be
made as per actual work measurement at site and payments to be
released against bills. All the work orders placed by the company on
the operational creditor it is averred by the counsel for the operational
creditor has been annexed as Annexure B (col y).

(e) That the operational creditor pursuant to the work orders had executed
the work subsequent to which bills were raised. It is contended that
in relation to the work carried out at Noida, out of the total billing of

Rs.16,79,646.66 a sum of Rs.7,83,746 has been paid thereby leaving
a balance of Rs.8,95,900. Thus, in aggregate the company owes the
operational creditor a sum of Rs.8,95,900. It is claimed that despite
reminders the company has failed to pay the balance outstanding.

(f) That the non-payment of the balance outstanding since 10th June,

2016 forced the operational creditor to serve a notice of demand as
contemplated under section 8 of the Code through its counsel on

25th January, 2017 at the registered office of the company as well as
through e-mail and til the date of filing of the above petition on 9th

February, 2017, despite service no reply has been received nor any

PRACTICAL ASPECTS OF INSOLVENCY LAW

213
payment has been made. This has given rise to the above petition
being filed under the Code for unleashing the corporate insolvency
resolution process against the company.

The above petitions came to be listed before us on 17th February, 2017 on
which date the counsel for the company entered appearance and sought
time for response and the hearing was deferred to 20th February, 2017. On

20th February, 2017 when the petitions were taken up, the counsel for the
company submitted that the company had sent a reply to the notice of
demand sent by the counsel for the operational creditor dated 4th February,

2017. The company has taken the stand that due to defective and poor
quality of work on the part of the petitioners no payment has been made
and have completely denied the claim of the operational creditor. In view of
the representation of the counsel for the company that a reply had been
sent to the legal notice of the operational creditor, the parties were directed
to file the reply as sent by the company through its counsel and the petitions
were fixed for hearing on 22nd February, 2017 for compliance.

Since the issues involved in both the company petitions are similar and
concerning the company named as “Corporate Debtor’, the matter is taken
up together and disposed off as fol ows :

On 22nd February, 2017 we heard learned counsel for both the parties. The
counsel for the operational creditors/petitioners took us through the typed
set of documents filed along with the petitions. A perusal of the record
shows that the work order placed by the company primarily relates to works
contract predominantly concerning labour contract and the rate for the
execution of the works contract seems to be fixed on square feet basis.

Further it is seen that the bil s/invoices raised by the petitioners annexed
as Annexure C ‘Colly’ is computed on sq. ft. basis for ascertaining the
quantum of work done and the amount payable for carrying out the work.

However, when the counsel for the petitioners was asked as to whether the
company or its authorized representative or architect had certified the
quantum of work done by the petitioners in relation to the works contract
awarded to them, no such document was produced wherein the quantum of
work might have been certified or in relation to quality. This is the norm
adopted in building contracts of considerable value which ordinarily constitute
the basis for raising the bil s. The engagement of the petitioners to execute
the work cannot be denied in view of the work order placed by the company
which is further reinforced by payment in a sum of Rs.25,68,917 to the
petitioner in CA No.07/PB/2017 and Rs. 7,83,746. However, in relation to
the balance amount claimed by the petitioners as due from the company,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
we are unable to agree in view of lack of materials submitted before us by
the petitioners and also taking into consideration the fact that the debt
sought to be fastened on the company has been vehemently disputed as is
evident from the reply to the notice sent by the company, which is dated 4th

February, 2017 but dispatched on 8th February, 2017 to the counsel for the
petitioners.

Reference to the provisions of the Code, more particularly section 9 thereof
clearly discloses that this Tribunal has the power, inter alia, also to reject
the application of the operational creditor under section 9(5)(d) in case of
notice of dispute has been received by the operational creditors or there is
record of dispute with the information utility. In the absence of information
utility, we are perforce to rely on the notice of dispute as sent by the company
to the petitioners denying the liability based on which the entire edifice of
the petitioner’s claim crumbles which constitutes basis of the present
application. It is pertinent to note that the expression dispute’ has been
defined and it seems to be an inclusive definition as seen from section 5(6)

of the Code which reads as fol ows :

“dispute” includes a suit or arbitration proceedings relating to –

(a) The existence of the amount of debt;

(b) The quality of goods or services; or

(c) The breach of a representation or warranty;

A bare perusal of section 5(6) of the Code show that a dispute could be
proved by showing that a suit has been filed or arbitration are pending. It
further elaborates that suit or arbitration should be in respect of the existence
of the amount debt, quality of goods or services; or a breach of a
representation or a warranty. It is not an exhaustive definition but an illustrative
one. It becomes evident from the expression ‘includes’ which immediately
succeeds the word ‘dispute’. Moreover, under section 8(1) of the Code
adequate room has been provided for the ‘NCLT’ to ascertain the existence
of a dispute. A demand notice by an “operational creditor” to an “operational
debtor” must be sent who has not paid operational dues and has committed
default. Section 8(2) further clarifies that the corporate debtor is obliged to
bring to the notice of the “operational creditor” within 10 days of the receipt
of notice, the existence of a dispute and record of the pendency of the suit
or arbitration proceeding filed before the receipt of such notice or invoice in
relation to such dispute. The other option is to pay the demanded amount. In
the instant case the petitioner sent a demand notice which was duly received
by the ‘company’ but the reply was also filed which has been delayed by

PRACTICAL ASPECTS OF INSOLVENCY LAW

215
four days where dispute has been raised. As such on a perusal of documents
submitted before us by the petitioners, we are unable to fathom any material
on record to dislodge the same as already discussed in paragraph supra.

Hence we are inclined to reject the above petitions.

Hence, the remedy of the petitioners above named lies elsewhere and not
under the provisions of the Code. Before parting we make it clear that any
observations made in this order shal not be construed as an expression of
opinion on the merit of controversy as we have refrained from entertaining
the application at the initial stage itself. Therefore, the right of the applicants
before any other forum shal not be prejudiced on account of dismissal of
instant applications.

For the reasons afore stated we reject the applications/petitions filed by the
petitioners/operational creditors without any costs.

Sd/-

(CHIEF JUSTICE M.M.KUMAR)

PRESIDENT

Sd/-

(R. VARADHARAJAN)

MEMBER (JUDICIAL)

March 1st, 2017

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ANNEXURE X.2

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH, MUMBAI

C.P. NO. 45/I&BP/NCLT/MAH/2017

Coram: B. S.V. Prakash Kumar, Member (Judicial) &

V. Nallasenapathy, Member (Technical)

In the matter of under Section 9 of the Insolvency and Bankruptcy Code,

2016 and Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority), Rules 2016.

Between

M/s. DF Deutsche Forfait AG and Anr.

... Applicant/ Operational

Creditor

V/s.

M/s. Uttam Galva Steel Ltd.

... Corporate Debtor

For Applicants: Mr. Shyam Kapadia i/b. Mr. Sonu Tandon, Advocates for
the Applicant/operational Creditor.

For Corporate Debtor: Shri. Janak Dwarkadas, Sr. Counsel, Shri. Ravi

Kadam, Sr. Counsel, a/w. Mr. Dhiraj Mhetre, Ms. Smiti Tewari, Advocates for
the Respondent/ Corporate Debtor.

ORDER

(Pronounced on 10.04.2017)

Per B.S.V. Prakash Kumar

It is a company petition filed u/s 9 of Insolvency and Bankruptcy Code 2016

(IB Code) by operational creditors viz. DF Deutsche Forfait AG (cal ed as

Deutsche) & Misr Bank Europe GmbH (called as Misr Bank) against a
corporate debtor company viz. Uttam Galva Steels Limited (referred as Uttam

- whose financial statements have already slipped into brackets) stating
that Uttam defaulted in making payment of USD 16,542,886.33 (inclusive
of interest till 28-02-2017) equivalent to Rs. 110,40,30,876.44 towards 20,000
tons of prime steel bil ets supplied by a Germany Company namely AIC

Handels GmbH (called as AIC). This debt was initially assigned to Deutsche
by entering into a discount agreement by AIC, thereafter Deutsche, in turn,

PRACTICAL ASPECTS OF INSOLVENCY LAW

217
subsequently assigned part of this debt to Misr Bank by Deutsche. When

Uttam failed to pay off the amount despite statutory notice u/s 8 of IB Code
has been received by it on 03.03.2017, after completion of 10 days from the
date of receipt of notice by Uttam, Deutsche and Misr Bank, on 14th March

2017, filed this company petition u/s 9 of IB Code for initiation of Insolvency

Resolution Process by declaring Moratorium with consequential directions
as set out under sections 13, 14, 15 and 16 of IB Code.

Brief background of this litigation:

2. The corporate debtor (Uttam) is in steel rolls manufacturing dealing with
export and import business in relation to steel, in furtherance of it, on 16th

August 2013, Uttam entered into a Sales Contract (Annexure-4) with AIC
for purchase of 20,000 metric tons of Prime Steel Bil ets at the rate of $540
per MT, which would come to $10,800,000 (+/- 10% depending on the exact
quantity supplied) agreeing that shipment of the goods be in the month of

September 2013 and the agreed money should be payable in 180 days from
the Bil of Lading(Annexure-6) date. It is further agreed that payment to be
made in effective USD by two Bills of Exchange each with face value of

USD 5,400,000 (+/- 10%) to the order of sel er i.e., AIC drawn on and accepted
by Uttam, maturing on the payment date, payable at a payment domicile
acceptable to AIC in Mumbai, it is also said that it would be governed and
construed in accordance with English Law and if any dispute in between, it
is by arbitration in accordance with Swiss Rules of International Arbitration
of the Swiss chambers of commerce by further saying that AIC is entitled
to pursue payment obligation of Uttam in the form of inter alia bills of
exchange before any competent court where a specially abbreviated form
of legal procedure exists.

3. As per the sale contract, AIC on 16th September 2013 shipped 19,976

MT of Prime Steel Bil ets. A Bil of Lading dated 16th September 2013
came to be issued, then on 18th September 2013, AIC issued an invoice

(Annexure-5) for a sum of USD 10,787,040 for the bil ets in quantity of 19,

976, 40 MT supplied to Uttam at a rate of USD 540 per MT. A reference was
made to two Bills of Exchange dated 18.9.2013 drawn by AIC on Uttam,
one (Annexure-7) for USD 5,387,040 and another (Annexure-8) for USD

5,400,000 to pay on 15th March 2014 (maturity date after 180 days) against
these two Bills of Exchange and Uttam unconditionally accepted the Bills.

4. Besides this, Uttam sent confirmation (Annexure-13) stating that the
shipment to Chttagong Port Bangladesh has been duly executed by AIC
under the sale contract dated 16.8.2013 and received al documents under
the contract, therefore buyer (Uttam referred to itself as buyer) accepted

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AIC (sel er) faultless performance without any reservation by confirming
that there exists no further obligation or liabilities of sel er (AIC), Uttam
further confirmed that the amount set out in the invoice represents 100% of
the purchase price, therefore buyer (Uttam) irrevocably and unconditionally
has undertaken to pay AIC as set out in the invoice waiving al rights of
objection and defence and buyer would effect the payment at maturity without
any deduction for and free of any taxes, charges, impost, levies or duties
present or future of any nature whatsoever in effective USD. It further stated
that this confirmation should form an integral part of the contract governed
by English Law and Arbitration as mentioned in the sale contract.

5. In the process of risk management, AIC entered into a discount ( forfaiting)

agreement which means, financing used by exporters that enables them to
receive cash immediately by selling their receivables (the amount an importer
owes the exporter) at a discount, and eliminate risk by making the sale
without recourse, meaning the exporter has no liability regarding possible
default by the importer on paying the receivables. The forfaiter is the individual
or entity that purchases the receivables, so the importer is then obligated to
pay the receivables amount to the forfaiter. A forfaiter is typically a bank or
a financial firm that specializes in export financing.

6. On 7th October 2013, AIC issued a letter of notification (Annexure -11) to

Uttam informing that AIC had entered into forfeiting agreement (Annexure-

10 dated 9/10th of October 2013) with Deutsche stating that it had assigned
the entire debt with present and future rights, claims and demands to it by
endorsing the bills of Exchanges, as against that notification, Uttam
acknowledged and confirmed the agreement between AIC and Operational

Creditor.

7. On 27th December 2013, Deutsche sent a notification (Annexure 14) to

Uttam notifying that part of receivables due to it under the sales Contract
and Bills of Exchange which were to mature on 15th March 2014 has been
unconditional y assigned to Misr Bank through another Forfating Agreement

(Annexure - 12) dated 27.12.2013. It is pertinent to say that this further
forfaiting to Misr Bank has not been confirmed by Uttam.

8. When Uttam failed to make payment even after maturity date 15.3.2014
had been passed by, a protest was recorded on 19.4.2014 as required under
law.

9. As Uttam failed to make payment of the above debt even after maturity
date, Deutsche and Misr Bank were constrained to issue notice dated 8th

December 2016 u/s 433 and 434 of the Companies Act, 1956, to which,

Uttam replied raising various al egations such as goods delivered to third

PRACTICAL ASPECTS OF INSOLVENCY LAW

219
party i.e., Aartee Commodities Ltd, subsequent assignment to Misr Bank
by Deutsch is not valid, but this Uttam had not raised any law suit on any of
the issues until statutory notice u/s 8 of the Code issued by them.

10. In the meanwhile, having IB Code come into force, Deutsch and Misr

Bank issued statutory notice (Annexure - 2) of demand u/s 8 of IB Code on

28th February 2017 calling upon Uttam to pay a sum of USD 16,542,886.33
i.e., a principal sum of USD 10,787,040 and interest of USD 5,755,846.33.

On 3rd March 2017, a reply (Annexure - 3) came from Uttam denying all
claims with a caveat that advocates were in the process of obtaining detailed
instructions from the corporate debtor and would reply in due course. Another
reply notice dated 11th March has been sent by Uttam to the Deutsch and

Misr Bank through e-mail (Annexure - Al in additional affidavit) stating that
its obligations under the sales contract were dependent on payment by

Aartee Commodities Ltd. and Uttam already filed a suit before Hon'ble High

Court of Bombay on 10th March 2017. But this Bench has not noticed any
such averment of payment by Uttam is dependent upon payment by Aartee
in any of the correspondence with either AIC or Deutsch or Misr Bank until

Uttam wrote reply to the notice given by present operational creditors.

11. Since Deutsche & Misr Bank, on receipt of reply from Uttam on 3.3.2017
and second reply on 11.3.2017 informing the operational creditors that Uttam
filed suit in respect of this claim against the creditors before Hon'ble Bombay

High Court subsequent to receipt of the notice u/s 8 of the Code, noticed
that no suit or Arbitration proceedings filed before receipt of notice u/s 8,
they have filed this company petition u/s 9 of IB Code for initiation of
insolvency resolution process by declaring Moratorium with consequential
directions as set out under sections 13, 14, 15 and 16 of IB Code.

Objections of Uttam:

12. On the date of hearing, Senior Counsel Sri Janak Dwarak Das appearing
on behalf of Uttam raised objection to admitting this petition arguing, one -
this petition is not maintainable for the debtor company timely raised notice
of dispute within 10 days after receipt of the notice u/s 8, two - an affidavit
has not been filed as enunciated u/s 9(3)(b) stating that there is no notice
has been given by Corporate debtor (Uttam) relating to the dispute of unpaid
operational debt, hence petition is incomplete (when reply has been given
there could not be any occasion to the operational Creditor to file an affidavit
saying that no reply has been given), three - that Deutsche & Misr Bank are
not operational creditors of Uttam, four - the petition is bound to be rejected
u/s 9(5)(i )(d) once notice of dispute has been received by Deutsche & Misr

Bank, here notice was received by the petitioners within 10 days from the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
date of receipt of notice u/s 8, five - since Deutsche & Misr Bank never
initiated any recovery proceedings though the alleged debt is payable since

March 15, 2014 until this petition u/s 9 has been filed, six - since disputed
questions on fact are involved in respect to Deutsche further assigning to

Misr Bank has not been confirmed by Uttam and it has to be tried by Trial

Court not as summary proceeding u/s 9, moreover since sales contract is
governed by English Law, it has to be tried before court of law, if any
modification is made to the contract, under clause 18 of the Sales Contract,
it has to be with the consent of Uttam only, seven - interest on the principal
amount is not admitted by Uttam, therefore claim including 18% interest is
arbitrary figure which is not substantiated by any document, eight - the
counsel argued that since Power of Attorney given to file this case has not
specifically authorized to initiate proceedings under IB Code, it has to be
dismissed basing on the order dated 30.3.2017 passed by special Bench
on reference; lastly - the counsel says Uttam is listed company providing
employment to 1,400 people and it has impeccable track record, hence this

Insolvency Resolution Process cannot be thrust upon a company like this.

Discussion:

13. As to 14 days' time, we must say that this case has come for hearing
within 14 days but whereas the corporate debtor itself argued several times,
of course petitioners side also argued and filed written submissions, not
once, twice, indeed first time written submissions from Uttam came before
this Bench on 1st April 2017, second time submissions came on 5th April

2017, later, for there being several issues to be addressed, this Bench also
took three four days' time for passing orders. This Bench cannot simply
pass it on to some other forum saying there are many issues to be addressed
when answers to al factual aspects are available in the material placed by
the petitioners and as to legal issues, when no evidence is required to
decide those issues, we firmly believe that onus lies upon this Bench to
decide al these issues.

14. Before going into merits of the petition, two three issues one must bear
in mind, one - as such there cannot be any pleadings part in the Forms to
be filed to initiate action u/ss 7, 9 & 10, except giving information column
wise; two - no pleading or defending party, the terminology like petitioner/
respondent or plaintiff/defendant is not present under this Code, most of the
procedure is inbuilt in the Code itself, therefore this has been named as

Code, not as Act; three - by reading the Code, it wil not give an impression
that it is an adversarial proceeding and no such law is existing in India
saying that court proceedings in India shall be adversarial only, therefore

PRACTICAL ASPECTS OF INSOLVENCY LAW

221
we have to go by what law says, we can't read into something that is not
present; four - we cannot hang on to conventional approach which has become
inherent in us that a legal proceeding shal be adversarial only, we are
governed by a democratic system, henceforth we have to go by the mandate
given by legislature. There are countries where legal system is inquisitorial.

Of course a system can be something different from the existing systems
like adversarial or inquisitorial, may be, if something other than these two
systems is good, then if legislature says it is good for the country, then we
have to fol ow. We have to grow along with changing times to come out of
bottlenecks suffocating the system.

Owing to the time constraint, since issues are overlapping, instead of point
wise, we have dealt with them together, which is as fol ows:

By now everybody is by heart with the provisions of sections 7, 8, 9 and 10
of the Code, therefore it is needless to say that reply has to be given to the
notice under section 8 of the code within 10 days of receipt of the notice, no
doubt Uttam gave reply on the very next day of receipt of the notice denying
the averments of the notice u/s 8, but without any averment of any suit or
arbitration pending since before receipt of notice u/s 8.

15. According to the definition of "dispute" in section 5(6) of the Code,
which is as fol ows:

'Section 2: In this Part the context otherwise requires, —

(6) "dispute" includes a suit or arbitration proceedings relating to —

(a) the existence of the amount of debt;

(b) the quality of goods; or

(c) the breach of representation or warranty;'

16. On perusal of this definition, it is evident dispute includes a suit or
arbitration proceeding, now the point for determination is as to whether the
word "includes" is extensive as generally understood or in any other way. If
we go through sections 7, 8, 9 and 10 of this code, this word "dispute"

nowhere appears except in sections 8 and 9, therefore this definition primarily
meant for application when notice is issued by the operational creditor u/s 8
and when case is filed by an operational creditor u/s 9 of the Code, therefore
the definition has to be understood in a meaningful way to cater the intent
and purpose behind sections 8 & 9, not otherwise.

17. To know how it is to be understood, we must also read part of section 8
and section 9, which goes as fol ows:

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"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 in the default to the corporate debtor in such form and manner
as may be prescribed -

(2) The corporate debtor shal , within a period of ten 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;

.........."

"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................................

3................................

4................................

5................................

6................................ ”

18. The corporate debtor counsel says the word dispute has to be understood
as mere denial to the claim as dispute. The definition to dispute is inclusive
definition enlarging the scope to the extent it can travel, therefore inclusion
of pendency of suit or arbitration wil not curtail the inclusivity of the definition.

19. Now the test is how to understand this definition, is it to be said that
wherever denial to assertion is present in the reply within ten days, it is to
be construed as dispute? Or, is it to be understood that dispute is qualified
and restricted as dispute only when suit or arbitration is pending since before
receipt of notice u/s 8?

20. In the definition, at the beginning of section 2 itself, it is mentioned that

PRACTICAL ASPECTS OF INSOLVENCY LAW

223
definition has to be taken in the way it is defined as long as the context
otherwise does not require, suppose context demands to take it otherwise,
this definition wil become sub-silentio in the said context, of course this
definition, it is nowhere explicitly looking that this definition is exhaustive.

The word 'etc' is also not added to apply ejusdem generis rule.

21. If we see section 8, which is precursor to invoke section 9, it is evident
that upon notice u/s 8 from the operational creditor to the debtor on the
ground of default occurrence, if the debtor fails to reply to the notice within

10 days stating dispute is in existence on the footing of suit or arbitration
pending or if the debtor fails to repay the unpaid debt within 10 days, then if
the notice of the dispute as stated under sub-section (2) of section 8 of the
code is given to the creditor and other compliances, the operational creditor
gets cause of action to file application u/s 9.

22. The argument of the debtor counsel is since the debtor disputed the
debt within 10 days by giving reply within 10 days to the creditors, it has to
be construed as dispute on two grounds, one - the definition for dispute is
inclusive, two - the word "and" in sub-section 2 (a) of section 8, has to be
read as "or" so as to harmonize with the inclusive definition to the word

"dispute".

23. We respectfully disagree with this view; definition has always to be
harmonized with the context in which it is said in the substantive section,
not otherwise. This caution is very much implicit in section 2 itself saying it
has to be understood as defined unless context otherwise, therefore two
things are clear, one - defining section will not govern the substantive section,
two - definition has to be construed in the context of substantive section,
not otherwise. When a word is defined, it has to be understood meaningful y,
if definition is only to say dispute includes suit or arbitration, no definition
needs to be given, because pendency of suit or arbitration always connotes
dispute, this need not be said separately, indeed dispute is genesis, pendency
of suit or arbitration is species. No doubt it is true that word "includes" is
normally considered as extensive, but there are situations to read "includes"

as "means" to enable the courts to achieve the purpose of legislation. If
reply is given denying the claim despite default occurrence is clear,
does it mean that no application can be filed by any operational creditor
even though the operational creditor makes the case of default
occurrence? If that is so, it will be virtually ousting operational creditor
filing any case under section 9. If this scenario emerges, then it wil be
nothing but throwing this law into dust bin. We al know how much time is
taking for logical end to winding up proceedings, by the time company

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PRACTICAL ASPECTS OF INSOLVENCY LAW
liquidation happens, not even bones remain to creditors. Al this exercise
under new Code is to maximization of value of assets in a time bound
manner to promote entrepreneurship and availability of credit, to balance
the interests of all the stake holders.

24. If we start looking at this as draconian law gobbling the companies and
branding orders under this law as harsh, then we remain where we are,
perhaps wil go down further, yes, one can understand to get conversed to
new law and to see fruits of it, it will take time, but just for the sake of this
reason, we cannot wish away the mandate of this nation come through

Parliament.

25. In this situation, we cannot resist ourselves from giving an il ustration
that is aptly similar to the present controversy. It is like a snake charmer
playing out a cobra without fangs for entertaining people, tomorrow, if a
claim under section 8 is considered as "dispute" by looking at bare denial,
sections 8 and 9 will become exactly like a cobra without fangs in the
basket of a snake charmer. But I strongly believe, it is not the idea of

Parliament to make this law to mere show up, had it been so, the Parliament
would not have wasted its valuable time in including sections 2 (6), 8 and 9
in the statute book.

26. Though there are many decisions of the Hon'ble Supreme Court holding
that the word "includes" is extensive in nature, there are equal y many
number of cases saying that this word has to be understood in the context
it is applied.

27. In this line, in South Gujarat Roofing Tiles Manufacturers Association
v. State of Gujarat [1976] 4 SCC 601, it has been held that there could not
be any inflexible rule that the word "includes" should be read always as a
word of extension without reference to the context, in the said case the
word includes has been used in the sense of "means", this is only
construction that the word can bear in the context. In that sense, "include"

is not a word of extension, but limitation, it is exhaustive of the meaning
which must be given to potteries industry for the purpose of Entry.

28. The use of word "includes" in the restrictive sense is not unknown. So,
the manufacturer of Mangalore Pattern Roofing Tiles is outside the purview
of Entry 22.

29. Likewise, in N.D.P. Namboodripad v. Union of India [2007] 4 SCC

502, it has been held that the word "includes" has different meanings in
different contexts. It can be used in interpretation clauses either generally
in order to enlarge the meaning of any word or phrase occurring in the body

PRACTICAL ASPECTS OF INSOLVENCY LAW

225
of a Statute, or in the normal stand sense to mean "comprises" or "consists
of" or "means and includes depending on the context".

30. In another case in between Karnataka Power Transmission Corporation
v. Ashok Iron Works (P.) Ltd. [2009] 3 SCC 240 in para 17, it has been
held as fol ows: —

'It goes without saying that interpretation of a word expression must depend
on the text and the context. The resort to the word "includes" by the
legislature often shows the intention of the legislature that it wanted to
give extensive and enlarged meaning to such expression. Sometimes,
however, the context may suggest that the word "includes" may have
been designed to mean "means". The setting context and object of an
enactment may provide sufficient guidance for interpretation of word

"includes" for the purpose of such enactment.'

31. If we see definition to "a person" in General Clauses Act, it says "person"

shal include any company or association or body of individuals whether
incorporated or not.

32. The normal meaning of a "person" is a living person, whereas if the
statute feels necessary to include some other categories which on their
own do not fal under a particular category, then an inclusive definition will
be given to include other categories, the same is the thing happened to the
definition of "a person". Likewise, if any dispute that normal y does not fall
within the definition of "dispute", then such items not falling within the
definition dispute will be shown as included so as to enlarge the meaning of
dispute. A dispute pending in a suit or arbitration can never be said as
different from the general word "dispute". The dispute in a suit or arbitration
is inherently included in the definition of the word "dispute ". Therefore, if at
al the suits and arbitration proceedings pending to be said as included in a
dispute, it need not be shown as included, because the category of the
dispute in a suit and arbitration wil automatically fal within the ambit of
dispute. Henceforth, the only meaning that could be drawn out from the
word "includes" is that the dispute means the dispute pending in a suit or
arbitration proceeding, whereby in the light of the ratio given by Hon'ble

Supreme Court, here the word "includes" in the definition of "dispute" has to
be read as "means" not as "includes". So, the word dispute is qualified as
the dispute in a suit or arbitration pending not otherwise.

33. In the above discussion we have noticed what is meant by a dispute,
now let us see what is meant by the existence of dispute in sub-section (2)

of section 8 of the Code. In section 8 it has been said when notice is given
u/s 8(1) of the Code, the corporate debtor shall, within a period of 10 days of

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the receipt of demand notice, bring it to the notice of the operational creditor
that dispute is in existence by way of suit or arbitration proceeding before
the receipt of notice under sub-section (1) of Section 8 of the Code. If we go
by this section, existence of dispute means pendency of either suit or
arbitration proceeding before the receipt of section 8 notice from the
operational creditor, it has to be understood that pending of suit or arbitration
proceeding alone will amount to existence of dispute. In Clause (a) of Sub-

Section (2) of Section 8, it has been said that the corporate debtor must
bring two things to the notice of the operational creditor, one -existence of
dispute "and" record of pendency of the suit or arbitration proceeding before
receipt of section 8 notice. In point no. 1 "existence of dispute" has to be
understood as dispute pending in a suit or arbitration proceeding as mentioned
in definition to "dispute", in point No.2 "it has been said what dispute will
become considered as "existence of dispute". It can be "existence of dispute"

only when pendency of suit or arbitration proceeding in existence before
receipt of notice, it does not matter to invoke section 9 if the suit or arbitration
proceeding filed subsequent to receipt of section 8 notice. Indeed, section 8
is a cause of action section to section 9, if cause of action does not arise
under section 8, no grievance could be invoked under section 9, section 9
is an application to file a case if at al the information that is required under
section 9 is given, thereby any provision in section 9 of the Code cannot be
considered as a governing provision to find out as to any cause of action
arose for filing a case under section 9. For that reason only, in sub-section

(1) of section 9, a provision is made to file an application, in sub-section (2)

a provision is made to file an application in such form and manner as
prescribed, in sub-section (3), a provision is made to guide as to what
documentation is to be filed along with the form under sub-section (1) of
section 9, when it comes to sub-section (4), it is a provision enunciating to
propose a resolution professional, it has been further said when an application
is to be admitted and when an application is to be rejected, lastly in sub-
section (6) it has been said that insolvency resolution process wil be
commenced once application is admitted under sub-section (5) of section

9. Thereby whether case is made out to file application u/s 8 is to be seen
going back to section 8 but not under section 9, whereby if at all any provision
appears inconsistent with cause of action section that is section 8, that
provision has to be read in harmony with cause of action section. Cause of
action section will never be harmonized to a procedural aspect mentioned
in section 9.

34. In the given situation, this debtor company figures have gone into minus,

P &L statement as on 31st March 2016 of the company reflects profit after

PRACTICAL ASPECTS OF INSOLVENCY LAW

227
tax has gone down to -1551.51crores. This company has not paid single
rupee to these creditors in the last three years, it is admitted on record
mil ions of dol ars' worth goods purchased from them in the year 2013 by
this company showing itself up as purchaser giving all kinds of undertakings
waiving right of defence. Now, it says that these goods were delivered to
some third party, not to it. It is in between the debtor and that third party,
what business these creditors have with that third party, it does not appear
in any documentation and that third party is privy to any transaction.

35. These are the figures showing on the website of Uttam signed by Managing

Director of the company on 9th February 2017.

Reconciliation of profit between

Quarter

9 months

Year

Ind-AS and previous IGAAP for

Ended

Ended

Ended
earlier periods and as at

31.03.2016

Name of Adjustments

31.12.2015 31.12.2015 31.03.2016

Net Profit as per IGAAP

(424.50)

(418.56)

(1551.51)

Capital Incentive from

12.63

42.91

58.61

Government of Maharashtra

Other Comprehensive Income

(2.33)

(73.64)

489.40

Total Comprehensive Income

(414.20)

(449.29)

(1003.50)

as per Ind-AS

36. Nowadays, corporate world is running on credit facility, if we ask to
ourselves, how many companies are doing business with their own money,
then surely it will be negligible in number, daily many startups coming,
some doing, some failing, the reasons may be myriad. If companies are
funded by creditors and mostly run on their money, can it be said that
shareholders of the company are real owners, or creditors? Don't creditors
have a right at least to realize their money before company is fully sunk
into? It is not that, every case coming to NCLT has been al owed or every
case dismissed; NCLT has been applying its judicial discretion to find as to
whether company is solvent enough to discharge its obligations towards
creditors, some admitted, some dismissed, because every situation is fact
sensitive, therefore adjudication is subject to the facts of the case.

37. In view of this, the principles and doctrines relevant in service
jurisprudence and courts dealing purely with law in issue cannot be bul dozed
upon fact finding courts, every decision turns on its facts. In Service Tribunals,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
mostly cases are dealt with basing on flouting some government order of
memorandum, therefore cases filed on a particular order will logically end in
the same manner, there, this rule of fol owing coordinate Bench order is
applicable. Here it can't be seen as strait-jacket formula to pass same order
which other coordinate Bench has passed, may be facts looking alike, but
when gone into those facts some difference wil be there which changes the
fate of the case. As to court of record, mostly they decide cases either at
second appel ate stage or on writ side, where facts wil not have any role to
play in such situations, law can't be changed from case to case, obviously
outcome may be the same.

38. The objection of the corporate debtor is that so many complexities are
existing in this dispute, for which since they have filed a suit before Hon'ble

High Court of Bombay after receipt of notice, therefore taking pendency of
the suit filed subsequent to receipt of section 8 notice, this IB petition is to
be dismissed. But the argument of the corporate debtor counsel not being in
consonance with the mandate of the statute u/s 8, this petition can't be
dismissed going by the argument of the counsel of Uttam because filing of
a suit or arbitration proceedings subsequent to receipt of notice u/s 8 will
not amount to existence of dispute as stated u/s 8 of IB Code.

39. Under any stretch of imagination, the argument of the corporate debtor
counsel does not make out any case to construe the corporate debtor filing
a suit over this claim subsequent to receipt of notice as dispute in existence,
henceforth this point is decided against the corporate debtor.

40. The corporate debtor counsel made a thumping argument saying that
since this very Bench dismissed an operational creditor case Kirusa Software

(P.) Ltd v. Mobilox Innovations (P.) Ltd dated 27, January 2017) on the
ground the claim is disputed in the reply, it is right, it happened in the
formative days when this Code has come into existence, moreover this
point that dispute means pendency of suit or arbitration, to our remembrance,
had not been argued by the counsel of operational creditor, frankly speaking
that was not noticed by us. It does not mean a miss out in one case can
become a ratio to repeat the same mistake again and defeat the object of
enactment. For this reason, is it that this case has to be sent to Larger

Bench? In corporate cases, time is money; this Tribunal must render justice
one way or other as expeditiously as possible so that money stuck in
unyielding asset can be released to fund it meaningful y. To effectuate the
objects of this code, larger picture is to be visualized.

41. The corporate debtor counsel referred an order dated March 1st 2017
passed by NCLT Principal Bench, New Delhi in One Coat Plaster v.

PRACTICAL ASPECTS OF INSOLVENCY LAW

229

Ambience (P.) Ltd. and Shivam Construction Company v. Ambience

Pvt. Ltd. and Philips India Limited v. Goodwill Hospital & Research

Centre Limited to say that if at al notice of dispute has been received by
the operational creditor or there is a record of dispute in the information
utility the petition shal be rejected by reading the definition of dispute as
inclusive and the word "and" in clause (a) of sub-section (2) of section 8 as

"or" in the light of section 9(5)(i )(d).

42. With al humility, we cannot agree with the submission of the corporate
debtor counsel to rely on the Coordinate Bench order because the reasoning
given in this case is based on the ratio legis enunciated in sections 8 and 9.

43. Moreover, we have noticed that enough material is there to say that
purchase order is present, invoices are present, bill of lading is present, bill
of exchanges are present, on the top of al these, confirmation of forfaiting
in favour of Deutsche is present, and acknowledging further assignment of
part of the debt to Misr Bank is also present. Moreover, the debtor has not
denied any of these documents except saying English law alone is applicable.

The alarming situation in this case is, this company is consistently in losses,
in fact profit after tax is showing to the loss of 1557 crores by 31st March

2016. If any delay is made in passing this order, it wil become nothing but
defeating the purpose and object of this Code.

44. The corporate debtor counsel argued that Special Bench at Guwahati
passed order dated 30.3.2017 stating that attorney holder exceeded his
power by filing case under section 7 of the Code basing on a power of
attorney given two years before, by the time Insolvency and Bankruptcy

Code was not even contemplated.

45. At eleventh hour, the corporate debtor counsel placed an order dated 30-

03-2017 passed by Special Bench of NCLT at Guwahati on a direction given
by the Hon'ble President of NCLT to decide the matter regarding passing of
different orders in a CP 37/2017 u/s of Insolvency and Bankruptcy Code

2016 by Division Bench, NCLT at Kolkata in relation to an issue as to whether

Power of Attorney in question had specifical y empowered Shri Srinjoy

Bhattacharjeet to do variety of acts which included the power to initiate
resolution process under IB Code, 2016 as well.

46. Since this point goes to the root of maintainability, this point has also
been elaborately discussed.

47. Before going into the above decision of NCLT Guwahati, we mention
that Deutsche & Misr Bank, separately and independently have given power
of attorney to one Pankaj Sachdeva and Vandana S. Saxena on 20th

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PRACTICAL ASPECTS OF INSOLVENCY LAW

September, 2016 and 11th October,2016 to ask or demand the outstanding
amount from the present corporate debtor i.e. Uttam Galva Steels Limited
along with overdue interest and costs thereon and also to file and/or
defend suits, to sign and verify all the plaints including winding up
petitions, pleadings, written statements, affidavits, petitions, objections to
file execution applications to undertake proceedings, appeals, review,
revisions, writ petitions and to furnish evidence and to make statements
and to file al sorts of applications and to prosecute all legal proceedings,
memorandums of appeal, petitions and to do all other legal matters in all the
courts/tribunals including the board for Industrial and Financial

Reconstructions (BIFR) and the Appellate Authority for Industrial and

Financial Reconstruction (AAIFR), from the lowest to the highest concerning
any matter in respect of the said outstanding amount and the said petitions/
appeals, to engage advocates and technical counsel for the conduct of the
proceedings for recovery, except to settle compromise, compound or
withdraw the said petition, suits, appeals, reviews, revisions, petitions without
obtaining a written consent from the operational creditors, and to appeal in
the courts, file civil or criminal review or revisions or appeals or originals.

48. Since the corporate debtor counsel raised an objection that power of
attorney is invalid since the power of attorney has not been reflecting to
initiate this insolvency proceeding under IB Code. To find out as to whether
such argument stands in the light of the coordinate bench, the purport of
the power of attorney has been depicted to look into as to whether the
power of attorney fal ing within the definition given in Section 1-A of The

Powers of Attorney Act, 1882 and also the ratio laid down in the order given
by the coordinate Bench. The discussion below is purely to consider as to
whether the power of attorney in the present case is valid or not.

49. By looking at the aforesaid order passed by our learned brother sitting at

Guwahati, it appears that in Kolkata Bench, one Member has stated that

General Power of Attorney was given on 20-10-2014 to initiate proceedings
before any court of law including NCLT, but this power of attorney cannot be
treated as a specific power of attorney to initiate corporate insolvency
resolution process under IB Code 2016. Since the power of attorney must
be strictly construed, the rationale behind the principle being that the powers
given are not abused by the agent and its actions are restricted within and
only to the extent the power indicated or given.

50. As against the aforesaid observation, another member of the same

Bench held that the power of attorney mentioned above clearly mentions
that the legal manager is empowered to initiate proceedings under NCLT

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231
which automatically includes its role as an adjudicating authority under IBC.

In case, this is insistent upon in every petition under IBC, involving a financial
creditor that the petition be filed on the basis of a specific power of attorney
on a board's resolution, it will defeat the very purpose of IBC, which is for
speedy resolution of insolvency cases. He also further held that the facts of
the outstanding loan and the defaults have been established by the
operational creditor and the same has not been denied by the corporate
debtor henceforth the same deserved to be admitted.

51. To say that the power of attorney in the case supra cannot be said to
have authorized the attorney to initiate a corporate insolvency resolution
proceeding u/s 7 of the Code, Guwahati Bench holds that since it is a new
act coming to existence in the year 2016 with enormous changes with a
complete new regime, therefore it can't be said that the power of attorney
holder can go beyond the covenants under power of attorney by relying
upon PM Dasappa Nayanim Varu v. Ramabhaktulal Ramaiah AIR 1952

Mad. 559 and Coramandel International Ltd. v. Cheamcel Biotech Ltd.

[2011] 110 SCL 580 (AP.).

52. When this Bench has gone through PM Dasappa supra it is evident
that the donors themselves filed OS 314/1943 on the file of District Munsif
of Tirupati against Ramabhaktula, thereafter due to their inconvenience,
the donors had appointed a donee to conduct on their behalf the entire
proceedings which had to be taken in the said suit on the file of the court
of the District Munsif of Tirupati, to give effect the special power of
attorney executed and delivered by them as of consent. When District

Munsif returned the plaint on the ground said suit was beyond the
pecuniary jurisdiction of that court, the plaint so returned was represented
in the subordinate judge's court, then on the contention raised by the
defendants that no power was conferred on the donee to engage an
advocate or conduct a suit in the subordinate judge's court, the said
subordinate judge dismissed the suit on which an appeal was filed wherein

Hon'ble High Court dismissed his plea stating that the document having
conferred on the donee to conduct a particular suit in a particular court,
because it does not expressly engage the attorney for the purpose of
conducting the litigation generally in respect of the plaint schedule. As
there was no either explicit or implicit power to the attorney to file before
the subordinate court, if the contention raised by the appellant was
accepted, it would be nothing but court introducing new words into the
power of attorney and confer a new power upon him. Since the plaintiff
expressly authorized the attorney to conduct particular suit in a particular
court, the Hon'ble High Court held that it could not hold that it intended

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to empower the attorney to conduct that suit in any other court. In view
of this reason, the appeal was dismissed.

53. As to other judgment passed by the Hon'ble High Court of Andhra Pradesh
in Coramandel International Ltd. (supra) the reasoning given for not
considering power of attorney to file winding of proceedings is that the power
of attorney was authorized to sign and verify plaints written statements
petitions, vakalats, claims and objections and the memorandums of all kind
in any court in India but not included to file winding-up proceedings, thereby
the Hon'ble High Court has not al owed that power of attorney to use for
filing winding up proceedings on the ground that the proceedings under section

433 of the Act 1956 cannot be equated to suits or for that matter suits for
recovery of money because lis in winding up proceedings is not merely
between the petitioning party and the company sought to be wound up,
once the winding petition is admitted the creditors contributories, shareholders
etc. to seek redress in the proceedings and even oppose the winding up. It
was further held that the proceedings under Companies Act for winding up
are entirely different, a special remedy and a proceeding not to the parties
alone, their range is wide and al steps taken on winding up proceedings are
in public interest.

54. The rationale behind the finding by Guwahati is, power of attorney must
be strictly construed and that the powers given are not to be abused by the
agent and his actions are restricted within and only to the extent the power
is indicated are given.

55. In the two cases relied on by Guwahati Bench, as to Madras case, the
principals had given power to the attorney to proceed with the suit already
initiated by them, they had not said to him to proceed any further beyond
the said suit already filed by them. It is purely a special power limited to a
special action, therefore, that special power could not be equated or
generalized to say that the person authorized is also empowered to file
before another court of law where proceedings would be different, therefore
the special power cannot be construed as a generalized power. It is an
exclusive power given not to include any other power. The ratio to the facts
of it is correct, because the power given to the attorney was to continue
with suit initiated by the principals, not beyond it, henceforth, the governing
ratio where anybody transgresses the special power given to them, it will be
undoubtedly abuse of power. If we come to the ratio decided in Coramandel

International Ltd. (supra) there the principle endowed upon the attorney is
the power to institute suits but not to winding proceedings, since the winding
up proceedings are by nature different with far implications, the Hon'ble

High Court has held that the power given to file suits cannot be elongated to

PRACTICAL ASPECTS OF INSOLVENCY LAW

233
initiate winding up proceedings because it is not a lis between two parties,
it involves other creditors, contributors and many other stake holders
including public interest.

56. In the case given to us, the creditors authorized the attorney to ask or
demand the outstanding amount from Uttam and also to initiate proceedings
including winding up proceedings before the courts/tribunals, the only power
that is kept to themselves is in the event of compromise, it has to happen
with the written consent of the creditors.

57. Now let us come to see what the definition given in The Powers of

Attorney Act says: —

“In this Act, "power-of-attorney" includes any instrument empowering
a specified person to act for and in the name of the person executing
it.”

58. On reading this section, it appears that four elements are important in a
power of attorney to know as to whether any action of attorney is in excess
to the power given to him or not.

1. There shal be an instrument.

2. There shall be an empowerment to the attorney to do an act or acts.

3. Attorney shal be a specified person.

4. Such action must be for and in the name of the person executing it.

59. Al these elements are present in the two powers of attorney, the only
rationale to be seen is any excess power has been exercised in moving a
case under section 9 of this code, which we have not seen anywhere.

60. Here the creditor companies, simultaneously on 20th September 2016
and 11th October 2016, empowered Mr. Pankaj & Mrs. Vandana to demand
the dues outstanding from the corporate debtor i.e. Uttam Galva Steels

Limited and to initiate legal proceedings including winding up proceedings
before the courts/tribunals, therefore the intention of the creditors is clear
and their authorization is very clear that the attorneys can initiate winding
up proceedings as wel . The point for consideration is to see whether the
attorneys proceeding beyond the power given to him or not. When power
was given to the attorneys to initiate proceedings for liquidation by filing
winding up petition in the months of September and October 2016, an action
under 1956 Act for winding up proceedings was very much available, for
that reason alone notice was given under section 434 of the Act 1956, but
by the time the attorneys to initiate proceedings of winding up, winding up

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jurisdiction in respect to section 433(e) of the Act 1956 were metamorphosed
into insolvency proceedings under IB Code. In a situation like this, can the
application filed under section 8 be simply rejected on the ground since
winding up proceedings have become insolvency proceeding and the
authority given to winding up proceedings cannot be considered as authority
to initiate insolvency proceedings? In fact, this insolvency proceeding against
companies had originated from 271-(l)(a) of 2013, therefore, when company
is unable to pay, the party has either to proceed under sections 433 & 439
of the old Act, or under new provision come in the place of section 433(e) of
the Act 1956. It is not said in the power of attorney that the attorney holders
shal proceed under the Companies Act, 2013 alone or under 1956 Act, in
fact the creditors categorically mentioned to initiate winding up proceedings
when the parties unable to repay the debts. It is not said by the creditors
that the attorneys shal directly file winding up proceedings, before filing
winding up proceedings, the creditors authorized the attorneys to ask or/
demand the repayment of the outstanding amount by Corporate debtor, if
the corporate debtor fails to repay, then only the creditors can initiate
proceedings under winding up. It is not that power of attorney was given
years before. It is hardly given two months before initiating this proceeding,
since it is a foreign company it will take its own time to reach this power of
attorney to the attorney holders thereafter to ask the debtor for repayment,
if the debtor has failed to repay, then to make a demand and then to give a
statutory notice as envisaged u/s 8 thereafter to initiate proceedings u/s 9
of the IB Code. All these steps wil take about 1 to 2 months to initiate
proceedings under this Code. By navigating through all these documentation,
we have not seen anywhere that the attorneys transgressed their power to
initiate insolvency proceedings. A change of name wil not become change
of game. This relief under section 9 of the Code was available to the
operational creditors under section 433(e) of the Act 1956. Indeed, the
proceedings pending under section 433 (e) of the Act 1956 have been
transferred to NCLT to treat them as IB petitions. Therefore, it is not pragmatic,
especially in commercial proceedings to go back to square one and then
again initiate proceedings from the beginning. Here the debtor company is
already in losses and if at al any further delay happens, if the creditors are
not in a position to realize their dues or at least to make out something from
the residue, this process of restarting the proceedings in the name of want
of authority wil become hindrance forever in realizing its debt.

61. In winding up proceedings once enquiry is done liquidator wil directly be
appointed for liquidation, the better part in IB Code is there will be a resolution
process to find out as to whether a distressed company can survive if

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235
further funds are infused, if at that juncture also, the company fails, then
only the action for liquidation will trigger. Therefore, the nature of insolvency
proceedings under IB Code cannot be seen as something different from the
winding up proceedings. Maybe it is looking new to us but the outcome is
one and the same, the main object behind insolvency proceedings for
reorganization and insolvency resolution of the companies and individuals
in a time bound manner for maximization of value of the assets of the said
companies or said persons to promote entrepreneurship availability of credit
and balance of interest of al the stakeholders. In a scenario like this, if we
narrow down our perception that company wil be closed, business wil go
down if at al insolvency proceedings are initiated, then it wil become nothing
but diluting the force of the Code. Assuming that workers wil suffer if it
goes to IRP, what ultimately happens is the company will die on its own, by
that time nothing wil come even to workers also, therefore we have not
seen any logic in the argument that company shal not go to IRP.

62. When we read either the statute or a covenant between the parties,
courts will normally discover what the law or covenant is rather than to
make the law or to make the covenant, the courts wil only read what a
statute actual y states and will not read into the words which are not in the
statute. One must not be lost sight of that ratio legis is as important as ratio
decidendi, ratio legis is rather more important than ratio decidendi. When
sovereign law was not in existence, common law was prevalent, in those
timings, destiny and direction to English Country was the ratio decided by
the courts to give certainty and predictability to the society to run, but when
law is promulgated, the bottom line for certainty and predictability is ratio
legis, when any ambiguity is there in law, if law is interpreted in such a way
so as to carry the object of the litigation, then it will become purposive
interpretation. The purposive approach is to promote the general legislative
purpose underlying the provision, but not to crucify the statutory provision
by label ing reliefs in the Code as harsh remedy.

63. In Haryana Financial Corporation v. Jagadamba Oil Mills [2002] 3

SCC 496, it has been held as fol ows:

"Courts should not place reliance on decisions without discussing as to
how the factual situation fits into with the fact situation of the decision on
which reliance is placed. Observations of courts are not to be read as

Euclid Theorems nor as provisions of the statute. These observations
must be read in the context in which they appear. Judgments of courts
are not to be construed as statues. To interpret words, phrases and
provisions of statute, it may become necessary for judges to embark

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upon lengthy discussions but the discussion is meant to explain and not
to define. Judges interprets statutes they do not interpret judgments. They
interpret words of statues; their words are not to be interpreted as statues.

In London Graving Dock Co. Ltd. vs. Horton (1951) to All ER 1(HL),

Lord MacDermot observed:

"The matter cannot, of course, be settled merely by treating ipsissimaverba
of Willes, J., as though they were part of an Act of Parliament and applying
the rules of interpretation appropriate thereto. This is not to detract from
the great weight to be given to the language actually used by that most
distinguished judge".

64. Al that is said in the above finding is the words in a judgment is not to
be treated as if it were a statutory definition, it wil require qualification in
new circumstances. There is always a peril in treating the words of a speech
or a judgment as if they were words in a legislative enactment and it is to be
remembered that judicial utterances are made in the setting of the facts of
a particular case, if any deviation to the statute is ex facie apparent in any
judgment, law governing a particular situation is to be taken abreast. A ratio
in a judgment cannot be torn out of context and apply it in a situation where
it is not fitting.

65. Here in the present case, the power of attorney was given only two months
before filing this case mentioning what are the actions the attorney holders to
take up, against whom it is to be taken up, therefore it can't be said that since
it is not a winding up proceeding, this power of attorney cannot be used to file
insolvency proceeding IB Code. The nature of proceedings under winding up
as well as insolvency is more or less same. The procedure is slightly different;
the object is to liquidate the assets that are owed to the creditors, as we said
earlier; in insolvency proceedings one more step taken into consideration is
restructuring which was earlier considered by SICA. If Debtor Company is
unable to make payment, what is wrong in notifying it to the public? Here the
corporate debtor has not come forward making any payment to the creditors
in 180 days 'maturity time given. Thereafter, almost three years are over. Still
this company has not made any payment to the creditors, now has come
forward making allegations that power of attorney is not valid, bill of exchange
is not valid, forfaiting to the second creditor is not valid but it is nowhere said
that the AIC has not sent the goods to the destination ordered by this debtor
in the purchase order. It is also not the case of the debtor that goods were not
reached to the destination; in fact, he accepted bil of exchanges and thereafter
confirmed the forfaiting agreement in between the first creditor and the AIC.

66. The Counsel for the Corporate Debtor relied upon S. I. Rooplal v. Lt.

PRACTICAL ASPECTS OF INSOLVENCY LAW

237

Governor through Chief Secretary Delhi [2000] 1 SCC 644 that if the
earlier judgment of another coordinate bench of the same tribunal is to be
held as incorrect by subsequent Bench of the same tribunal, then it ought to
have been referred to a larger bench so that the difference of opinion between
the two coordinate benches on the same point could have been avoided.

This is a fundamental principle which every presiding officer of a judicial
forum ought to know, for consistency in interpretation of law alone can lead
to public confidence in our judicial system. This point has already been
answered in the above paras.

67. The Corporate Debtor Counsel submits that Deutsche and Misr Bank do
not have any locus to maintain this petition as claim purportedly payable by
the Debtor separately is based on two separate claims by two separate
claimants, thereby this claim is defective in so much as it seems to claim
two complete distinct unconnected debts, and there is no privity of contract
between Uttam and Deutsche as much as in between Uttam and Misr Bank,
besides this, the assignment by Deutsche to Misr Bank has not been
confirmed by Uttam therefore, these two petitioners cannot be recognized
as Operational Creditors within the meaning of the Code.

68. The argument of the Corporate Debtor counsel does not stand good for
two reasons (1) the debt has been properly assigned to Deutsche and
thereafter Deutsche assigned part of the debt to Misr Bank, since the
assignment of debt in our country need not be confirmed by the Corporate

Debtor, it cannot be said that this Petition is defective, it is two Operational

Creditors, who shared debt in between, filed this Company Petition against
the debt raised out of one transaction, apart from that since it is only to
initiate the insolvency resolutions process, for no prejudice being caused
to the Corporate Debtor, this Petition in any sense cannot be treated as
defective. As to doctrine of privity of contract, there need not be any
separate contract in between the Petitioners and Corporate Debtor, once
that debt is assigned to somebody else, then that third party will
automatically come into the shoes of the original operational creditor as
stated in the definition to operational creditor. Therefore, this argument of
absence privity of contract between Deutsche, Misr Bank and Uttam has
no merit.

69. The Corporate Debtor Counsel has developed an argument saying that a

Petition under section 9(5)(i) of the Code could be admitted only when, inter
alia, no notice of dispute has been received by the Operational Creditor or
there is no record of dispute in the information was received. He further
says Corporate Debtor having sent a notice of dispute on 3.3.2017 itself

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that is within 10 days from the date of receipt of notice, as envisaged under
section 9(5)(i )(d), the Company Petition by an order shal be rejected.

70. This argument wil remain looking plausible, if the word "dispute" is
meant as a dispute arising out of assertion and denial, but if the definition of
the word "dispute" is taken as pendency of suit or arbitration proceeding in
respect to the debt claim mentioned in the Petition, then there would not be
any argument to the Debtor Counsel to justify his arguments.

71. If we read the sections 5(6), 8 and 9 together, we can visualize the
consistency. When the word "dispute" means pendency of suit or arbitration,
then "dispute in existence" in section 8 means suit or arbitration proceedings
pending since before the receipt of notice under section 8, on this logic, the
receipt of notice of dispute under section 9(5)(ii)(d) will obviously become a
notice of dispute reflecting pending of suit or arbitration proceedings in respect
to the debt claim since before receipt of notice under section 8 of the code.

Then next point to be seen is as to whether this understanding is advancing
the purpose and object of the Code or not. A provision has been envisaged
for an Operation Creditor to initiate Insolvency Resolution process. If section

8 mandate is understood by reading dispute as mere assertion and denial,
then no Operational Creditor can file a petition once the Corporate Debtor
sends a reply notice saying that he is denying the claim raised by the

Operational Creditor. The outcome of such situation is the doors of IB Code
wil remain closed for ever to any Operational Creditor. It is quite natural as
and when operational creditor sends notice, the Corporate Debtor, whether
he is in a position to pay or not, unless col uded, wil simply send a reply
saying that it is disputing the claim raised by the operational creditor. This
eventuality raises a dispute without any support of pending suit or arbitration
proceedings, which wil become detrimental for enforcing the mandate of
this Code. As we already said, one should not start looking at the IB
proceedings as harsh. Here in this case, the Debtor company failed to pay
for three years since now, after three years, it is saying that Operational

Creditor cannot file this case as it remained silent from March 15, 2014.

Can it be an argument to say that since the Operational Creditors did not
initiate any proceedings until before filing this Insolvency Petition, they are
not supposed to pursue the remedies available to them before the case is
hit by limitation? It can't be like that. Therefore, this Bench has not found
any reason in the argument of the Corporate Debtor Counsel.

72. The Corporate Debtor Counsel raises another argument saying that since
this sales contract in between the Sel er (AIC) and the Corporate debtor is
governed by English Law, the Petitioner cannot proceed without dealing

PRACTICAL ASPECTS OF INSOLVENCY LAW

239
with English law, to which he relied upon Hari Shanker Jain v. Sonia Gandhi

AIR 2001 SC 3689, which is not relevant to the present case.

73. In a reply to the same, the Counsel for the Operational Creditors has
relied upon Malaysian International Trading Corpn. v. Megha Safe

Deposit Vault (P.) Ltd. [2006] 68 SCL 52 (Bom.); Aksh Optifibre Ltd. v.

Evonik Degussa GmbH [MANU/MH/1361/2014]; The Bank of New York

Mellon v. Zenith Infotech Ltd. to say that if any party says that English

Law is differing from Indian Law, it is their bounden duty to prove foreign law
is contrary to Indian Law, if they failed to prove it, it has to be presumed that

Indian Law is applicable. Therefore, it is not open to the Corporate Debtor to
say that as to confirmation in relation to assignment requires the
acknowledgement of the Corporate Debtor cannot be construed as law
governing this case. Henceforth we have not noticed any merit in the argument
of Corporate Debtor. However, since Deutsche Bank is party to the
proceeding, and confirmation in respect to that assignment has been agreed
upon by Uttam, without prejudice, Deutsche can very well proceed, but this
case need not go to that extent, because the counsel of the debtor has not
shown that confirmation of assignment is a requisite under Indian law.

74. The Corporate Debtor Counsel vehemently argued that these petitioners
cannot claim interest over the operational debt by showing two Bills of

Exchange given as col aterals, he says, if it is claimed basing on Bills of

Exchange along with interest, then it would become a financial debt, not an
operational debt.

75. If we go through the definition of "financial debt", it means that a debt
along with interest is disbursed against the consideration for the time value
of money and with an inclusive list specifying as to what category of debts
wil become financial debt. When it comes to operational debt, it is a claim
made against the goods supplied or services rendered. There are two types
of debts, one operational debt another financial debt, so debt has to fall
either under financial debt or operational debt, there cannot be a debt other
than these two types. If it is a debt against the company, it has to invariably
fal either under financial debt or operational debt and it has to be read as
either financial debt or operational debt, it can't be said that a debt against
company for a, b, c reasons can't be either financial debt or operational
debt. The bottom line in respect to obligation is, a man should repay the
value, either in cash or kind, to what he has taken, for this; we have to apply
law in such a way that claimant is provided remedy. The premise for claim is
whether "A" has taken something from "B" with a promise to pay back the
value or not, if it is prima facie evident that claim has to be paid, then to see

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what law is applicable to ensure that it is repaid, but not to dismiss the
claim on the ground it is not in accordance with law. Legal proposition is to
be searched and applied to promote the cause not to negate the cause. We
need not say that procedural justice is always subservient to substantial
justice.

76. When we see the basic difference to financial debt and operational debt,
it is clear that financial debt is money borrowed to repay on future date
along with interest, here the money is lent for value addition to the money
as agreed between the parties, whereas operational debt is normally based
on an agreement to pay to goods or services, it does not mean that interest
cannot be claimed in the times to come, it is a normal practice that trade
payables are payments deferred for a fixed time, if the party fails to repay
within the fixed time, then interest wil be claimed over operational debt as
wel , the same happened over here as wel . The corporate debtor himself
said in the written submissions that there is email dated April 10,2014 from
the corporate debtor in respect to payment of interest, since col aterals are

Bills of exchange, even otherwise also, basing on collaterals entitled to
interest at the rate of 18% u/s 80 of the Negotiable Instruments Act. The
difference in these two transactions is one given to get interest over the
money; second transaction happens in business operations, in both the
cases money is involved, as days go by after transaction, the time value of
money wil be there. For that reason, it is nowhere said that the operational
creditor is barred from claiming interest. Suppose goods are supplied three
years before, the debtor is supposed to return in 6 months, if it is not paid in

6 months maturity period, does it mean that since it is operational debt, the
creditor cannot claim interest when the payment is delayed beyond the time
given to him? On commercial side, the creditor claiming interest is quite
normal and justifying, after al , business always runs keeping in mind the
time value of money, transaction wil be operation if payment is to goods or
services, transaction is financial if money is lent in contemplation of returns
in the form of interest. Therefore, goods or services supplied can't be seen
as not valued in terms of money, one is in kind another is in cash, that does
not mean only cash has value of money and kind has no value of money.

77. Time value of money definition relates to the value of money in time.

How much will a rupee owned today be worth one year from now, i.e. If

Rs.100 affords a person to purchase say X amount of goods today, how
many goods will he be able to purchase with the same ?100, one year from
now. Historically it has been found that the value of money has depreciated
over the years, i.e. in one year from now he wil be able to purchase less
number of goods than X - that he was able to purchase a year back. So this

PRACTICAL ASPECTS OF INSOLVENCY LAW

241
is the proposition that has to be taken into consideration for claiming interest
on the value of goods supplied. In this case, credit has been given free of
interest for 180 days, the debtor has not paid, from the date of maturity,
almost three years over, still no payment has come to the operational
creditors.

78. Let us test how far this argument is right, one - it is admittedly true

Uttam accepted two bills of exchange promising to pay the value of goods
within 180 days, thereafter Uttam has not made any payment, by now more
than three years and six months are over.

79. For the reasons above and the material available on record showing
compliance under section 9 of the code, this petition is hereby admitted and

Registry is hereby directed to refer it to the Insolvency and Bankruptcy

Board to recommend the name of an IRP to appoint him in this case.

V. NALLASENAPATHY

B. S.V. PRAKASH KUMAR

Member (Technical)

Member (Judicial)

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ANNEXURE X.3

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) 6 of 2017

(arising out of order dated 27.01.2017 passed by the National Company

Law Tribunal, Mumbai Bench in Company Petition 02/I&BP/NCLT/MAHI20

17)

IN THE MATTER OF:

Kirusa Software Private Ltd.

Appellant

Vs

Mobilox Innovations Private Ltd.

Respondent

Present:

Mr Amar Gupta, Mr. Sanjeev Jam, Ms Apoorva Agrawal,

Mr Alok Dhir, Ms Varsha Banerjee, Mr. Milan Negi and Mr.

Kunal Godhwani, Advocates for the appellant.

Mr. Devansh Mohta, Mr. Shyam Pandya, Mr. Puneet Singh

Bindra and Mr. Rohan Kaushal, Advocates for the
respondent.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

1. The appel ant-operational creditor filed petition under section 9 of the

Insolvency and Bankruptcy Code 2016 (hereinafter referred to as 'I&B Code')

which was rejected by the “Adjudicating Authority”. Mumbai Bench by the
impugned order dated 27th January 2017, with following observations :

“When this Bench has directed the petitioner to furnish the requisite
documents as described under section 9 of the Insolvency and Bankruptcy

Code, the petitioner filed the Notice of dispute raised by the corporate debtor
disclosing the corporate debtor disputing the claim made by the petitioner.

Though the petitioner filed al the invoices raised on the debtor company
aggregating debt to Rs. 20,08,202, details of transaction on account of
which debt fel due, default thereof and demand notice served upon the
debtor, for this Bench having noticed that notice of dispute raised by
respondent side has not been annexed to the CP, this Bench hereby

PRACTICAL ASPECTS OF INSOLVENCY LAW

243
directed to furnish the documents as prescribed under section 9 of the

I&B Code. In compliance of it, the petitioner filed the notice of dispute
issued by the corporate debtor disclosing the corporate debtor disputing
the claim made by the petitioner. On perusal of this sub-section (5) of
section 9 of this Code, it is evident that notice of dispute has been received
by the operational creditor.

On perusal of this notice dated 27th December, 2016 disputing the debt
al egedly owed to the petitioner, this Bench, looking at the corporate debtor
disputing the claim raised by the petitioner in this CP, hereby holds that
the default payment being disputed by the corporate debtor, for the
petitioner has admitted that the notice of dispute dated 27th December,

2016 has been received by the operational creditor, the claim made by
the petitioner is hit by section (9)(5)(ii)(d) of The Insolvency and Bankruptcy

Code, hence, this petition is hereby rejected.”

3. The plea taken by the appel ant is that mere disputing a claim of default
of debt cannot be a ground to reject the application under section 9 of I&B

Code, til the corporate debtor refer any dispute pending.

4. The only question arises for consideration in this appeal is what does

“dispute” and “existence of dispute” means for the purpose of determination
of a petition under section 9 of the I&B Code?

5. Unlike section 7 of the Code, before making an application to the

Adjudicating Authority under section 9 of the Code, the requirements under
section 8 of the Code are required to be complied with, which reads as
under :

‘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 in the default to the corporate debtor in such form and
manner as may be prescribed.

(2) The corporate debtor shal , within a period of ten 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

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of the unpaid amount from the bank account of the corporate
debtor; or

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.’

6. In sub-section (1) of section 8 of the I&B Code, though the word “may”

has been used, but in the context of section 8 and section 9 reading as a
whole, an “operational creditor”, on occurrence of a default, is required to
deliver a notice of demand of unpaid debt or get copy of the invoice demanding
payment of the defaulted amount served on the corporate debtor. This is the
condition precedent under sections 8 and 9 of the I&B Code, before making
an application to the Adjudicating Authority.

7. Under sub-section (2) of section 8 of the I&B Code, once the demand
notice is served on the corporate debtor by the “operational creditor”, the
corporate debtor has to bring to the notice of the operational creditor the
payment of debt or dispute if any, with respect to such operational debt
within 10 days of the receipt of demand notice/invoice.

8. Under section 9 of the Code, as quoted below, a right to file an application
accrues after expiry of ten days from the date of delivery of the demand
notice or copy of invoice as the case may be, demanding payment under
sub-section (1) of section 8 of the I&B Code. The “operational creditor” would
receive either the payment or a ‘notice of dispute’ in terms of sub-section (2)

of section 8 of the I&B Code :

“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.

(3) The operational creditor shall, along with the application furnish –

PRACTICAL ASPECTS OF INSOLVENCY LAW

245

(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 (4), if any;

(i ) 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 :

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Provided that Adjudicating Authority, shall before rejecting an application
under sub-clause (a) of clause (i ) 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 shal commence from
the date of admission of the application under sub-section (5) of this
section.”

9. Thus, it is evident from section 9 of the I&B Code that the Adjudicating

Authority has to, within fourteen days of the receipt of the application under
sub-section (2), either admit or reject the application.

10. Section 9 has two-fold situations insofar as notice of dispute is concerned.

As per sub-section (5)(i)(d) of section 9, the Adjudicating Authority can
admit the application in case no notice raising the dispute is received by the
operational creditor (as verified by the operational creditor on affidavit) and
there is no record of a dispute is with the information utility.

12. On the other hand, sub-section (5)(ii) of section 9 mandates the

Adjudicating Authority to reject the application if the operational creditor
has received notice of dispute from the corporate debtor. Section 9, thus,
makes it distinct from section 7. While in section 7, occurrence of default
has to be ascertained and satisfaction recorded by the Adjudicating Authority,
there no similar provision under section 9. The use of language in sub-
section (2) of section 8 of the I&B Code provides that the “corporate debtor
shall, within a period of ten 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... the existence of a dispute....”

13. Under section 7 neither notice of demand nor a notice of dispute is
relevant whereas under sections 8 and 9 notice of demand and notice of
dispute become relevant both for the purposes of admission as well as for
and rejection.

14. It may be helpful to interpret sections 8 and 9 and the jurisdiction of the

Adjudicating Authority being akin to that of a judicial authority under section

8 of the Arbitration and Conciliation Act, 1996 amended up to date, which
mandates that the judicial authority must refer the parties to arbitration if
the matter before it is subject to an arbitration agreement section 8 as
amended in 2015 contemplates the judicial authority to form a prima facie
view in relation to existence of a valid arbitration agreement, thereby
conferring limited jurisdiction.

15. Though the words “prima facie” are missing in sections 8 and 9 of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

247

Code, yet the Adjudicating Authority would examine whether notice of dispute
in fact raises the dispute and that too within the parameters of two definitions

– ‘debt’ and ‘default’ and then it has to reject the application if it apparently
finds that the notice of dispute does really raise a dispute and no other
factual ascertainment is required. On the other hand, if the Adjudicating

Authority finds that the notice of dispute lacks in particulars or does not
raise a dispute, it may admit the application but in either case, there is
neither an ascertainment of the dispute, nor satisfaction of the Adjudicating

Authority.

The role of Adjudicating Authority may become easier once the information
utility starts functioning for it is a record of dispute that would then be
sufficient to reject the application of the operational creditor.

16. The terms ‘claim’, ‘debt’ and ‘default’ are defined under Part I of the

Code.

Section 3(6) of the Code defines “claim” to mean a right to payment and
included within its ambit disputed and undisputed, legal, equitable, secured,
including arising out of breach of contract. Therefore, “right to payment” is
the foundation for making a claim under the Code.

Section 3(11) defines ‘debt’ to mean, the liability or obligation in respect of a
claim which is due from any person. Thus, claim transforms into a debt,
financial and operational, once liability or obligation to pay gets attached to
the claim.

Section 3(12) defines ‘default’ to mean “non-payment of the debt” once it
has become due and payable and the same is not repaid by the debtor.

‘Default’ occurs on fulfilment of twin conditions :

(a) debt becoming due and payable, and

(b) non-payment thereof.

17. For the purposes of Part II only of the Code, some terms/words have
been defined.

Sub-section (6) of section 5 defines ‘dispute’, to include, unless the context
otherwise requires, a dispute pending in any suit or arbitration proceedings
relating to :

(a) existence of amount of the debt;

(b) quality of good or service;

(c) breach of a representation or warranty.

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The definition of ‘dispute’ is ‘inclusive’ and not ‘exhaustive’. The same has to
be given wide meaning provided it is relatable to the existence of the amount
of the debt, quality of good or service or breach of a representation or
warranty.

18. Once the term ‘dispute’ is given its natural and ordinary meaning, upon
reading of the Code as a whole, the width of ‘dispute’ should cover all disputes
on debt, default, etc., and not be limited to only two ways of disputing a
demand made by the operational creditor, i.e., either by showing a record of
pending suit or by showing a record of a pending arbitration.

The intent of the Legislature, as evident from the definition of the term

‘dispute’, is that it wanted the same to be il ustrative (and not exhaustive). If
the intent of the Legislature was that a demand by an operational creditor
can be disputed only by showing a record of a suit or arbitration proceeding,
the definition of dispute would have simply said dispute means a dispute
pending in arbitration or a suit.

20. The hon’ble Supreme Court in P Kasilingam v. PSB College of Technology

1995 Supp (2) SCC 348 was dealing with the question what expression

‘Col ege’ includes as used in the relevant rule. The hon’ble Supreme Court
observed what is the intent of the of the Legislature when the expression
used in the definition is ‘means’ and when the expression used is ‘includes’.

At page 356 para 19 it observed as under :

‘a particular expression is often defined by the Legislature by using the
word “means”, or the word “includes”. Sometimes the words “means and
includes” are used. The use of the word “means” indicates that “definition
is a hard-and-fast definition, and no other meaning can be assigned to the
expression than is put down in definition [see Gough v. Gough : Punjab

Land Development & Reclamation Corpn. Ltd. v. Presiding Officer, Labour

Court]. The word “includes” when used, enlarges the meaning of the
expression defined so as to comprehend not only such things as they
signify according to their natural import but also those things which the
clause declares that they shal include.’

21. Admittedly in sub-section (6) of section 5 of the I&B Code, the Legislature
used the words “dispute includes a suit or arbitration proceedings”. If this is
harmoniously read with sub-section (2) of section 8 of the I&B Code, where
words used are “existence of a dispute, if any, and record of the pendency
of the suit or arbitration proceedings,” the result is disputes, if any, applies
to all kinds of disputes, in relation to debt and default. The expression used
in sub-section (2) of section 8 of the I&B Code “existence of a dispute, if
any,” is disjunctive from the expression “record of the pendency of the suit

PRACTICAL ASPECTS OF INSOLVENCY LAW

249
or arbitration proceedings”. Otherwise, the words “dispute, if any”, in sub-
section (2) of section 8 would become surplus usage.

22. Sub-section (2) of section 8 of the I&B Code cannot be read to mean
that a dispute must be pending between the parties prior to the notice of
demand and that too in arbitration or a civil court. Once parties are already
before any judicial forum/authority for adjudication of disputes, notice
becomes irrelevant and such an interpretation renders the expression

‘ existence of a dispute, if any,” in sub-section (2) of section 8 itiose.

23. The Hon’ble Supreme Court in Mithlesh Singh Vs. Union of India (2003)

3 SCC 309 observed that the Legislature is deemed not to waste its words
or to say anything in vain. If the intent of the Legislature was to limit the
dispute to only a pending suit or arbitration proceedings, sub-section (2) of
section 8(a) would have required a notice of dispute to only refer to a record
of pendency of the suit or arbitration proceedings and not to “existence of a
dispute, if any”. In the said case, the hon’ble Supreme Court at page 316
para 8 observed as under :

“It is not a sound principle of construction to brush aside word(s) in a
statute as being inapposite surplusage : if they can have appropriate
application in circumstances conceivably within the contemplation of the
statute. In the interpretation of statutes the courts always presume that
the Legislature inserted every part of the statute for a purpose and the
legislative intention is that every part of the statute should have effect.

The Legislature is deemed not to waste its words or to say anything in
vain.”

24. The statutory requirement in sub-section (2) of section 8 of the I&B

Code is that the dispute has to be brought to the notice of the operational
creditor. The two comes post the word ‘dispute’ (if any) have been added as
a matter of convenience and/or to give meaningfulness to sub-section (2) of
section 8 of the I&B Code. Without going into the grammar and punctuation
being hapless victim of pace of life, if one discovers the true meaning of
sub-section (2)(a) of section 8 of the I&B Code, having regard to the context
of sections 8 and 9 of the Code, it emerges both from the object and purpose
of the I&B Code and the context in which the expression is used, that
disputes raised in the notice sent by the corporate debtor to the operational
creditor would get covered within sub-section (2) of section 8 of the I&B

Code.

25. The true meaning of sub-section (2)(a) of section 8 read with sub-section

(6) of section 5 of the I&B Code clearly brings out the intent of the Code,
namely the corporate debtor must raise a dispute with sufficient particulars.

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And in case a dispute is being raised by simply showing a record of dispute
in a pending arbitration or suit, the dispute must also be relatable to the
three conditions provided under sub-section (6) of section 5 (a)-(c) only. The
words ‘and record of the pendency of the suit or arbitration proceedings’

under sub-section (2)(a) of section 8 also make the intent of the Legislature
clear that disputes in a pending suit or arbitration proceeding are such
disputes which satisfy the test of sub-section (6) of section 5 of the I&B

Code and that such disputes are within the ambit of the expression, “dispute,
if any”. The record of suit or arbitration proceeding is required to demonstrate
the same, being pending prior to the notice of demand under section 8 of
the I&B Code.

26. It is a fundamental principle of law that multiplicity of proceedings is
required to be avoided. Therefore, if disputes under sub-section (2)(a) of
section 8 read with sub-section (6) of section 5 of the I&B Code are confined
to a dispute in a pending suit and arbitration in relation to the three classes
under sub-section (6) of section 5 of the I&B Code, it would violate the
definition of operational debt under sub-section (21) of section 3 of the I&B

Code and would become inconsistent thereto, and would bar operational
creditor from invoking sections 8 and 9 of the Code.

27. Sub-section (6) of section 5 read with sub-section (2)(a) of section 8
also cannot be confined to pending arbitration or a civil suit. It must include
disputes pending before every judicial authority including mediation,
conciliation, etc., as long there are disputes as to existence of debt or
default, etc., it would satisfy sub-section (2) of section 8 of the I&B Code.

28. Therefore, as per sub-section (2) of the I&B Code, there are two ways in
which a demand of an operational creditor can be disputed :

(i) By bringing to the notice of an operational creditor, “existence of a
dispute”. In this case, the notice of dispute will bring to the notice of
the creditor, an “existence of a dispute” under the Code. This would
mean disputes as to existence of debt or default, etc,; or

(i ) By simply bringing to the notice of an operational creditor, record of
the pendency of a suit or arbitral proceedings in relation to a dispute. In
this case, the dispute in the suit/arbitral proceeding should relate to
matters (a)-(c) in sub-section (6) of section 5 and in this case, showing
a record of pendency of a suit or arbitral proceedings on a dispute is
enough and to intent of the Legislature is clear, i.e., once the dispute

(on matters relating to 3 classes in sub-section (6) of section 5 of the

I&B Code) is pending adjudication, that in itself would bring it within
the ambit of sub-section (6) of section 5 of the I&B Code.

PRACTICAL ASPECTS OF INSOLVENCY LAW

251

29. The definition of ‘dispute’ for the purpose of section 9 must be read along
with expression operational debt as defined in section 5(21) of I&B Code,

2016 means :

‘(21) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the repayment
of dues arising under any law for the time being in force and payable to
the Central Government, any State Government or any local authority;’

Thus, the definition of ‘dispute’, ‘operational debt’ is read together for the
purpose of section 9 is clear that the intention of Legislature to lay down the
nature of ‘dispute’ has not been limited to suit or arbitration proceedings
pending but includes other proceedings “if any”.

30. Therefore, it is clear that for the purpose of sub-section (2) of section 8
and section 9 a ‘dispute’ must be capable of being discerned from notice of
corporate debtor and the meaning of ‘existence’ a “dispute, if any”, must be
understood in the context.

31. The dispute under I&B Code, 2016 must relate to specified nature in clause

(a), (b) or (c), i.e., existence of amount of debt or quality of goods or service
or breach of representation or warranty. However, it is capable of being
discerned not only from in a suit or arbitration from any document related to
it. For example, the “operational creditor” has issued notice under Code of

Civil Procedure, 1908 prior to initiation of the suit against the operational
creditor which is disputed by “corporate debtor”. Similarly notice under section

59 of the Sales and Goods Act if issued by one of the party, a labourer/
employee who may claim to be operational creditor for the purpose of section

9 of I&B Code, 2016 may have raised the dispute with the State Government
concerning the subject-matter, i.e., existence of amount of debit and pending
consideration before the competent Government. Similarly, a dispute may
be pending in a Labour Court about existence of amount of debt. A party
can move before a High Court under writ jurisdictions against Government,
corporate debtor (public sector undertaking). There may be cases where
one of the party has moved before the High Court under section 433 of the

Companies Act, 1956 for initiation of liquidation proceedings against the
corporate debtor and dispute is pending. Similarly, with regard to quality of
foods, if the “corporate debtor” has raised a dispute, and brought to the
notice of the “operational creditor” to take appropriate step, prior to receipt
of notice under sub-section (1) of section 8 of the I&B Code, one can say
that a dispute is pending about the debt. Mere raising a dispute for the sake
of dispute, unrelated or related to clause (a) or (b) or (c) of sub-section (6) of
section 5, if not raised prior to application and not pending before any

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competent court of law or authority cannot be relied upon to hold that there
is a ‘dispute’ raised by the corporate debtor. The scope of existence of

‘dispute’, if any, which includes pending suits and arbitration proceedings
cannot be limited and confined to suit and arbitration proceedings only. It
includes any other dispute raised prior to section 8 in this in relation to
clause (a) or (b) or (c) of sub-section (6) of section 5. It must be raised in a
court of law or authority and proposed to be moved before the court of law
or authority and not any got up or malafide dispute just to stal the insolvency
resolution process.

32. There may be other cases such as a suit relating to existence of amount
of debt stands decided and decree is pending for execution. Similarly,
existence of amount of debt or quality of goods or service for which a suit
have been filed and decreed; an award has been passed by Arbitral Panel,
though petition under section 34 of Arbitration and Reconciliation Act, 1996
may be pending. In such case the question wil arise whether a petition
under section 9 wil be maintainable particularly when it was a suit or arbitration
proceeding is not pending, but stand decided? Though one may argue that
insolvency resolution process cannot be misused for execution of a judgment
and decree passed in a suit or award passed by an arbitral tribunal, but
such submission cannot be accepted in view of Form 5 of Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 wherein a
decree in suit and award has been shown to be a debt for the purpose of
default on non-payment.

33. Thus, it is clear that while sub-section (2) of section 8 deals with

“existence of a dispute”, sub-section (5) of section 9 does not confer any
discretion on adjudicating authority to verify adequacy of the dispute. It
prohibits the adjudicating authority from proceeding further if there is a
genuine dispute raised before any court of law or authority or pending in a
court of law or authority including suit and arbitration proceedings. Mere a
dispute giving a colour of genuine dispute or illusory, raised for the first time
while replying to the notice under section 8 cannot be a tool to reject an
application under section 9 if the operational creditor otherwise satisfies the
adjudicating authority that there is a debt and there is a default on the part
of the corporate debtor.

34. The onus to prove that there is no default or debt or that there is a
dispute pending consideration before a court of law or adjudicating authority
shift from creditor to debtor and operational creditor to corporate debtor.

35. In view of the aforesaid discussions we hold that the dispute as defined
in sub-section (6) of section 5 cannot be limited to a pending proceedings or

PRACTICAL ASPECTS OF INSOLVENCY LAW

253
lis, within the limited ambit of suit or arbitration proceedings, the word

‘includes’ ought to be read as “means and includes” including the proceedings
initiated or pending before consumer court, tribunal, labour court or mediation,
conciliation, etc. If any action is taken by corporate debtor under any act or
law including while replying to a notice under section 80 of Code of Civil

Procedure, 1908 or to a notice issued under section 433 of the Companies

Act or section 59 of the Sales and Goods Act or regarding quality of goods
or services provided by “operational creditor” wil come within the ambit of
dispute, raised and pending within the meaning of sub-section (6) of section

5 read with sub-section (2) of section 8 of I&B Code.

36. In the present case we find that the notice in Form ‘D’ under the I&B

(Application to Adjudicating Authority) Rules, 2016, was given by appellant-
operational creditor on 23rd December, 2016 under the said rules was also
forwarded. One Desai & Diwanji, Advocates, Solicitors and Notaries vide
letter dated 27th December, 2016 replied to the same on behalf of
respondent-corporate debtor – M/s. Mobilox Innovations (P.) Ltd., relevant
of which reads as fol ows :

‘1. At the outset, we say that you on behalf of your client have engaged
yourselves into a protracted correspondence with our client on the
issues raised in the notices. Our client disputes and denies each of
the statements and al egations made in the said Notices as being
absolutely false, frivolous, misconceived, devoid of merits and
erroneous. Nothing stated in the said Notices should be deemed to
have been admitted by our Client, unless specifically admitted herein,
and the same be treated as specifically set out herein and denied.

Each of the contentions hereinafter contained, are in the alternative
and/or without prejudice to one another.

2. At the further outset, it is respectfully submitted that the Notices are
liable to be disregarded at the threshold and does not deserve to be
entertained as the same are not maintainable in law.

3. It is stated that the claim on behalf of your client as stated in the

Notices are not contractually due and payable to your client, as there
exist serious and bona fide dispute between your client and our client;
and neither a winding up notice is maintainable nor any application
before the Adjudicating Authority (as defined in the Code) for initiating
a corporate insolvency resolution process under the Code.

4. The Notices are not only misconceived but also mala fide in nature
and has been colourable issued as a “pressure-inducing tactic” to

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PRACTICAL ASPECTS OF INSOLVENCY LAW
realise a purported debt which is not due and payable to your client
by our client. The purported debt is seriously and bona fide disputed
by our client and the same is not liable to be paid for reasons more
specifically mentioned herein. It is wel settled that neither winding
up notice nor any insolvency resolution process is a legitimate means
of seeking to enforce payment of an amount that is bona fide disputed
by a party. A disputed sum can neither be termed as “inability to pay”

the same so as to incur the liability under section 271(2)(e) read with
section 271(1)(a) of the Companies Act, 2013 nor can it be termed as
a “default” as defined under section 3(12) of the Code read with other
applicable provisions of the Code.

Xxx

(e) In and around 30th January, 2015, it had come to the knowledge
of our client that your client in flagrant breach of the terms and
conditions of the NDA, had divulged our client’s Confidential

Information and approached certain clients of our client; further,
your client had indulged in breach of trust and breach of the

NDA by displaying our client’s confidential client information
and client campaign information on a public platform, i.e., at
http://kirusal.pairserver.com/?page_id=34 and https://
in.linkedin.com/pub/vikram-agarwal/7/3al/83b.

Your client should note that any client information of any party
carries intrinsic confidentiality obligations (including under the

NDA) and your client’s breach of the NDA violated the basic
keystone of a business relationship.”

Xxx

(g) With respect to paragraph 8 of the 12th December, 2016 Notice,
it is denied that an amount of Rs.20,08,202.55 is an admitted
debt on the part of our client based on the contracts in the form
of POs placed by our Client and the corresponding Invoices
raised by your client for effecting the required services for the
campaign under the POs. Our client deny that it had failed to
discharge its admitted liability; therefore, it is evident that it is
not unable to pay its debt. It is pertinent to highlight that our
client has, at no point of time, confirmed or admitted its liability
towards your client to pay an amount of Rs.20,08,202.55. In
this regard, our client repeats and reiterates the contents of
paragraph number 6 of this reply.’

PRACTICAL ASPECTS OF INSOLVENCY LAW

255

37. Apart from the quoted portion, if reply dated 27th December, 2016 is
read in totality, we find that the respondent-corporate debtor has not raised
any dispute within the meaning of sub-section (6) of section 5 or sub-section

(2) of section 8 of I&B Code, 2016 and in that view of the matter, merely on
some or other account the respondent has disputed to pay the amount,
cannot be termed to be dispute to reject the application under section 9 of
the I&B Code as was preferred by appel ant-operational creditor.

38. The requirement under sub-section (3)(c) of section 9 while independent
operational creditor to submit a certificate from the financial institution as
defined in sub-section (4) of section 3 including Schedule Bank and public
financial institution and like which is a safeguard prevent the operational
creditor to bring a non-existence or baseless claim, similarly the adjudicating
authority is required to examine before admitting or rejecting an application
under section 9 whether the ‘dispute’ raised by corporate debtor qualify as a

‘dispute’ as defined under sub-section (6) of section 5 and whether notice of
dispute given by the corporate debtor fulfilling the conditions stipulated in
sub-section (2) of section 8 of I&B Code, 2016.

39. In the present case the adjudicating authority has acted mechanically
and rejected the application under sub-section (5)(i )(d) of section 9 without
examining and discussing the aforesaid issue. If the adjudicating authority
would have noticed the provisions as discussed above and what constitute
and as to what constitute ‘dispute’ in relation to services provided by
operational creditor then would have come to a conclusion that condition of
demand notice under sub-section (2) of section 8 has not been fulfilled by
the corporate debtor and the defence claiming dispute was not only vague,
got up and motivated to evade the liability.

40. For the reasons aforesaid we set aside the impugned order dated 27th

January, 2017 passed by adjudicating authority in CP No.01/I &BP/NCLT/

MAH/2017 and remit the case to adjudicating authority for consideration of
the application of the appel ant for admission if the application is otherwise
complete.

41. The appeal is allowed with the aforesaid observations. However, in the
facts and circumstances there shall be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

New Delhi

24th May, 2017

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ANNEXURE X.4

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 14 of 2017

(arising out of Order dated 02.03.2017 passed by the National Company

Law Tribunal, Principal Bench, New Delhi in CP (IB) No. 03(PB)/ 2017)

IN THE MATTER OF:

Philips India Limited

Appellant

Vs

Goodwill Hospital & Research Centre Ltd.

Respondent

Along with Company Appeal (AT) (Insolvency) No. 15 of 2017

Philips India Limited

Appellant

Vs.

Karma Healthcare Private Limited

Respondent

Present:

For Appellant: - Mr. N.Mahabir and Mr. P.C.Arya, Advocates

For Respondent: - Mr. S.N.Jha, Sr. Counsel, Mr. Atul T.N.

and Mr. Harsh Raghuvanshi, Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

1. As both the appeals have been preferred against common order dated

2nd March, 2017 passed by “Adjudicating Authority” (National Company

Law Tribunal), Principal Bench, New Delhi, the appel ant is common and
common question of law is involved, they were heard together and disposed
of by this common judgment.

2. Appel ant, Philips India Ltd. (‘operational creditor’) had preferred two
separate applications for initiation of Corporate Insolvency Resolution

Process invoking provisions of section 9 of Insolvency and Bankruptcy

Code, 2016 (‘I&B Code’) against one respondent-corporate debtor “Goodwill

Hospital & Research Centre Ltd.” and another corporate debtor, “Karina

Healthcare (P.) Ltd.”. Both the applications under section 9 were rejected by

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257
impugned common judgment passed by “Adjudicating Authority” with
observations that the remedy of the appel ant/applicant lies elsewhere and
not under the provisions of ‘I&B Code’.

3. The brief fact of the case are as fol ows :

The appellant entered into a Comprehensive Annual Maintenance Contract
with respondent “Goodwil Hospitals & Research Centre” on 2nd August,

2011 and 11th May, 2012 for the period from 1st September, 2011 to 31st

August, 2012 and 1st September, 2012 to 31st August, 2013, respectively
in respect of maintenance of Al um FD 20C.

4. Another Comprehensive Annual Maintenance Contract was reached
between appel ant and the respondent ‘Karina Healthcare (P.) Ltd.’ on 14th

March, 2010 for maintenance of instal ed machine Brilliance 64 without MRC
tube coverage but with UPS, battery, injector for the period from 15th March,

2010 to 14th March, 2013.

5. In both the cases the grievance of the appel ant is that the respondent-
corporate debtor defaulted to make payment of debts giving rise to filing of
the petitions under section 9 of ‘I&B Code’.

6. A perusal of the impugned order would show that the “Adjudicating

Authority” noticed the work order placed by the “corporate debtor” primarily
related to maintenance of equipments. A bare perusal of invoices would
show that it has included the charges of material and labour apart from

CST, service tax, operational cess, small and secondary and higher
education cess. The learned Adjudicating Authority also noticed that there
was no document placed on record certified by the “corporate debtor” or its
authorised representative or a medical technician that the work has been
done satisfactorily in accordance with the standard of norms/quality stipulated
in the agreement. The Adjudicating Authority noticed the aforesaid factors
and in view of the objections raised by both the “corporate debtors”, pursuant
to a notice issued by appel ant – “financial creditor” under sections 433 and

434 of the Companies Act, 1956, rejected the applications with following
observations :

‘The reliance of the applicant on the provisions of section 9 of IBC is not
meritorious. The applicant has claimed and has classified itself as

“operational creditor” and has prayed for triggering of the Insolvency

Process. A bare perusal of section 9 of IBC would, inter alia, reveal that
this Tribunal is vested with the powers to reject the application of the
operational creditor under section 9(5)(d) of IBC in case it is found that
notice of dispute has been received by such an operational creditor, or

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there is a record of dispute with the information utility. We have been
informed that no “Information Utility” has so far been set up and we are
per force to rely on the notice of dispute as sent by the respondent-
operational debtor to the applicant in the notice of dispute, the liability to
pay has been completely denied.’

7. The “corporate debtors” have taken plea that there was an existence of
dispute which they brought to the notice of the “operational creditor” in reply
to notice under section 8 of the ‘I&B Code’ read with section 9 of ‘I&B Code’.

8. At this stage it is desirable to state that the appel ant-operational creditor
issues a notice under section 433(e) read with section 434(1)(a) of the

Companies Act on 9th March, 2016 to the respondent-“Goodwill Hospital &

Research Centre Ltd.”. Referring to earlier notice it was pointed out that

“operational creditor” wil be left with no alternative but to cal upon the said

“corporate debtor” to forthwith and without any further delay make the
outstanding payment or otherwise the “operational creditor” have been
constrained to initiate appropriate proceedings, both under civil and criminal
law, including winding up. Similar notice under section 433(e) read with
section 434(1)(a) dated 9th March, 2016 was issued on respondent-Karina

Healthcare (P.) Ltd.

9. Learned Adjudicating Authority to appreciate the nature of the dispute
while noticed the aforesaid facts, also noticed the reply dated 30th March,

2016 filed by both “corporate debtors” with similar plea, as apparent from
impugned order and quoted below :

“To appreciate the nature of dispute, it would be profitable to read the
fol owing part of the reply dated 30th March, 2016 :

At the outset the al egations level ed under your notice dated 9th March,

2016 are being denied in its entirety for being false and concocted. It
appears from the tone and tenor of your notice that your client had not
apprised you with the correct facts and circumstances of the matter at
hand, leading to the issuance of the misconceived and il -founded notice
dated 9th March, 2016. It is brought to your kind notice that dues as
claimed by your notice were never outstanding against my clients and
the demand notice for the same is hopelessly barred by laws of limitation
and, hence, untenable under law.

It is brought to your notice that our clients entered into a Comprehensive

Annual Maintenance Contract with your client for the maintenance of
instal ed Allura Xper FD 20C at its hospital to keep the same in a good
and proper working condition. It was agreed under the clause 2 of the

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259
contract that the service will be provided by your clients for the upkeep of
the above mentioned medical equipment at the site of my client but your
client in the most unprofessional manner failed to keep up with the
contractual obligation taken by it vide contract dated 11th May, 2012. It is
further important to mention herein that the officials of your client had
failed to visit the premises of my client in a periodic manner for the upkeep
of the medical equipment due to which the functioning of the equipment
was majorly effected.

It is further important to mention herein that the Al ura Xper FD 20C
instal ed at the hospital of my client was left unattended at the hospital of
my client for several days due to minor problems which were to be repaired
by your client but were never repaired in time causing severe financial
loss due to non-activity of the machine of my client. The unprofessional
approach by the officials of your client has caused major loss of reputation
for my client and caused severe inconvenience to the patient awaiting
their treatment at the Hospital of my client due to which the payment was
deducted by my client and the same was informed to the officials of your
client.”

10. The Adjudicating Authority then proceeded to discuss the provisions
of law including the expression ‘dispute’ as defined and inclusive definition
as could be seen from sub-section (6) of section 5 of the I&B Code and
observed :

‘“dispute” includes a suit or arbitration proceedings relating to –

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty.

A bare perusal of the above provision of the IBC shows that a dispute
could be proved by showing that a suit has been filed or arbitration
proceedings are pending. It further elaborates that the suit or arbitration
should be in respect of the existence of the amount of debt, quality of
goods or services, or for a breach of a representation or a warranty.

Obviously, it is not an exhaustive definition but an illustrative one. It
becomes evident from the expression “includes” which immediately
succeeds the word ‘dispute’. Moreover, under section 8(1) of the Code
adequate room has been provided for the “NCLT” to ascertain the existence
of a dispute. A demand notice by “operational creditor” to an “operational
debtor’ must be sent who has not paid operational dues and has committed
default. Sub-section (2) of section 8 further clarifies that the corporate

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debtor is obliged to bring to the notice of the “operational creditor, within

10 days of the receipt of notice, the existence of a dispute and show the
record of the pendency of the suit or arbitration proceeding filed before
the receipt of such notice or invoice in relation to such dispute. The other
option is to pay the demanded amount. In the instant case, the applicant
sent a demand notice which was duly received by the respondent. A reply
has also been duly filed where serious dispute has been raised.’

11. On perusal of the documents submitted before the Adjudicating Authority
and in view of the discussions, part of which were noticed above, the

Adjudicating Authority held that it was unable to fathom any material on
record to dislodge the stand of the respondents that there is existence of
dispute between the parties.

12. Learned counsel for the appellant – operational creditor referred to sub-
section (6) of section 5 and sub-section (2) of section 8 of I&B Code made
the following submissions :

Section 5(6)

12.1 Dispute under section 5(6) is limited to a ‘proceeding’ or ‘lis’. The
word proceeding has been qualified to be a suit or arbitration
proceeding.

12.2 The word ‘dispute’ has to be read in conjunction with suit or arbitration.

The word ‘include’ is a limitation to ‘dispute’. The word ‘include’ connotes

‘comprise’ or ‘consist’. The word ‘includes’ ought to be read as ‘means
and includes’.

12.3 The word ‘include’ is used because the proceedings could be of various
other nomenclature and cannot be listed by an exhaustive definition.

Proceedings could include a writ petition, consumer court, rent
tribunal, labour court, mediation, conciliation, etc.

12.4 ‘Dispute’, connotes a claim made and denied by the other party. A
suit or arbitration would ordinarily be covered by ‘dispute’. Therefore,
construing ‘dispute’ to situations other than a proceedings/lis would
render the words ‘suit’ or ‘arbitration’ in section 5(6) otiose.

Section 8(2);

12.5 Use of the word ‘and’ envisages a lis/proceeding regarding the dispute.

12.6 It would not be an appropriate construction that there are two parts in
section 8(2) with the first part bring “existence of a dispute” and the
second part being “record of the pendency of suit or arbitration...” by

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261
reading the conjunctive ‘and’ as disjunctive ‘or’. Such a reading would
render the second part otiose for the fol owing reasons :

(i) There is no limitation of time for the first part, i.e., to notify

“existence of a dispute”. Whereas a limitation is prescribed for
the second part, i.e., to notify “record of suit or arbitration”, by
the words “filed before the receipt of notice”.

(i ) The second part “suit or arbitration” is ordinarily covered by the
first part ‘dispute’ rendering the second part surplus age.

(iii) It creates this discrimination without any reasonable basis.

13. Reliance was also placed on meaning of ‘dispute’ as per Oxford English

Dictionary means a disagreement or argument.

14. Learned counsel for the appel ant made much stress on the word ‘includes’

and placed reliance on decision of hon’ble Supreme Court in N D P

Namboodripad v. Union of India [2007] 4 SCC 502; Godfray Phillips Ltd. v.

State of UP [2005] 2 SCC 515; South Gujarat Roofing Tiles Manufacturers

Association v. State of Gujarat [1976] 4 SCC 601 wherein the hon’ble Supreme

Court held that there could not be inflexible rule that the word ‘include’ should
be read always as a word of extension without reference to the context.

15. It was further contended that general word ‘dispute’ has to be restricted
to a lis/proceedings by applying the principles of noscuntur a sociis and
ejusdem generis. When a general word is qualified by specific words of
narrower construction, the legislative intent is clear that the general word
should be read and limited to characteristics of the specific words. Therefore,
according to learned counsel for the appel ant the specific words “suit or
arbitration” is ordinarily understood and covered by the general word ‘dispute’.

16. Per contra, according to learned senior counsel for the respondents the
definition provided under sub-section (6) of section 5 of the I&B Code is
il ustrative in nature and it enumerates three types of disputes that the
operational creditor can have with the corporate debtor but it does not rest
here. It was submitted that there could be various other types of disputes
which have not been mentioned in the present definition so as such the list
in the body of the definition is not exhaustive and the term ‘includes’ used
by the Legislature cannot be read down to include only these three types of
dispute and has to be assigned a wider meaning by this hon’ble Tribunal.

The conjoint meaning of the definition with the section 8(2)(a) of the I&B

Code enlarges the scope of the definition as provided in the section 5(6) of
the I&B Code and gives illustration of a pending suit or arbitration. It was
submitted that after the rendering of defective services by operational

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creditor, to avoid the rigors of section 9 of the Code, the corporate debtor
would, if the term dispute has to give a narrow meaning of a suit or arbitration
proceeding be constraint to approach the court seeking a negative declaration
of non-payment which is prohibited under the Specific Relief Act. Hence, as
per the submission of the respondent herein, a dispute would mean
communication of a denial or repudiation of the claim of the operational
creditor at first instance either when the invoice has been raised and duly
communicated to the corporate debtor, a recovery notice has been received
by a corporate debtor or a statutory notice under section 8(2)(a) has been
received by a corporate debtor. Further as per submission of the respondent,
no negative burden of filing a suit or arbitration could be casted upon
operational creditor in view of the above submission. The word ‘includes’ is
a very wide term and creates extensive meaning to the word and covers
within its ambit all other aspects as wel apart from the ones mentioned in
the section 5(6) of the I&B Code 2016.

17. The question as to what does ‘dispute’ and “existence of dispute” means
for the purpose of determination of an application under section 9 of the I&B

Code fel for consideration before this Appel ate Tribunal in Kirusa Software

(P.) Ltd. v. Mobilox Innovations (P.) Ltd. Company Appeal (AT) (Insol.) 06/

2017". By judgment dated 24th May 2017, the Appel ate Tribunal observed
and held as follows :

’25. The true meaning of sub-section (2)(a) of section 8 read with sub-
section (6) of section 5 of the I&B Code clearly brings out the intent of the

Code, namely the corporate debtor must raise a dispute with sufficient
particulars. And in case a dispute is being raised by simply showing a
record of dispute in a pending arbitration or suit, the dispute must also be
relatable to the three conditions provided under sub-section (6)(a)-(c) of
section 5 only. The words “and record of the pendency of the suit or
arbitration proceedings” under sub-section (2)(a) of section 8 also make
the intent of the Legislature clear that disputes in a pending suit or
arbitration proceeding are such disputes which satisfy the test of sub-
section (6) of section 5 of the I&B Code and that such disputes are within
the ambit of the expression, “dispute, if any”. The record of suit or arbitration
proceeding is required to demonstrate the same, being pending prior to
the notice of demand under sub-section 8 of the I&B Code.

26. It is a fundamental principle of law that multiplicity of proceedings is
required to be avoided. Therefore, if disputes under sub-section (2)(a) of
section 8 read with sub-section (6) of section 5 of the I&B Code are
confined to a dispute in a pending suit and arbitration in relation to the

PRACTICAL ASPECTS OF INSOLVENCY LAW

263
three classes under sub-section (6) of section 5 of the I&B Code, it would
violate the definition of operational debt under sub-section (21) of section

3 of the “I&B Code” and would become inconsistent thereto, and would
bar operational creditor from invoking sections 8 and 9 of the Code.

27. Sub-section (6) of section 5 read with sub-section (2)(a) of section 8
also cannot be confined to pending arbitration or a civil suit. It must include
disputes pending before every judicial authority including mediation,
conciliation etc. as long there are disputes as to existence of debt or
default, etc., it would satisfy sub-section (2) of section 8 of the I&B Code.

28. Therefore, as per sub-section (2) of the “I&B Code”, there are two
ways in which a demand of an operational creditor can be disputed :

(i) by bringing to the notice of an operational creditor, “existence of a
dispute”. In this case, the notice of dispute will bring to the notice of
the creditor, an “existence of a dispute” under the Code. This would
mean disputes as to existence of debt or default, etc.,; or

(i ) by simply bringing to the notice of an operational creditor, record of
the pendency of a suit or arbitral proceedings in relation to a dispute.

In this case, the dispute in the suit/arbitral proceeding should relate
to matters (a)-(c) in sub-section (6) of section 5 and in this case,
showing a record of pendency of a suit or arbitral proceedings on a
dispute is enough and to intent of the Legislature is clear,, i.e., once
the dispute (on matters relating to 3 classes in sub-section (6) of
section 5 of the I&B Code) is pending adjudication, that in itself would
bring it within the ambit of sub-section (6) of section 5 of the I&B

Code.

29. The definition of “dispute” for the purpose of section 9 must be read
along with expression operational debt as defined in section 5(21) of I&B

Code means :

(21) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the repayment
of dues arising under any law for the time being in force and payable to
the Central Government, any State Government or any local authority.”

Thus, the definition of “dispute”, “operational debt’ is read together for the
purpose of section 9 is clear that the intention of Legislature to lay down
the nature of “dispute” has not been limited to suit or arbitration proceedings
pending but includes other proceedings “if any”.

30. Therefore, it is clear that for the purpose of sub-section (2) of section

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8 and section 9 a “dispute” must be capable of being discerned from
notice of corporate debtor and the meaning of “existence” a “dispute, if
any”, must be understood in the context.

31. The dispute under I&B Code, 2016 must relate to specified nature in
clause (a), (b) or (c), i.e., existence of amount of debt or quality of goods
or service or breach of representation or warranty. However, it is capable
of being discerned not only from in a suit or arbitration from any document
related to it. For example, the “operational creditor” has issued notice
under Code of Civil Procedure Code, 1908 prior to initiation of the suit
against the operational creditor which is disputed by corporate debtor.

Similarly notice under section 59 of the Sales and Goods Act if issued by
one of the party, a labourer/employee who may claim to be operation
creditor for the purpose of section 9 of I&B Code may have raised the
dispute with the State Government concerning the subject matter, i.e.,
existence of amount of debt and pending consideration before the
competent Government. Similarly, a dispute may be pending in a Labour

Court about existence of amount of debt. A party can move before a High

Court under writ jurisdictions against Government, corporate debtor (public
sector undertaking). There may be cases where one of the parties has
moved before the High Court under section 433 of the Companies Act,

1956 for initiation of liquidation proceedings against the corporate debtor
and dispute is pending. Similarly, with regard to quality of foods, if the

“corporate debtor” has raised a dispute, and brought to the notice of the

“operational creditor” to take appropriate step, prior to receipt of notice
under sub-section (1) of section 8 of the I&B Code, one can say that a
dispute is pending about the debt. Mere raising a dispute for the sake of
dispute, unrelated or related to clause (a) or (b) or (c) of sub-section (6) of
section 5, if not raised prior to application and not pending before any
competent court of law or authority cannot be relied upon to hold that
there is a “dispute” raised by the corporate debtor. The scope of existence
of “dispute”, if any, which includes pending suits and arbitration proceedings
cannot be limited and confined to suit and arbitration proceedings only. It
includes any other dispute raised prior to section 8 in this in relation to
clause (a) or (b) or (c) of sub-section (6) of section 5. It must be raised in
a court of law or authority and proposed to be moved before the court of
law or authority and not any got up or mala fide dispute just to stal the
insolvency resolution process.’

18. In the present case the respondent-corporate debtor much prior to
issuance of notice under section 8 of I&B Code, raised a dispute relating to
quality of service/maintenance pursuant to notice under section 433(e) and

PRACTICAL ASPECTS OF INSOLVENCY LAW

265

434(1)(a) of the Companies Act, 2013 to the notice of the “operational creditor”.

In that view of the matter, it can be safely being stated that there is

“existence of dispute” about the claim of debt.

19. Objection raised by respondent-corporate debtor, not raised for the first
time while replying to the notice issued by “operational creditor” under section

8 of the I&B Code. The objection cannot be cal ed to be mere objection
raising a dispute for the sake of ‘dispute’ and/or unrelated to clause (a) or (b)

or (c) of sub-section (6) of section 5 of I&B Code. For the said reason if the

Adjudicating Authority has refused to entertain the application under section

9 of I&B Code, no ground is made out to interfere with such orders.

20. We find no merit in both the appeals. They are accordingly dismissed.

However, there shall be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

31st May, 2017

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ANNEXURE X.5

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 29 of 2017

(arising out of Order dated 6th March 2017 passed by NCLT, Mumbai Bench
in C.P.No. 20/I & BP/NCLT/MAH/2017)

M/s MCL Global Steel Pvt. Ltd. & Anr.

Appellants

Vs.

M/s Essar Projects India Ltd. & Anr.

Respondents

Present:

For Appel ants: Mr. Alok Dhir, Ms. Versha Banerjee, Mr. Milan

Singh Negi with Mr. Kunal G.Advoates for the appel ants

For Respondents: Mr. Ankoosh Mehta with Mr. V. Tandon and

Mr. Karan Khanna, Advocates

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

1. This appeal has been preferred by appellant-MCL Global Steel (P.) Ltd.

and Another (hereinafter referred to as 'corporate debtor') against order
dated 6th March, 2017 passed by “Adjudicating Authority” (National

Company Law Tribunal), Mumbai Bench in CP No. 20/I&BP/NCLT/MAH/

2017, whereby the application preferred by respondents-M/s. Essar

Projects India Ltd. and Another (hereinafter referred to as 'operational
creditor') under sections 8 and 9 of the Insolvency and Bankruptcy Code,

2016 (‘I&B Code’) read with rule 6 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 (‘hereinafter referred
to as 'Adjudicating Authority') for initiation of corporate insolvency
resolution process has been admitted. The Adjudicating Authority while
declaring moratorium also passed certain directions, ordered to issue
public announcement of the corporate insolvency resolution process and
appointed an Interim Resolution Professional to carry the function of the
company in terms of I&B Code.

2. Learned counsel for the appel ant while assailing the impugned order
taken fol owing plea and grounds :

(i) The impugned ex parte order was passed by Adjudicating Authority

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267
without prior notice or intimation of hearing to the appellant-corporate
debtors against the principles of rules of natural justice.

(i ) Learned Adjudicating Authority has failed to notice that existence of
dispute between the parties which operational creditor did not brought
to the notice of the Adjudicating Authority while getting an ex parte
order. If notice would have been served on corporate debtor this fact
would have been highlighted.

(iii) The respondent-operational creditors concealed the material fact that
it issued a winding up notice under section 433 of Companies Act,

1956 which was duly replied by appellant-corporate debtor vide reply
dated 21st November, 2016 disputing the entire claim. Even before
issuance of notice under section 8 of I&B Code, the appel ant-corporate
debtor by its email dated 5th March, 2014, 20th August, 2013, 27th

October, 2014, 29th October, 2014, 15th November, 2014, 16th

November, 2014 and 30th November, 2014 had specifically raised its
concern with regard to quality of construction work and non-completion
of the work within time frame. The aforesaid correspondences clearly
demonstrate the existence of dispute between the parties.

3. Learned counsel appearing on behalf of the appellant submitted that the
word ‘includes’ as mentioned in sub-section (6) of section 5 of I&B Code
though is not exhaustive but an illustrative one. The word “includes” connote
other dispute, if any, raised apart from the dispute mentioned in section 8 of
the I&B Code.

4. It was further contended that under sub-section 5(2)(d) of section 9, the

Adjudicating Authority is independent to reject an application if notice of
dispute has been replied by the corporate debtor and the same is not brought
to the notice of the Adjudicating Authority. The Adjudicating Authority on
wrong assumption of non-pendency of suit for arbitration proceedings
accepted the plea taken by the operational creditor.

It was also contended that the dispute raised by appellant is bona fide and fall
within the meaning of ‘dispute’ under sub-section (6) of section 5 of I&B Code.

5. Learned counsel appearing on behalf of the respondent-operational creditor
while contended that the appeal is not maintainable at the instance of 1st
appellant and that the 2nd appel ant has no legal authority whatsoever to
initiate a proceeding on behalf of the corporate debtor after appointment of
interim resolution professional, further contended that the appellants
themselves have concealed material facts by making false and baseless
submissions. It was submitted that the e-mails as referred to above, were

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addressed in the year 2014, however, based on the instructions of the
directors, one Mr. Arvind Pujari an officer working in the accounts department
of corporate debtor by e-mail dated 21st November, 2015 intimated the

“operational creditor” that he will be paid its dues for its services. Moreover,
no such payment was made. The corporate debtor had agreed to make part
payment by 1st December, 2015 which again it failed to pay and all the time
the corporate debtor neglected to repay the unpaid amount to the “operational
creditor”.

6. Learned counsel for the respondent while submitted that demand notice
under sub-section (1) of section 8 was sent in Form 3/Form 4 of the Rules on

28th December, 2016, as per the rule, the corporate debtor failed to provide a
record of the pendency of legal proceedings with regard to al eged dispute.

On the other hand, upon receipt of demand notice, the corporate debtor
addressed a letter dated 3rd January, 2017 and, inter alia, admitted that the
corporate debtor is presently under distress and seeking its rehabilitation and
restructuring of loans given by the banks and financial institutions.

7. It was contended that as per the scheme of the Code particularly sub-
section (2) of section 8, there should be an “existence of a dispute, if any,”

and a record of pendency of the suit or arbitration proceedings filed before
receipt of such notice or invoice in relation to such dispute the corporate
debtor has to meet the dual threshold of :

(a) identifying the existence of a dispute; and

(b) providing a record of the pendency of a suit or arbitration proceedings
in relation to such dispute.

It was further submitted that the aforesaid scheme of the Code and Rules
are reinforced twice, i.e., at the time of sending the demand notice and at
the time of receipt of the reply from a corporate debtor. The notice of dispute
has to disclose pendency of the proceedings which the appellant-corporate
debtor failed to bring on record. Learned counsel referred to the “notice of
dispute” as mentioned in section 9 and submitted that the same necessarily
be read as a notice under sub-section (1) of section 8.

8. It was contended that as per rule 24 of the National Company Law Tribunal

Rules, a copy of the application was provided to the corporate debtor and a
copy of the same was served by letters dated 16th February, 2017 and 28th

February, 2017, respectively. The Code does not envisage any other notice
to be provided to the corporate debtor except for service of the application
at the time of filing. Therefore, it was contended that under the I&B Code the
corporate debtor has no right of hearing at the stage of admission of an

PRACTICAL ASPECTS OF INSOLVENCY LAW

269
application filed under the Code. The detailed arguments were advanced on
the question but as such issues have already been decided by this Appel ate

Tribunal, we are not reproducing the detailed arguments.

9. It was further contended that there is no adverse civil consequences for
the corporate debtor at the stage of admission which may attract the principles
of natural justice.

10. From the impugned order passed by the Adjudicating Authority it is clear
that the corporate debtor was not heard before the admission of the application.

The respondent-operational creditor has also not disputed the aforesaid
facts.

11. The Adjudicating Authority in impugned order, noticed the submission
made on behalf of the respondent-operational creditor and observed as
follows :

‘6. The petitioner counsel submits, to say that dispute is in existence,
mere mentioning in the notice that dispute is in existence in relation to
impugned debt is not sufficient, the corporate debtor has to prove that
the company already raised such dispute either in court proceeding or
arbitration before receipt of notice under section 8 of the Code, here no
such proceeding being pending before any court of law or in arbitration
proceeding before receipt of the notice supra, the debtor company merely
mentioning dispute in the reply to the notice under section 8 will not
amount to dispute in existence, hence, the counsel for the petitioner
prays this Bench to admit the petition by construing no dispute is in
existence against the debtor as on the date of receipt of notice under
section 8 of the Code.

7. Since the corporate debtor, as stated by the petitioner, admitted issuing
invoices in relation to the amount mentioned, the grievance remained in
the reply would be regarding quality of construction, the timeline of
construction, loss due to delay in construction, etc. Since the same is
not disputed before any court of law before receipt of notice issued under
section. 8 of the Code, the dispute raised in the corporate debtor reply to
the notice under section 8 of the Code cannot be treated as dispute in
existence at the time of receipt of the notice under section 8 for two
reasons, one – due to admission of raising invoices and two – due to
raising it as dispute in the reply only after notice under section 8 has been
issued.

8. On perusal of definition of dispute under section 5(6) and on perusal of
section 8(2)(a), it is evident that “dispute in existence” means and includes

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raising dispute in court of law or arbitral tribunal before receipt of notice
under section 8 of the Code.’

12. The question as to whether a prior notice before admission of an application
for corporate insolvency resolution process is required or not was considered
by this Appel ate Tribunal in “Innoventive Industries Ltd., Company Appeal

(AT) (Insolvency) Nos. 1 and 2 of 2017” decided on 15th May, 2017.

13. In the said case the Appel ate Tribunal after detailed deliberations with
regard to the provisions of the Act particularly amended section 424 of the

Companies Act, as amended vide XIth Schedule of article 32 of section

255 of the I&B Code and held as fol ows :

“49. As amended section 424 of the Companies Act, 2013 is applicable to
the proceeding under the I&B Code, 2016, it is mandatory for the
adjudicating authority to fol ow the principles of rules of natural justice
while passing an order under I&B Code, 2016. Further, as section 424
mandates the Tribunal and Appellate Tribunal, to dispose of cases or appeal
before it subject to other provisions of the Companies Act, 2013 or I&B

Code, 2016 such as, section 420 of the Companies Act, 2013 was
applicable and to be fol owed by the Adjudicating Authority.

50. One Sree Metaliks Ltd. and Anr. moved before the hon’ble Calcutta

High Court in WP No.7144(W) of 2017 assailing the vires of section 7 of
the Code, 2016 and the relevant rules under the Insolvency and Bankruptcy

(Application to the Adjudicating Authority) Rules, 2016 (‘I&B Rules, 2016’).

The chal enge was premise upon the contention that the Code, 2016 does
not afford any opportunity of hearing to a corporate debtor in a petition
under section 7 of I&B Code, 2016. The Hon’ble High Court noticed relevant
provision of section 7 of the I&B Code, 2016, the definition of Adjudicating

Authority as defined under section 5(1), section 61 of the I&B Code, 2016
relating to appeal and amended section 424 of the Companies Act, 2013
and by judgment dated 7th April, 2017 held as follows :

“........... However, it is to apply the principles of natural justice in the
proceedings before it. It can regulate its own procedure, however, subject
to the other provisions of the Act of 2013 or the Insolvency and Bankruptcy

Code of 2016 and any Rules made thereunder. The Code of 2016 read
with the Rules 2016 is silent on the procedure to be adopted at the hearing
of an application under section 7 presented before the NCLT, that is to
say, it is silent whether a party respondent has a right of hearing before
the adjudicating authority or not.

Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to

PRACTICAL ASPECTS OF INSOLVENCY LAW

271
adhere to the principles of the natural justice above anything else. It also
al ows the NCLT and NCLAT the power to regulate their own procedure.

Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it
is required to apply its principles. Principles of natural justice require an
authority to hear the other party. In an application under section 7 of the

Code of 2016, the financial creditor is the applicant while the corporate
debtor is the respondent. A proceeding for declaration of insolvency of a
company has drastic consequences for a company. Such proceeding may
end up in its liquidation. A person cannot be condemned unheard. Where
a statute is silent on the right of hearing and it does not in express terms,
oust the principles of natural justice, the same can and should be read
into in. When the NCLT receives an application under section 7 of the

Code of 2016, therefore, it must afford a reasonable opportunity of hearing
to the corporate debtor as section 424 of the Companies Act, 2013
mandates it to ascertain the existence of default as claimed by the financial
creditor in the application. The NCLT is, therefore, obliged to afford a
reasonable opportunity to the financial debtor to contest such claim of
default by filing a written objection or any other written document as the

NCLT may direct and provide a reasonable opportunity of hearing to the
corporate debtor prior to admitting the petition filed under section 7 of the

Code of 2016. Section 7(4) of the Code of 2016 requires the NCLT to
ascertain the default of the corporate debtor. Such ascertainment of default
must necessarily involve the consideration of the documentary claim of
the financial creditor. This statutory requirement of ascertainment of default
brings within its wake the extension of a reasonable opportunity to the
corporate debtor to substantiate by document or otherwise, that there
does not exist a default as claimed against it. The proceedings before the

NCLT are adversarial in nature. Both the sides are, therefore, entitled to a
reasonable opportunity of hearing.

The requirement of NCLT and NCLAT to adhere to the principles of natural
justice and the fact that, the principles of natural justice are not ousted by
the Code of 2016 can be found from section 7(4) of the Code of 2016 and
rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Rule 4 deals with an application made by a financial
creditor under section 7 of the Code of 2016. Sub-rule (3) of rule 4 requires
such financial creditor to despatch a copy of the application filed with the
adjudicating authority, by registered post or speed post to the registered
office of the corporate debtor.

Rule 10 of the Rules of 2016 states that, till such time the rules of procedure
for conduct of proceedings under the Code of 2016 are notified, an

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application made under sub-section (1) of section 7 of the Code of 2017
is required to be filed before the adjudicating authority in accordance with
rules 20, 21, 22, 23, 24 and 26 or Part-Il of the National Company Law

Tribunal Rules, 2016.

Adherence to the principles of natural justice by NCLT or NCLAT would
not mean that in every situation, NCLT or NCLAT is required to afford a
reasonable opportunity of hearing to the respondent before passing its
order.

In a given case, a situation may arise which may require NCLT to pass an
ex parte ad interim order against a respondent. Therefore, in such situation

NCLT, it may proceed to pass an ex parte ad interim order, however, after
recording the reasons for grant of such an order and why it has chosen
not to adhere to the principles of natural justice at that stage. It must,
thereafter proceed to afford the party respondent an opportunity of hearing
before confirming such ex parte ad interim order.

In the facts of the present case, the learned senior advocate for the
petitioner submits that, orders have been passed by the NCLT without
adherence to the principles of natural justice. The respondent was not
heard by the NCLT before passing the order.

It would be open to the parties to agitate their respective grievances with
regard to any order of NCLT or NCLAT as the case may be in accordance
with law. It is also open to the parties to point out that the NCLT and the

NCLAT are bound to fol ow the principles of natural justice while disposing
of proceedings before them.

In such circumstances, the chal enge to the vires to section 7 of the

Code of 2016 fails.”

14. The Appel ate Tribunal in the said case of M/s. Innoventive Industries

Ltd. also noticed sub-rule (3) of rule 4 of Insolvency and Bankruptcy

(Application to Adjudicating Authority), Rules, 2016 and observed :

‘51. As per sub-rule (3) of rule 4 of Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016, the financial creditor is required to
despatch forthwith a copy of the application filed with the Adjudicating

Authority to the corporate debtor as quoted below :

“4. (3) The applicant shal despatch forthwith, a copy of the application
filed with the Adjudicating Authority, by registered post or speed post to
the registered office of the corporate debtor.”

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273

Thus, it is clear that sub-rule (3) of rule 4 of I&B (Application to Adjudicating

Authority) Rules, 2016, mandates the applicant to despatch forthwith, a
copy of the application “filed with the Adjudicating Authority”. Thereby a
post-filing notice required to be issued and not as notice before filing of
application. The purpose for the same being to put corporate debtor to
adequate impound notice so that the corporate debtor may bring to the
notice of Adjudicating Officer “mitigating factor/ records before the
application is accepted even before formal notice is received”.

52. The insolvency resolution process under section 7 or section 9 of I&B

Code, 2016 have serious civil consequences not only on the corporate
debtor – company but also on its directors and shareholders in view of
the fact that once the application under section 7 or 9 of the I&B Code,

2016 is admitted it is fol owed by appointment of an “interim resolution
professional” to manage the affairs of the corporate debtor, instant removal
of the Board of directors and moratorium for a period of 180 days. For the
said reason also the Adjudicating Authority is bound to issue limited notice
to the corporate debtor before admitting a case under sections 7 and 9 of
the I&B Code, 2016.

53. In view of the discussion above, we are of the view and hold that the

Adjudicating Authority is bound to issue a limited notice to the corporate
debtor before admitting a case for ascertainment of existence of default
based on material submitted by the financial creditor and to find out
whether the application is complete and or there is any other defect
required to be removed. Adherence to principles of natural justice would
not mean that in every situation the adjudicating authority is required to
afford reasonable opportunity of hearing to the corporate debtor before
passing its order.’

15. In the aforesaid case of M/s. Innoventive Industries Ltd., the Appel ate

Tribunal also noticed the purpose of issuance of notice and held :

‘55. Process of initiation of insolvency resolution process by a financial
creditor is provided in section 7 of the I&B Code. As per sub-section (1) of
section 7 of the I&B Code, the trigger for filing of an application by a
financial creditor before the Adjudicating Authority is when a default in
respect of any financial debt has occurred. Sub-section (2) of section 7
provides that the financial creditor shal make an application in prescribed
form and manner and with prescribed documents, including :

(i) “record of the default” recorded with the information utility or such
other record or evidence of default as may be specified;

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(i ) the name of the resolution professional proposed to act as an interim
resolution professional; and

(i i ) any other information as may be specified by the Board.’

16. In view of the decision of Appel ate Tribunal in M/s. Innoventive Industries

Ltd., while we accept the submissions made on behalf of the appel ant that
the principle of rules of natural justice was violated, also reject the contention
made by learned counsel for the respondents that no such notice is required
or that there is no civil consequences, if any such application for initiation
of corporate insolvency resolution process is initiated.

17. The next question arises for consideration is what does “dispute” and

“existence of dispute” means for the purpose of initiation of insolvency
resolution process pursuant to application under section 9 of the I&B Code.

The aforesaid issue was considered by this Appel ate Tribunal in “Kirusa

Software (P.) Ltd. v. Mobilox Innovations (P.) Ltd. Company Appeal (AT)

(Insolvency) No. 06 of 2017”. Having noticed different provisions of the I&B

Code including meaning of “dispute” as defined under sub-section (6) of
section 5, the expression “existence of dispute, if any”, used in sub-section

(2) of section 8 of I&B Code. This Appel ate Tribunal observed and held as
follows :

‘17. For the purposes of Part II only of the Code, some terms/words have
been defined.

Sub-section (6) of section 5 defines “dispute”, to include, unless the context
otherwise requires, a dispute pending in any suit or arbitration proceedings
relating to :

(a) existence of amount of the debt;

(b) quality of good or service;

(c) breach of a representation or warranty.

The definition of “dispute” is “inclusive” and not “exhaustive”. The same
has to be given wide meaning provided it is relatable to the existence of
the amount of the debt, quality of goods or service or breach of a
representation or warranty.

18. Once the term “dispute” is given its natural and ordinary meaning,
upon reading of the Code as a whole, the width of “dispute” should cover
al disputes on debt, default, etc., and not be limited to only two ways of
disputing a demand made by the operational creditor, i.e., either by showing
a record of pending suit or by showing a record of a pending arbitration.

PRACTICAL ASPECTS OF INSOLVENCY LAW

275

The intent of the Legislature, as evident from the definition of the term

“dispute”, is that it wanted the same to be illustrative (and not exhaustive).

If the intent of the Legislature was that a demand by an operational creditor
can be disputed only by showing a record of a suit or arbitration proceeding,
the definition of dispute would have simply said dispute means a dispute
pending in arbitration or a suit.

21. Admittedly in sub-section (6) of section 5 of the I&B Code, the

Legislature used the words “dispute includes a suit or arbitration
proceedings”. If this is harmoniously read with sub-section (2) of section

8 of the I&B Code, where words used are “existence of a dispute, if any,
and record of the pendency of the suit or arbitration proceedings,” the
result is disputes, if any, applies to all kinds of disputes, in relation to
debt and default. The expression used in sub-section (2) of section 8 of
the I&B Code “existence of a dispute, if any,” is disjunctive from the
expression “record of the pendency of the suit or arbitration proceedings”.

Otherwise, the words “dispute, if any”, in sub-section (2) of section 8
would become surplus usage.

22. Sub-section (2) of section 8 of the I&B Code cannot be read to mean
that a dispute must be pending between the parties prior to the notice of
demand and that too in arbitration or a civil court. Once parties are already
before any judicial forum/authority for adjudication of disputes, notice
becomes irrelevant and such an interpretation renders the expression

“existence of a dispute, if any,” in sub-section (2) of section 8 itiose.

25. The true meaning of sub-section (2)(a) of section 8 read with sub-
section (6) of section 5 of the I&B Code clearly brings out the intent of the

Code, namely, the corporate debtor must raise a dispute with sufficient
particulars. And in case a dispute is being raised by simply showing a
record of dispute in a pending arbitration or suit, the dispute must also be
relatable to the three conditions provided under sub-section (6) of section

5(a)-(c) only. The words “and record of the pendency of the suit or arbitration
proceedings” under sub-section (2)(a) of section 8 also make the intent of
the Legislature clear that disputes in a pending suit or arbitration proceeding
are such disputes which satisfy the test of sub-section (6) of section 5 of
the I&B Code and that such disputes are within the ambit of the expression,

“dispute, if any”. The record of suit or arbitration proceeding is required to
demonstrate the same, being pending prior to the notice of demand under
section 8 of the I&B Code.

26. It is a fundamental principle of law that multiplicity of proceedings is
required to be avoided. Therefore, if disputes under sub-section (2)(a) of

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section 8 read with sub-section (6) of section 5 of the I&B Code are
confined to a dispute in a pending suit and arbitration in relation to the
three classes under sub-section (6) of section 5 of the I&B Code, it would
violate the definition of operational debt under sub-section (21) of section

3 of the I&B Code and would become inconsistent thereto, and would bar
operational creditor from invoking sections 8 and 9 of the Code.

27. Sub-section (6) of section 5 read with sub-section (2)(a) of section 8
also cannot be confined to pending arbitration or a civil suit. It must include
disputes pending before every judicial authority including mediation,
conciliation, etc., as long there are disputes as to existence of debt or
default etc., it would satisfy sub-section (2) of section 8 of the I&B Code.’

18. The Appel ate Tribunal also noticed various natures of “existence of
dispute in Kirusa Software Private Limited Vs. Mobilox Innovations Private

Limited and held :

‘31. The dispute under I&B Code, 2016 must relate to specified nature in
clauses (a), (b) or (c), i.e., existence of amount of debt or quality of goods
or service or breach of representation or warranty. However, it is capable
of being discerned not only from in a suit or arbitration from any document
related to it. For example, the “operational creditor” has issued notice
under Code of Civil Procedure, 1908 prior to initiation of the suit against
the operational creditor which is disputed by “corporate debtor”. Similarly
notice under section 59 of the Sales and Goods Act if issued by one of
the party, a labourer/employee who may claim to be operational creditor
for the purpose of section 9 of I&B Code, 2016 may have raised the
dispute with the State Government concerning the subject-matter, i.e.,
existence of amount of debt and pending consideration before the
competent Government. Similarly, a dispute may be pending in a Labour

Court about existence of amount of debt. A party can move before a High

Court under writ jurisdictions against Government, corporate debtor (public
sector undertaking). There may be cases where one of the party has
moved before the High Court under section 433 of the Companies Act,

1956 for initiation of liquidation proceedings against the corporate debtor
and dispute is pending. Similarly, with regard to quality of foods, if the

“corporate debtor” has raised a dispute, and brought to the notice of the

“operational creditor” to take appropriate step, prior to receipt of notice
under sub-section (1) of section 8 of the I&B Code one can say that a
dispute is pending about the debt. Mere raising a dispute for the sake of
dispute, unrelated or related to clause (a) or (b) or (c) of sub-section (6) of
section 5, if not raised prior to application and not pending before any

PRACTICAL ASPECTS OF INSOLVENCY LAW

277
competent court of law or authority cannot be relied upon to hold that
there is a “dispute” raised by the corporate debtor. The scope of existence
of “dispute if any”, which includes pending suits and arbitration proceedings
cannot be limited and confined to suit and arbitration proceedings only. It
includes any other dispute raised prior to section 8 in this in relation to
clause (a) or (b) or (c) of sub-section (6) of section 5. It must be raised in
a court of law or authority and proposed to be moved before the court of
law or authority and not any got up or mala fide dispute just to stal the
insolvency resolution process.

33. Thus, it is clear that while sub-section (2) of section 8 deals with

“existence of a dispute”, sub-section (5) of section 9 does not confer any
discretion on adjudicating authority to verify adequacy of the dispute. It
prohibits the adjudicating authority from proceeding further if there is a
genuine dispute raised before any court of law or authority or pending in a
court of law or authority including suit and arbitration proceedings. Mere a
dispute giving a colour of genuine dispute or il usory, raised for the first
time while replying to the notice under section 8 cannot be a tool to reject
an application under section 9 if the operational creditor otherwise satisfies
the adjudicating authority that there is a debt and there is a default on the
part of the corporate debtor.”

19. What appears from the present case is that much before enactment of the

Insolvency and Bankruptcy Code, 2016, in or around 2013, the appel ant-
corporate debtor entered with respondent Essar Projects India Ltd. and another
memorandum of understanding for construction of work at 0.2MTPA Steel

Melt Shop Complex at Pithampur, Dist. Dhar, Madhya Pradesh. For one or
other reason the outstanding dues in connection with construction work were
al eged to have not been paid by appel ant to the respondent-operational
creditor. The respondent by a notice dated 26th October, 2016 while referred
to a memorandum of understanding dated 27th June, 2013 mentioned :

‘7. We state that the work orders issue by MCL in connection with the

Project were duly completed by our client as per the work set out in each
of such Work Orders. It is extremely pertinent to note that our client has
successfully completed the project within the contractual period, i.e., on

30th November, 2014 as per the terms of the Work Orders and has handed
over possession of the plant to MCL by 31st December, 2014. As MCL is
aware, after the completion of certain additional work, i.e., by January

2015, the plant has been in operation. We further state that our client has
also removed its machinery and other objects from the project premises
in furtherance of the completion of the project as per the work orders.

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8. The aforesaid clearly evinces that our client has performed its entire
obligation in accordance with the terms and conditions agreed upon with

MCL and completed the project within the defined time period.

9. As per the terms of the MoU and the work order, our client regularly
raised the requisite invoices with respect to work carried out and the
invoices were received and accepted by MCL (the “invoices”). We state
that a substantial portion of the invoices currently remain outstanding

(the “unpaid invoices”). We further state that an amount aggregating to

INR 6,83,06,077 along with interest at the rate of 18 (eighteen) percent
per annum is due and payable to our client under such unpaid invoice

(col ectively referred to as, the “Debt”).’

20. In the light of the above, the appellants were called upon by respondent-
operational creditor to repay the dues of Rs. 6,83,06,077 along with interest
at the rate 18 per cent. It was mentioned that the said notice issue under
section 433(e) read with section 434 of the Companies Act 1956.

21. Referring to the aforesaid notice dated 26th October, 2016 (received on

29th October, 2016) by letter dated 21st December, 2016 the corporate
debtor opposed the contentions and disputed the claim, relevant to which
are quoted below :

“1. At the outset contents of notice under reply are incorrect, misleading,
therefore denied. Contents of notice are not to be deemed to have
been admitted unless admitted specifical y.

2. Provisions contained in section 434 of Companies Act, 1956 are not
available to your client to institute a proceeding for winding up of
company for the fol owing reasons :

(i) My client seriously dispute the amount sought to be recovered
by your client under the terms of MoU dated 27th June, 2013.

(i ) There are very serious disputes between your client and my
client about the outstanding amount sought to be recovered by
your client.

(iii) There are serious disputes between your client and my client
regarding quality of construction and timeline within which
construction was to be completed.

(iv) My client has made huge payments in-between 30th October,

2012 to 3rd November, 2014. Accounts of your client have not
been reconciled with my client.

PRACTICAL ASPECTS OF INSOLVENCY LAW

279

(v) Due to delayed construction, my client has suffered losses. No
completion certificate is issued. Outstanding bil s are not verified
and certified.

(vi) There are very serious disputes about enforceability of the
contract between my client and your client.

(vi ) Amount sought to be recovered is not admitted by my client as
al eged by you.

3. In addition to above issues there are various other issues which are
involved in the matter which are seriously opposed by my client. My
client opposes the endeavour/effort on the part of your client to recover
money from my client.

4. It is submitted that the issue-area of dispute between your client and
my client is of recovery of contract amount and those issues and
area of disputes are yet to be final y settled.

5. It is submitted that by issuing the notice under reply your client is
misusing the provisions contained in Companies Act, 1956. Winding
up notice in the aforementioned back ground of the facts and
circumstances is nothing but arms twisting which is not permissible
in law.

8. Without prejudice to above, please note that recovery of contract
amount sought by your client is under dispute and said dispute cannot
be resolved by the company court. The dispute between your client
and my client can be resolved by alternative dispute resolution
mechanism.

10. Please note that dispute raised by your client is in persona and is
covered by arbitration clause. Dispute raised by your client is not in
rem, therefore, not required to be adjudicated by courts and public
tribunals.”

22. From the aforesaid notice dated 26th October, 2016 issued by respondent-
operational creditor under sections 433(e) and 434 of the Companies Act,

1956 and the reply thereto given by appellant-corporate debtor by this letter
dated 21st November, 2016 it is clear that there is an “existence of a dispute”

between the parties regarding :

(i) Quality of construction

(i ) Tying timeline within its construction was to be completed, but not
completed

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(iii) a huge amount has been paid by corporate debtor to the operational
creditor in between 30th December, 2012 to 3rd November, 2014.

23. This fact was also highlighted by the appel ant-corporate debtor while it
filed a reply to the notice issued by the operational creditor under sub-
section (2) of section 8 of the I&B Code.

24. The e-mail issued by appel ant-corporate debtor as referred to above
and not disputed by the respondent-operational creditor also relates to the
quality of work and non-completion of work within time.

25. In Kirusa Software (P.) Ltd., this Appel ate Tribunal held that for the
purpose of sub-section (2) of section 8 and section 9 “dispute” can be of
being discerned from notice of corporate debtor and meaning of “existence
of a dispute”, if any, must be understood in the context of the dispute of I&B

Code must relate to satisfy nature of clause (a), (b) or (c) of sub-section (6)

of section 5, i.e., existence of amount of debt or quality of goods or services
or breach of representation or warranty. It can be of being discerned not only
from a suit or arbitration from documents related to it but from other factors
like notice issued under section 8 of Code of Civil Procedure, 1908 prior to
initiation of suit against “operational creditor” which is disputed by corporate
creditor, etc.

26. In the present case as admittedly a notice was issued by respondent-
operational creditor under sections 433(e) and 434 of the Companies Act,

1956 in 28th October, 2016 which was disputed by appellant-corporate debtor
objecting quality of service and non-completion of the work within time which
is much prior to enactment of I&B Code, 2016, and notice under section 8
of the I&B Code, we hold that there is an “existence of dispute” for which the
petition under section 9 preferred by respondent-operational creditor was
not maintainable.

27. Further, as the impugned order dated 6th March, 2017 was passed by

Adjudicating Authority without notice to the appel ant-corporate debtor in
violation of principle of natural justice and the Adjudicating Authority failed
to notice the relevant facts that there was a dispute raised and replied by
the corporate debtor, the impugned order passed by Adjudicating Authority
cannot be upheld.

28. We, accordingly, set aside the impugned order dated 6th March 2017
passed by the Adjudicating Authority, Mumbai Bench in CP No. 20(1)I&BP/

NCLT/MAH/2017 and make the appellant-corporate debtor free from all rigour
of corporate insolvency resolution process.

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281

29. In the result the order of moratorium, freezing of bank accounts,
appointment of interim resolution professional, advertisement issued notice
to the persons about initiation of “corporate insolvency resolution process”,
etc., al stand set aside.

30. It wil be open to the Board of directors to take over the possession and
function of the appel ant-company with immediate effect. The Tribunal is
directed to close the proceedings and dismiss the application in view of the
order passed by Appel ate Tribunal and determine the fees of interim resolution
professional to which he will be entitled for the period he has performed the
duty to be borne by the respondent-operational creditor.

31. The appeal is al owed with the aforesaid observations and directions.

However, in the facts and circumstances, there shal be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

New Delhi

31st May, 2017

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ANNEXURE X.6

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Company Appeal (AT) (Insolvency) No. 32 of 2017

[arising out of Order dated 24th March, 2017 by NCLT, Principal Bench,

New Delhi in C.P. No. (IB)-22(PB)/2017]

M/s. Annapurna Infrastructure Pvt. Ltd. and anr.

Appellants

Vs.

M/s. SORIL Infra Resources Ltd.

Respondent

Present:

For Appellants -

Shri Vijay Nair, Shri Prashant Jam, Ms. Aparna

Malhotra and Ms. Sanyogita Jam, Advocates.

For Respondent-

Shri Chetan Sharma, Shri Abhishek Swaroop and

Shri Rudreshwar Singh, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

This appeal has been preferred by the appel ants against order dated 24th

March, 2017 passed by the Learned Adjudicating Authority (National Company

Law Tribunal), Principal Bench, New Delhi whereby the application preferred
by the appellant under Section 9 of Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as ‘I & B Code’) for initiation the Corporate Insolvency

Resolution Process against the ‘Corporate Debtor’ has been rejected on the
ground that there is an existence of dispute pending adjudication between
the parties.

2. In order to decide the controversy in its proper perspective, it wil be
necessary to notice the material facts.

3. Appel ants rented the premises, rent of which was payable by respondent

- Corporate Debtor pursuant to Lease Deed dated 23rd November, 2005 but
having not paid, the parties invoked arbitration clause. Pursuant to the order
passed by the Hon’ble High Court of Delhi, Hon’ble Justice (Dr.) Mukundakam

Sharma (Retired) was appointed as a Sole Arbitrator to adjudicate al disputes

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283
arising out of Lease Deed dated 23rd November, 2005 between the appel ants
and the respondent.

4. The Arbitrator passed an award on 9th September, 2016 in favour of the
appel ants granting the fol owing relief:-

“a. Rs.2,67,52,283/- on account of rend from 1.4.2008 upto 22.3.2010
along with interest @ 12% per annum w.e.f. 23.3.2010 upto the date
of the Award.

b. Rs. 1,11,56,145/- on account of damages equivalent to rend for a
period of 6 months from 22.3.2010
c. Future interest @12% per annum on the amounts, as calculated
above, from the date of the award til the date of realization.”

5. The respondent then chal enged the award under Sec. 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as ‘Arbitration Act’) with
the prayer to set aside the award. The application preferred by respondent
under Sec. 34 was dismissed on 19th December, 2016 affirming the award.

6. As a consequence, the appel ants issued a demand notice dated 13th

January, 2017 under Sec. 8 of the I & B Code. In response to the demand
notice, respondent filed a reply on 27th January, 2017 raising objection on
the ground that there is an existence of dispute about ‘Operational Debt’. It
was also stated that the appeal bearing No. FA(OS)(COMM) 20 of 2017 has
been filed under section 37 of the Arbitration Act against the order dated

19th December, 2016 before the Ld. Single Judge. It was also pointed out
that an execution proceedings to recover the amount due under the award
dated 9th September, 2016 have also been initiated and are pending
consideration before the Hon’ble Delhi High Court.

7. Learned counsel for the appellants submitted that the 1st appel ant is to
be regarded as an “operational creditor” within the meaning of Sec. 9 r/w
sub-sections (20) and (21) of Section 5 of the I&B Code. A reference has
also been invited to the definition of the words ‘debt’ and ‘default’ as defined
in Section 3(11) and Section 3(12) of the I&B Code. .

8. According to learned counsel for the appel ants the award passed by the
learned Arbitrator had attained finality as the application under Section 34
of the Arbitration Act has been dismissed on 19th December, 2016. It was
further contended that expression “arbitration proceedings” used in Sec.

8(2)(a) of the I&B Code cannot be deemed to be pending because under

Sec. 21 of the Arbitration Act, arbitration proceedings commenced on the
date on which request for referring such a dispute to arbitration was received

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by the respondent. The said proceeding came to an end in terms of Sec. 32
on the date of announcing the final award or by an order of the Arbitral

Tribunal in accordance with sub-section (2) of Sec. 32 of the Arbitration Act.

According to the learned counsel for the appel ants, there is no arbitral
proceeding pending and it reached finality and come to an end on 9th

September, 2016.

9. Similar argument was advanced by the learned counsel for the appellant
before the learned Adjudicating Authority wherein reliance was placed on
decision of one or other High Court’s order.

10. According to the learned counsel for the respondent the petition under

Sec. 9 of the I&B Code is not maintainable because the appel ants do not
owe any ‘operational debts’ to the Corporate Debtor and thereby the 1st
appellant is not an ‘operational creditor’. Referring to the definition of

‘operational debts’ as defined under Section 5(21) of the I&B Code, learned
counsel for the respondent contended that ipsofacto claim arising out of

‘supply of goods’ and providing ‘services’, which may include employment
wil not amount to operation debt.

Therefore, ipsofacto the 1st appel ant does not and cannot qualify to be an

‘operational creditors’, as there is no ‘operational debt’. “Debt” is not arising
under the law for the time being inforce as is mandate of sub-section (21) of

Sec. 5 of the I&B Code and it would be attracted only when the said debt is
payable as per said provision.

11. It was further contended that Sections 8, 9, 5(20) and 5(21) must be
construed in accordance with the object of the court as outlined in the long
title.

12. Similar arguments was advanced by the learned counsel for the
respondent before the learned Adjudicating Authority wherein a number of
decisions of other Courts and Tribunal were also relied upon.

13. Learned Tribunal at the beginning before deciding the dispute observed
that “it is a classical case where a dispute between the parties has
already been subjected to the arbitration proceedings which are yet to
attain finality”. Thereby, we find that learned Adjudicating Authority before
deciding the issue made up their mind that ‘a dispute is pending and not
attained finality’.

We do not appreciate such observation, as before discussing the case and
claim of the parties and the provision of law, the Adjudicating Authority
cannot express and open its mind. Learned Adjudicating Authority while
decided the question as to whether the appellants come within the meaning

PRACTICAL ASPECTS OF INSOLVENCY LAW

285
of ‘operational creditor’, rejected the submission that the ‘arbitration
proceedings’ stand concluded by virtue of Section 32 of the Arbitration Act.

14. Learned Adjudicating Authority while held that the application is not
maintainable, observed as fol ows:

“27. We are further of the view that already proceedings for execution of
the award have been initiated. An effective remedy has been availed by
the applicant. We have not been able to accept that a party can invoke
more than one remedy simultaneously. It is in fact against the fundamental
principles of Judicial administration to al ow a party to avail more than
one remedies. Ordinarily only one remedy at one time could be availed as
is evident from the fundamental principles laid down in section 10 CPC. It
would promote forum shopping which is wholly impermissible in law.......”

15. We have heard learned counsel for the parties and perused the record.

16. The questions arise for determination in this appeal are:-

(i) Whether there is an ‘existence of dispute’ between the parties, the
award passed by Arbitral Tribunal having affirmed by the Court under

Sec. 34 of the Arbitration Act?

(i ) Whether pendency of a proceeding for execution of an award or a
judgment and decree bar an operational creditor to prefer any petition
under the I & B Code?

(iii) Whether the 1st appellant is an ‘operational creditor’ within the meaning
of Sec. 5(20) r/w Sec. 5(21) of the I & B Code?

17. Before deciding the first and second issue, it is desirable to refer the
observations of the Adjudicating Authority to understand the reasons for
not entertaining the application under Sec. ,9- The Tribunal proceeded on
presumption that a dispute is pending in view of the pendency of a case
under Sec. 37 of the Arbitration Act as is apparent from the observation and
finding quoted below:

“22. In the instant case an arbitral award has been announced on 9.9.2016
and the application for setting aside the award filed under section 34 of
the Arbitration Act has been rejected on 19.12.2016. It has been mentioned
by the respondent in its reply dated 27.01.2017 sent under section 8(2) of
the Code to the notice issued under section 8(1) of the Code by the applicant
that the debt is disputed and appeal under section 37 of the Arbitration

Act is pending. The reply dated 27.1.2017 reads as under:-

“1. At the outset, kindly note that our client is disputing the existence of

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the ‘operational debt’ al egedly payable to you by our client. Our client
is vigorously contesting the Award dated 9.9.2016 (Award) passed
by Mr. Justice Mukundakam Sharma (Retd.), Sole Arbitrator, in

Arbitration Case No.3 of 2013, before the Hon’ble Delhi High Court.

2. As you are aware, our client had filed a petition under section 34 of
the Arbitration and Conciliation Act, 1996 (Act) bearing No. % OMP

(Comm.) No.570 of 2016, before the Hon’ble Delhi High Court vide
order dated 19.12.2016. Please note that our client has filed an appeal
against the said order under section 37 of the Act, bearing No.

FAO(OS)(COMM) 20 of 2017, for setting aside the order dated

1912.206, and the same is presently pending adjudication before the

Hon‘ble Court.

3. In view of the above, please note that no default has occurred in
terms of section 8(1) of the Code and, therefore, no process for

Corporate Insolvency Resolution can be initiated at this stage. Any
action in this regard would be at your own cost, risk and consequences.

Kindly note that this reply is without prejudice to any other rights or
remedies available to our client under contract and in law. “

23. A close examination of the aforesaid reply would show that the
respondents have disputed the existence of ‘Operational Debt’ by
disclosing that its application under section 34 of the Arbitration Act was
dismissed and the appeal under section 37 of the Arbitration Act bearing

No. FAO (OS)(COMM) 20 of 2017 was pending adjudication. It is also
pertinent to mention that the applicant has filed a caveat for issuance of
notice to it before passing any order. Therefore the applicants are contesting
the litigation tooth nail before this forum. In this backdrop respondent has
claimed no default within the meaning section 8(1) read with section 3(12)

of the Code is deemed to have occurred. It is also pertinent to notice that
execution proceedings for enforcement of the award have also been
initiated and are pending for consideration of the Hon’ble Delhi High Court
on 12.5.2017.

24. In the face of the aforesaid facts we find that there is complete answer
to the claim made by the applicant in terms of section 8(2)(a) read with
section 9(1) of the ‘Code’ which bars initiation of insolvency process. It
cannot be said that arbitration proceedings have come to an end merely
on the dismissal of application under section 34 of the Arbitration Act as
sought to be canvassed on behalf of the applicant. The proceedings are
yet to attain finality as appeal under section 37 of the Arbitration Act is

PRACTICAL ASPECTS OF INSOLVENCY LAW

287
pending. On behalf of the respondents reliance has rightly been placed on
the judgement of the Bombay High Court rendered in the cases of DSL

Enterprises Private Ltd. (DB) and Rajendra (SB) (Supra).

25. We have not been able to persuade ourselves to accept the submission
advanced on behalf of the applicant that ‘arbitration proceedings’ stand
concluded by virtue of section 32 of the Arbitration Act. The argument is
wholly unsustainable once we take into account the provisions of section

33 of the Arbitration Act itself It provides for corrections and interpretation
of award and even for additional award after the award has been announced.

As already observed section 34 and section 37 of the Arbitration Act
provide for setting aside of the award and the remedy of appeal. The
appeal under section 37 of the Arbitration Act is still pending. The
judgements of Bombay High Court has been rightly relied upon by the
learned counsel for respondents.”

18. The Adjudicating Authority further proceeded to observe :

“27. We are further of the view that already proceedings for execution of
the award have been initiated. An effective remedy has been availed by
the applicant. We have not been able to accept that a party can invoke
more than one remedy simultaneously. It is in fact against the fundamental
principles of judicial administration to allow a party to avail more than one
remedies. Ordinarily only one remedy at one time could be availed as is
evident from the fundamental principles laid down in section 10 CPC. It
would promote forum shopping which is whol y impermissible in law. “

19. To decide the question as to whether the pendency of case under Section

37 of the Arbitration Act amounts to pendency of a dispute before a court of
law, it is desirable to refer the relevant provisions of the I & B Code.

20. Sub-section (6) of Section 5 of the I & B Code defines ‘dispute’ as
fol ows:

“5. In this Part, unless the context otherwise requires, –

(6) “dispute” includes a suit or arbitration proceedings relating to –

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;”

21. Clause (a) of sub-section (2) of Sec. 8 relates to an existence of dispute,
as quoted herein:

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“8. (2) The corporate debtor shall, within a period of ten 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

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.”

22. From clause (a) of sub-section (2) of Sec. 8, we find that pendency of
an arbitration proceedings has been termed to be an ‘existence of dispute’

and not the pendency of an application under Sec. 34 or Sec. 37 of the

Arbitration Act.

23. Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 (hereinafter referred to as the ‘Rules, 2016’) is the
form required to be filled to apply under Sec. 9 of the I&B Code, wherein the
order passed by Arbitral Panel has been cited as one of the document,
record and evidence of default. This is apparent from Part V of Form 5, as
quoted below:

“FORM 5

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

PRACTICAL ASPECTS OF INSOLVENCY LAW

289

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

IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT

AND THE AMOUNT IN DEFAULT

24. The aforesaid provisions and format of application makes it clear that
while pendency of the suit or arbitration proceeding has been termed as
existence of dispute, apart from other disputes decree and award of Tribunal
has been shown as record of default.

25. In Kirusa Software Private Ltd. Vs. Mobilox Innovations Private

Limited - Company Appeal (AT) (Insolvency) 6 of 2017, this Appel ate

Tribunal by judgment dated 24th May, 2017 while deciding the meaning of

‘dispute’ and “existence of dispute’ held: .

“32. There may he other cases such as a suit relating to existence of
amount of debt stands decided and decree is pending for execution.

Similarly, existence of amount of debt or quality of goods or service for
which a suit have been filed and decreed;
an award has been passed by Arbitral Panel, though petition under Section

34 of Arbitration and Reconciliation Act, 1996 may be pending. In such
case the question wil arise whether a petition under Section 9 wil be
maintainable particularly when it was a suit or arbitration proceeding is
not pending, but stand decided?

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Though one may argue that Insolvency resolution process cannot be
misused for execution of a judgement and decree passed in a suit or
award passed by an arbitration Tribunal, but such submission cannot be
accepted in view of Form 5 of Insolvency & Bankruptcy (Application to

Adjudicating Authority) Rules 2016 wherein a decree in suit and award
has been shown to be a debt for the purpose of default on non-payment.”

26. Under Sec. 36 of the Arbitration Act, an arbitral award is executable as
decree but it can be enforced only after the time for filing the application
under Sec. 34 has expired and no application is made or such application
having been made has been rejected. That means, the arbitral award reaches
finality after expiry of enforceable time under Sec. 34 and/or if application
under Section 34 is filed and rejected.

27. In Vipul Agarwal vs. Atul Kanodia & Co. and anr. - [AIR 2004 All

205], the Hon’ble Al ahabad High Court observed :

“4. The language of the section clearly indicates that the award can be
executed in two situations - one when the time for filing an application for
setting aside the award has expired and no application % has been filed
or where the application has been filed and it has been refused. It is not in
dispute that an award can be executed as a decree in view of the
provisions of Section 36 of the Act. The only question for consideration in
this case is whether the word %refused’ used in Section 36 of the Act
means a final refusal after al the proceedings of appeal etc. up to the

Supreme Court are over or a refusal by the District Judge is sufficient to
make the award executable. If the legislature intended that it is only after
the application under Section 34 has been rejected at the appellate stage
would the award be enforceable it could have used such words as ‘finally
refused’ in the section. As stated above the first situation referred to in
the section when an award becomes executable is where the limitation
for filing an application under Section 34 has run out and no application
has been filed. The application for setting aside the award in the context
necessarily means the application filed before the District Judge as it is
the running out of the limitation for such an application which would make
the award executable. It is clear, that the opening part of the section does
not refer to the running out of the period of limitation of filing an appeal.

Now the second situation when the award becomes executable is when

‘such application having been made’ has been refused. The words “such
application having been made” are significant. The words ‘such application’

refer to the application contemplated in the first situation which is clear
from the use of the expression ‘such’ which in the context is used to

PRACTICAL ASPECTS OF INSOLVENCY LAW

291
describe something which has been referred to earlier. On the plain language
the refusal contemplated in the section is the refusal by the Court where
the application is filed and not by the appel ate Court. Section 37(l)(b) of
the Act provides for appeal against an order ‘setting aside or refusing to
set aside an arbitral award under Section 34’. The reference in the
expression ‘refusing to set aside an arbitral award’ is obviously to the
order of refusal of the application under Section 34 by the Court of first
instance because Section 34 refers to an application made before the

Court of first instance. From the scheme of Sections 34, 36 and 37 it is
clear that the refusal of the application referred to in Section 36 for setting
aside the award is the application filed under Section 34. An interpretation
that Section 36 refers to the refusal of the application at the stage of the
appeal is not possible without straining the language of Section 36 and
adding the word ‘final y’ as qualifying ‘refused’. Such an interpretation also
does not promote any purpose, which the legislature may have had in
mind. The purpose of arbitration is to provide a speedy remedy. If the
award cannot be executed until it has successful y borne al challenges
even up to the Apex Court it cannot be conceived of as a speedy remedy.

While the legislature has used the word ‘final’ in respect of an award in

Section 35 the finality being subject to an appeal under Section 37, no
such expression of finality to the decision of an application under Section

34 has been used in Section 36. “

28. Russel on Arbitration (22nd edition) paragraph 6.001 defines an award
to mean: “in principle an award is a final determination of a particular
issue or claim in the arbitration......”

29. The Hon’ble Supreme Court in Centrotrade Minerals & Metals Inc. vs.

Hindustan Copper Limited [ (2017) 2 SCC 228] while dealing with the
finality of award under Arbitration and Conciliation Act, 1996 observed and
held :

“9. The general principle that we have accepted is supported by two
passages in Comparative International Commercial Arbitration. In Para

24-3 thereof reference is made to Article 31(1) of the United Nations

Commission on International Trade Law (or UNCITRAL) Rules to suggest
that while al awards are decisions of the Arbitral Tribunal, al decisions of
the Arbitral Tribunal are not awards. Similarly, while a decision is generic,
an award is a more specific decision that affects the rights of the parties,
has important consequences and can be enforced. The distinction between
an award and a decision of an Arbitral Tribunal is summarised in Para 24-

13. It is observed that an award: .

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(i) concludes the dispute as to the specific issue determined in the
award so that it has res judicata effect between the parties; if it is a
final award, it terminates the tribunal’s jurisdiction;

(i ) disposes of parties’ respective claims;

(iii) may be confirmed by recognition and enforcement;

(iv) may be chal enged in the courts of the place of arbitration.

10. In International Arbitration a similar distinction is drawn between an
award and decisions such as procedural orders and directions. It is
observed that an award has finality attached to a decision on a substantive
issue. Para 9.08 in this context reads as fol ows:

“9.08. The term “award” should generally be reserved for decisions that
finally determine the substantive issues with which they deal. This
involves distinguishing between awards, which are concerned with
substantive issues, and procedural orders and directions, which are
concerned with the conduct of the arbitration. Procedural orders and
directions help to move the arbitration forward; they deal with such matters
as the exchange of written evidence, the production of documents, and
the arrangements for the conduct of the hearing. They do not have the
status of awards and they may perhaps be called into question after the
final award has been made (for example as evidence of ‘bias’, or ‘lack of
due process’).”

11. In International Commercial Arbitration the general characteristics of
an award are stated. In Para 1353 it is stated as fol ows:

“1353.—An arbitral award can be defined as a final decision by the
arbitrators on all or part of the dispute submitted to them, whether it
concerns the merits of the dispute, jurisdiction, or a procedural issue
leading them to end the proceedings. “

This is subsequently elucidated through four aspects of an award, namely:

(i) an award is made by the arbitrators;

(i ) an award resolves a dispute;

(iii) an award is a binding decision; and

(iv) an award may be partial.

12. The arbitration result in the present case has all the elements and
ingredients of an arbitration award. Taking also into consideration the view
expressed by the above authors, we have no hesitation in concluding

PRACTICAL ASPECTS OF INSOLVENCY LAW

293
that the “arbitration result” in the first part of Clause 14 of the contract
must mean an arbitration award given by the arbitral panel of the Indian

Council of Arbitration. To this extent we disagree with the learned counsel
for Centrotrade but agree with the learned counsel for Hindustan Copper

Ltd. (hereafter referred to as “HCL”).”

30. Learned counsel appearing on behalf of the respondent referred to the
decision of the Hon’ble Supreme Court in Paramjeet Singh Patheja Vs.

ICDS Limited - [2006 (13) SCC 322] wherein interpreting Section 9(2)(a)

and (b) of the Presidency Towns Insolvency Act, 1909, the Apex Court held
an arbitral award is “decree” or “order” for the purpose of insolvency notice
under Section 9(2) of the Presidency Towns Insolvency Act, 1909.

31. The aforesaid decision is not applicable in the present context, the

Presidency Town Insolvency Act, 1909 having superseded by Insolvency
and Bankruptcy Code, 2016 and for the purpose of ‘dispute’ as ‘existence of
dispute’, only the pendency of arbitral proceeding has been accepted as
one of the ground of dispute. On the other hand, as apparent from Form 5 of

Rules, 2016 for the purpose of I&B Code, and Arbitral Award has been held
to be a document of debt and non-payment of awarded amount amounts to

‘default’ debt. Therefore, the aforesaid decision referred by learned counsel
for the respondent is of no help to the respondent.

32. What has been held by the learned Adjudicating Authority that a dispute
has been pending is not only against the provision of law and rules framed
thereunder, as noticed above, but is also against the decision of this Appellate

Tribunal in Kirusa Software Pvt. Ltd. as noticed above. In this background,
the finding of the Adjudicating Authority that a dispute pending is being
against the law cannot be upheld.

33. ‘Insolvency and Bankruptcy is an act to consolidate and amend the laws
relating to reorganisation and insolvency resolution of corporate persons in
a time bound manner for maximisation of the value of assets of such person
and to promote the entrepreneurship, availability of credit and balance the
interests of all the stakeholders including alteration in the order of priority of
payment of the Government dues.’ Insolvency resolution process is not a
money suit for recovery nor a suit for execution for any decree or award as
distinct from Section 35 of the Arbitration Act, which relates to execution of
an award. For the reasons aforesaid, while we hold that Corporate Insolvency

Resolution Process can be initiated for default of debt, as awarded under
the Arbitration Act, we further hold that the finding of the learned Adjudicating

Authority that it is an executable matter is against the essence of the I & B

Code. The question of availing any effective remedy or alternative remedy,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
in case of default of debt for an ‘operational creditor’, as held by the learned

Adjudicatory Authority, is not based on any sound principle of law. For the
reasons aforesaid, the impugned order passed by the learned Adjudicating

Authority cannot be sustained.

34. The issues Nos. 1 and 2 as framed and noticed above are, thereby
answered in the negative in favour of the appel ant - ‘Operational Creditor’

and against the respondent - ‘Corporate Debtor’.

35. Sub-section (20) of Sec. 5 defines ‘Operational Creditor’, as follows :

“5. In this Part, unless the context otherwise requires,—
xxx
xxx
xxx

(20) “operational creditor” means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally
assigned or transferred;”

36. Operational Debt is defined in sub-section (21) of Sec. 5 as fol ows:

“(21) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the repayment
of dues arising under any law for the time being in force and payable to
the Central Government, any State Government or any local authority;”

37. From the record, it appears that the 1st appel ant claimed to be an

‘operational creditor’ on the basis of lease deed. The respondent in its reply
has taken a plea that the Adjudicating Authority has confined its finding to
point as dealt with in the impugned order and al other points, though urged
and argued, have not been considered.

38. From the impugned order dated 24th March, 2017, we find that the learned

Adjudicating Authority noticed the aforesaid plea at paragraph 6 of the
impugned judgment, as quoted below:

“6. In order to buttress his stand that applicant is an ‘Operational Creditor

’ learned counsel has placed reliance on a portion of para 3.2.2 of the
report of the Bankruptcy Law Reforms Committee Volume I: Rationale
and Design and has argued that the report clearly brings out that the
obligation to pay rent is certainly cover by the definition of expression

‘Operational Creditors ’. According to the learned counsel the expression

‘Operational Creditor’ used in section 5(20) and 5(21) of the Code must
be construed to include the obligation to pay rent to the applicant as an

‘Operational Creditor’. According to the learned counsel the definition of

‘Operational Creditor ’ as adopted in section 5(20) of the Code is not

PRACTICAL ASPECTS OF INSOLVENCY LAW

295
exhaustive but it is illustrative as it is evident from the use of word

‘include ’. Mr. Nair has submitted that it is well settled principle of law
that wherever the expression ‘include ’ is used to define an expression
then it has room to imply many other things as the definition is not
exclusive. “

39. However, we find that the aforesaid issue has not been decided by the
learned Adjudicating Authority, having not entertained the application under

Sec. 9, on other ground of ‘existence of dispute’.

40. For the reason aforesaid, while we hold that the finding of the learned

Adjudicating Authority insofar as it relates to ‘award’, ‘default of debt’ and
the ‘alternative remedy’, are not based on sound principle and against the
provisions of law, we refrain to decide the question as to whether the 1st
appellant is an ‘operational creditor’ or not which is first required to be decided
by learned Adjudicating Authority.

41. For the aforesaid reasons, we set aside the impugned order dated 24th

March, 2017 and remit the case to the learned Adjudicating Authority, Principal

Bench, New Delhi to decide as to whether the 1st appel ant is an ‘operational
creditor’ and if so, whether the application under Sec. 9 preferred by the
appel ants is complete for admitting and initiation of corporate insolvency
resolution process. If the first question relating to status of appel ant as

‘operational creditor’ is decided in affirmative, in favour of the appel ant,
then learned Adjudicating Authority wil decide the issue whether the
application is ‘complete or not’ and if not complete may grant seven days’

time to the appellants to complete the record as per the proviso to Sec. 9 of
the I&B Code.

42. The appeal is allowed with aforesaid observations. We make it clear that
we have not expressed any opinion in regard to other questions such as
whether the 1st appel ant is an operational creditor and whether the application
preferred under Sec. 9 is complete or not, which is to be decided by the

Adjudicating Authority after notice to the parties uninfluenced by any
observation made in the impugned order.

43. In the facts and circumstances, however, there shal be no order as to
costs.

[Balvinder Singh]

[Justice S.J. Mukhopadhaya]

Member (Technical)

Chairperson

NEW DELHI

29th August, 2017

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ANNEXURE X.7

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9405 OF 2017

Mobilox Innovations (P.) Ltd.

Appellant

Versus

Kirusa Software (P.) Ltd.

Respondent

JUDGMENT

R.F. Nariman, J

1. The present appeal raises questions as to the triggering of the Insolvency
and Bankruptcy Code, 2016 when it comes to operational debts owed to
operational creditors. The appellant was engaged by Star TV for conducting
tele-voting for the "Nach Baliye" program on Star TV. The appel ant in turn
sub contracted the work to the respondent and issued purchase orders
between October and December, 2013 in favour of the respondent. In the

"Nach Baliye" program, the successful dancer was to be selected on various
bases, including viewers' votes. For this purpose, the respondent was to
provide tol free telephone numbers across India, through which the viewers
of the program could cast their votes in favour of one or more participants.

For this purpose, a software was customized by the respondent, who then
coordinated the results and provided them to the appellant. Since the
respondent obtained toll free numbers from telephone operators in terms of
the purchase orders, the appel ant was liable to make payment of rentals
for the tol free numbers, as wel as primary rate interface rental to the
telecom operators. The respondent provided the requisite services and raised
monthly invoices between December, 2013 and November, 2014 – the
invoices were payable within 30 days from the date on which they were
received. The respondent fol owed up with the appel ant for payment of
pending invoices through e-mails sent between April and October, 2014. It
is also important to note that a non-disclosure agreement (hereinafter
referred to as the NDA) was executed between the parties on 26th December,

2014 with effect from 1st November, 2013.

PRACTICAL ASPECTS OF INSOLVENCY LAW

297

2. More than a month after execution of the aforesaid agreement, the
appellant, on 30th January, 2015, wrote to the respondent that they were
withholding payments against invoices raised by the respondent, as the
respondent had disclosed on their webpage that they had worked for the

"Nach Baliye" program run by Star TV, and had thus breached the NDA. The
correspondence between the parties final y culminated in a notice dated

12th December, 2016 sent under Section 271 of the Companies Act, 2013.

Presumably because winding up on the ground of being unable to pay one's
debts was no longer a ground to wind up a company under the said Act, a
demand notice dated 23rd December, 2016 was sent for a total of

Rs.20,08,202.55 under Section 8 of the new Insolvency and Bankruptcy

Code, 2016 (hereinafter referred to as the Code). By an e-mail dated 27th

December, 2016, the appel ant responded to the aforesaid notice stating
that there exists serious and bona fide disputes between the parties, that
the notice issued was a pressure tactic, and that nothing was payable
inasmuch as the respondent had been told way back on 30th January, 2015
that no amount will be paid to the respondent since it had breached the

NDA.

3. An application was then filed on 30th December, 2016 before the National

Company Law Tribunal under Sections 8 and 9 of the new Code stating that
an operational debt of Rs.20,08,202.55 was owed to the respondent.

4. On 19th January, 2017, the respondent was orally intimated to remove a
defect in the application, in that it did not contain the appel ant's notice of
dispute. This was rectified by an affidavit in compliance dated 24th January,

2017, by which various other documents were also supplied by the respondent
to the Tribunal. On 27th January, 2017, the Tribunal dismissed the aforesaid
application in the following terms:

"On perusal of this notice dated 27.12.2016 disputing the debt al egedly
owed to the petitioner, this Bench, looking at the Corporate Debtor disputing
the claim raised by the Petitioner in this CP, hereby holds that the default
payment being disputed by the Corporate Debtor, for the petitioner has
admitted that the notice of dispute dated 27th December 2016 has been
received by the operational creditor, the claim made by the Petitioner is
hit by Section (9)(5)(ii)(d) of The Insolvency and Bankruptcy Code, hence
this Petition is hereby rejected."

5. An appeal was then filed before the National Company Law Appel ate

Tribunal which was decided on 24th May, 2017. This appeal was al owed in
the following terms:

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"39. In the present case the adjudicating authority has acted mechanically
and rejected the application under sub-section (5)(ii)(d) of Section 9 without
examining and discussing the aforesaid issue. If the adjudicating authority
would have noticed the provisions as discussed above and what
constitutes 'dispute' in relation to services provided by operational creditors
then it would have come to a conclusion that condition of demand notice
under sub-section (2) of Section 8 has not been fulfil ed by the corporate
debtor and the defence claiming dispute was not only vague, got up and
motivated to evade the liability.

40. For the reasons aforesaid we set aside the impugned order dated

27.1.2017 passed by adjudicating authority in CP No.01/I &BP/NCLT/

MAH/2017 and remit the case to adjudicating authority for consideration
of the application of the appellant for admission if the application is
otherwise complete.

41. The appeal is allowed with the aforesaid observations. However, in the
facts and circumstances there shal be no order as to cost."

6. Shri Mohta, learned counsel on behalf of the appellant, raised various
contentions before us. According to learned counsel, the application should
have been dismissed on the ground that the operational creditor did not
furnish a copy of the certificate from a financial institution, viz. IDBI in the
present case, that maintained accounts of the operational creditor, which
confirmed that there is no payment of any unpaid operational debt by the
corporate debtor under Section 9(3)(c) of the Code. This being so, the
application ought to have been dismissed at the very threshold. Apart from
this, the learned counsel took us through various committee reports and
the provisions of the Code and argued that under Section 8 of the Code, the
moment a corporate debtor, within 10 days of the receipt of a demand notice
or copy of invoice, brings to the notice of the operational creditor the existence
of a dispute between the parties, the Tribunal is obliged to dismiss the
application. According to him, under Section (8)(2)(a), the expression

"existence of a dispute, if any, and record of the pendency of the suit or
arbitration proceedings filed …" must be read as existence of a dispute "or"

record of the pendency of the suit or arbitration proceedings filed, i.e.

disjunctively. According to the learned counsel, the definition of "dispute"

under Section 5(6) of the Code is an inclusive one and the original draft bill
not only had the word "means" instead of the word "includes", but also the
word "bona fide" before the words "suit or arbitral proceedings", which is
missing in the present Code. Therefore, learned counsel argued that the
moment there is existence of a dispute, meaning thereby that there is a real

PRACTICAL ASPECTS OF INSOLVENCY LAW

299
dispute to be tried, and not a sham, frivolous or vexatious dispute, the

Tribunal is bound to dismiss the application. Learned counsel went on to
argue that there is a fundamental difference between applications filed by
financial creditors and operational creditors. A financial creditor's application
is dealt with under Section 7 of the Code, in which the adjudicating authority
has to ascertain the existence of a default on the basis of the records of an
information utility or other evidence furnished by the financial creditor. In
contrast to this scheme, al that a corporate debtor needs to do is to file a
reply within a period of 10 days of the receipt of demand notice or copy of
invoice from an operational creditor, showing the existence of a dispute,
which then does not need to be "ascertained" by the adjudicating authority.

He was at pains to point out that the application itself must contain al the
documents that are required by the statute and that the timelines indicated
in the statute are mandatory. For this purpose, he referred us to Sections

61, 62 and 64 in addition to Sections 7 to 9 of the Code. Finally, on facts,
according to learned counsel, the Tribunal was wholly incorrect in remanding
the matter on both counts – first, to find out whether the application is
otherwise complete and, second, because the Tribunal found that the dispute
in the present case was vague, got up and motivated to evade the liability,
which, according to learned counsel, was a perverse conclusion reached on
the facts of this case.

7. Shri Jawaharlal, learned counsel appearing on behalf of the respondent,
has argued in reply that the only notice given to rectify the defects by the

Tribunal was an oral notice of 19th January, 2017 and that too only to supply
the notice of dispute by the appel ant. This was done within time and the

Tribunal, therefore, dismissed the application only on non-fulfillment of the
conditions laid down in Section 9. No plea was ever taken before the Tribunal
that the IDBI certificate was not furnished. This plea was taken for the first
time only in appeal, and since the Tribunal did not think it fit to dismiss the
application on a technical ground, this ground does not avail the appellants.

The counsel then submitted that the expression "dispute" under Section

5(6) covers only three things, namely, existence of the amount of debt,
quality of goods or services or breach of a representation or warranty and
since what was sought to be brought as a defense was that the NDA was
breached, it would not come within the definition of "dispute" under Section

5(6). He further went on to state that, at best, the breach of the NDA is a
claim for unliquidated damages which does not become crystal ized until
legal proceedings are filed, and none have been filed so far. Therefore, there
is no real dispute on the facts of the present case and the Tribunal was
correct in its finding that the dispute was a sham one.

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8. Before going into the contentions of fact and law argued by both counsel,
it is a little important to trace the background of this path-breaking legislation
viz. the Insolvency and Bankruptcy Code, 2016. The starting point is a

Resolution of the UN General Assembly, Resolution No.59/40, passed on

2nd December, 2004, by which it was stated:

"Legislative Guide on Insolvency Law of the United Nations

Commission on International Trade Law

The General Assembly,

Recognizing the importance to all countries of strong, effective and
efficient insolvency regimes as a means of encouraging economic
development and investment,

Noting the growing realization that reorganization regimes are critical to
corporate and economic recovery, the development of entrepreneurial
activity, the preservation of employment and the availability of finance in
the capital market,

Noting also the importance of social policy issues to the design of an
insolvency regime,

Noting with satisfaction the completion and adoption of the Legislative

Guide on Insolvency Law of the United Nations Commission on

International Trade Law by the Commission at its thirty-seventh session,
on 25 June 2004,

Believing that the Legislative Guide, which includes the text of the Model

Law on Cross-Border Insolvency and Guide to Enactment recommended
by the General Assembly in its resolution 52/158 of 15 December 1997,
contributes significantly to the establishment of a harmonized legal
framework for insolvency and will be useful both to States that do not
have an effective and efficient insolvency regime and to States that are
undertaking a process of review and modernization of their insolvency
regimes,

Recognizing the need for cooperation and coordination between
international organizations active in the field of insolvency law reform to
ensure consistency and alignment of that work and to facilitate the
development of international standards,

Noting that the preparation of the Legislative Guide was the subject of
due deliberations and extensive consultations with Governments and
international intergovernmental and non-governmental organizations active
in the field of insolvency law reform,

PRACTICAL ASPECTS OF INSOLVENCY LAW

301

1. Expresses its appreciation to the United Nations Commission on

International Trade Law for the completion and adoption of its

Legislative Guide on Insolvency Law;

2. Requests the Secretary-General to publish the Legislative Guide and
to make al efforts to ensure that it becomes generally known and
available;

3. Recommends that al States give due consideration to the Legislative

Guide when assessing the economic efficiency of their insolvency
regimes and when revising or adopting legislation relevant to
insolvency;

4. Recommends also that all States continue to consider implementation
of the Model Law on Cross-Border Insolvency of the United Nations

Commission on International Trade Law."

9. The purpose of the Legislative Guide for various nations was stated as
fol ows:

"The purpose of the Legislative Guide on Insolvency Law is to assist the
establishment of an efficient and effective legal framework to address
the financial difficulty of debtors. It is intended to be used as a reference
by national authorities and legislative bodies when preparing new laws
and regulations or reviewing the adequacy of existing laws and regulations.

The advice provided in the Guide aims at achieving a balance between
the need to address the debtor's financial difficulty as quickly and efficiently
as possible and the interests of the various parties directly concerned
with that financial difficulty, principally creditors and other parties with a
stake in the debtor's business, as wel as with public policy concerns.

The Guide discusses issues central to the design of an effective and
efficient insolvency law, which, despite numerous differences in policy
and legislative treatment, are recognized in many legal systems. It focuses
on insolvency proceedings commenced under the insolvency law and
conducted in accordance with that law, with an emphasis on reorganization,
against a debtor, whether a legal or natural person, that is engaged in
economic activity. Issues specific to the insolvency of individuals not so
engaged, such as consumers, are not addressed."

In stating some of the key objectives of effective and efficient insolvency
law, the Legislative Guide goes on to state:

"When a debtor is unable to pay its debts and other liabilities as they
become due, most legal systems provide a legal mechanism to address

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the collective satisfaction of the outstanding claims from assets

(whether tangible or intangible) of the debtor. A range of interests needs
to be accommodated by that legal mechanism: those of the parties
affected by the proceedings including the debtor, the owners and
management of the debtor, the creditors who may be secured to varying
degrees (including tax agencies and other government creditors),
employees, guarantors of debt and suppliers of goods and services,
as well as the legal, commercial and social institutions and practices
that are relevant to the design of the insolvency law and required for
its operation. General y, the mechanism must strike a balance not only
between the different interests of these stakeholders, but also between
these interests and the relevant social, political and other policy
considerations that have an impact on the economic and legal goals
of insolvency proceedings.

XXX

An insolvency law should be transparent and predictable. This will enable
potential lenders and creditors to understand how insolvency proceedings
operate and to assess the risk associated with their position as a creditor
in the event of insolvency. This wil promote stability in commercial
relations and foster lending and investment at lower risk premiums.

Transparency and predictability will also enable creditors to clarify priorities,
prevent disputes by providing a backdrop against which relative rights
and risks can be assessed and help define the limits of any discretion.

Unpredictable application of the insolvency law has the potential to
undermine not only the confidence of all participants in insolvency
proceedings, but also their willingness to make credit and other investment
decisions prior to insolvency. As far as possible, an insolvency law should
clearly indicate al provisions of other laws that may affect the conduct of
the insolvency proceedings (e.g. labour law; commercial and contract law;
tax law; laws affecting foreign exchange, netting and set-off and debt for
equity swaps; and even family and matrimonial law).

An insolvency law should ensure that adequate information is available in
respect of the debtor's situation, providing incentives to encourage the
debtor to reveal its positions and, where appropriate, sanctions for failure
to do so. The availability of this information wil enable those responsible
for administering and supervising insolvency proceedings (courts or
administrative agencies, the insolvency representative) and creditors to
assess the financial situation of the debtor and determine the most
appropriate solution."

PRACTICAL ASPECTS OF INSOLVENCY LAW

303

While referring to the commencement of insolvency proceedings, the

Legislative Guide states:

"The standard to be met for commencement of insolvency proceedings is
central to the design of an insolvency law. As the basis upon which insolvency
proceedings can be commenced, this standard is instrumental to identifying
the debtors that can be brought within the protective and disciplinary
mechanisms of the insolvency law and determining who may make an
application for commencement, whether the debtor, creditors or other parties.

As a general principle it is desirable that the commencement standard be
transparent and certain, facilitating access to insolvency proceedings
conveniently, cost-effectively and quickly to encourage financially
distressed or insolvent businesses to voluntarily commence proceedings.

It is also desirable that access be flexible in terms of the types of
insolvency proceedings available (reorganization and liquidation), and the
ease with which the proceedings most relevant to a particular debtor can
be accessed, and that conversion between the different types of
proceeding can be achieved. Restrictive access can deter both debtors
and creditors from commencing proceedings, while the effects of delay
can be harmful to the value of assets and the successful completion of
insolvency proceedings, in particular in cases of reorganization. Ease of
access needs to be balanced with proper and adequate safeguards to
prevent improper use of proceedings. Examples of improper use may
include application by a debtor that is not in financial difficulty in order to
take advantage of the protections provided by the insolvency law, such
as the automatic stay, or to avoid or delay payment to creditors and
application by creditors who are competitors of the debtor, where the
purpose of the application is to take advantage of insolvency proceedings
to disrupt the debtor's business and thus gain a competitive edge."

10. On the fixation of time limits and denial of an application to commence
proceedings, the Legislative Guide states:

"Where a court is required to make a decision as to commencement, it is
desirable that that decision be made in a timely manner to ensure both
certainty and predictability of the decision-making and the efficient conduct
of the proceedings without delay. This will be particularly important in the
case of reorganization to avoid further diminution of the value of assets
and to improve the chances of a successful reorganization. Some insolvency
laws prescribe set time periods after the application within which the decision
to commence must be made. These laws often distinguish between
applications by debtors and by creditors, with applications by debtors tending

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PRACTICAL ASPECTS OF INSOLVENCY LAW
to be determined more quickly. Any additional period for creditor applications
is designed to allow prompt notice to be given to the debtor and provide the
debtor with an opportunity to respond to the application.

Although the approach of fixing time limits may serve the objectives of
providing certainty and transparency for both the debtor and creditors,
the achievement of those objectives may need to be balanced against
possible disadvantages. For example, a fixed time period may be
insufficiently flexible to take account of the circumstances of the particular
case. More general y, such time periods may be set without regard to the
resources available to the body responsible for supervising insolvency
proceedings or of the local priorities of that body (especially where
insolvency is only one of the matters for which it has responsibility). It
may also prove difficult to ensure that the decision-making body adheres
to the established limit and to provide appropriate consequences where
there is no compliance. The time period between application and the
decision to commence proceedings should also reflect the type of
proceeding applied for, the application procedure and the consequences
of commencement in any particular regime. For example, the extent to
which notification of parties in interest and information gathering must be
completed prior to commencement wil vary between regimes, requiring
different periods of time. For these reasons, it is desirable that an
insolvency law adopt a flexible approach that emphasizes the advantages
of quick decision-making and provides guidance as to what is reasonable,
but at the same time also recognizes local constraints and priorities.

(d) Denial of an application to commence proceedings

The preceding paragraphs refer to a number of instances where it will be
desirable, in those cases where the court is required to make the
commencement decision, for the court to have the power to deny the
application for commencement, either because of questions of improper
use of the insolvency law or for technical reasons relating to satisfaction
of the commencement standard. The cases referred to include examples
of both debtor and creditor applications. Principal among the grounds for
denial of the application for technical reasons might be those cases where
the debtor is found not to satisfy the commencement standard; where the
debt is subject to a legitimate dispute or off-set in an amount equal to or
greater than the amount of the debt; where the proceedings will serve no
purpose because, for example, secured debt exceeds the value of assets;
and where the debtor has insufficient assets to pay for the insolvency
administration and the law makes no other provision for funding the
administration of such estates.

PRACTICAL ASPECTS OF INSOLVENCY LAW

305

Examples of improper use might include those cases where the debtor
uses an application for insolvency as a means of prevaricating and
unjustifiably depriving creditors of prompt payment of debts or of obtaining
relief from onerous obligations, such as labour contracts. In the case of a
creditor application, it might include those cases where a creditor uses
insolvency as an inappropriate substitute for debt enforcement procedures

(which may not be wel developed); to attempt to force a viable business
out of the market place; or to attempt to obtain preferential payments by
coercing the debtor (where such preferential payments have been made
and the debtor is insolvent, investigation would be a key function of
insolvency proceedings).

As noted above, where there is evidence of improper use of the insolvency
proceedings by either the debtor or creditors, the insolvency law may
provide, in addition to denial of the application, that sanctions can be
imposed on the party improperly using the proceedings or that that party
should pay costs and possibly damages to the other party for any harm
caused. Remedies may also be available under non-insolvency law. Where
an application is denied, any provisional measures of relief ordered by
the court after the time of the application for commencement should
terminate (see chap. II, para. 53)." (Emphasis supplied)

Ultimately, recommendation 19 of the Legislative Guide reads as under:

"Commencement on creditor application (paras.57 and 67)

19. The law general y should specify that, where a creditor makes the
application for commencement:

(a) Notice of the application promptly is given to the debtor;

(b) The debtor be given the opportunity to respond to the application, by
contesting the application, consenting to the application or, where
the application seeks liquidation, requesting the commencement of
reorganization proceedings; and

(c) The court will promptly determine its jurisdiction and whether the
debtor is eligible and the commencement standard has been met
and, if so, commence insolvency proceedings.1"

11. The legislative history of legislation relating to indebtedness goes back

1 A determination that the commencement standard has been met may involve consideration
of whether the debt is subject to a legitimate dispute or offset in an amount equal to or
greater than the amount of the debt. The existence of such a set-off may be a ground for
dismissal of the application (see above, paras. 61-63).application (see above, paras. 61-

63).

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to the year 1964 when the 24th Law Commission recommended amendments
to the Provincial Insolvency Act of 1920. This was fol owed by the Tiwari

Committee of 1981, which introduced the Sick Industrial Companies Act,

1985. Following economic liberalization in the 1990s, two Narsimham

Committee reports led to the Recovery of Debts and Bankruptcy Act, 1993
and the SARFAESI Act, 2002. Meanwhile, the Goswami Committee Report,
submitted in 1993, condemned the liquidation procedure prescribed by the

Companies Act, 1956 as unworkable and being beset with delays at all
levels – delaying tactics employed by the management, delays at the level
of the Courts, delays in making auction sales etc. This then led to the Eradi

Committee Report of 1999, which proposed amendments to the Companies

Act and proposed the repeal of SICA. This Committee echoed the findings
of the Goswami Committee and recommended an overhaul of the liquidation
procedure under the Companies Act.

12. It was for the first time, in 2001, that the L.N. Mitra Committee of the

RBI proposed a comprehensive Bankruptcy Code. This was followed by the

Irani Committee Report, also of the RBI in 2005, which noted that the
liquidation procedure in India is costly, inordinately lengthy and results in
almost complete erosion of asset value. The Committee also noted that the
insolvency framework did not balance stakeholders' interests adequately. It
proposed a number of changes including changes for increased protection
of creditors' rights, maximization of asset value and better management of
the company in liquidation. In 2008, the Raghuram Rajan Committee of the

Planning Commission proposed improvement to the credit infrastructure in
the country, and final y a Committee of Financial Sector Legislative Reforms
in 2013 submitted a draft Indian Financial Code, which included a "resolution
corporation" for resolving distressed financial firms.

13. Al this then led to the Bankruptcy Law Reforms Committee, set up by
the Department of Economic Affairs, Ministry of Finance, under the

Chairmanship of Shri T.K. Viswanathan. This Committee submitted an interim
report in February 2015 and a final report in November of the same year. It
was, as a result of the deliberations of this Committee, that the present

Insolvency and Bankruptcy Code of 2016 was finally born.

14. The interim report went into the existing law on indebtedness in some
detail and discussed the tests laid down in Madhusudan Gordhandas v.

Madhu Woollen Industries Pvt. Ltd [1972] 2 SCR 201, by which a petition
presented under the Companies Act on the ground that the company is

"unable to pay its debts" can only be dismissed if the debt is bona fide
disputed, i.e. that the defense of the debtor is genuine, substantial and is

PRACTICAL ASPECTS OF INSOLVENCY LAW

307
likely to succeed on a point of law. The interim report also adverted to an
amendment made in the Companies Act, 2003, by which the threshold
requirement of Rs.500 was replaced by Rs.1 lakh.

15. The interim report found:

"Once the petitioning creditor has proved the inability of the debtor company
to pay debts, van Zwieten states that courts in India have recognised a
wide discretion that enabled it to give time to the debtor to make payment
or even dismiss the petition. This is in stark contrast with the position in
the UK (from where the law was transplanted) where once the company's
inability to pay debts has been proven, the petitioning creditor is ordinarily
held to be entitled to a winding up order (although it should be noted that
there is an alternative corporate rescue procedure, 'administration', which
a debtor may be entitled to enter).

The effect of these abovementioned judicial developments has been to
add significant delays in the liquidation process under CA 1956 and to
add uncertainty regarding the rights of the creditors in the event of the
company's insolvency. Consequently, this has made creditor recourse to
the liquidation procedure as a means of debt enforcement rather difficult,
and secondly, rendered the liquidation procedure ineffective as a
disciplinary mechanism for creditors against insolvent debtors."

The interim report then recommended:

"Recommendations:

• In order to re-instate the debt enforcement function of the statutory
demand test for winding up, if a company fails to pay an undisputed
debt of a prescribed value as per Section 271(2) (a), the creditor
should be entitled to a winding up order irrespective of whether it is
insolvent (in commercial or balance sheet terms) or not. Further, the

NCLT should have the discretion to refer the company for rehabilitation
under Chapter XIX before making a winding up order on such ground,
if the company appears to be prima facie viable. Further, in order to
prevent abuse of the provision by creditors and ensure that it is not
used to force debtor companies to settle disputed debts, the provision
should specify the factors that the NCLT may take into account to
determine whether the debt under consideration is disputed or not.

As laid down by the courts, a petition may be dismissed if the debt in
question is bona fide disputed, i.e., where the fol owing conditions
are satisfied: (i) the defence of the debtor company is genuine,
substantial and in good faith; (i ) the defence is likely to succeed on

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PRACTICAL ASPECTS OF INSOLVENCY LAW
a point of law; and (iii) the debtor company adduces prima facie proof
of the facts on which the defence depends. Further, as with initiation
of rescue proceedings, the NCLT should also have the power to impose
sanctions/costs/damages on a petitioning creditor and disallow
reapplications on the same grounds if it finds that a petition has been
filed to abuse the process of law.

• The Government may also consider revising the present value for
triggering the statutory demand test under Section 271 (2) (a) from

'one lakh rupees' to a higher amount or revise the provision to state

'one lakh rupees or such amount as may be prescribed'.

• 'Balance sheet insolvency' and 'commercial insolvency' should be
identified as separate grounds indicating a company's 'inability to
pay debt' in order to avoid conflicts/confusion with the statutory
demand test (as is the case of the IA 1986 where the statutory
demand test, the commercial insolvency test and the balance sheet
insolvency test are alternate grounds for determining a company's
inability to pay debts under Sections 123(1) (a),123 (1) (e) and 123(2),
respectively)."

16. By the final report dated November 2015, the recommendation of the
interim report was shelved. The Committee made a distinction between
financial contracts and operational contracts. It stated:

"4.3.3 Information about the liabilities of a solvent entity

Operational contracts typical y involve an exchange of goods and services
for cash. For an enterprise, the latter includes payables for purchase of
raw-materials, other inputs or services, taxation and statutory liabilities,
and wages and benefits to employees.

xxxx

The Code specifies that if the Adjudicator is able to locate the record of
the liability and of default with the registered IUs, a financial creditor
needs no other proof to establish that a default has taken place.

xxxx

The second set of liabilities are operational liabilities, which are more
difficult to centrally capture given that the counterparties are a wide and
heterogeneous set. In the state of insolvency, the record of all liabilities in
the IUs become critical to creditors in assessing the complexity of the
resolution required. Various private players, including potential strategic
acquirers or distressed asset funds, would constantly monitor entities

PRACTICAL ASPECTS OF INSOLVENCY LAW

309
that are facing stress, and prepare to make proposals to the committee
of creditors in the event that an insolvency is triggered. Easy access to
this information is vital in ensuring that there is adequate interest by
various kinds of financial firms in coming up to the committee of creditors
with proposals. It is not easy to set up mandates for the holders of
operational liabilities to file the records of their liabilities, unlike the case
of financial creditors. However, their incentives to file liabilities are even
stronger when the entity approaches insolvency.

4.3.4 Information about operational creditors

Once the invoice or notice is served, the debtor should be given a certain
period of time in which to respond either by disputing it in a court, or pay
up the amount of the invoice or notice. The debtor will have the responsibility
to file the information about the court case, or the repayment record in
response to the invoice or notice within the specified amount of time. If
the debtor does not file either response within the specified period, and
the creditor files for insolvency resolution, the debtor may be charged a
monetary penalty by the Adjudicator. However, if the debtor disputes the
claim in court, until the outcome of this case is decided, the creditor may
not be able to trigger insolvency on the entity. This process wil act as a
deterrent for frivolous claims from creditors, as wel as act as a barrier for
some types of creditors to initiate insolvency resolution."

The Committee then went on to consider as to who can trigger the insolvency
process. In paragraph 5.2.1 the Committee stated:

"Box 5.2 – Trigger for IRP

1. The IRP can be triggered by either the debtor or the creditors by
submitting documentation specified in the Code to the adjudicating
authority.

2. For the debtor to trigger the IRP, she must be able to submit al the
documentation that is defined in the Code, and may be specified by the

Regulator above this.

3. The Code differentiates two categories of creditors: financial creditors
where the liability to the debtor arises from a solely financial transaction,
and operational creditors where the liability to the debtor arises in the
form of future payments in exchange for goods or services already
delivered. In cases where a creditor has both a solely financial transaction
as wel as an operational transaction with the entity, the creditor wil be
considered a financial creditor to the extent of the financial debt and an

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PRACTICAL ASPECTS OF INSOLVENCY LAW
operational creditor to the extent of the operational debt is more than half
the ful liability it has with the debtor.

4. The Code wil require different documentation for a debtor, a financial
creditor, and an operational creditor to trigger the IRP. These are listed in

Box 5.3 under what the Adjudicator will accept as requirements to trigger
the IRP.

5.2.1 Who can trigger the IRP?

Here, the Code differentiates between financial creditors and operational
creditors. Financial creditors are those whose relationship with the entity
is a pure financial contract, such as a loan or a debt security. Operational
creditors are those whose liability from the entity comes from a transaction
on operations. Thus, the wholesale vendor of spare parts whose spark
plugs are kept in inventory by the car mechanic and who gets paid only
after the spark plugs are sold is an operational creditor. Similarly, the
lessor that the entity rents out space from is an operational creditor to
whom the entity owes monthly rent on a three-year lease. The Code also
provides for cases where a creditor has both a solely financial transaction
as wel as an operational transaction with the entity. In such a case, the
creditor can be considered a financial creditor to the extent of the financial
debt and an operational creditor to the extent of the operational debt.

5.2.2 How can the IRP be triggered?

An application from a creditor must have a record of the liability and
evidence of the entity having defaulted on payments. The Committee
recommends different documentation requirements depending upon the
type of creditor, either financial or operational. A financial creditor must
submit a record of default by the entity as recorded in a registered

Information Utility (referred to as the IU) as described in Section 4.3 (or
on the basis of other evidence). The default can be to any financial creditor
to the entity, and not restricted to the creditor who triggers the IRP. The

Code requires that the financial creditor propose a registered Insolvency

Professional to manage the IRP. Operational creditors must present an

"undisputed bil " which may be filed at a registered information utility as
requirement to trigger the IRP. The Code does not require the operational
creditor to propose a registered Insolvency Professional to manage the

IRP. If a professional is not proposed by the operational creditor, and the

IRP is successfully triggered, the Code requires the Adjudicator to
approach the Regulator for a registered Insolvency Professional for the
case.

PRACTICAL ASPECTS OF INSOLVENCY LAW

311

When the Adjudicator receives the application, she confirms the validity
of the documents before the case can be registered by confirming the
documentation in the information utility if applicable. In case the debtor
triggers the IRP, the list of documentation provided by the debtor is checked
against the required list. The proposal for the RP is forwarded to the

Regulator for validation. If both the documentation and the proposed RP
checks out as required within the time specified in regulations, the

Adjudicator registers the IRP.

In case the financial creditor triggers the IRP, the Adjudicator verifies the
default from the information utility (if the default has been filed with an
information utility, it shal be incontrovertible evidence of the existence of
a default) or otherwise confirms the existence of default through the
additional evidence adduced by the financial creditor, and puts forward
the proposal for the RP to the Regulator for validation. In case the
operational creditor triggers the IRP, the Adjudicator verifies the
documentation. Simultaneously, the Adjudicator requests the Regulator
for an RP. If either step cannot be verified, or the process verification
exceeds the specified amount of time, then the Adjudicator rejects the
application, with a reasoned order for the rejection. The order rejecting the
application cannot be appealed against. Instead, application has to be
made afresh. Once the documents are verified within a specified amount
of time, the Adjudicator will trigger the IRP and register the IRP by issuing
an order. The order will contain a unique ID that will be issued for the case
by which al reports and records that are generated during the IRP will be
stored, and accessed."

17. Annexed to this Committee Report is the Insolvency and Bankruptcy

Bil , 2015. Interestingly, Section 5(4) defined "dispute" as:

"5. Definitions

In this Part, unless the context otherwise requires-

(4) "dispute" means a bona fide suit or arbitration proceeding regarding

(a) the existence or the amount of a debt; (b) the quality of a good or
service; or (c) the breach of a representation or warranty;"

Sections 8 and 9 in the said Bil read as under:

"8. Insolvency resolution by operational creditor.

(1) An operational creditor shal , on the occurrence of a default, deliver a
demand notice or copy of an invoice demanding payment of the amount
involved in the default to the corporate debtor in such form as may be

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PRACTICAL ASPECTS OF INSOLVENCY LAW
prescribed, through an information utility, wherever applicable, or by
registered post or courier or by any electronic communication.

(2) The corporate debtor shal , within a period of ten 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) the existence of a dispute, if any, and record of the pendency of the
suit or arbitration proceedings filed at least sixty days prior to the
receipt of such invoice or notice in relation to such dispute through
an information utility or by registered post or courier or by any
electronic communication;

(b) the repayment of unpaid operational debt- (i) by sending an attested
copy of electronic transfer of the unpaid amount from the bank account
of the corporate debtor; or (i ) by sending an attested copy of proof
that the operational creditor having encashed a cheque issued by the
corporate debtor.

Explanation. – For the purpose of this section a "demand notice" means
a notice served by an operational creditor to the corporate debtor demanding
repayment of the debt in respect of which the default has occurred.

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
invoice or notice 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 with the Adjudicating Authority in the
prescribed form for initiating a corporate insolvency resolution process.

(2) The application under sub-section (1) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , along with the application furnish-

(a) the invoice demanding payment or notice delivered by the operational
creditor to the corporate debtor;

(b) 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 confirmation from the financial institutions maintaining accounts of
the operational creditor that there is no payment of an unpaid
operational debt by the corporate debtor; and

PRACTICAL ASPECTS OF INSOLVENCY LAW

313

(d) such other information or as may be specified.

(4) The Adjudicating Authority shal , within two days of the receipt of the
application under sub-section (2), admit the application and communicate
such decision to the operational creditor and the corporate debtor if, -

(a) the application 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; and

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

(5) The Adjudicating Authority shall reject the application and communicate
such decision to the operational creditor and the corporate debtor if –

(a) the application made under this section 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; and

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

(6) Without prejudice to the conditions mentioned in sub-section (3), an
operational creditor initiating a corporate insolvency resolution process
under this section, may also propose a resolution professional to act as
an interim resolution professional.

(7) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (4) of this
section."

18. Meanwhile, the Insolvency and Bankruptcy Bill that was annexed to the

Bankruptcy Law Reforms Committee Report underwent a further change
before it was submitted to a Joint Committee of the Lok Sabha. In this Bill,
the definition of "dispute" now read as fol ows:

"5. Definitions.

In this Part unless the context otherwise requires,-

(6) "dispute" includes a suit or arbitration proceedings relating to—

(a) the existence or the amount of debt;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;"

Sections 8 and 9 read as fol ows:

"8. Insolvency resolution by operational creditor.

(1) An operational creditor may, on the occurrence of a default, deliver a
demand notice of unpaid operational debt or copy of an invoice demanding
payment of the amount involved in the default to the corporate debtor in
such form as may be prescribed, through an information utility, wherever
applicable, or by registered post or courier or by such electronic mode of
communication, as may be specified.

(2) The corporate debtor shal , within a period of ten 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) the existence of a dispute, if any, and record of the pendency of the
suit or arbitration proceedings filed prior to the receipt of such notice
or invoice in relation to such dispute through an information utility or
by registered post or courier or by such electronic mode of
communication as may be specified;

(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

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.

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.

PRACTICAL ASPECTS OF INSOLVENCY LAW

315

(2) The application under sub-section (1) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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 or 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 (4), if any.

(i ) 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;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(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, prior to rejecting an application under
sub-clause (a) of clause (i ) of this sub-section, shal give a notice to the
applicant to rectify the defect in his application within three days of the
date of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5)."

19. The notes on clauses annexed to the Bil are extremely important and
read as fol ows:

"Notes on Clauses

Clause 6 provides that where a corporate debtor has defaulted in paying
a debt that has become due and payable but not repaid, the corporate
insolvency resolution process under Part II may be initiated in respect of
such corporate debtor by a financial creditor, an operational creditor or
the corporate debtor itself.

Early recognition of financial distress is very important for timely resolution
of insolvency. A default based test for entry into the insolvency resolution
process permits early intervention such that insolvency resolution
proceedings can be initiated at an early stage when the corporate debtor
shows early signs of financial distress rather than at the point where it
would be difficult to revive it effectively. It also provides a simple test to
initiate resolution process.

This clause permits any financial creditor to initiate the corporate insolvency
resolution process where the corporate debtor has defaulted in paying a
debt that has become due and payable but not repaid. Financial creditors
are those creditors to whom a financial debt (i.e., a debt where the creditor
is compensated for the time value of the money lent) is owed.

Further, the Code also permits the corporate debtor itself to initiate the
insolvency resolution process once it has defaulted on a debt. Additional y,
operational creditors (i.e., creditors to whom a sum of money is owed for
the provision of goods or services or the Central/State Government or
local authorities in respect of payments due to them) are also permitted
to initiate the insolvency resolution process. This wil bring the law in line
with international practices, which permit unsecured creditors (including

PRACTICAL ASPECTS OF INSOLVENCY LAW

317
employees, suppliers etc. who fal under the definition of operational
creditors) to file for the initiation of insolvency resolution proceedings.

Clause 7 lays down the procedure for the initiation of the corporate
insolvency resolution process by a financial creditor or two or more financial
creditors jointly. The financial creditor can file an application before the

National Company Law Tribunal along with proof of default and the name
of a resolution professional proposed to act as the interim resolution
professional in respect of the corporate debtor. The requirement to provide
proof of default ensures that financial creditors do not file frivolous
applications or applications which prematurely put the corporate debtor
into insolvency resolution proceedings for extraneous considerations. The
adjudicating authority/ Tribunal can, within fourteen days from the date of
receipt of the application, ascertain the existence of a default from the
records of a regulated information utility. A default may also be proved in
such manner as may be specified by the Insolvency and Bankruptcy

Board of India.

Once the adjudicating authority/Tribunal is satisfied as to the existence
of the default and has ensured that the application is complete and no
disciplinary proceedings are pending against the proposed resolution
professional, it shal admit the application. The adjudicating authority/

Tribunal is not required to look into any other criteria for admission of the
application. It is important that parties are not al owed to abuse the legal
process by using delaying tactics at the admissions stage.

Clause 8 lays down the procedure for the initiation of the corporate
insolvency resolution process by an operational creditor. This procedure
differs from the procedure applicable to financial creditors as operational
debts (such as trade debts, salary or wage claims) tend to be small
amounts (in comparison to financial debts) or are recurring in nature and
may not be accurately reflected on the records of information utilities at
all times. The possibility of disputed debts in relation to operational creditors
is also higher in comparison to financial creditors such as banks and
financial institutions. Accordingly, the process for initiation of the insolvency
resolution process differs for an operational creditor.

Once a default has occurred, the operational creditor has to deliver a
demand notice or a copy of an invoice demanding payment of the debt in
default to the corporate debtor. The corporate debtor has a period of ten
days from the receipt of the demand notice or invoice to inform the
operational creditor of the existence of a dispute regarding the debt claim
or of the repayment of the debt. This ensures that operational creditors,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
whose debt claims are usually smal er, are not able to put the corporate
debtor into the insolvency resolution process prematurely or initiate the
process for extraneous considerations. It may also facilitate informal
negotiations between such creditors and the corporate debtor, which may
result in a restructuring of the debt outside the formal proceedings.

Clause 9 On the expiry of the period of ten days from the date of receipt
of the invoice or demand notice under Clause 8, if the operational creditor
does not receive either the payment of the debt or a notice of existence
of dispute in relation to the debt claim from the corporate debtor, he can
file an application with the adjudicating authority for initiating the insolvency
resolution process in respect of such debtor. He also has to furnish proof
of default and proof of non-payment of the debt along with an affidavit
verifying that there has been no notice regarding the existence of a dispute
in relation to the debt claim. Within fourteen days from the receipt of the
application, if the adjudicating authority/Tribunal is satisfied as to (a) the
existence of a default, and (b) the other criteria laid down in clause 9(5)

being met, it shal admit the application. The adjudicating authority/Tribunal
is not required to look into any other criteria for admission of the application.

It is important that parties are not allowed to abuse the legal process by
using delaying tactics at the admissions stage." (Emphasis supplied)

20. The Joint Committee in April, 2016 made certain smal changes in the
said Bill, by which the Committee stated:

"17. Mode of delivery of demand notice of unpaid operational debt –

Clause 8

The Committee find that clause 8(1) of the Code provides that an operational
creditor may, on the occurrence of a default, deliver a demand notice of
unpaid operational debt or copy of an invoice demanding payment of the
amount involved in the default to the corporate debtor in such form as
may be prescribed, through an information utility, wherever applicable, or
by registered post or courier or by such electronic mode of communication,
as may be specified.

The Committee are of the view that the details of the mode of delivery of
demand notice can be provided in the rules. The Committee, therefore,
decide to substitute words "in such form as may be prescribed, through
an information utility, wherever applicable, or by registered post or courier
or by such electronic mode of communication, as may be specified" as
appearing in clause 8(1) with the words "in such form and manner, as
may be prescribed". Besides as a consequential amendment words

"through an information utility or by registered post or courier or by such

PRACTICAL ASPECTS OF INSOLVENCY LAW

319
electronic mode of communication as may be specified" as appearing in
clause 8(2) may also be omitted."

The Committee also revised the time limits set out in various sections of
the Code from 2, 3 and 5 days to a longer uniform period of 7 days.

21. The stage is now set for setting out the relevant provisions of the Code
insofar as operational creditors and their corporate debtors are concerned.

"3. Definitions.

In this Code, unless the context otherwise requires,—
xxxx

(12) "default" means non-payment of debt when whole or any part or
instalment of the amount of debt has become due and payable and is not
repaid by the debtor or the corporate debtor, as the case may be;

5. Definitions.

In this Part, unless the context otherwise requires,—

(6) "dispute" includes a suit or arbitration proceedings relating to—

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;
xxxx

(20) "operational creditor" means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally
assigned or transferred;

(21) "operational debt" means a claim in respect of the provision of
goods or services including employment or a debt in respect of the
repayment of dues arising under any law for the time being in force and
payable to the Central Government, any State Government or any local
authority;

8. Insolvency resolution by operational creditor.

(1) An operational creditor may, on the occurrence of a default, deliver a
demand notice of unpaid operational debt or copy of an invoice demanding
payment of the amount involved in the default to the corporate debtor in
such form and manner as may be prescribed.

(2) The corporate debtor shal , within a period of ten days of the receipt of

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PRACTICAL ASPECTS OF INSOLVENCY LAW
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

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.

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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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.

PRACTICAL ASPECTS OF INSOLVENCY LAW

321

(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 (4), if any.

(i ) 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, shal before rejecting an
application under sub-clause (a) of clause (i ) 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 shal commence from the
date of admission of the application under sub-section (5) of this section."

22. Together with Section 8(1), the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016, speak of demand notices by the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
operational creditor and applications by the operational creditor in the fol owing
terms:

"5. Demand notice by operational creditor.

(1) An operational creditor shal 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.

(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.

6. Application by operational creditor.

(1) An operational creditor, shal make an application for initiating the
corporate insolvency resolution process against a corporate debtor under
section 9 of the Code in Form 5, accompanied with documents and records
required therein and as specified in the Insolvency and Bankruptcy Board
of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016.

(2) The applicant under sub-rule (1) shall dispatch forthwith, a copy of the
application filed with the Adjudicating Authority, by registered post or speed
post to the registered office of the corporate debtor.

FORM 3

(See clause (a) of sub-rule (1) of rule 5)

FORM OF DEMAND NOTICE/INVOICE DEMANDING PAYMENT

UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

(Under rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016)

[Date]

PRACTICAL ASPECTS OF INSOLVENCY LAW

323

To,

[Name and address of the registered office of the corporate debtor]

From,

[Name and address of the registered office of the operational creditor]

Subject: Demand notice/invoice demanding payment in respect of
unpaid operational debt due from [corporate debtor] under the Code.

Madam/Sir,

1. This letter is a demand notice/invoice demanding payment of an unpaid
operational debt due from [name of corporate debtor].

2. Please find particulars of the unpaid operational debt below:

PARTICULARS OF OPERATIONAL DEBT

1 TOTAL AMOUNT OF DEBT, DETAILS

OF TRANSACTIONS ON ACCOUNT

OF WHICH DEBT FELL DUE, AND

THE DATE FROM WHICH SUCH

DEBT FELL DUE

2 AMOUNT CLAIMED TO BE IN

DEFAULT AND THE DATE ON

WHICH THE DEFAULT OCCURRED

(ATTACH THE WORKINGS FOR

COMPUTATION OF DEFAULT IN

TABULAR FORM)

3 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)

4 DETAILS OF RETENTION OF TITLE

ARRANGEMENTS (IF ANY) IN

RESPECT OF GOODS TO WHICH

THE OPERATIONAL DEBT REFERS

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PRACTICAL ASPECTS OF INSOLVENCY LAW

5. REFERS RECORD OF DEFAULT

WITH THE INFORMATION UTILITY (IF

ANY)

6. PROVISION OF LAW, CONTRACT OR

OTHER DOCUMENT UNDER

WHICH DEBT HAS BECOME DUE

7. LIST OF DOCUMENTS ATTACHED

TO THIS APPLICATION IN ORDER TO

PROVE THE EXISTENCE OF

OPERATIONAL DEBT AND THE

AMOUNT IN DEFAULT

3. If you dispute the existence or amount of unpaid operational debt (in
default) please provide the undersigned, within ten days of the receipt of
this letter, of the pendency of the suit or arbitration proceedings in relation
to such dispute filed before the receipt of this letter/notice.

4. If you believe that the debt has been repaid before the receipt of this
letter, please demonstrate such repayment by sending to us, within ten
days of receipt of this letter, the fol owing:

(a) an attested copy of the record of electronic transfer of the unpaid
amount from the bank account of the corporate debtor; or

(b) an attested copy of any record that [ name of the operational creditor]

has received the payment.

5. The undersigned, hereby, attaches a certificate from an information
utility confirming that no record of a dispute raised in relation to the relevant
operational debt has been filed by any person at any information utility, (if
applicable)

6. The undersigned request you to unconditional y repay the unpaid
operational debt (in default) in full within ten days from the receipt of this
letter failing which we shal initiate a corporate insolvency resolution
process in respect of [c].

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

PRACTICAL ASPECTS OF INSOLVENCY LAW

325

Instructions

1. Please serve a copy of this form on the corporate debtor, ten days in
advance of filing an application under section 9 of the Code.

2. Please append a copy of such served notice to the application made
by the operational creditor to the Adjudicating Authority.

Form 4

(See clause (b) of sub-rule (1) of rule 5)

FORM OF NOTICE WITH WHICH INVOICE DEMANDING PAYMENT IS

TO BE ATTACHED

(Under Rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016)

[Date]

To,

[Name and address of registered office of the corporate debtor]

From,

[Name and address of the operational creditor]

Subject: Notice attached to invoice demanding payment

Madam/Sir,

[Name of operational creditor], hereby provides notice for repayment of
the unpaid amount of INR [insert amount] that is in default as reflected in
the invoice attached to this notice.

In the event you do not repay the debt due to us within ten days of receipt
of this notice, we may file an application before the Adjudicating Authority
for initiating a corporate insolvency resolution process under section 9 of
the Code.

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

326

PRACTICAL ASPECTS OF INSOLVENCY LAW

Form 5

(See sub-rule (1) of rule 6)

APPLICATION BY OPERATIONAL CREDITOR TO INITIATE

CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER THE

CODE.

(Under rule 6 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016)

[Date]

To,

The National Company Law Tribunal

[Address]

From,

[Name and address for correspondence of the operational creditor]

In the matter of [name of the corporate debtor]

Subject: Application to initiate corporate insolvency resolution
process in respect of [name of the corporate debtor] under the

Insolvency and Bankruptcy Code, 2016.

Madam/Sir,

[Name of the operational creditor], hereby submits this application to
initiate a corporate insolvency resolution process in the case of [name
of corporate debtor]. The details for the purpose of this application are
set out below:

Part – I

PARTICULARS OF APPLICANT

1. NAME

OF

OPERATIONAL

CREDITOR

2. IDENTIFICATION NUMBER OF

OPERATIONAL CREDITOR (IF ANY)

3. ADDRESS

FOR

CORRESPONDENCE OF THE

OPERATIONAL CREDITOR

PRACTICAL ASPECTS OF INSOLVENCY LAW

327

Part - II

PARTICULARS OF CORPORATE

DEBTOR

1. NAME OF THE CORPORATE

DEBTOR

2. IDENTIFICATION NUMBER OF

CORPORATE DEBTOR

3. DATE OF INCORPORATION OF

CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND

THE PAID-UP SHARE CAPITAL

OF THE CORPORATE DEBTOR

AND/OR

DETAILS

OF

GUARANTEE CLAUSE AS PER

MEMORANDUM

OF

ASSOCIATION (AS APPLICABLE)

5. ADDRESS OF THE REGISTERED

OFFICE OF THE CORPORATE

DEBTOR

6. NAME,

ADDRESS

AND

AUTHORITY

OF

PERSON

SUBMITTING APPLICATION ON

BEHALF OF OPERATIONAL

CREDITOR

(ENCLOSE

AUTHORISATION)

7. NAME AND ADDRESS OF

PERSON RESIDENT IN INDIA

AUTHORISED TO ACCEPT THE

SERVICE OF PROCESS ON ITS

BEHALF

(ENCLOSE

AUTHORISATION)

328

PRACTICAL ASPECTS OF INSOLVENCY LAW

Part-III

PARTICULARS

OF

THE

PROPOSED

INTERIM

RESOLUTION PROFESSIONAL

[IF PROPOSED]

1. NAME,

ADDRESS,

EMAIL

ADDRESS

AND

THE

REGISTRATION NUMBER OF

THE PROPOSED INSOLVENCY

PROFESSIONAL

Part-IV

PARTICULARS

OF

OPERATIONAL DEBT

1. TOTAL AMOUNT OF DEBT,

DETAILS OF TRANSACTIONS ON

ACCOUNT OF WHICH DEBT FELL

DUE, AND THE DATE FROM

WHICH SUCH DEBT FELL DUE

2. AMOUNT CLAIMED TO BE IN

DEFAULT AND THE DATE ON

WHICH

THE

DEFAULT

OCCURRED (ATTACH THE

WORKINGS FOR COMPUTATION

OF AMOUNT AND DATES OF

DEFAULT IN TABULAR FORM)

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

PRACTICAL ASPECTS OF INSOLVENCY LAW

329

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

330

PRACTICAL ASPECTS OF INSOLVENCY LAW

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

IN ORDER TO PROVE THE

EXISTENCE OF OPERATIONAL

DEBT AND THE AMOUNT IN

DEFAULT

I, [ Name of the operational creditor / person authorised to act on behalf of
the operational creditor] hereby certify that, to the best of my knowledge,

[ name of proposed insolvency professional], is fully qualified and permitted
to act as an insolvency professional in accordance with the Code and the
rules and regulations made thereunder. [ WHERE APPLICABLE]

[Name of the operational creditor] has paid the requisite fee for this
application through [state means of payment] on [date].

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

Instructions -

Please attach the following to this application:

Annex I Copy of the invoice / demand notice as in Form 3 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 served
on the corporate debtor.

Annex II Copies of all documents referred to in this application.

Annex III Copy of the relevant accounts from the banks/financial
institutions maintaining accounts of the operational creditor confirming
that there is no payment of the relevant unpaid operational debt by the
operational debtor, if available.

PRACTICAL ASPECTS OF INSOLVENCY LAW

331

Annex IV Affidavit in support of the application in accordance with the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016.

Annex V Written communication by the proposed interim resolution
professional as set out in Form 2 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016. [WHERE

APPLICABLE]

Annex VI Proof that the specified application fee has been paid.

Note: Where workmen/employees are operational creditors, the application
may be made either in an individual capacity or in a joint capacity by one
of them who is duly authorised for the purpose.

Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 is also relevant
and reads as under:

"7. Claims by operational creditors.

(1) A person claiming to be an operational creditor, other than workman or
employee of the corporate debtor, shal submit proof of claim to the interim
resolution professional in person, by post or by electronic means in Form

B of the Schedule:

Provided that such person may submit supplementary documents or
clarifications in support of the claim before the constitution of the
committee.

(2) The existence of debt due to the operational creditor under this

Regulation may be proved on the basis of-

(a) the records available with an information utility, if any; or

(b) other relevant documents, including—

(i) a contract for the supply of goods and services with corporate
debtor;

(i ) an invoice demanding payment for the goods and services
supplied to the corporate debtor;

(iii) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any; or

(iv) financial accounts.

332

PRACTICAL ASPECTS OF INSOLVENCY LAW

FORM B

PROOF OF CLAIM BY OPERATIONAL CREDITORS EXCEPT

WORKMEN AND EMPLOYEES

[ Under Regulation 7 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations,

2016]

[Date]

To

The Interim Resolution Professional / Resolution Professional

[Name of the Insolvency Resolution Professional / Resolution

Professional]

[Address as set out in public announcement]

From

[Name and address of the operational creditor]

Subject: Submission of proof of claim.

Madam/Sir,

[Name of the operational creditor], hereby submits this proof of claim in
respect of the corporate insolvency resolution process in the case of

[name of corporate debtor]. The details for the same are set out below:

PARTICULARS

1. NAME

OF

OPERATIONAL

CREDITOR

2. IDENTIFICATION NUMBER OF

OPERATIONAL CREDITOR (IF AN

INCORPORATED BODY PROVIDE

IDENTIFICATION NUMBER AND

PROOF OF INCORPORATION. IF A

PARTNERSHIP OR INDIVIDUAL

PROVIDE

IDENTIFICATION

RECORDS* OF ALL THE PARTNERS

OR THE INDIVIDUAL)

3. ADDRESS AND EMAIL ADDRESS

OF OPERATIONAL CREDITOR FOR

CORRESPONDENCE

PRACTICAL ASPECTS OF INSOLVENCY LAW

333

4. TOTAL AMOUNT OF CLAIM

(INCLUDING ANY INTEREST AS AT

THE

INSOLVENCY

COMMENCEMENT DATE)

5. DETAILS OF DOCUMENTS BY

REFERENCE TO WHICH THE DEBT

CAN BE SUBSTANTIATED.

6. DETAILS OF ANY DISPUTE AS WELL

AS THE RECORD OF PENDENCY

OR ORDER OF SUIT OR

ARBITRATION PROCEEDINGS

7. DETAILS OF HOW AND WHEN DEBT

INCURRED

8. DETAILS OF ANY MUTUAL CREDIT,

MUTUAL DEBTS, OR OTHER

MUTUAL DEALINGS BETWEEN THE

CORPORATE DEBTOR AND THE

CREDITOR WHICH MAY BE SET-OFF

AGAINST THE CLAIM

9. DETAILS OF ANY RETENTION OF

TITLE

ARRANGEMENTS

IN

RESPECT OF GOODS OR

PROPERTIES TO WHICH THE CLAIM

REFERS

10. DETAILS OF THE BANK ACCOUNT

TO WHICH THE AMOUNT OF THE

CLAIM OR ANY PART THEREOF

CAN

BE

TRANSFERRED

PURSUANT TO A RESOLUTION

PLAN

11. LIST OF DOCUMENTS ATTACHED

TO THIS PROOF OF CLAIM IN

ORDER TO PROVE THE EXISTENCE

AND NONPAYMENT OF CLAIM DUE

TO THE OPERATIONAL CREDITOR

334

PRACTICAL ASPECTS OF INSOLVENCY LAW

Signature of operational creditor or person authorised to act on his behalf

[Please enclose the authority if this is being submitted on behalf of an
operational creditor]

Name in BLOCK LETTERS

Position with or in relation to creditor

Address of person signing

*PAN number, passport, AADHAAR Card or the identity card issued by
the Election Commission of India." (Emphasis supplied)

23. In the passage of the Bills which ultimately became the Code, various
important changes have taken place. The original definition of "dispute" has
now become an inclusive definition, the word "bona fide" before "suit or
arbitration proceedings" being deleted. In Section 8(1), the words "through
an information utility, wherever applicable, or by registered post or courier or
by any electronic communication" have been deleted. Likewise, in Section

8(2), the period of "at least 60 days … through an information utility or by
registered post or courier or by any electronic communication" has also
been deleted. In Section 9(5), the absence of a proviso similar to the proviso
occurring in Section 7(5) was also rectified. Further, the time periods of 2
and 3 days were uniformly substituted, as has been seen above, by 7 days,
so that a sufficiently long period is given to do the needful.

24. The scheme under Sections 8 and 9 of the Code, appears to be that an
operational creditor, as defined, may, on the occurrence of a default (i.e., on
non-payment of a debt, any part whereof has become due and payable and
has not been repaid), deliver a demand notice of such unpaid operational
debt or deliver the copy of an invoice demanding payment of such amount
to the corporate debtor in the form set out in Rule 5 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with

Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days
of the receipt of such demand notice or copy of invoice, the corporate debtor
must bring to the notice of the operational creditor the existence of a dispute
and/or the record of the pendency of a suit or arbitration proceeding filed
before the receipt of such notice or invoice in relation to such dispute (Section

8(2)(a)). What is important is that the existence of the dispute and/or the
suit or arbitration proceeding must be pre-existing – i.e. it must exist before
the receipt of the demand notice or invoice, as the case may be. In case the
unpaid operational debt has been repaid, the corporate debtor shall within a
period of the self-same 10 days send an attested copy of the record of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

335
electronic transfer of the unpaid amount from the bank account of the
corporate debtor or send an attested copy of the record that the operational
creditor has encashed a cheque or otherwise received payment from the
corporate debtor (Section 8(2)(b)). It is only if, after the expiry of the period
of the said 10 days, the operational creditor does not either receive payment
from the corporate debtor or notice of dispute, that the operational creditor
may trigger the insolvency process by filing an application before the
adjudicating authority under Sections 9(1) and 9(2). This application is to be
filed under Rule 6 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 in Form 5, accompanied with documents
and records that are required under the said form. Under Rule 6(2), the
applicant is to dispatch by registered post or speed post, a copy of the
application to the registered office of the corporate debtor. Under Section

9(3), along with the application, the statutory requirement is to furnish a
copy of the invoice or demand notice, an affidavit to the effect that there is
no notice given by the corporate debtor relating to a dispute of the unpaid
operational debt and a copy of the certificate from the financial institution
maintaining accounts of the operational creditor confirming that there is no
payment of an unpaid operational debt by the corporate debtor. Apart from
this information, the other information required under Form 5 is also to be
given. Once this is done, the adjudicating authority may either admit the
application or reject it. If the application made under sub-section (2) is
incomplete, the adjudicating authority, under the proviso to sub-section 5,
may give a notice to the applicant to rectify defects within 7 days of the
receipt of the notice from the adjudicating authority to make the application
complete. Once this is done, and the adjudicating authority finds that either
there is no repayment of the unpaid operational debt after the invoice (Section

9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has
been delivered by the operational creditor (Section 9(5)(i)(c)), or that no
notice of dispute has been received by the operational creditor from the
corporate debtor or that there is no record of such dispute in the information
utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding pending
against any resolution professional proposed by the operational creditor

(Section 9(5)(i)(e)), it shal admit the application within 14 days of the receipt
of the application, after which the corporate insolvency resolution process
gets triggered. On the other hand, the adjudicating authority shal , within 14
days of the receipt of an application by the operational creditor, reject such
application if the application is incomplete and has not been completed
within the period of 7 days granted by the proviso (Section 9(5)(i )(a)). It may
also reject the application where there has been repayment of the operational
debt (Section 9(5)(i )(b)), or the creditor has not delivered the invoice or

336

PRACTICAL ASPECTS OF INSOLVENCY LAW
notice for payment to the corporate debtor (Section 9(5)(i )(c)). It may also
reject the application if the notice of dispute has been received by the
operational creditor or there is a record of dispute in the information utility

(Section 9(5)(i )(d)). Section 9(5)(i )(d) refers to the notice of an existing
dispute that has so been received, as it must be read with Section 8(2)(a).

Also, if any disciplinary proceeding is pending against any proposed resolution
professional, the application may be rejected (Section 9(5)(ii)(e)).

25. Therefore, the adjudicating authority, when examining an application
under Section 9 of the Act wil have to determine:

(i) Whether there is an "operational debt" as defined exceeding Rs.1
lakh? (See Section 4 of the Act)

(i ) Whether the documentary evidence furnished with the application
shows that the aforesaid debt is due and payable and has not yet
been paid? and

(iii) Whether there is existence of a dispute between the parties or the
record of the pendency of a suit or arbitration proceeding filed before
the receipt of the demand notice of the unpaid operational debt in
relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have
to be rejected.

Apart from the above, the adjudicating authority must fol ow the mandate of

Section 9, as outlined above, and in particular the mandate of Section 9(5)

of the Act, and admit or reject the application, as the case may be, depending
upon the factors mentioned in Section 9(5) of the Act.

26. Another thing of importance is the timelines within which the insolvency
resolution process is to be triggered. The corporate debtor is given 10 days
from the date of receipt of demand notice or copy of invoice to either point
out that a dispute exists between the parties or that he has since repaid the
unpaid operational debt. If neither exists, then an application once filed has
to be disposed of by the adjudicating authority within 14 days of its receipt,
either by admitting it or rejecting it. An appeal can then be filed to the

Appel ate Tribunal under Section 61 of the Act within 30 days of the order of
the Adjudicating Authority with an extension of 15 further days and no more.

27. Section 64 of the Code mandates that where these timelines are not
adhered to, either by the Tribunal or by the Appellate Tribunal, they shall
record reasons for not doing so within the period so specified and extend
the period so specified for another period not exceeding 10 days. Even in

PRACTICAL ASPECTS OF INSOLVENCY LAW

337
appeals to the Supreme Court from the Appel ate Tribunal under Section 62,

45 days time is given from the date of receipt of the order of the Appel ate

Tribunal in which an appeal to the Supreme Court is to be made, with a
further grace period not exceeding 15 days. The strict adherence of these
timelines is of essence to both the triggering process and the insolvency
resolution process. As we have seen, one of the principal reasons why the

Code was enacted was because liquidation proceedings went on interminably,
thereby damaging the interests of all stakeholders, except a recalcitrant
management which would continue to hold on to the company without paying
its debts. Both the Tribunal and the Appel ate Tribunal wil do wel to keep in
mind this principal objective sought to be achieved by the Code and will
strictly adhere to the time frame within which they are to decide matters
under the Code.

28. It is now important to construe Section 8 of the Code. The operational
creditors are those creditors to whom an operational debt is owed, and an
operational debt, in turn, means a claim in respect of the provision of goods
or services, including employment, or a debt in respect of repayment of
dues arising under any law for the time being in force and payable to the

Government or to a local authority. This has to be contrasted with financial
debts that may be owed to financial creditors, which was the subject matter
of the judgment delivered by this Court on 31.8.2017 in Innoventive

Industries Ltd. v. ICICI Bank & Anr. (Civil Appeal Nos.8337-8338 of 2017).

In this judgment, we had held that the adjudicating authority under Section

7 of the Code has to ascertain the existence of a default from the records of
the information utility or on the basis of evidence furnished by the financial
creditor within 14 days. The corporate debtor is entitled to point out to the
adjudicating authority that a default has not occurred; in the sense that a
debt, which may also include a disputed claim, is not due i.e. it is not
payable in law or in fact. This Court then went on to state:

"29. The scheme of Section 7 stands in contrast with the scheme under

Section 8 where an operational creditor is, on the occurrence of a default,
to first deliver a demand notice of the unpaid debt to the operational debtor
in the manner provided in Section 8(1) of the Code. Under Section 8(2),
the corporate debtor can, within a period of 10 days of receipt of the
demand notice or copy of the invoice mentioned in sub-section (1), bring
to the notice of the operational creditor the existence of a dispute or the
record of the pendency of a suit or arbitration proceedings, which is pre-
existing – i.e. before such notice or invoice was received by the corporate
debtor. The moment there is existence of such a dispute, the operational
creditor gets out of the clutches of the Code.

338

PRACTICAL ASPECTS OF INSOLVENCY LAW

30. On the other hand, as we have seen, in the case of a corporate debtor
who commits a default of a financial debt, the adjudicating authority has
merely to see the records of the information utility or other evidence
produced by the financial creditor to satisfy itself that a default has
occurred. It is of no matter that the debt is disputed so long as the debt is

"due" i.e. payable unless interdicted by some law or has not yet become
due in the sense that it is payable at some future date. It is only when this
is proved to the satisfaction of the adjudicating authority that the
adjudicating authority may reject an application and not otherwise."

29. It is, thus, clear that so far as an operational creditor is concerned, a
demand notice of an unpaid operational debt or copy of an invoice demanding
payment of the amount involved must be delivered in the prescribed form.

The corporate debtor is then given a period of 10 days from the receipt of
the demand notice or copy of the invoice to bring to the notice of the
operational creditor the existence of a dispute, if any. We have also seen
the notes on clauses annexed to the Insolvency and Bankruptcy Bil of

2015, in which "the existence of a dispute" alone is mentioned. Even
otherwise, the word "and" occurring in Section 8(2)(a) must be read as "or"

keeping in mind the legislative intent and the fact that an anomalous situation
would arise if it is not read as "or". If read as "and", disputes would only
stave off the bankruptcy process if they are already pending in a suit or
arbitration proceedings and not otherwise. This would lead to great hardship;
in that a dispute may arise a few days before triggering of the insolvency
process, in which case, though a dispute may exist, there is no time to
approach either an arbitral tribunal or a court. Further, given the fact that
long limitation periods are al owed, where disputes may arise and do not
reach an arbitral tribunal or a court for upto three years, such persons would
be outside the purview of Section 8(2) leading to bankruptcy proceedings
commencing against them. Such an anomaly cannot possibly have been
intended by the legislature nor has it so been intended. We have also seen
that one of the objects of the Code qua operational debts is to ensure that
the amount of such debts, which is usual y smal er than that of financial
debts, does not enable operational creditors to put the corporate debtor into
the insolvency resolution process prematurely or initiate the process for
extraneous considerations. It is for this reason that it is enough that a dispute
exists between the parties.

30. It is settled law that the expression "and" may be read as "or" in order to further the object of the statute and/or to avoid an anomalous situation.

Thus, in Samee Khan v. Bindu Khan [1998] 7 SCC 59 at 64, this Court
held:

PRACTICAL ASPECTS OF INSOLVENCY LAW

339

"14. Since the word "also" can have meanings such as "as well" or

"likewise", cannot those meanings be used for understanding the scope
of the trio words "and may also"? Those words cannot altogether be
detached from the other words in the sub-rule. Here again the word "and"

need not necessarily be understood as denoting a conjunctive sense. In

Stroud's Judicial Dictionary, it is stated that the word "and" has generally
a cumulative sense, but sometimes it is by force of a context read as

"or". Maxwel on Interpretation of Statutes has recognised the above use
to carry out the interpretation of the legislature. This has been approved
by this Court in Ishwar Singh Bindra v. State of U.P. [AIR 1968 SC 1450 :

1969 Cri LJ 19]. The principle of noscitur a sociis can profitably be used
to construct the words "and may also" in the sub-rule."

31. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. [2008] 4 SCC

755 at 765, this Court held:

"26. It may be noted that Section 86(1)(f) of the Act of 2003 is a special
provision for adjudication of disputes between the licensee and the
generating companies. Such disputes can be adjudicated upon either by
the State Commission or the person or persons to whom it is referred for
arbitration. In our opinion the word "and" in Section 86(1)(f) between the
words "generating companies" and "to refer any dispute for arbitration"

means "or". It is wel settled that sometimes "and" can mean "or" and
sometimes "or" can mean "and" (vide G.P. Singh's Principles of Statutory

Interpretation, 9th Edn., 2004, p. 404).

27. In our opinion in Section 86(1)(f) of the Electricity Act, 2003 the word

"and" between the words "generating companies" and the words "refer
any dispute" means "or", otherwise it will lead to an anomalous situation
because obviously the State Commission cannot both decide a dispute
itself and also refer it to some arbitrator. Hence the word "and" in Section

86(1)(f) means "or"."

32. In a recent judgment in Maharishi Mahesh Yogi Vedic Vishwavidyalaya
v. State of M.P. [2013] 15 SCC 677 at 718, this Court held:

"93. Besides the above two decisions, which discuss about the
methodology of interpretation of a statute, we also refer to the following
decisions rendered by this Court in Ishwar Singh Bindra [Ishwar Singh

Bindra v. State of U.P., AIR 1968 SC 1450 : 1969 Cri LJ 19], wherein in
para 11 it has been held as under: (AIR p. 1454)

"11. … It would be much more appropriate in the context to read it
disconjunctively. In Stroud's Judicial Dictionary, 3rd Edn., it is stated at p.

340

PRACTICAL ASPECTS OF INSOLVENCY LAW

135 that 'and' has generally a cumulative sense, requiring the fulfilment of
al the conditions that it joins together, and herein it is the antithesis of or.

Sometimes, however, even in such a connection, it is, by force of a
context, read as 'or'. Similarly in Maxwel on Interpretation of Statutes,

11th Edn., it has been accepted that 'to carry out the intention of the
legislature it is occasional y found necessary to read the conjunctions

"or" and "and" one for the other'."

94. We may also refer to para 4 of the decision rendered by this Court in

Director of Mines Safety v. Tandur and Nayandgi Stone Quarries (P) Ltd.

[(1987) 3 SCC 208] : (SCC p. 211, para 4)

"4. According to the plain meaning, the exclusionary clause in sub-section

(1) of Section 3 of the Act read with the two provisos beneath clauses (a)

and (b), the word 'and' at the end of para (b) of sub-clause (i ) of the
proviso to clause (a) of Section 3(1) must in the context in which it
appears, be construed as 'or'; and if so construed, the existence of any
one of the three conditions stipulated in paras (a), (b) and (c) would at
once attract the proviso to clauses (a) and (b) of sub-section (1) of Section

3 and thereby make the mine subject to the provisions of the Act. The

High Court overlooked the fact that the use of the negative language in
each of the three clauses implied that the word 'and' used at the end of
clause (b) had to be read disjunctively. That construction of ours is in
keeping with the legislative intent manifested by the scheme of the Act
which is primarily meant for ensuring the safety of workmen employed in
the mines."

33. This being the case, is it not open to the adjudicating authority to then
go into whether a dispute does or does not exist?

34. It is important to notice that Section 255 read with the Eleventh Schedule
of the Code has amended Section 271 of the Companies Act, 2013 so that
a company being unable to pay its debts is no longer a ground for winding
up a company. The old law contained in Madhusudan (supra) has, therefore,
disappeared with the disappearance of this ground in Section 271 of the

Companies Act.

35. We have already noticed that in the first Insolvency and Bankruptcy Bill,

2015 that was annexed to the Bankruptcy Law Reforms Committee Report,

Section 5(4) defined "dispute" as meaning a "bona fide suit or arbitration
proceedings…". In its present avatar, Section 5(6) excludes the expression

"bona fide" which is of significance. Therefore, it is difficult to import the
expression "bona fide" into Section 8(2)(a) in order to judge whether a dispute
exists or not.

PRACTICAL ASPECTS OF INSOLVENCY LAW

341

36. The expression "existence" has been understood as fol ows:

"The Shorter Oxford English Dictionary gives the fol owing meaning of
the word "existence":

(a) Reality, as opp to appearance.

(b) The fact or state of existing; actual possession of being. Continued
being as a living creature, life, esp. under adverse conditions.

Something that exists; an entity, a being. All that exists. (Page 894 –

Oxford English Dictionary)"

37. Two extremely instructive judgments, one of the Australian High Court,
and the other of the Chancery Division in the UK, throw a great deal of light on
the expression "existence of a dispute" contained in Section 8(2)(a) of the

Code. The Australian judgment is reported as Spencer Constructions Pty

Ltd v. G & M Aldridge Pty Ltd. [1997] FCA 681. The Australian High Court
had to construe Section 459H of the Corporations Law, which read as under:

"(1) ..............

(a) that there is a genuine dispute between the company and the
respondent about the existence or amount of a debt to which the
demand relates;

(b) ..............

The expression "genuine dispute" was then held to mean the fol owing:

Finn J was content to adopt the explanation of "genuine dispute" given by

McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR

785 at 787 where his Honour said:

"In my opinion [the] expression connotes a plausible contention requiring
investigation, and raises much the same sort of considerations as the

'serious question to be tried' criterion which arises on an application for an
interlocutory injunction or for the extension or removal of a caveat. This
does not mean that the court must accept uncritically as giving rise to a
genuine dispute, every statement in an affidavit 'however equivocal, lacking
in precision, inconsistent with undisputed contemporary documents or
other statements by the same deponent, or inherently and probable in
itself, it may be not having 'sufficient prima facie plausibility to merit
further investigation as to [its] truth' (cf Eng Mee Yong v Letchumanan

[1980] AC 331 at 341), or 'a patently feeble legal argument or an assertion
of facts unsupported by evidence': cf South Australia v Wal (1980) 24

SASR 189 at 194."

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PRACTICAL ASPECTS OF INSOLVENCY LAW

His Honour also referred to the judgment of Lindgren J in Rohala

Pharmaceutical Pty Ltd (supra) where, at 353, his Honour said:

"The provisions [of s 459H(1) and (5)] assume that the dispute and
offsetting claim have an 'objective' existence the genuineness of which is
capable of being assessed. The word 'genuine' is included [in 'genuine
dispute'] to sound a note of warning that the propounding of serious disputes
and claims is to be expected but must be excluded from consideration".

There have been numerous decisions of single judges in this Court and in

State Supreme Courts which have analysed, in different ways, the
approach a court should take in determining whether there is "a genuine
dispute" for the purposes of s 459H of the Corporations Law. What is clear
is that in considering applications to set aside a statutory demand, a
court wil not determine contested issues of fact or law which have a
significant or substantial basis. One finds formulations such as:

"... at least in most cases, it is not expected that the court wil embark
upon any extended enquiry in order to determine whether there is a genuine
dispute between the parties and certainly wil not attempt to weigh the
merits of that dispute. Al that the legislation requires is that the court
conclude that there is a dispute and that it is a genuine dispute".

See Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993)

11 ACSR 362 at 366-7, followed by Ryan J in Moyal Investments Services

Pty Ltd v White (1993) 12 ACSR 320 at 324.

Another formulation has been expressed as fol ows:

"It is clear that what is required in al cases is something between mere
assertion and the proof that would be necessary in a court of law.

Something more than mere assertion is required because if that were not
so then anyone could merely say it did not owe a debt ..."

See John Hol and Construction and Engineering Pty Ltd v Kilpatrick Green

Pty Ltd (1994) 12 ACLC 716 at 718, fol owed by Northrop J in Aquatown

Pty Ltd v Holder Stroud Pty Ltd (Federal Court of Australia, 25 June

1996, unreported).

In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605,

Thomas J said:

"There is little doubt that Div 3 is intended to be a complete code which
prescribes a formula that requires the court to assess the position between
the parties, and preserve demands where it can be seen that there is no
genuine dispute and no sufficient genuine offsetting claim. That is not to

PRACTICAL ASPECTS OF INSOLVENCY LAW

343
say that the court will examine the merits or settle the dispute. The specified
limits of the court's examination are the ascertainment of whether there
is a 'genuine dispute' and whether there is a 'genuine claim'.

It is often possible to discern the spurious, and to identify mere bluster or
assertion. But beyond a perception of genuineness (or the lack of it) the
court has no function. It is not helpful to perceive that one party is more
likely than the other to succeed, or that the eventual state of the account
between the parties is more likely to be one result than another.

The essential task is relatively simple - to identify the genuine level of a
claim (not the likely result of it) and to identify the genuine level of an
offsetting claim (not the likely result of it)."

In Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341
at 357 Beazley J said:

"... the test to be applied for the purposes of s 459H is whether the court
is satisfied that there is a serious question to be tried that the applicant
has an offsetting claim".

In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers

Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J said:

"... what appears clearly enough from al the judgments is that a standard
of satisfaction which a court requires is not a particularly high one. I am
for present purposes content to adopt any of the standards that are referred
to in the cases ... The highest of the thresholds is probably the test
enunciated by Beazley J, though for myself I discern no inconsistency
between that test and the statements in the other cases to which I have
referred. However, the application of Beazley J's test wil vary according
to the circumstances of the case.

Certainly the court will not examine the merits of the dispute other than to
see if there is in fact a genuine dispute. The notion of a 'genuine dispute'

in this context suggests to me that the court must be satisfied that there
is a dispute that is not plainly vexatious or frivolous. It must be satisfied
that there is a claim that may have some substance".

In Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Northrop J
referred to the formulations of Thomas J in Re Morris Catering (Australia)

Pty Ltd (1993) 11 ACLC 919, 922 and Hayne J in Mibor Investments Pty

Ltd v Commonwealth Bank of Australia (supra), where he noted the
dictionary definition of "genuine" as being in this context "not spurious ...

real or true" and concluded (at 234):

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PRACTICAL ASPECTS OF INSOLVENCY LAW

"Although it is true that the Court, on an application under ss 459G and

459H is not entitled to decide a question as to whether a claim will succeed
or not, it must be satisfied that there is a genuine dispute between the
company and the respondent about the existence of the debt. If it can be
shown that the argument in support of the existence of a genuine dispute
can have no possible basis whatsoever, in my view, it cannot be said that
there is a genuine dispute. This does not involve, in itself, a determination
of whether the claim will succeed or not, but it does go to the reality of the
dispute, to show that it is real or true and not merely spurious".

In our view a "genuine" dispute requires that:

• the dispute be bona fide and truly exist in fact;

• the grounds for al eging the existence of a dispute are real and not
spurious, hypothetical, il usory or misconceived.

We consider that the various formulations referred to above can be helpful
in determining whether there is a genuine dispute in a particular case, so
long as the formulation used does not become a substitute for the words
of the statute."

38. To similar effect is the judgment of the Chancery Division in Hayes v.

Hayes [2014] EWHC 2694 (Ch) under the U.K. Insolvency Rules. The

Chancery Division held:

"I do not think it necessary, for the purposes of this appeal, to embark on
a survey of the authorities as to precisely what is involved in a genuine
and substantial cross-claim. It is clear that on the one hand, the court
does not need to be satisfied that there is a good claim or even that it is
a claim which is prima facie likely to succeed. In In re Bayoil SA [1999] 1

WLR 147 itself, Nourse LJ referred, at p 153, to what Harman LJ had said
in In re LHF Wools Ltd [1970] Ch 27, 36 where Harman LJ, having referred
to a previous case, said:

"The majority decided in that case that, shadowy as the cross-claim was
and improbable as the events said to support it seemed to be, there was
just enough to make the principle work, namely, that it was right to have
the matter tried out before the axe fel ."

On the other hand, the court should be alert to detect whol y spurious
claims merely being put forward by an unwilling debtor to raise what has
been cal ed "a cloud of objections" as I referred to earlier."

39. Interestingly enough in In Re: Portman Provincial Cinemas Ltd.[1999]

1 WLR 157, a sharply divided Court of Appeal had to decide whether a

PRACTICAL ASPECTS OF INSOLVENCY LAW

345
winding up petition should be dismissed on the ground that a cross-claim
had to be tried. Lord Denning, the minority Judge put it thus:

"It comes to this: Mr. Hymanson has put forward a most astonishing claim
for an indemnity against losses in perpetuity—based on an oral agreement
eight years ago—in a railway carriage or a solicitor's office—with nothing
to support it at al : against a man now dead. If there was substance in it fit
for the court to consider, he should have condescended to a great deal
more particularity. At al events, he should have done so if he wished to
convince me. I do not think this cross-claim has any substance at al . I
would reject it as an answer to this creditor's debt and I would al ow the
appeal accordingly."

On the other hand, Justice Harman in agreeing with the Chancery Division
judgment, held:

"I do not think that on this proceeding we are entitled to adjudicate upon
that matter. I do not think we ought to reject out of hand statements on
oath by Mr. Hymanson and Mr. Wal er which, unsatisfactory as they may
be, do yet set up affirmatively this story. There is nobody, of course, to
contradict them. I think we must take it that there is at least a chance that
the judge will believe that story and wil agree that there was such a
bargain made, and, moreover, that it was an inherent part of the sale
agreement.

xxxx

Therefore, I have had grave doubts about this matter but I have come to
the conclusion on the whole that it cannot be said that the story was so
vague and the likelihood of success so slight that we can say there was
no substance in the cross-claim. I think the judge was right to say that
the matter ought to go to trial, and therefore according to the modern
practice the petition should be dismissed, and I would so hold."

Similarly, Russel L.J. held:

"Lord Denning M.R. has taken the view that the deponents of the company
real y have made up this story, so strong are the circumstances which
seem to point in the opposite direction. As I have said, I agree it is a most
extraordinary story, but I am not prepared, merely on the basis of affidavits
and circumstances appearing in the Companies Court, to hold that really
not only is their story strange, but palpably untrue."

40. It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must

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PRACTICAL ASPECTS OF INSOLVENCY LAW
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 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, al 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.

41. Coming to the facts of the present case, it is clear that the argument of

Shri Mohta that the requisite certificate by IDBI was not given in time will
have to be rejected, inasmuch as neither the appel ant nor the Tribunal
raised any objection to the application on this score. The confirmation from
a financial institution that there is no payment of an unpaid operational debt
by the corporate debtor is an important piece of information that needs to
be placed before the adjudicating authority, under Section 9 of the Code,
but given the fact that the adjudicating authority has not dismissed the
application on this ground and that the appel ant has raised this ground only
at the appellate stage, we are of the view that the application cannot be
dismissed at the threshold for want of this certificate alone.

42. On the other hand, Shri Mohta is on firmer ground when he argues that
a dispute certainly exists on the facts of the present case and that, therefore,
the application ought to have been dismissed on this ground.

43. According to learned counsel for the respondent, the definition of

"dispute" would indicate that since the NDA does not fall within any of the
three sub-clauses of Section 5(6), no "dispute" is there on the facts of this
case. We are afraid that we cannot accede to such a contention. First and
foremost, the definition is an inclusive one, and we have seen that the
word "includes" substituted the word "means" which occurred in the first

Insolvency and Bankruptcy Bill. Secondly, the present is not a case of a
suit or arbitration proceeding filed before receipt of notice – Section 5(6)

only deals with suits or arbitration proceedings which must "relate to" one
of the three sub-clauses, either directly or indirectly. We have seen that a

PRACTICAL ASPECTS OF INSOLVENCY LAW

347

"dispute" is said to exist, so long as there is a real dispute as to payment
between the parties that would fall within the inclusive definition contained
in Section 5(6). The correspondence between the parties would show that
on 30th January, 2015, the appellant clearly informed the respondent that
they had displayed the appel ant's confidential client information and client
campaign information on a public platform which constituted a breach of
trust and a breach of the NDA between the parties. They were further told
that all amounts that were due to them were withheld till the time the
matter is resolved. On 10th February, 2015, the respondent referred to the

NDA of 26th December, 2014 and denied that there was a breach of the

NDA. The respondent went on to state that the appellant's claim is
unfounded and untenable, and that the appellant is trying to avoid its
financial obligations, and that a sum of Rs.19,08,202.57 should be paid
within one week, failing which the respondent would be forced to explore
legal options and initiate legal process for recovery of the said amount.

This e mail was refuted by the appellant by an e-mail dated 26th February,

2015 and the appel ant went on to state that it had lost business from
various clients as a result of the respondent's breaches. Curiously, after
this date, the respondent remained silent, and thereafter, by an e-mail
dated 20th June, 2016, the respondent wished to revive business relations
and stated that it would like to follow up for payments which are long
stuck up. This was fol owed by an e-mail dated 25th June, 2016 to finalize
the time and place for a meeting. On 28th June, 2016, the appellant wrote
to the respondent again to finalize the time and place. Apparently, nothing
came of the aforesaid e-mails and the appellant then fired the last shot on

19th September, 2016, reiterating that no payments are due as the NDA
was breached.

44. The demand notice sent by the respondent was disputed in detail by the
appellant in its reply dated 27th December, 2016, which set out the e-mail of

30th January, 2015. The appel ant then went on to state:

"Sometime during June and September 2016, an officer of your Client,
one Mr. Jasmeet Singh wrote to our Client that he wanted to meet and
revive business relationship and exploring common interest points to
work together. In fact, in his email, he admits that there should be
resolution to the impending payments thereby implying that there was

(a) a dispute (as defined under the Code) and (b) there was a breach of
the NDA which needed to be resolved. Mr. Singh's emails to our client
were sent after 1 year and 6 months had elapsed from the date of our

Client's email of 30 January 2015. This clearly shows that your Client
was silent during this period and had not bothered to answer the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
questions raised by our Client. Hence, once again in September, our

Client called upon your Client to explain its breach of the NDA. Your

Client instead of explaining its breach of the NDA remained silent for
about 3 months and thereafter chooses to issue the Notice as a form
of pressure tactic and extort monies from our Client for your Client's
breach of the NDA. All the conduct of your Client explicitly shows
laches on its part.

Your Clients should note that under the NDA, it has agreed that a breach
of the NDA wil cause irreparable damage to our Client and our Client is
entitled to al remedies under law or equity against your Client for the
enforcement of the NDA. Accordingly, given the severity of the breaches
of the NDA committed by your Client, the delay and laches committed by
your Client and the conduct of your Client, our Client is not liable to make
payments to your Client against the breaches of the NDA and the delay
and laches committed by your Client. In fact, at this stage, our Client is
contemplating initiating necessary legal actions against your Client and
its parent company for the breach of the NDA to seek further
compensations and damages and other legal and equitable remedies
against your Client and its parent company."

45. Going by the aforesaid test of "existence of a dispute", it is clear that
without going into the merits of the dispute, the appellant has raised a
plausible contention requiring further investigation which is not a patently
feeble legal argument or an assertion of facts unsupported by evidence.

The defense is not spurious, mere bluster, plainly frivolous or vexatious.

A dispute does truly exist in fact between the parties, which may or may
not ultimately succeed, and the Appellate Tribunal was wholly incorrect
in characterizing the defense as vague, got-up and motivated to evade
liability.

46. Learned counsel for the respondent, however, argued that the breach
of the NDA is a claim for unliquidated damages which does not become
crystallized until legal proceedings are filed, and none have been filed
so far. The period of limitation for filing such proceedings has admittedly
not yet elapsed. Further, the appellant has withheld amounts that were
due to the respondent under the NDA til the matter is resolved. Admittedly,
the matter has never been resolved. Also, the respondent itself has not
commenced any legal proceedings after the e-mail dated 30th January,

2015 except for the present insolvency application, which was filed almost

2 years after the said e-mail. All these circumstances go to show that it
is right to have the matter tried out in the present case before the axe
falls.

PRACTICAL ASPECTS OF INSOLVENCY LAW

349

47. We, therefore, allow the present appeal and set aside the judgment of
the Appel ate Tribunal. There shal , however, be no order as to costs.

…………………………......J.

(R.F. Nariman)

..……………………...........J.

(Sanjay Kishan Kaul)

New Delhi;

September 21, 2017.

350

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.8

W.P 7144 (W) of 2017

Metaliks Limited v. Union of India

2017 SCC OnLine Cal 2749

In the High Court of Calcutta Constitutional

Writ Jurisdiction Appellate Side

(BEFORE DEBANGSU BASAK, J.)

Sree Metaliks Limited and another
v.

Union of India and anr.

W.P 7144 (W) of 2017

Decided on April 7, 2017

For the Petitioners: Mr. P.C Sen, Sr. Advocate

Mr. Anirban Roy, Advocate

Mr. Sanjib Dawn, Advocate

Mr. Nupur Jalan, Advocate

For the Respondent No. 2: Mr. A. Malhotra, Advocate

Mr. Soumya Majumder, Advocate

Ms. Neelina Chatterjee, Advocate

Ms. Mukta Rani Singha, Advocate

For the Union of India A.S.G: Mr. Kausik Chandra, Ld.

Mr. Asit Kumar De, Advocate

The Judgment of the Court was delivered by

Debangsu Basak, J. : The petitioner assails the vires of section 7 of the

Insolvency and Bankruptcy Code, 2016 (‘Code of 2016’) and the relevant
rules under the Insolvency and Bankruptcy (Application to the Adjudicating

Authority) Rules, 2016 (‘Rules of 2016’). The chal enge is premised upon
and revolves around the contention that the Code of 2016 does not afford
any opportunity of hearing to a corporate debtor in a petition filed under
section 7 of the Code of 2016.

2. The learned senior advocate appearing for the petitioner submits that,
the first petitioner had received a notice from a firm of company secretaries

PRACTICAL ASPECTS OF INSOLVENCY LAW

351
dated 21st January, 2017 intimating that, an application under section 7 of
the Code of 2016 read with rule 4 of the Rules of 2016 had been filed
before the National Company Law Tribunal (‘NCLT’), Kolkata Bench. He
submits that, the letter does not inform the petitioners about the date
when such application would be taken up for consideration by the NCLT.

He submits that, the NCLT had registered such application as Company

Petition No. 16 of 2017. An order dated 30th January, 2017 was passed on
a hearing conducted on such company petition on 25th January, 2017.

The order was passed ex parte. The petitioner was not informed of the
date of hearing. The petitioner was not afforded an opportunity of hearing
by the NCLT prior to the passing of such order of administration of the
petitioner and appointment of interim resolution professional. The petitioner
had preferred an appeal from such order. Such appeal being Company

Appeals (AT) (Insolvency) No. 3 of 2017 was disposed of by an order
dated 21st February, 2017. He submits that, pursuant to the disposal of
the appeal, proceedings have taken place in the company petition. At no
stage has the petitioner been heard by the NCLT. He submits that, the
petitioner is entitled to a right of hearing under the principles of natural
justice. He submits that, the Code of 2016 is silent as to the grant of
hearing by the NCLT. In such circumstances, the right of hearing, on the
principles of natural justice, has to be read into such statute. He submits
that, the claim of the respondent under the company petition is not such
that the Bankruptcy Code of 2016 can be invoked. The NCLT has assumed
jurisdiction under the Code of 2016 where none exists.

3. The learned advocate appearing for the respondent No. 2 submits that,
the respondent No.2 is an award holder. The award remains unsatisfied. The
respondent No. 2 was advised to invoke the provisions of Code of 2016. The
respondent No. 2 had filed a petition being Company Petition No. 16/2017
under the provisions of section 7 of the Code of 2016 read with rule 4 of the

Rules of 2016. An order dated 30th January, 2017 was passed by the NCLT.

The petitioner being aggrieved had preferred an appeal therefrom before the

National Company Law Appel ate Tribunal (‘NCLAT’). In such appeal the first
petitioner had submitted that, the first petitioner had no objection to the
admission of the insolvency petition but objects to the appointment of the
interim resolution professional (‘IRP’) under the Code of 2016. The first
petitioner, therefore, cannot canvass, breach of principles of natural justice
by NCLT. Such appeal was disposed of by replacing the IRP appointed by
the order dated 30th January, 2017. He submits that, the chal enge to the
vires of the Code of 2016 and the Rules of 2016 are misplaced as the
application under section 7 of the Code of 2016 is required to be heard by
the NCLT established under the provisions of the Companies Act, 2013

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(‘Act of 2013’). He refers to section 424 of the Act of 2013 and submits that,

NCLT is required to fol ow the principles of natural justice in deciding an
application taken up for consideration by it. Therefore, the chal enge to the
vires must fail. In the factual matrix of the present case, in spite of notice,
the first petitioner did not appear before the NCLT. The first petitioner had
preferred an appeal against the order dated 30th January, 2017 before the

NCLAT. Such appeal has since been disposed of. It did not press such point
in the appeal. Therefore, it cannot be said that there is a breach of principles
of natural justice.

4. The learned Additional Solicitor General appears in terms of the notice
issued to the learned Attorney General in view of the challenge to the vires
to the Code of 2016 and the Rules, 2016. He refers to the Rules, 2016,
particularly rule 4 thereof which contemplates a service of notice of the
application by the financial creditor on the financial debtor. He refers to rule

10 of the Rules of 2016 and submits that, such Rules contemplate that, the
provisions of rules 20 to 24 and 26 of Part III of the National Company Law

Tribunal Rules, 2016 wil be applicable. He refers to rule 24 of the National

Company Law Tribunal Rules, 2016 which contemplates service of notice of
the application upon the respondent. He submits that, the proceedings before
the NCLT are to be conducted keeping in view the provisions of section 424
of the Act of 2013. Section 424 of the Act of 2013 contemplates the NCLT
applying the principles of natural justice in the proceedings. He submits
that, the NCLT is not bound by the Code of Civil Procedure, 1908 and that,
it can regulate its own procedure subject to the provisions of the Act of

2013 and the Code of 2016. He submits that, the Code of 2016 does not
debar the applicability of the principles of natural justice in proceedings
under consideration by the NCLT when it is considering an application under
section 7 of the Code of 2016. Therefore, the challenge to the vires to the
provisions of section 7 of the Code of 2016 and rule 4 of the Rules 2016
should fail.

5. I have considered the rival contentions of the petitioner and the materials
made available on record.

6. The respondent No. 2 had filed an application under section 7 of the Code
of 2016 against the first petitioner, before the NCLT, Kolkata Bench, which
was registered as Company Petition No. 16 of 2017. The first petitioner is
the respondent therein. The first petitioner claims to have received a notice
from a firm of practising company secretaries with regard to the filing of
such company petition by the second respondent before the NCLT against
the first petitioner. Such notice does not contain any information as to the
date of hearing of the company petition.

PRACTICAL ASPECTS OF INSOLVENCY LAW

353

7. NCLT had passed an order dated 30th January, 2017 in such company
petition filed by the respondent No. 2. The first petitioner was not heard by
the NCLT before passing such order. NCLT had proceeded to admit the
company petition. It had done so without affording any opportunity of hearing
to the first petitioner. It had acted in breach of the principles of natural
justice in do so. NCLT had proceeded to appoint an IRP by such order. Such
order was assailed by the first petitioner before the NCLAT. In such appeal,
the first petitioner did not press the point of breach of the principles of
natural justice. Rather, it had stated that, it had no objection to the admission
of the company petition. The NCLAT records in its order that, the first petitioner
has no objection to the admission of the insolvency petition. Such appeal
was disposed of by the order dated 21st February, 2017. The personnel of
the IRP appointed by the order dated 30th January, 2017 was replaced.

8. In the facts of the present case, section 7 of the Code of 2016 is relevant.

Section 7 is as fol ows :

“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 shal 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

(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).

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(5) Where the Adjudicating Authority is satisfied that –

(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against
the proposed resolution professional, it may, by order, admit such
application; or

(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application :

Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shal communicate –

(a) the order under clause (a) of sub-section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as
the case may be.”

9. Section 7 of the Code of 2016 contemplates filing of an application by a
financial creditor before an adjudicating authority. An adjudicating authority
is defined in section 5(1) of the Code of 2016. It is as follows :

5. Definitions

In this Part, unless the context otherwise requires, –

(1) “Adjudicating Authority”, for the purpose of this Part, means

National Company Law Tribunal constituted under section 408
of the Companies Act, 2013.

10. Section 7 of the Code of 2016 allows a financial creditor either by itself or
jointly with other financial creditors to file an application to initiate corporate
insolvency resolution process against a corporate debtor before the adjudicating
authority when a default has occurred. Sub-section (2) of section 7 states that,
an application under sub-section (1) wil be made in such form and manner and
accompanied with such fee as may be prescribed. Sub-section (3) of section 7

PRACTICAL ASPECTS OF INSOLVENCY LAW

355
requires the financial creditor to furnish the details as specified therein. Sub-
section (4) of section 7 mandates the adjudicating authority to ascertain an
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) within

14 days from the receipt of the application under sub-section (2). Sub-section

(5) of section 7 al ows the adjudicating authority to admit an application under
sub-section (2) where a default has occurred and the application is complete
and there is no disciplinary proceedings pending against the proposed resolution
professional. It also al ows the adjudicating authority to reject such an application
if no default has occurred or the application under sub-section (2) is incomplete
or where any disciplinary proceedings is pending against the proposed resolution
professional. However, if the adjudicating authority is proceeding to dismiss an
application, on the ground of defect in the application, then the adjudicating
authority will give a notice of such defect to the applicant to rectify such defect
within 7 days from the date of receipt of the notice. Sub-section (6) of section 7
stipulates that, the corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section (5). Sub-section

(7) of section 7 mandates the adjudicating authority to communicate its orders
within 7 days of admission or rejection of the application, as the case may be,
to the financial creditor and the corporate debtor.

11. Section 61 of the Code of 2016 al ows an appeal to be filed before the

Appel ate Authority. It is as fol ows :

“61. Appeals and Appellate Authority

(1) Notwithstanding anything to the contrary contained under the

Companies Act, 2013, any person aggrieved by the order of the

Adjudicating Authority under this part may prefer an appeal to the

National Company Law Appellate Tribunal.

(2) Every appeal under sub-section (1) shal be filed within thirty days
before the National Company Law Appel ate Tribunal :

Provided that the National Company Law Appellate Tribunal may allow
an appeal to be filed after the expiry of the said period of thirty days
if it is satisfied that there was sufficient cause for not filing the appeal
but such period shal not exceed fifteen days.

(3) An appeal against an order approving a resolution plan under section

31 may be filed on the fol owing grounds, namely :

(i) the approved resolution plan is in contravention of the provisions
of any law for the time being in force;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(i ) there has been material irregularity in exercise of the powers by
the resolution professional during the corporate insolvency
resolution period;

(iii) the debts owed to operational creditors of the corporate debtor
have not been provided for in the resolution plan in the manner
specified by the Board;

(iv) the insolvency resolution process costs have not been provided
for repayment in priority to al other debts; or

(v) the resolution plan does not comply with any other criteria
specified by the Board.

(4) An appeal against a liquidation order passed under section 33 may
be filed on grounds of material irregularity or fraud committed in relation
to such a liquidation order.”

12. Any person aggrieved by an order passed by the adjudicating authority
under the Code of 2016 in respect of an application under section 7 of the

Code of 2016 is entitled to prefer an appeal to the NCLAT. Sub-section (2) of
section 61 al ows such an appeal to be filed within 30 days with the provision
that, an appeal may be filed later, if the appel ants show sufficient cause for
not filing the appeal but such period of extension shal not exceed 15 days.

Sub-section (3) of section 61 recognises some of the grounds on which an
appeal may be filed. Sub-section (4) of section 61 recognises that, an appeal
against an order of liquidation passed under section 33 may be filed on the
grounds of material irregularity or fraud committed in relation to an order of
liquidation.

13. In the scheme of the Code of 2016, therefore, an application under
section 7 of the Code of 2016 is to be first made before the NCLT. An appeal
of the order of NCLT will lie before the NCLAT. NCLT and NCLAT are
constituted under the provisions of the Companies Act, 2013. The procedure
before the NCLT and the NCLAT is guided by section 424 of the Companies

Act, 2013. It is as fol ows :

“424. Procedure before Tribunal and Appel ate Tribunal. – (1) The Tribunal
and the Appel ate Tribunal shal not, while disposing of any proceeding
before it or, as the case may be, an appeal before it, be bound by the
procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but
shal be guided by the principles of natural justice, and, subject to the
other provisions of the Act or of the Insolvency and Bankruptcy Code,

2016 and of any rules made thereunder, the Tribunal and the Appel ate

Tribunal shall have power to regulate their own procedure.

PRACTICAL ASPECTS OF INSOLVENCY LAW

357

(2) The Tribunal and the Appel ate Tribunal shal have, for the purposes of
discharging their functions under this Act or under the Insolvency and

Bankruptcy Code, 2016 the same powers as are vested in a civil court
under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in
respect of the fol owing matters, namely :

(a) summoning and enforcing the attendance of any person examining
him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian

Evidence Act, 1872 (1 of 1872), requisitioning any public record or
document or a copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) dismissing a representation for default or deciding it ex parte;

(g) setting aside any order of dismissal of any representation for default
or any other passed by it ex parte; and

(h) any other matter which may be prescribed.

(3) Any order made by the Tribunal or the Appel ate Tribunal may be enforced
by that Tribunal in the same manner as if it were a decree made by a court
in a suit pending therein, and it shal be lawful for the Tribunal or the

Appellate Tribunal to send for execution of its orders to the court within
the local limits of whose jurisdiction, –

(a) in the case of an order against a company, the registered office of
the company is situate; or

(b) in the case of an order against any other person, the person concerned
voluntarily resides or carries on business or personally works for
gain.

(4) All proceedings before the Tribunal or the Appel ate Tribunal shal be
deemed to be judicial proceedings within the meaning of sections 193
and 228, and for the purposes of section 196 of the Indian Penal Code (45
of 1860), and the Tribunal and the Appel ate Tribunal shal be deemed to
be civil court for the purposes of section 195 and Chapter XXVI of the

Code of Criminal Procedure, 1973 (2 of 1974).”

14. NCLT acting under the provisions of the Act of 2013 while disposing of
any proceedings before it, is not to bound by the procedure laid down under

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the Code of Civil Procedure, 1908. However, it is to apply the principles of
natural justice in the proceedings before it. It can regulate it own procedure,
however, subject to the other provisions of the Act of 2013 or the Code of

2016 and any Rules made thereunder. The Code of 2016 read with the Rules

2016 is silent on the procedure to be adopted at the hearing of an application
under section 7 presented before the NCLT, that is to say, it is silent whether
a party respondent has a right of hearing before the adjudicating authority or
not.

15. Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT
to adhere to the principles of the natural justice above anything else. It also
al ows the NCLT and NCLAT the power to regulate their own procedure.

Fretters of the Code of Civil Procedure, 1908 does not bind it. However, it is
required to apply its principles. Principles of natural justice require an authority
to hear the other party. In an application under section 7 of the Code of

2016, the financial creditor is the applicant while the corporate debtor is the
respondent. A proceeding for declaration of insolvency of a company has
drastic consequences for a company. Such proceeding may end up in its
liquidation. A person cannot be condemned unheard. Where a statute is
silent on the right of hearing and it does not in express terms, oust the
principles of natural justice, the same can and should be read into in. When
the NCLT receives an application under section 7 of the Code of 2016,
therefore, it must afford a reasonable opportunity of hearing to the corporate
debtor as section 424 of the Companies Act, 2013 mandates it to ascertain
the existence of default as claimed by the financial creditor in the application.

The NCLT is, therefore, obliged to afford a reasonable opportunity to the
financial debtor to contest such claim of default by filing a written objection
or any other written document as the NCLT may direct and provide a
reasonable opportunity of hearing to the corporate debtor prior to admitting
the petition filed under section 7 of the Code of 2016. Section 7(4) of the

Code of 2016 requires the NCLT to ascertain the default of the corporate
debtor. Such ascertainment of default must necessarily involve the
consideration of the documentary claim of the financial creditor. This statutory
requirement of ascertainment of default brings within its wake the extension
of a reasonable opportunity to the corporate debtor to substantiate by
document or otherwise, that there does not exist a default as claimed against
it. The proceedings before the NCLT are adversarial in nature. Both the
sides are, therefore, entitled to a reasonable opportunity of hearing.

16. The requirement of NCLT and NCLAT to adhere to the principles of natural
justice and the fact that, the principles of natural justice are not ousted by
the Code of 2016 can be found from section 7(4) of the Code of 2016 and

PRACTICAL ASPECTS OF INSOLVENCY LAW

359
rule 4 of the Rules of 2016. Rule 4 deals with an application made by a
financial creditor under section 7 of the Code of 2016. Sub-rule (3) of rule 4
requires such financial creditor to despatch a copy of the application filed
with the adjudicating authority, by registered post or speed post to the
registered office of the corporate debtor. Rule 10 of the Rules of 2016 states
that, til such time the Rules of procedure for conduct of proceedings under
the Code of 2016 are notified, an application made under sub-section (1) of
section 7 of the Code of 2016 is required to be filed before the adjudicating
authority in accordance with rules 20, 21, 22, 23, 24 and 26 or Part-III of the

National Company Law Tribunal Rules, 2016.

17. Adherence to the principles of natural justice by NCLT or NCLAT would
not mean that in every situation, NCLT or NCLAT is required to afford a
reasonable opportunity of hearing to the respondent before passing its order.

18. In a given case, a situation may arise which may require NCLT to pass
an ex parte ad interim order against a respondent. Therefore, in such situation

NCLT, it may proceed to pass an ex parte ad interim order, however, after
recording the reasons for grant of such an order and why it has chosen not
to adhere to the principles of natural justice at that stage. It must, thereafter
proceed to afford the party respondent an opportunity of hearing before
confirming such ex parte ad interim order.

19. In the facts of the present case, the learned senior advocate for the
petitioner submits that, orders have been passed by the NCLT without
adherence to the principles of natural justice. The respondent was not heard
by the NCLT before passing the order.

20. It would be open to the parties to agitate their respective grievances
with regard to any order of NCLT or NCLAT as the case may be in accordance
with law. It is also open to the parties to point out that the NCLT and the

NCLAT are bound to fol ow the principles of natural justice while disposing
of proceedings before them.

21. In such circumstances, the chal enge to the vires to section 7 of the

Code of 2016 fails.

22. WP 7144 (W) of 2017 is disposed of without any order as to costs.

23. Urgent certified website copies of this order, if applied for, be made
available to the parties upon compliance of the requisite formalities.

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ANNEXURE X.9

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017

(arising out of Order dated 17th January, 2017 and Order dated 23rdJanuary,

2017 passed by National Company Law Tribunal, Mumbai Bench, Mumbai
in C.P. No. 1/I&BP/NCLT/MB/MAH/2016)

IN THE MATTER OF:

M/s. Innoventive Industries Ltd.

...Appel ant

Vs

ICICI Bank & Anr.

...Respondents

Present:

For the Appel ants:- Mr. Amarendra Saran, Senior Advocate,

Mr. Makarand D. Adkar, Mr. Braj K. Mishra, Mr. Vijay Kumar,

Mr. Amit Tamhankar, Ms Resham Sayyad, Advocates.

For Respondent No.1:- Mr. Ramji Srinivasan, Sr. Advocate,

Mr. L. Vishwanathan, Mr. Indranil Deshmukh, Mr. Animesh

Bsht, Mr. Karan Khanna, Ms Aditi Tambi, and Mr. Vivek

O’riel, Advocates.

For Respondent No.2:- Mr. Jaswinder Singh and Ms Shipra Shukia,

Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

1. These appeals have been preferred by the appel ant-corporate debtor-

Innoventive Industries Ltd. against order(s) dated 17th January, 2017 and

23rd January, 2017 passed by the ‘Adjudicating Authority’ (National Company

Law Tribunal), Mumbai Bench, Mumbai (‘Adjudicating Authority’) under section

7 of the Insolvency and Bankruptcy Code, 2016 (‘I&B Code, 2016’) in CP

No. 1/I&BP/NCLT/MB/MAH/2016.

2. By the impugned order dated 17th January, 2017, the adjudicating authority
rejected al the contentions raised by the appellant/corporate debtor and
held that the application preferred by the financial creditor-ICICI Bank-

(respondent herein) is complete under sub-section (2) of section 7 of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

361

I&B Code, 2016 and admitted the application declaring ‘moratorium’ in regard
to the affairs of the company; appointed “interim resolution professional”

and passed interim order(s) in terms of section 7 of the I&B Code, 2016.

3. In the other impugned order dated 23rd January, 2017 the adjudicating
authority while admitted that there was a rush of work, in deciding the IA No.

6/2017 which inadvertently based on the argument of the learned counsel
for the corporate debtor, observed that delay in passing the order owing to
the application filed by the corporate debtor in raising plea of no default,
having raised in earlier CA, the matter stands adjudicated.

4. The impugned judgment has been chal enged by appellant on the fol owing
grounds.

First contention raised on behalf of the appel ant is that the impugned order
has been passed by the Tribunal without notice to the appel ant against the
principle of rules of natural justice, as stipulated under section 424 of the

Companies Act, 2013.

5. Mr. Amarendra Saran, learned senior counsel for the appellant submitted
that serious civil consequences ensue due to public announcement of the
initiation of corporate insolvency resolution process and appointment of an
interim resolution professional to manage the affairs of the corporate debtor
removing the Board of directors. In such a case, notice prior to admission of
a petition under section 7 of I&B Code, 2016 is required to be given. If
notice is given prior to admission of a petition, it will be open to the corporate
debtor to bring to the notice of the Tribunal that there is no default or that the
application filed by the financial creditor is incomplete and deserves to be
dismissed.

Reliance was placed on hon’ble Supreme Court’s decision in S L Kapoor v.

Jagmohan (1980) 4 SCC 379 and Sahara India (Firm) v. CIT (2008) 4 SCC

151.

6. It was also contended that the Tribunal being a creation of the Companies

Act, 2013 (‘Act 2013’) is bound by section 420 of the Act 2013 which
stipulates “reasonable opportunity of being heard” to be given to the ‘parties’

before passing an order. Further, section 424 of the Act 2013, which grants
liberty to the Tribunal to regulate its own procedure mandate to fol ow the
principles of natural justice. Therefore, the aforesaid sections cast duty
upon the Tribunal to issue notice to and hear a party before passing any
order affecting the rights of the party.

7. The next contention was that (Maharashtra Relief Undertaking (Special

Provisions) Act (Bombay Act XCVI of 1958) (‘MRU Act, 1958’), being a

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PRACTICAL ASPECTS OF INSOLVENCY LAW
piece of legislation intended to give relief to industrial undertakings will
prevail over I&B Code, 2016.

8. Learned senior counsel submitted that MRU Act, 1958 being a legislation
referable to Entry 24 of List II of Schedule 7 of the Constitution of India
operates in different fields overriding the provisions of I&B Code, 2016.

9. It was also submitted that MRU Act being a beneficial piece of legislation
and the State Legislature having competent to enact it and the field being
exclusively reserved for State Legislature, wil prevail over the I&B Code,

2016, even if it may incidentally encroach upon field occupied by some
other enactment.

He placed reliance on hon’ble Supreme Court decision in Vishal N Kalsaria
v. Bank of India (2016) 134 SCL 268; Gram Panchayat v. Maiwinder Singh

(1985) 3 SCC 661; Ishwari Khetan Sugar Mills (P.) Ltd. v. State of UP (1980)

4 SCC 136.

10. It was further contended that there was complete non-application of
mind by the learned Tribunal. According to him, sub-sections (4) and (5) of
section 7 of I&B Code, 2016 casts duty on the Tribunal to first ascertain
default and satisfy itself of default. The ascertaining of the fact that whether
there is default or not can be satisfactorily reached only on perusal of
documents produced by both the parties. A bare perusal of the impugned
orders shows no such exercise has been undertaken by the learned Tribunal
based on documents, materials, etc.

11. It was further contended that though so-called default on the part of the
appel ant has been dealt with by Tribunal holding that the respondent No. 1
has placed the information utility, however, a perusal of the application filed
by respondent No. 1 would show that the respondent has not produced any
such material. In the column prescribed for details of Information Utility,
only ‘Not applicable’ has been mentioned by respondent No. 1. Without any
further discussion the Tribunal has held that the default has occurred. Thus,
there is no ascertainment of default by the learned Tribunal as per sub-
section (3)(a) of section 7 of the I&B Code, 2016 which requires consideration
of the record of default recorded with information utility or only such other
record or evidence “as may be prescribed”. No such ‘specified’ evidence
was produced by the respondent No. 1 before the learned Tribunal.

12. Subsequently, upon mentioning, another order dated 23rd January, 2017
was passed by the learned Tribunal purporting to clarify its earlier order. By
this impugned order the Tribunal, quite contrary to its earlier order, held that
there was no requirement of hearing the opposite party under the I&B Code,

PRACTICAL ASPECTS OF INSOLVENCY LAW

363

2016. Further, the impugned order refers to the record of Credit Information

Bureau of India Ltd. (‘CIBIL’), not “information utility” which was relied upon
though earlier order clearly spoke about record of “information utility”.

13. It was further contended that al the parties are bound by the master
restructuring agreement (‘MRA’) dated 8th September, 2014. After MRA a
fresh agreement came into existence and the previous debts came to an
end. Under MRA both creditors and debtors had reciprocal obligations.

Respondent No. 1 failed to fulfil its obligation under MRA. On the other hand
appellant has performed his obligations under MRA. This would be evident
from the certificate issued by the auditor appointed by the bank consortium
itself. The fact that respondent No. 1 has not performed any of its obligation
would also be evident from the reply of R2 (the lead consortium bank) at
para 7(g), (k), (l), (m) and (o) of the reply filed by respondent No. 2 before the

Tribunal.

14. According to appellant, respondent No. 1 has attempted to manufacture
a default by its own conduct/default. A party which has defaulted its obligation
cannot complaint about other’s al eged default. Respondent No. 1 has not
performed its obligation on the one hand and on the other hand has wrongly
adjusted the amounts due to the appel ant, in other accounts.

15. learned senior counsel for the appellant further contended that respondent

No. 1 has not obtained permission/consent from joint lender forum (‘JLF’) to
initiate the present proceedings even though their application would adversely
affect the loans of other members of JLF. In fact, respondent No. 1 had
applied for such permission but it was not granted. Against the total loan of

Rs. 90 crore given by other members to JLF, respondent No. 1 has not given
anything and the appellant has already paid about thrice the amount. The
other members of JLF have, therefore, no such grievance against the
appellant.

16. Mr. Ramji Srinivasan, learned senior counsel for the 1st respondent
submitted that there was no provision for ‘hearing’ specified under the I&B

Code, 2016. According to him the law prescribe that the adjudicating authority
is only required to ascertain the existence of default and pass necessary
orders for admission only on the basis of these specified documents. The
time bound process for ascertaining the existence of default is recognised
as key object of the I&B Code, 2016 in order to ensure maximisation of
value of assets of such persons.

17. However, it was accepted by the learned senior counsel for the financial
creditor that in view of the application of section 424 of the Act 2013 read
with section 60(5) of the I&B Code, 2016 and rule 4(3) of the Insolvency and

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, the
adjudicating authority is within its powers to issue the limited notice for a
hearing, should the “adjudicating authority” consider that a hearing is required
to be given to the corporate debtor for ascertainment of existence of default
based on the material submitted by the corporate debtor.

18. Learned senior counsel for the financial creditor further submitted that
there was no adverse civil consequences for the corporate debtor at the
stage of admission which may attract the principles of natural justice.

According to him, the application of section 424 of the Companies Act to
proceedings under the Code does not necessarily require or call for a hearing
at the admission stage or for that matter at any subsequent stage. It was
submitted that the consequences of the admission of the resolution process
are in no manner prejudicial or against the interest of the corporate debtor.

On the contrary, the aforementioned provisions only seek to (i) preserve
and protect the value of the corporate debtor; (ii) ensure the corporate debtor’s
smooth functioning as a going concern under professional management;
and (iii) facilitate insolvency resolution. Thus, upon the admission of the
application, the corporate debtor and its assets are in fact protected by the
operation of the Code against, inter alia, any action for recovery or claims
by any third party, including the financial creditors themselves. He referred
to sections 13, 14, 15, 16 and 17 of the I&B Code, 2016 to highlight the
scheme of resolution process.

19. It was further contended that only notice of filing of application is required
to be provided as specified under sub-rule (3) of rule 4 of the Rules. No other
notice is required to be provided by the adjudicating authority. Further,
according to learned senior counsel for the financial creditor, section 424 of
the Act 2013 does not extend to create an absolute right of hearing under
the scheme of the Code. Reliance was placed on different Supreme Court
decisions, which will be discussed at appropriate stage.

20. According to learned senior counsel for the respondent, the protection
granted under the Notification issued under section 4 of the MRU Act is
limited to the enactments as specified in the Schedule to the MRU Act. The

MRU Act specifies only certain acts to which the restriction applies and the
same cannot be extended to any other legislation. Further, according to
him, the I&B Code, 2016 has a clear non-obstante clause (section 238)

which overrides operation of MRU Act. He placed reliance on certain other

Supreme Court decisions.

21. He further submitted that the order of the adjudicating authority considers
the submissions made by the appel ant and provide reasoned grounds for

PRACTICAL ASPECTS OF INSOLVENCY LAW

365
rejection of the First Interim Application as wel as the Second Interim

Application. He further submitted that the admission of the respondent No.

1’s application was done with due application of mind by the adjudicating
authority after ascertaining the clear and unambiguous existence of default
from the records placed by the respondent No. 1, including the records of
the credit information company.

22. The question(s) involved in this appeal are :

(i) Whether a notice is required to be given to the corporate debtor for
initiation of corporate insolvency resolution process under I&B Code,

2016 and if so, at what stage and for what purpose ?

(i ) Whether Maharashtra Relief Undertaking (Special Provisions) Act

(Bombay Act XCVI of 1958) (‘MRU Act 1958’) shal prevail over I&B

Code, 2016. In other words, whether a corporate debtor who is enjoying
the benefit of MRU Act, can be subjected to I&B Code, 2016 ? and

(iii) Whether in a case where joint lender forum (‘JLF’) have reached
agreement and granted permission to the corporate debtor prior
consent of JLF is required by financial creditor, before filing of an
application under section 7 of the I&B Code, 2016 ?

23. For determination of first issue, it is desirable to notice different decisions
of hon’ble Apex Court on the question as to how far rules of natural justice
is an essential element.

24. In Maneka Gandhi v. UOI (1978) 1 SCC 248, the Apex Court while
posing the question as to how far natural justice is an essential element of

“procedure established by law” held as fol ows :

….There are certain well recognised exceptions to the audi alteram partem
rule established by judicial decisions and they are summarised by S A de

Smith in Judicial Review of Administrative Action, 2nd ed., at p. 168 to

179. If we analyse tlese exceptions a little closely, it will be apparent that
they do not in any way militate against the principle which requires fair
play in administrative action. The word “exception” is really a misnomer
because in these exclusionary cases the audi alteram partem rule is held
inapplicable not by way of an exception to “fair play in action”, but because
nothing unfair can be inferred by not affording an opportunity to present or
meet a case. The audi alteram partem rule is intended to inject justice
into the law and it cannot be applied to defeat the ends of justice, or to
make the law “lifeless, absurd, stultifying, self-defeating or plainly contrary
to the common sense of the situation”. Since the life of the law is not
logic but experience and every legal proposition must, in the ultimate

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PRACTICAL ASPECTS OF INSOLVENCY LAW
analysis, be tested on the touchstone of pragmatic realism, the audi
alteram partem rule would, by the experiential test, be excluded, if importing
the right to be heard has the effect of paralysing the administrative process
or the need for promptitude or the urgency of the situation so demands.

But at the same time it must be remembered that this is a rule of vital
importance in the field of administrative law and it must not be jettisoned
save in very exceptional circumstances where compulsive necessity so
demands.

It is a wholesome rule designed to secure the rule of law and the court
should not be too ready to eschew it in its application to a given case.

True rue it is that in questions of this kind a fanatical or doctrinaire approach
should be avoided, but that does not mean that merely because the
traditional methodology of a formalised hearing may have the effect of
stultifying the exercise of the statutory power, the audi alteram partem
should be whol y excluded. The court must make every effort to salvage
this cardinal rule to the maximum extent permissible in a given case. It
must not be forgotten that “natural justice is pragmatically flexible and is
amenable to capsulation under the compulsive pressure of circumstances”.

The audi alteram partem rule is not cast in a rigid mould and judicial
decisions establish that it may suffer situational modifications. The core
of it must, however, remain, namely, that the person affected must have
a reasonable opportunity of being heard and the hearing must be a genuine
hearing and not an empty public relations exercise. That is why Tucker,

LJ, emphasised in Russel v. Duke of Norfolk (1949) 1 All ER 109 that

“whatever standard of natural justice is adopted, one essential is that the
person concerned should have a reasonable opportunity of presenting
his case”.

25. In the said case, Kailasam, J, while dealing with the concept of
applicability of natural justice referred to the decision of hon’ble Supreme

Court in Union of India v. J N Sinha (1970) 2 SCC 458 and held as fol ows :

“Rules of natural justice cannot be equated with the fundamental rights”.

As held by the Supreme Court in Union of India v. J N Sinha (1970) 1 SCR

791, that “Rules of natural justice are not embodied rules nor can they be
elevated to the position of Fundamental Rights. Their aim is to secure
justice and to prevent miscarriage of justice. They do not supplant the law
but supplement it. If a statutory provision can be read consistently with
the principles of natural justice the court should do so but if a statutory
provision that specifically or by necessary implication excludes the
application of any rules of natural justice this court cannot ignore the

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367
mandate of the Legislature or the statutory authority and read into the
concerned provision the principles of natural justice”. So also the right to
be heard cannot be presumed when in the circumstances of the case,
there is paramount need for secrecy or when a decision will have to be
taken in emergency or when promptness of action is called for where
delay would defeat the very purpose or where it is expected that the
person affected would take an obstructive attitude. To a limited extent it
may be necessary to revoke or to impound a passport without notice if
there is real apprehension that the holder of the passport may leave the
country if he becomes aware of any intention on the part of the Passport

Authority or the Government to revoke or impound the passport. But that
itself would not justify denial of an opportunity to the holder of the passport
to state his case before the final order is passed. It cannot be disputed
that the Legislature has not by express provision excluded the right to be
heard….’

26. In Swadeshi Cotton Mil s v. Union of India (1981) 1 SCC 664, Sarkaria,

J, speaking for the majority noticed the concept of basic facets of natural
justice, the twin principles, namely, audi alteram partem and nemojudex in
re sua, the decisions rendered in Maneka Gandhi (supra), State of Orissa v.

Dr. Bina Pani Dei AIR 1967 SC 1269 and A K Kraipak v. Union of India

(1969) 2 SCC 262 and held –

“31. The rules of natural justice can operate only in areas not covered by
any law validly made. They can supplement the law but cannot supplant it

(Per Hegde, J, in A K Kraipak, 2 SCC 262). If a statutory provision either
specifically or by inevitable implication excludes the application of the
rules of natural justice, then the court cannot ignore the mandate of the

Legislature. Whether or not the application of the principles of natural
justice in a given case has been excluded, wholly or in part, in the exercise
of statutory power, depends upon the language and basic scheme of the
provision conferring the power, the nature of the power, the purpose for
which it is conferred and the effect of the exercise of that power – see

Union of India v. Col. J N Sinha (1970) 2 SCC 458.

33. The next general aspect to be considered is : Are there any exceptions to
the application of the principles of natural justice, particularly the audi alteram
partem rule ? We have already noticed that the statute conferring the power,
can by express language exclude its application. Such cases do not present
any difficulty. However, difficulties arise when the statute conferring the power
does not expressly exclude this rule but its exclusion is sought by implication
due to the presence of certain factors : such as, urgency, where the obligation

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PRACTICAL ASPECTS OF INSOLVENCY LAW
to give notice and opportunity to be heard would obstruct the taking of prompt
action of a preventive or remedial nature….”

27. In Liberty Oil Mil s v. Union of India (1984) 3 SCC 465, larger Bench of
the Apex Court has held a …. We do not think that it is permissible to interpret
any statutory instruments so as to exclude natural justice, unless the
language of the instrument leaves no option to the court.

28. In Union of India v. Tulsiram Patel (1985) 3 SCC 398 the Apex Court has
expressed, thus :

“100. In Swadeshi Cotton Mills v. UoI, (1981) 1 SCC 664 Chinnappa Reddy,

J, in his dissenting judgment summarised the position in law on this point
as fol ows (at page 591): (SCC p. 712, para 106).

The principles of natural justice have taken deep root in the judicial
conscience of our people, nurtured by Binapani, Kraipak, Mohinder Singh

Gil , Maneka Gandhi, etc., etc. They are now considered as fundamental
to the “implicit in the concept of ordered liberty” and, therefore, implicit in
every decision-making function, call it judicial, quasi-judicial or
administrative. Where authority functions under a statute and the statute
provides for the observance of the principles of natural justice in a particular
manner, natural justice wil have to be observed in that manner and in no
other. No wider right than that provided by statute can be claimed nor can
the right be narrowed. Where the statute is silent about the observance of
the principles of natural justice, such statutory silence is taken to imply
compliance with the principles of natural justice. The implication of natural
justice being presumptive it may be excluded by express words of statute
or by necessary intendment. Where the conflict is between the public
interest and the private interest, the presumption must necessarily be
weak and may, therefore, be readily displaced.”

29. In Union of India v. W N Chadha (1993) Supp (4) SCC 260 their lordships,
while adverting to the issue of applicability of the doctrine of natural justice,
have ruled as follows :

‘79. The rule of audi alteram partem is a rule of justice and its application
is excluded where the rule wil itself lead to injustice. In A S de Smith’s

Judicial Review of Administrative Action, 4th Ed. at page 184, it is stated
that in administrative law, a prima facie right to prior notice and opportunity
to be heard may be held to be excluded by implication in the presence of
some factors, singly or in combination with another. Those special factors
are mentioned under items (1) to (10) under the heading “Exclusion of the
audi alteram partem rule”.

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369

80. Thus, there is exclusion of the application of audi alteram partem rule
to cases where nothing unfair can be inferred by not affording an
opportunity to present and meet a case. This rule cannot be applied to
defeat the ends of justice or to make the law “lifeless, absurd, stultifying
and self-defeating or plainly contrary to the common sense of the situation”

and this rule may be jettisoned in very exceptional circumstances where
compulsive necessity so demands.

81. Bhagwati, J, (as the learned Chief Justice then was) in Maneka Gandhi
speaking for himself, Untawalia and Murtaza Fazal Ali, JJ, has stated,
thus :

…. Now, it is true that since the right to prior notice and opportunity of
hearing arises only by implication from the duty to act fairly, or to use the
words of Lord Morris of Borth-y-Gest, from fair play in action, it may
equal y be excluded where, having regard to the nature of the action to be
taken, its object and purpose and the scheme of the relevant statutory
provision, fairness in action does not demand its implication and even
warrants its exclusion….

82. Thus, it is seen from the decision in Maneka Gandhi that there are
certain exceptional circumstances and situations where under the
application of the rule of audi alteram partem is not attracted….”

After so stating, their lordships referred to a passage from Paul Jackson
in Natural Justice and various other decisions.

88. Applying the above principle, it may be held that when the investigating
officer is not deciding any matter except col ecting the materials for
ascertaining whether a prima facie case is made out or not and a full
enquiry in case of filing a report under section 173(2) fol ows in a trial
before the Court or Tribunal pursuant to the filing of the report, it cannot
be said that at that stage rule of audi alteram partem superimposes an
obligation to issue a prior notice and hear the accused which the statute
does not expressly recognise. The question is not whether audi alteram
partem is implicit, but whether the occasion for its attraction exists at al .’

30. In D K Yadav v. J M A Industries Ltd. (1993) 3 SCC 259, the hon’ble

Supreme Court has held as follows :

“7…. Particular statute or statutory rules or orders having statutory flavour
may also exclude the application of the principles of natural justice
expressly or by necessary implication. In other respects the principles of
natural justice would apply unless the employer should justice its exclusion
on given special and exceptional exigencies.”

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31. In Dr. Rash Lal Yadav v. State of Bihar (1994) 5 SCC 267, the Apex Court,
after referring to the decisions in A K Kraipak (supra), Dr. Bina Pani Dei (supra),

J N Sinha (supra), Swadeshi Cotton Mills (supra) and Mohinder Singh Gil v.

Chief Election Commissioner (1978) 1 SCC 405, held as fol ows :

“9. What emerges from the above discussion is that unless the law
expressly or by necessary implication excludes the application of the
rule of natural justice, courts will read the said requirement in enactments
that are silent and insist on its application even in cases of administrative
action having civil consequences. However, in this case, the High Court
has, having regard to the legislative history, concluded that the deliberate
omission of the proviso that existed in sub-section (7) of section 10 of the

Ordinance (1980) while re-enacting the said sub-section in the Act,
unmistakably reveals the Legislature’s intendment to exclude the rule of
giving an opportunity to be heard before the exercise of power of removal.

The legislative history leaves nothing to doubt that the Legislature did not
expect the State Government to seek the incumbent’s explanation before
exercising the power of removal under the said provision. We are in
complete agreement with the High Court’s view in this behalf….”

32. In Mangilal v. State of M P (2004) 2 SCC 447, while dealing with the
principle of applicability of natural justice in awarding compensation under
section 357(4) of the Code of Criminal Procedure, 1973, their lordships
have observed, thus :

“10…. It has always been a cherished principle. Where the statute is silent
about the observance of the principles of natural justice, such statutory
silence is taken to imply compliance with the principles of natural justice
where substantial rights of parties are considerably affected. The
application of natural justice becomes presumptive, unless found excluded
by express words of statute or necessary intendment.”

33. In Union of India v. Tulsiram Patel AIR 1985 SC 1416, hon’ble Supreme
court observed :

“The right of opportunity to be heard can be excluded where the nature of
action taken, its objects and purpose and the scheme of the relevant
statutory provision warrant its exclusion….”

34. In Dharampal Satyapal v. Dy. CCE (2015) 8 SCC 519, hon’ble Apex

Court was of the view :

• If it is felt that a hearing would not change the ultimate conclusion
reached by the decision maker, then no legal duty to supply a hearing
arises.

PRACTICAL ASPECTS OF INSOLVENCY LAW

371

35. In W N Chaddha (supra), hon’ble Apex Court observed that :

The question is not whether audi alteram partem is implicit, but whether
the occasion for its attraction exists at al ….

36. In State of Maharashtra v. Jalgaon Municipal Council (2003) 9 SCC 731,
the hon’ble Supreme Court observed as :

“Some of the relevant factors which enter the judicial process of thinking
for determining the extent of moulding the nature and scope of fair hearing
and may reach to the extent of right to hearing being excluded are : (i) the
nature of the subject-matter, and (ii) exceptional situations. Such
exceptionality may be spel ed out by (i) need to take urgent action for
safeguarding public health or safety or public interest, (i ) the absence of
legitimate exceptions, (i i) by refusal of remedies in discretion, (iv) doctrine
of pleasure such as the power to dismiss an employee at pleasure, (v)

express legislation.”

37. In A K Kraipak (supra), hon’ble Supreme Court observed that :

…. The aim of the rules of natural justice is to secure justice or to put it
negatively to prevent miscarriage of justice. These rules can operate only
in areas not covered by any law validly made. In other words they do not
supplant the law of the land but supplement it….

38. In C B Gautam v. Union of India (1993) 1 SCC 78, hon’ble Apex Court
was of the view :

“It is true that if a statutory provision can be read consistently with the
principles of natural justice, the courts should do so because it must be
presumed that the Legislatures and the statutory authorities intend to act in
accordance with the principles of natural justice. But If, on the other hand,
a statutory provision either specifical y or by necessary implication excludes
the application of any or al the principles of natural justice then the court
cannot ignore the mandate of the Legislature or the statutory authority and
read into the concerned provision the principles of natural justice….”

39. In M P Industries Ltd. v. Union of India AIR 1966 SC 671, it was observed
by hon’ble Supreme Court that :

“The said opportunity need not necessarily be by personal hearing. It can
be by written representation. Whether the said opportunity should be by
written representation or by personal hearing depends upon the facts of
each case and ordinarily it is in the discretion of the tribunal. The facts of
the present case disclose that a written representation would effectively
meet the requirements of the principles of natural justice.”

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40. In S L Kapoor (supra) the hon’ble Supreme Court was of the view :

“Where on the admitted or undisputed facts only one conclusion is possible
and under the law only one penalty is permissible, the court may not
insist on the observance of the principles of natural justice.”

41. The aforesaid observation has been highlighted by hon’ble Supreme

Court, in a different way, observing that “useless formality” is another
exception to the ratio of natural justice. Where on the admitted or undisputed
facts only one conclusion is possible and under the law only one penalty is
permissible, the Court may not insist on the observance of the principles of
natural justice because it would be futile to order its observance. Therefore,
where the result would not be different, and it is demonstrable beyond doubt,
order of compliance with the principles of natural justice will not be justified.

42. From the aforesaid decisions of hon’ble Supreme Court, the exception
on the principle of rules of natural justice can be summarised as fol ows :

(i) Exclusion in case of emergency,

(i ) Express statutory exclusion

(iii) Where discloser would be prejudicial to public interests

(iv) Where prompt action is needed

(v) Where it is impracticable to hold hearing or appeal

(vi) Exclusion in case of purely administrative matters

(vi ) Where no right of person is infringed

(vii ) The procedural defect would have made no difference to the outcome

(ix) Exclusion on the ground of “no fault” decision maker, etc.

(x) Where on the admitted or undisputed fact only one conclusion is
possible – it wil be useless formality.

43. There is no specific provision under the I&B Code, 2016 to provide
hearing to corporate debtor in a petition under section 7 or 9 of the I&B

Code, 2016.

44. Sub-section (1) of section 5 defines “adjudicating authority” for the purpose
of that part means “National Company Law Tribunal”, (NCLT) constituted
under section 408 of the Companies Act, 2013 (18 of 2013).

45. Section 420 of the Companies Act, 2013 relate to “orders of Tribunal”.

Sub-section (1) of section 420 mandates the Tribunal to provide the parties
before it, the reasonable opportunity of being heard before passing orders

PRACTICAL ASPECTS OF INSOLVENCY LAW

373
as it thinks fit, as quoted below :

“420. Orders of Tribunal. – (1) The Tribunal may, after giving the parties to
any proceeding before it, a reasonable opportunity of being heard, pass
such orders thereon as it thinks fit.”

46. I&B Code, 2016 empowers adjudicating authority to pass orders under
sections 7, 9 and 10 of the I&B Code, 2016 and not the National Company

Law Tribunal. It is by virtue of the definition under sub-section (1) of section

5 read with section 60 of the I&B Code, 2016, the National Company Law

Tribunal plays role of an adjudicating authority.

47. Section 60 of the I&B Code, 2016 which relate to adjudicating authority
for corporate persons which empowers the National Company Law Tribunal
to entertain and dispose of the petition as stipulated under sub-section (5)

of section 60 reads as follows : –

“ADJUDICATING AUTHORITY FOR CORPORATE PERSONS 60. (1)

The Adjudicating Authority, in relation to insolvency resolution and
liquidation for corporate persons including corporate debtors and personal
guarantors thereof shal be the National Company Law Tribunal having
territorial jurisdiction over the place where the registered office of the
corporate person is located.

(5) Notwithstanding anything to the contrary contained in any other law
for the time being in force, the National Company Law Tribunal shal have
jurisdiction to entertain or dispose of – (a) any application or proceeding
by or against the corporate debtor or corporate person; (b) any claim made
by or against the corporate debtor or corporate person, including claims
by or against any of its subsidiaries situated in India; and (c) any question
of priorities or any question of law or facts, arising out of or in relation to
the insolvency resolution or liquidation proceedings of the corporate debtor
or corporate person under this Code.”

48. By section 255 of the I&B Code, 2016 certain provisions of the Companies

Act, 2013 has been amended in the manner as specified in the XIth Schedule.

By virtue of article 32 of XIth Schedule, the section 424 of the Companies

Act, 2013 stands amended as fol ows :

’32. In section 424, - Commencement of winding up by Tribunal. (i) in sub-
section (1), after the words, “other provisions of this Act”, the words “or of
the Insolvency and Bankruptcy Code, 2016” shal be inserted; (i ) in sub-
section (2), after the words, “under this Act”, the words “or under the

Insolvency and Bankruptcy Code, 2016” shal be inserted.’

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On such amendment, section 424 of the Companies Act, 2013 reads as
follows :

“424. Procedure before Tribunal and Appel ate Tribunal. – (1) The Tribunal
and the Appel ate Tribunal shal not, while disposing of any proceeding
before it or, as the case may be, an appeal before it, be bound by the
procedure laid down in the Code of Civil Procedure, 1908, but shal be
guided by the principles of natural justice, and, subject to the other
provisions of this Act [or of Insolvency and Bankruptcy Code, 2016] and
of any rules made thereunder, the Tribunal and the Appel ate Tribunal shall
have power to regulate their own procedure.

(2) The Tribunal and the Appel ate Tribunal shal have, for the purposes of
discharging their functions under this Act [or under the Insolvency and

Bankruptcy Code, 2016,] the same powers as are vested in a civil court
under the Code of Civil Procedure, 1908 while trying a suit in respect of
the fol owing matters, namely :

(a) summoning and enforcing the attendance of any person and examining
him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian

Evidence Act, 1872, requisitioning any public record or document or
a copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) dismissing a representation for default or deciding it ex parte;

(g) setting aside any order of dismissal of any representation for default
or any order passed by it ex parte; and

(h) any other matter which may be prescribed.

(3) Any order made by the Tribunal or the Appel ate Tribunal may be enforced
by that Tribunal in the same manner as if it were a decree made by a court
in a suit pending therein, and it shal be lawful for the Tribunal or the

Appellate Tribunal to send for execution of its orders to the court within
the local limits of whose jurisdiction, –

(a) in the case of an order against a company, the registered office of
the company is situate; or

(b) in the case of an order against any other person, the person concerned

PRACTICAL ASPECTS OF INSOLVENCY LAW

375
voluntarily resides or carries on business or personally works for
gain.

(4) All proceedings before the Tribunal or the Appel ate Tribunal shal be
deemed to be judicial proceedings within the meaning of sections 193
and 228, and for the purposes of section 196 of the Indian Penal Code,
and the Tribunal and the Appel ate Tribunal shal be deemed to be civil
court for the purposes of section 195 and Chapter XXVI of the Code of

Criminal Procedure, 1973.”

49. As amended section 424 of the Act 2013 is applicable to the proceeding
under the I&B Code, 2016, it is mandatory for the adjudicating authority to
fol ow the Principles of rules of natural justice while passing an order under

I&B Code, 2016. Further, as section 424 mandates the ‘Tribunal’ and Appellate

Tribunal, to dispose of cases or/appeal before it subject to other provisions
of the Act 2013 or I&B Code, 2016 such as, section 420 of the Act 2013
was applicable and to be fol owed by the Adjudicating Authority.

50. One “Sree Metaliks Ltd. and Anr.” moved before the hon’ble Calcutta

High Court in WP No. 7144(W) of 2017 assailing the vires of section 7 of the

I&B Code, 2016 and the relevant rules under the Insolvency and Bankruptcy

(Application to the Adjudicating Authority) Rules, 2016 (‘I&B Rules, 2016’).

The chal enge was premise upon the contention that the I&B Code, 2016
does not afford any opportunity of hearing to a corporate debtor in a petition
under section 7 of I&B Code, 2016. The hon’ble High Court noticed relevant
provision of section 7 of the I&B Code, 2016, the definition of “adjudicating
authority” as defined under section 5(1), section 61 of the I&B Code, 2016
relating to appeal and amended section 424 of the Companies Act, 2013
and by judgment dated 7th April, 2017 held as follows :

…. However, it is to apply the principles of natural justice in the proceedings
before it. It can regulate it own procedure, however, subject to the other
provisions of the Act of 2013 or the Insolvency and Bankruptcy Code of

2016 and any Rules made thereunder. The Code of 2016 read with the

Rules, 2016 is silent on the procedure to be adopted at the hearing of an
application under section 7 presented before the NCLT, that is to say, it is
silent whether a party respondent has a right of hearing before the
adjudicating authority or not.

Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to
adhere to the principles of the natural justice above anything else. It also
al ows the NCLT and NCLAT the power to regulate their own procedure.

Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it
is required to apply its principles. Principles of natural justice require an

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PRACTICAL ASPECTS OF INSOLVENCY LAW
authority to hear the other party. In an application under section 7 of the

Code of 2016, the financial creditor is the applicant while the corporate
debtor is the respondent. A proceeding for declaration of insolvency of a
company has drastic consequences for a company. Such proceeding may
end up in its liquidation. A person cannot be condemned unheard. Where
a statute is silent on the right of hearing and it does not in express terms,
oust the principles of natural justice, the same can and should be read
into in. When the NCLT receives an application under section 7 of the

Code of 2016, therefore, it must afford a reasonable opportunity of hearing
to the corporate debtor as section 424 of the Companies Act, 2013
mandates it to ascertain the existence of default as claimed by the financial
creditor in the application. The NCLT is, therefore, obliged to afford a
reasonable opportunity to the financial debtor to contest such claim of
default by filing a written objection or any other written document as the

NCLT may direct and provide a reasonable opportunity of hearing to the
corporate debtor prior to admitting the petition filed under section 7 of the

Code of 2016. Section 7(4) of the Code of 2016 requires the NCLT to
ascertain the default of the corporate debtor. Such ascertainment of default
must necessarily involve the consideration of the documentary claim of
the financial creditor. This statutory requirement of ascertainment of default
brings within its wake the extension of a reasonable opportunity to the
corporate debtor to substantiate by document or otherwise, that there
does not exist a default as claimed against it. The proceedings before the

NCLT are adversarial in nature. Both the sides are, therefore, entitled to a
reasonable opportunity of hearing.

The requirement of NCLT and NCLAT to adhere to the principles of natural
justice and the fact that, the principles of natural justice are not ousted by
the Code of 2016 can be found from section 7(4) of the Code of 2016 and
rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Rule 4 deals with an application made by a financial
creditor under section 7 of the Code of 2016. Sub-rule (3) of rule 4 requires
such financial creditor to despatch a copy of the application filed with the
adjudicating authority, by registered post or speed post to the registered
office of the corporate debtor. Rule 10 of the Rules of 2016 states that, till
such time the Rules of procedure for conduct of proceedings under the

Code of 2016 are notified, an application made under sub-section (1) of
section 7 of the Code of 2017 is required to be filed before the adjudicating
authority in accordance with rules 20, 21, 22, 23, 24 and 26 or Part-III of
the National Company Law Tribunal Rules, 2016.

Adherence to the principles of natural justice by NCLT or NCLAT would

PRACTICAL ASPECTS OF INSOLVENCY LAW

377
not mean that in every situation, NCLT or NCLAT is required to afford a
reasonable opportunity of hearing to the respondent before passing its
order.

In a given case, a situation may arise which may require NCLT to pass an
ex parte ad interim order against a respondent. Therefore, in such situation

NCLT, it may proceed to pass an ex parte ad interim order, however, after
recording the reasons for grant of such an order and why it has chosen
not to adhere to the principles of natural justice at that stage. It must,
thereafter proceed to afford the party respondent an opportunity of hearing
before confirming such ex parte ad interim order.

In the facts of the present case, the learned senior advocate for the
petitioner submits that, orders have been passed by the NCLT without
adherence to the principles of natural justice. The respondent was not
heard by the NCLT before passing the order.

It would be open to the parties to agitate their respective grievances with
regard to any order of NCLT or NCLAT as the case may be in accordance
with law. It is also open to the parties to point out that the NCLT and the

NCLAT are bound to fol ow the principles of natural justice while disposing
of proceedings before them.

In such circumstances, the chal enge to the vires to section 7 of the

Code of 2016 fails.”

51. As per sub-rule (3) of rule 4 of Rules of 2016, the financial creditor is
required to despatch forthwith a copy of the application filed with the
adjudicating authority to the corporate debtor as quoted below :

“4. (3) The applicant shal despatch forthwith, a copy of the application
filed with the Adjudicating Authority, by registered post or speed post to
the registered office of the corporate debtor.”

Thus it is clear that sub-rule (3) of rule 4 of I&B (Application to Adjudicating

Authority) Rules, 2016, mandates the applicant to dispatch forthwith, a
copy of the application “filed with the Adjudicating Authority”. Thereby a
post-filing notice required to be issued and not as notice before filing of an
application. The purpose for the same being to put corporate debtor to
adequate impound notice so that the corporate debtor may bring to the
notice of Adjudicating Officer “mitigating factor/records before the application
is accepted even before formal notice is received”.

52. The insolvency resolution process under section 7 or section 9 of I&B

Code, 2016 have serious civil consequences not only on the corporate debtor-

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PRACTICAL ASPECTS OF INSOLVENCY LAW
company but also on its directors and shareholders in view of the fact that
once the application under section 7 or 9 of the I&B Code, 2016 is admitted
it is fol owed by appointment of an interim resolution professional to manage
the affairs of the corporate debtor, instant removal of the Board of directors
and moratorium for a period of 180 days. For the said reason also the

Adjudicating Authority is bound to issue limited notice to the corporate debtor
before admitting a case under sections 7 and 9 of the I&B Code, 2016.

53. In view of the discussion above, we are of the view and hold that the

Adjudicating Authority is bound to issue a limited notice to the corporate
debtor before admitting a case for ascertainment of existence of default
based on material submitted by the corporate debtor and to find out whether
the application is complete and or there is any other defect required to be
removed. Adherence to principles of natural justice would not mean that in
every situation the adjudicating authority is required to afford reasonable
opportunity of hearing to the corporate debtor before passing its order.

Purpose of issuance of notice

54. Section 7 of the Code provides for process of initiation of corporate
insolvency resolution process by a financial creditor, section 8 and 9 provide
for process of initiation of insolvency resolution process by an operational
creditor and section 10 of the Code provides for process of initiation of
insolvency resolution process by the corporate debtor itself.

55. Process of initiation of insolvency resolution process by a financial
creditor is provided in section 7 of the I&B Code, 2016. As per sub-section

(1) of section 7 of the I&B Code, 2016, the trigger for filing of an application
by a financial creditor before the Adjudicating Authority is when a default in
respect of any financial debt has occurred. Sub-section (2) of section 7
provides that the financial creditor shall make an application in prescribed
form and manner and with prescribed documents, including :

(i) “record of the default” recorded with the information utility or such
other record or evidence of default as may be specified;

(i ) the name of the resolution professional proposed to act as an interim
resolution professional; and

(iii) any other information as may be specified by the Board

56. The procedure once an application is filed by the financial creditor with
the Adjudicating Authority is specified in sub-section (4) of section 7 to sub-
section (7) of section 7 of the Code. As per sub-section (4) of section 7 of
the I&B Code, 2016 :

PRACTICAL ASPECTS OF INSOLVENCY LAW

379

“(4) The Adjudicating Authority shal , 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).”

57. Sub-section (5) of section 7 of the I&B Code provides for admission or
rejection of application of a financial creditor. Where the adjudicating authority
is satisfied that – ....“ the documents are complete or incomplete”.

58. The Adjudicating Authority post-ascertaining and being satisfied that
such a default has occurred may admit the application of the financial creditor.

In other words, the statute mandates the Adjudicating Authority to ascertain
and record satisfaction as to the occurrence of default before admitting the
application. Mere claim by the financial creditor that the default has occurred
is not sufficient. The same is subject to the Adjudicating Authority’s summary
adjudication, though limited to ‘ascertainment’ and ‘satisfaction’.

59. Unlike section 7 of the I&B Code, 2016 before making an application to
the Adjudicating Authority under section 9 of the I&B Code, 2016 the
requirements under section 8 of the I&B Code, 2016 are required to be
complied with.

60. Under sub-section (1) of section 8 of the Code, 2016 an operational
creditor, on occurrence of a default, is required to deliver a notice of demand
of unpaid debt or get copy of the invoice demanding payment of the defaulted
amount served on the corporate debtor. This is the condition precedent under
sections 8 and 9 of the I&B Code, 2016 unlike in section 7, before making
an application to the adjudicating authority.

61. Under section 9 of the I&B Code, 2016 a right to file an application
accrues after expiry of ten days from the date of delivery of the demand
notice or copy of invoice as the case may be, demanding payment under
sub-section (1) of section 8 of the I&B Code, 2016. The operational creditor
would receive either the payment or a notice of dispute in terms of sub-
section (2) of section 8 of the I&B Code, 2016.

62. Thus, it is evident from section 9 of the I&B Code, 2016 that the

Adjudicating Authority has to, within fourteen days of the receipt of the
application under sub-section (2), either admit or reject the application.

Section 9 has two-fold situations insofar as notice of dispute is concerned.

As per sub-section (5)(1) of section 9, the Adjudicating Authority can admit
the application in case no notice raising the dispute is received by the
operational creditor (as verified by the operational creditor on affidavit) and
there is no record of a dispute is with the information utility.

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On the other hand, sub-section (5) of section 9 mandates the Adjudicating

Authority to reject the application if the operational creditor has received
notice of dispute from the corporate debtor. Section 9, thus, makes it distinct
from section 7. While in section 7, occurrence of default has to be ascertained
and satisfaction recorded by the Adjudicating Authority, there no similar
provision under section 9. The use of language in sub-section (2) of section

8 of the I&B Code, 2016 provides that the “corporate debtor shal , within a
period of ten 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...

the existence of a dispute“. Under section 7 neither notice of demand nor a
notice of dispute is relevant whereas under sections 8 and 9 notice of demand
and notice of dispute become relevant both for the purposes of admission
as wel as for and rejection.

63. While ascertaining the ‘Adjudicating Authority’ to comes to a conclusion
whether there is an existence of default for the purpose of section 7 or there
is a dispute raised by the corporate debtor and all other purpose whether an
application is complete or incomplete, it is not only necessary to hear the
financial creditor/operational creditor but also the corporate debtor.

64. The different decisions of the hon’ble Supreme Court, as referred to
above and exception of principles of natural justice as noticed and
summarised in the preceding paragraphs is not applicable to the insolvency
resolution process as it is not a case of emergency declared or prejudicial
to public interest or that there is a statutory exclusion of rules of natural
justice or it is impracticable to hold hearing. It is not the case that no right
of any person has been affected, as immediately on appointment of an
interim resolution professional, the Board of directors stand superseded.

There are other persons who are also affected due to order of moratorium.

Therefore, the adjudicating authority is duty bound to give a notice to the
corporate debtor before admission of a petition under section 7 or section

9.

65. In the present case though no notice was given to the appel ant before
admission of the case but we find that the appel ant intervened before the
admission of the case and al the objections raised by appellant has been
noticed, discussed and considered by the adjudicating authority while passing
the impugned order dated 17th January, 2017. Thereby, merely on the ground
that the appel ant was not given any notice before admission of the case
cannot render the impugned order illegal as the appellant has already been
heard. If the impugned order is set aside and the case is remitted back to
the adjudicating authority, it would be “useless formality” and would be futile

PRACTICAL ASPECTS OF INSOLVENCY LAW

381
to order its observance as the result would not be different. Therefore, order
to fol ow the principles of natural justice in the present case does not arise.

66. However, in some of the cases initiation of insolvency resolution process
may have adverse consequences on the welfare of the company. Therefore,
it will be imperative for the adjudicating authority to adopt a cautious approach
in admitting Insolvency Application by ensuring adherence to the principle
of natural justice.

67. The next question is whether the appel ant can claim any protection
having granted benefit under MRU Act.

The protection granted by notification issued under section 4 of the MRU

Act is limited to the enactments as specified in the Schedule to the MRU

Act, as apparent from section 4(1)(a) (1) of the MRU Act and provides as
follows :

“4. (1) Notwithstanding any law, usage, custom, contract, instrument,
decree, order, award, submission, settlement, standing order or other
provision whatsoever, the State Government may, by notification in the

Official Gazette, direct that –

(a) in relation to any relief undertaking and in respect of the period for
which the relief undertaking continues as such under sub-section (2)

of section 3 –

(i) al or any of the laws in the Schedule to this Act or any provisions
thereof shall not apply (and such relief undertaking shal be
exempt therefrom), or shall, if so directed by the State

Government, be applied with such modifications (which do not,
however, affect the policy of the said laws) as may be specified
in the notification;...

(i ) al or any of the agreements, settlements, awards or standing
orders made under any of the laws in the Schedule to this Act,
which may be applicable to the undertaking immediately before
it was acquired or taken over by the State Government; it or
before any loan, guarantee or other financial assistance was
provided to it by, or with the approval of, the State Government,
for being run as a relief undertaking, shal be suspended in
operation or shall, if so directed by the State Government, be
applied with such modifications as may be specified in the
notification;

(iii) rights, privileges, obligations and liabilities shall be determined

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and be enforceable in accordance with clauses (i) and (ii) and
the notification;

(iv) any right, privilege, obligation or liability accrued or incurred
before the undertaking was declared a relief undertaking and
any remedy for the enforcement thereof shal be suspended
and al proceedings relative thereto pending before any court,
tribunal, officer or authority shal be stayed” (emphasis supplied”)

68. The Schedule to the MRU Act specifies only certain acts to which the
restriction applies. Accordingly, the application of the MRU Act can only be
extended to such acts as specified in the schedule and no other legislation.

The legislations referred to in the ‘schedule’ to the MRU Act are employment
welfare related which is in consonance with the objects and purpose of the

MRU Act, i.e., “employment and unemployment”. The protection under the

MRU Act, therefore, cannot be extended to other legislations especially to
union legislation which is subsequent to the MRU Act and related to
insolvency resolution i.e. I&B Code, 2016

69. Section 4 of the MRU Act, including section 4(iv), therefore, is limited in
scope to the acts listed in the schedule thereto.

70. Section 238 of the I&B Code, 2016 is non-obstante clause which overrides
the operation of the MRU Act. As per section 238 of the I&B Code, 2016 the
provisions of the Code are to are to be given effect to notwithstanding
anything contrary contained any other law or any instrument having effect
under such law. Section 238 states as follows :

“238. The provisions of this Code shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in
force or any instrument having effect by virtue of any such law.”

71. In light of the aforementioned non-obstante provision (which is a
subsequent Union Law), the provisions of the I&B Code, 2016 shal prevail
over the provisions of the MRU Act and any instrument issued under the

MRU Act including the Notification.

72. It was submitted on behalf of the appel ant that by virtue of the provisions
of sections 3 and 4 of the MRU Act read with the notification issued
thereunder, a creditor is restrained from exercising its statutory rights under
the provisions of the Code. But such submission cannot be accepted as
section 238 of the I&B Code, 2016 clearly mandates that the provisions of
the I&B Code, 2016 shall have effect, notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or any
instrument having effect by virtue of any such law. This being the position

PRACTICAL ASPECTS OF INSOLVENCY LAW

383
and considering the mandate laid down in section 238, which is a subsequent
law enacted by Parliament, the provisions of the section 238 would have
effect notwithstanding the provisions of the MRU Act and any notification
issued thereunder, insofar as it restrains the creditor from enforcing its
security interest against the relief undertaking in whose favour a notification
has been issued.

73. The MRU Act operates in a different field from the I&B Code, 2016. MRU

Act is an Act to make temporary provisions for industrial relations and other
matters to enable the State Government to conduct or to provide a loan,
guarantee or financial assistance for the conduct of certain industrial
undertakings as a measure of preventing unemployment or of unemployment
relief.

74. On the other hand the I&B Code, 2016 is an Act enacted to consolidate
and amend the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time bound manner
for maximisation of value of assets of such persons, to promote
entrepreneurship, availability of credit and balance the interest of al the
stakeholders including alteration in the order of priority of payments of

Government dues. The I&B Code, 2016, which is later Act of greater
specificity, seeks to balance the interests of al stake holders.

75. In view of the aforesaid objects of the two enactments it is apparent that
the two enactments operate in entirely different fields. This is further made
clear by the fact that the MRU Act is enacted under Entry 23 of List III while
the Code has been enacted under Entry 9 of the List III. The stand taken by
the learned counsel for the appel ant that the MRU Act has been enacted
under Entry 24 of List II cannot be accepted as the MRU Act has received

Presidential assent under article 254(2) of the Constitution of India, which
is only required for statutes enacted by the State Government in exercise
of its legislative competence under the Concurrent List.

76. In Yogender Kumar Jaiswal v. State of Bihar (2016) 3 SCC 183, the
hon’ble Supreme Court, while dealing with article 254, noticed the decision
in Hoechst Pharmaceuticals Ltd. v. State of Bihar (1983) 4 SCC 45 and
observed as fol ows : –

’55. Thereafter, the court proceeded to state that {Hoechst Pharmaceuticals

Ltd. case Hoechst Pharmaceuticals Ltd. v. State of Bihar (1983) 4 SCC

45/1983 SCC (Tax) 248/AIR 1983 SC 1019}, SCC pp. 89-90, para 69) :

“69.... The question of repugnancy under article 254(1) between a law
made by Parliament and a law made by the State Legislature arises only

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PRACTICAL ASPECTS OF INSOLVENCY LAW
in case both the legislations occupy the same field with respect to one of
the matters enumerated in the Concurrent List, and there is direct conflict
between the two laws. It is only when both these requirements are fulfil ed
that the State law will, to the extent of repugnancy, become void. Article

254(1) has no application to cases of repugnancy due to overlapping found
between List U on the one hand and List land List III on the other. If such
overlapping exists in any particular case, the State law wil be ultra vires
because of the non-obstante clause in article 246(1) read with the opening
words “subject to” in article 246(3). In such a case, the State law wil fail
not because of repugnance to the Union law but due to want of legislative
competence. It is no doubt true that the expression “a law made by

Parliament which Parliament is competent to enact” in article 254(1) is
susceptible of a construction that repugnance between a State law and a
law made by Parliament may take place outside the concurrent sphere
because Parliament is competent to enact law with respect to subjects
included in List HI as wel as List F. But if article 254(1) is read as a
whole, it wil be seen that it is expressly made subject to clause (2) which
makes reference to repugnancy in the field of Concurrent List – in other
words, if clause (2) is to be the guide in the determination of scope of
clause (1), the repugnancy between Union and State law must be taken
to refer only to the Concurrent field. Article 254(1) speaks of a State law
being repugnant to (a) a law made by Parliament, or (b) an existing law.”....

62. Having stated the proposition where and in which circumstances the
principle of repugnancy would be attracted and the legislation can be
saved or not saved, it is necessary to focus on clause (2) of article 254 of
the Constitution. In Hindustan Times v. State of UP {Hindustan Times v.

State of UP (2003) 1 SCC 591}, after referring to the earlier judgments, it
has been held that article 254(2) carves out an exception and, that is, if
the Presidential assent to a State law which has been reserved for his
consideration is obtained under article 200, it wil prevail notwithstanding
the repugnancy to an earlier law of the Union. The relevant passage of the
said authority is extracted below : (SCC pp. 599-600, para 19)

“19. As noticed hereinbefore, the State of Uttar Pradesh intended to make
a legislation covering the same field but even if the same was to be
made, it would have been subject to the parliamentary legislation unless
assent of the President of India was obtained in that behalf. The State
executive was, thus, denuded of any power in respect of a matter with
respect whereto Parliament has power to make laws, as its competence
was limited only to the matters with respect to which the Legislature of
the State has the requisite legislative competence. Even assuming that

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385
the matter relating to the welfare of the working journalists is a field which
falls within Entry 24 of the Concurrent List, unless and until a legislation
is made and assent of the President is obtained, the provisions of the

1955 Act and the Working Journalists (Fixation of Rates and Wages) Act,

1958 would have prevailed over the State enactment.”’

77. In Madras Petrochem Ltd. v. BIFR (2016) 34 SCL 193 (SC), the hon’ble

Supreme Court was considering the question whether pendency of reference
before BIFR bar enforcement of secured assets under SARFAESI Act, 2002.

In the said case, the hon’ble Supreme Court having noticed the earlier
decisions observed :

’29. On the other hand, in Solidaire India Ltd. v. Fairgrowth Financial

Services Ltd. {Solidaire India Ltd. v. Fairgrowth Financial Services Ltd.

(2001) 3 SCC 71}, it was the Special Courts (Trial of Offences Relating to

Transactions in Securities) Act, 1992 which came up for consideration
vis-a-vis the Sick Industrial Companies (Special Provisions) Act, 1985.

In paras 9 and 10 of this court’s judgment, this court noted that both Acts
were special Acts. In a significant extract from a special court judgment,
which was approved by this court, it was stated that the Special Courts

Act, 1992, being a later enactment and also containing a non-obstante
clause, would prevail over the Sick Industrial Companies (Special

Provisions) Act, 1985. Had the Legislature wanted to exclude the
provisions of the Sick Industrial Companies (Special Provisions) Act,

1985, from the ambit of the said Act, the Legislature would specifically
have so provided. The fact that the Legislature did not specifically so
provide necessarily means that the Legislature intended that the provisions
of the said Act were to prevail over the provisions of the Sick Industrial

Companies (Special Provisions) Act, 1985. In short, when property of
notified persons under the Special Courts Act, 1992 stands attached, it
is only the special court which can give directions to the custodian under
the said Act as to disposal of such property of a notified party. The

Legislature expressly overrode section 22 of the Sick Industrial Companies

(Special Provisions) Act, 1985 and permitted the custodian to give
directions under section 11 of the Special Courts Act, 1979,
notwithstanding section 22 of the Sick Industrial Companies (Special

Provisions) Act, 1985.

36. A conspectus of the aforesaid decisions shows that the Sick Industrial

Companies (Special Provisions) Act, 1985 prevails in all situations where
there are earlier enactments with non-obstante clauses similar to the Sick

Industrial Companies (Special Provisions) Act, 1985. Where there are

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PRACTICAL ASPECTS OF INSOLVENCY LAW
later enactments with similar non-obstante clauses, the Sick Industrial

Companies (Special Provisions) Act, 1985 has been held to prevail only
in a situation where the reach of the non-obstante clause in the later Act
is limited – such as in the case of the Arbitration and Conciliation Act,

1996 – or in the case of the later Act expressly yielding to the Sick Industrial

Companies (Special Provisions) Act, 1985, as in the case of the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993. Where such
is not the case, as in the case of Special Courts Act, 1992, it is the

Special Courts Act, 1992 which was held to prevail over the Sick Industrial

Companies (Special Provisions) Act, 1985.

39. This is what then brings us to the doctrine of harmonious construction,
which is one of the paramount doctrines that is applied in interpreting all
statutes. Since neither section 35 nor section 37 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 is subject to the other, we think it is necessary to interpret the
expression “or any other law for the time being in force” in section 37. If a
literal meaning is given to the said expression, section 35 wil become
completely otiose as al other laws will then be in addition to and not in
derogation of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002. Obviously this could not
have been the parliamentary intendment, after providing in section 35
that the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 wil prevail over al other laws
that are inconsistent therewith. A middle ground has, therefore, necessarily
to be taken. According to us, the two apparently conflicting sections can
best be harmonised by giving meaning to both. This can only be done by
limiting the scope of the expression “or any other law for the time being in
force” contained in section 37. This expression will, therefore, have to be
held to mean other laws having relation to the securities market only, as
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
is the only other special law, apart from the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002, dealing with recovery of debts due to banks and financial
institutions. On this interpretation also, the Sick Industrial Companies

(Special Provisions) Act, 1985 wil not be included for the obvious reason
that its primary objective is to rehabilitate sick industrial companies and
not to deal with the securities market.’

78. Following the law laid down by hon’ble Supreme Court in Yogendra Krishnan

Jaiswal and Madras Petrochem Ltd. (supra) we hold that there is no
repugnancy between I&B Code, 2016 and the MRU Act as they both operate

PRACTICAL ASPECTS OF INSOLVENCY LAW

387
in different fields. The Parliament has expressly stated that the provisions
of the I&B Code, 2016 (which is a later enactment to the MRU Act) shall
have effect notwithstanding the provisions of any other law for the time
being in force. This stipulation does not mean that the provisions of MRU

Act or for that matter any other law are repugnant to the provisions of the

Code.

79. In view of the finding as recorded above, we hold that the appel ant is
not entitled to derive any advantage from MRU Act, 1956 to stall the
insolvency resolution process under section 7 of the I&B Code, 2016.

80. Insofar as MRA dated 8th September 2014 is concerned; the appel ant
cannot take advantage of the same. Even if it is presumed that fresh
agreement came into existence, it does not absolve the appel ant from
paying the previous debts which are due to the financial creditor.

81. The Tribunal has noticed that there is a failure on the part of appel ant to
pay debts. The financial creditor has attached different records in support of
default of payment. Apart from that it is not supposed to go beyond the
question to see whether there is a failure on fulfilment of obligation by the
financial creditor under one or other agreement, including the MRA. In that
view of the matter, the appel ant cannot derive any advantage of the MRA
dated 8th September, 2014.

82. As discussed in the previous paragraphs, for initiation of corporate
resolution process by financial creditor under sub-section (4) of section 7 of
the I&B Code, 2016, the adjudicating authority on receipt of application
under sub-section (2) is required to ascertain existence of default from the
records of Information Utility or on the basis of other evidence furnished by
the financial creditor under sub-section (3). Under section 5 of section 7, the
adjudicating authority is required to satisfy –

(a) Whether a default has occurred;

(b) Whether an application is complete; and

(c) Whether any disciplinary proceeding is against the proposed

Insolvency Resolution Professional.

83. Once it is satisfied it is required to admit the case but in case the
application is incomplete application, the financial creditor is to be granted
seven days’ time to complete the application. However, in a case where
there is no default or defects cannot be rectified, or the record enclosed is
misleading, the application has to be rejected.

84. Beyond the aforesaid practice, the adjudicating authority is not required

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PRACTICAL ASPECTS OF INSOLVENCY LAW
to look into any other factor, including the question whether permission or
consent has been obtained from one or other authority, including the JLF.

Therefore, the contention of the petition that the respondent has not obtained
permission or consent of JLF to the present proceeding which will be adversely
affect loan of other members cannot be accepted and fit to be rejected.

85. In the aforesaid circumstances the adjudicating authority having satisfied
on all counts, including default and that the application is complete and that
there is no disciplinary proceeding pending against the insolvency resolution
professional, no interference is cal ed for against the impugned judgment.

86. We find no merit in this appeal. It is accordingly dismissed. However, in
the facts and circumstances, there shal be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

15 May, 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

389

ANNEXURE X.10

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

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

(arising out of Order dated 17th February, 2017 passed by National

Company Law Tribunal, Mumbai Bench, in C.P. No. 12/I&B/NCLT/MAH/

2017)

IN THE MATTER OF:

M/s. Starlog Enterprises Limited

... Appellant

Vs

ICICI Bank Limited

... Respondent

Present:

For Appel ant :

Mr R.S. Majumdar, Senior Advocate
alongwith Mr Darshan Mehta, Mr Raghav Dwivedi,

Ms Nirali Sanghavi and Mr Vaibhav Modi,

Advocates

For Respondents: Mr Ramji Srinivasan, Senior Advocate with

Mr Aslam Ahmed, Mr Sharad Kharra,

Ms Srivardhani and Mr Babit Singh Jamwal,

Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

1. This application under section 61 of Insolvency and Bankruptcy Code,

2016 (‘I&B Code’) has been preferred by appellant-corporate debtor against
ex parte order dated 17th February, 2017 passed by Adjudicating Authority,

Mumbai Bench, under section 7 of the I&B Code whereby the “adjudicating
authority” was pleased to admit the petition preferred by respondent-financial
creditor.

2. The appel ant has chal enged the impugned order on one of the grounds
that in absence of notice given to the appellant before admitting the case
under section 7 of the I&B Code, the impugned order is violative of rules of
natural justice.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

3. The other ground taken by the appel ant is that the application preferred
by respondent/financial creditor under section 7 is incomplete, misleading
and being not bona fide was fit to be rejected.

4. Learned counsel for the appellant submitted that the appellant could have
brought the aforesaid facts to the notice of the “adjudicating authority” had it
been given notice prior to admission. Detailed argument has been made by
learned senior counsel for the appel ant on the question of issuance of
notice prior to admission, in adherence to principle of rules of natural justice.

5. The aforesaid issue now stands decided by decision of the Appel ate

Tribunal in Innoventive Industries Ltd. v. ICICI Bank in CA (AT) (Insolvency)

Nos. 1 and 2 of 2017 wherein the Appel ate Tribunal observed and held :

“43. There is no specific provision under the I&B Code, 2016 to provide
hearing to corporate debtor in a petition under section 7 or 9 of the I&B

Code, 2016.”

“53. In view of the discussion above, we are of the view and hold that the

Adjudicating Authority is bound to issue a limited notice to the corporate
debtor before admitting a case for ascertainment of existence of default
based on material submitted by the corporate debtor and to find out whether
the application is complete and or there is any other defect required to be
removed. Adherence to principles of natural justice would not mean that
in every situation the adjudicating authority is required to afford reasonable
opportunity of hearing to the corporate debtor before passing its order.”

In this connection we may state that the vires of section 7 of I&B Code was
considered by hon’ble Calcutta High Court in “Sree Metaliks Ltd. and Anr.” in

Writ Petition 7144(W) of 2017, wherein hon’ble High Court by its judgment
dated 7th April, 2017 held as fol ows :

“…. However, it is to apply the principles of natural justice in the proceedings
before it. It can regulate if own procedure, however, subject to the other
provisions of the Act of 2013 or the Insolvency and Bankruptcy Code of

2016 and any rules made thereunder. The Code of 2016 read with the

Rules, 2016 is silent on the procedure to be adopted at the hearing of an
application under section 7 presented before the NCLT, that is to say, it is
silent whether a party respondent has a right of hearing before the
adjudicating authority or not.

Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to
adhere to the principles of the natural justice above anything else. It also
al ows the NCLT and NCLAT the power to regulate their own procedure.

Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it

PRACTICAL ASPECTS OF INSOLVENCY LAW

391
is required to apply its principles. Principles of natural justice require an
authority to hear the other party. In an application under section 7 of the

Code of 2016, the financial creditor is the applicant while the corporate
debtor is the respondent. A proceeding for declaration of insolvency of a
company has drastic consequences for a company. Such proceeding may
end up in its liquidation. A person cannot be condemned unheard. Where
a statute is silent on the right of hearing and it does not in express terms,
oust the principles of natural justice, the same can and should be read
into in. When the NCLT receives an application under section 7 of the

Code of 2016, therefore, it must afford a reasonable opportunity of hearing
to the corporate debtor as section 424 of the Companies Act, 2013
mandates it to ascertain the existence of default as claimed by the financial
creditor in the application. The NCLT is, therefore, obliged to afford a
reasonable opportunity to the financial debtor to contest such claim of
default by filing a written objection or any other written document as the

NCLT may direct and provide a reasonable opportunity of hearing to the
corporate debtor prior to admitting the petition filed under section 7 of the

Code of 2016. Section 7(4) of the Code of 2016 requires the NCLT to
ascertain the default of the corporate debtor. Such ascertainment of default
must necessarily involve the consideration of the documentary claim of
the financial creditor. This statutory requirement of ascertainment of default
brings within its wake the extension of a reasonable opportunity to the
corporate debtor to substantiate by document or otherwise, that there
does not exist a default as claimed against it. The proceedings before the

NCLT are adversarial in nature. Both the sides are, therefore, entitled to a
reasonable opportunity of hearing.

The requirement of NCLT and NCLAT to adhere to the principles of natural
justice and the fact that, the principles of natural justice are not ousted by
the Code of 2016 can be found from section 7(4) of the Code of 2016 and
rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Rule 4 deals with an application made by a financial
creditor under section 7 of the Code of 2016. Sub-rule (3) of rule 4 requires
such financial creditor to despatch a copy of the application filed with the
adjudicating authority, by registered post or speed post to the registered
office of the corporate debtor. Rule 10 of the Rules of 2016 states that, till
such time the rules of procedure for conduct of proceedings under the

Code of 2016 are notified, an application made under sub-section (1) of
section 7 of the Code of 2017 is required to be filed before the adjudicating
authority in accordance with rules 20, 21, 22, 23, 24 and 26 or Part-III of
the National Company Law Tribunal Rules, 2016.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Adherence to the principles of natural justice by NCLT or NCLAT would not
mean that in every situation, NCLT or NCLAT is required to afford a
reasonable opportunity of hearing to the respondent before passing its order.

In a given case, a situation may arise which may require NCLT to pass an
ex parte ad interim order against a respondent. Therefore, in such situation

NCLT, it may proceed to pass an ex parte ad interim order, however, after
recording the reasons for grant of such an order and why it has chosen
not to adhere to the principles of natural justice at that stage. It must,
thereafter proceed to afford the party respondent an opportunity of hearing
before confirming such ex parte ad interim order.

In the facts of the present case, the learned senior advocate for the
petitioner submits that, orders have been passed by the NCLT without
adherence to the principles of natural justice. The respondent was not
heard by the NCLT before passing the order.

It would be open to the parties to agitate their respective grievances with
regard to any order of NCLT or NCLAT as the case may be in accordance
with law. It is also open to the parties to point out that the NCLT and the

NCLAT are bound to fol ow the principles of natural justice while disposing
of proceedings before them.

In such circumstances, the chal enge to the vires to section 7 of the

Code of 2016 fails.”

6. Therefore, it is clear that before admitting an application under section 9
of the I&B Code it is mandatory duty of the adjudicating authority to issue
notice.

7. In the present case admittedly no notice was issued by the adjudicating
authority to the corporate debtor, before admitting the application filed under
section 9 of the I&B Code. For the said reason the judgment order cannot
be upheld having passed in violation of principle of natural justice.

8. Next contention of learned senior counsel for the appel ant was that the
financial creditor misrepresented material facts before the adjudicating
authority in order to obtain order of admission of the application. He
highlighted the conduct of the financial creditor by highlighting the following
facts.

9. On 6th February, 2017, the financial creditor addressed a notice to the
appel ant calling upon to pay a sum of Rs. 10,02,28,271.60 which was overdue
as on 6th February, 2017. The notice dated 6th February, 2017 was received
by the appellant only on 8th February, 2017.

PRACTICAL ASPECTS OF INSOLVENCY LAW

393

10. Before the appel ant could have replied or taken any necessary action in
respect of the said notice on 8th February, 2017 the appel ant received a
letter from the counsel for the financial creditor serving a copy of the present
application, relevant portion of which reads as follows :

“We send herewith a copy of the captioned company application on behalf
of our client under section 7 of the I&B Code, as and by way of service
upon you,”

without directly or indirectly specifying whether the said application has
been filed or clarifying whether the said application would be mentioned or
heard on any particular date/time, as is the prevalent practice.

11. Learned senior counsel for the appel ant also submitted that the application
filed by the financial creditor before the adjudicating authority they inflated
the default amount to be Rs.29,81,02,395.62. Even Annexure 2 to the said
application reflected “principal unmatured” arrived in the computing the “default
amount”.

12. Learned senior counsel for the appel ant further submits that as per the
repayment schedule under the loan agreements, the entire aforementioned
amount had not become due and payable as on 6th February, 2017. Neither
the financial creditor, by his own admission, recal ed the entire loan amount.

13. In view of the same, it was submitted that the computation of the default
amount of Rs.29,81,02,395.62 is grossly incorrect and contrary to the
provisions of law.

14. It was further submitted that for the said misstatement, the financial
creditor ought to be adequately penalised under the provisions of the I&B

Code particularly under section 75.

15. The learned counsel also highlighted the conduct of the respondent-

ICICI Bank – and pleaded as fol ows :

(a) The respondent herein is a part of the joint lenders’ forum (‘JLF’)

constituted by the appel ant pursuant to the guidelines of the Reserve

Bank of India (‘RBI’). The JLF for the appel ant was formed at the
instance of the respondent vide the meeting held on 14th June, 2014.

Thereafter, from 14th June 2014 till 2nd February, 2017, the respondent
along with the other lenders of the appellant and the appel ant itself,
have been participating in the periodical y held meetings of the JLF,
in all of which meetings the JLF had unanimously agreed to adopt

‘rectification’ as the corrective action plan (‘CAP’) for the appellant. It
is pertinent to note that the respondent itself had requested the lead

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PRACTICAL ASPECTS OF INSOLVENCY LAW
lender of the appel ant (L&T Infrastructure Finance Co.) to convene
the JLF meetings as the lead lender from February 2016 onwards.

(b) As per the minutes of the meeting held on 2nd February, 2017
circulated by the lead lender, the effect of the JLF meeting is that the

JLF has decided to continue with rectification as CAP for the appellant
and members of JLF have been requested “not to proceed with any
individual asset level action”. The respondent, however, chose to
dispute these minutes vide their email dated 16th February, 2017 as
circulated by respondent No. 33. As per the purported minutes of the
meeting, the JLF lenders had resolved that rectification as the CAP
has failed and the JLF members have decided to explore their options
for regularising the account.

(c) By the time the correct minutes of the meeting dated 2nd February,

2017 were circulated by the lead lender on 16th February, 2017, the
respondent had already filed its application on 8th February, 2017
itself with the adjudicating authority against the appellant without the
knowledge/consent of the other members of the JLF. It is pertinent to
note that the respondent while disputing the said minutes does not
even mention about the said application filed by the respondent
against the appellant before the adjudicating authority and their
reliance on the purported minutes of meeting in the said application.

(d) Arguendo the purported minutes of the meeting are correct, that still
does not justify the filing of the said application by the respondent
before the adjudicating authority de hors the structure of JLF. The

JLF members as per respondent’s own version had agreed to “explore
their action for resolving.... ” And not to resort to filing of application
under section 7 of the I&B Code. Possibly the notice of demand
served by the respondent to the appellant on 6th February, 2017 was
in furtherance of “exploration of its action for resolving....”. However,
the filing of the application under section 7 of the I&B Code
independently by the respondent, totally disregarding the other
members of the Forum was a mischief played by the respondent
upon the appel ant for reasons best known to them, which mischief
is apparent from the aforesaid conduct of the respondent.

(e) The respondent has acted contrary to the guidelines of the RBI in
relating to JLF, particularly the guideline issued on 24th September,

2015 which at para 5.2 of the guidelines stipulates that in case of
disagreement between the members of the JLF on deciding the CAP
for borrower, the dissenting lender shal have an option to exit their

PRACTICAL ASPECTS OF INSOLVENCY LAW

395
exposure by completely sel ing their exposure to a new or existing
lender. Therefore, clearly the object of the RBI is clearly that the
lenders act through the JLF structure and do not go beyond the JLF
structure or in other words lenders do not act independent of JLF
especially when an exit option exists for an individual lender. In this
regard, it is pertinent to refer to the recent judgment of the hon’ble

Bombay High Court in the cases of IDFC Bank Ltd. v. Ruchi Soya

Industries Ltd., inter alia, laying down two propositions – firstly,
circulars issued by the RBI pertaining to JLF are statutory in nature
and binding upon the banks and secondly, that member of JLF cannot
independently resort to/adopt any proceedings during the on-going
process of rectification through the JLF.

16. Similar argument was raised in Innoventive Industries Ltd. v. ICICI Bank.

Having noticed such argument, the Appel ate Tribunal in Innoventive

Industries Ltd. v. ICICI Bank held that :

“82. As discussed in the previous paragraphs, for initiation of corporate
resolution process by financial creditor under sub-section (4) of section 7
of the Code, 2016, the Adjudicating Authority on receipt of application
under sub-section (2) is required to ascertain existence of default from
the records of information utility or on the basis of other evidence furnished
by the financial creditor under sub-section (3). Under section 5 of section

7, the Adjudicating Authority is required to satisfy –

(a) Whether a default has occurred;

(b) Whether an application is complete; and

(c) Whether any disciplinary proceeding is against the proposed
insolvency resolution professional.

83. Once it is satisfied it is required to admit the case but in case the
application is incomplete application, the financial creditor is to be granted
seven days’ time to complete the application. However, in a case where
there is no default or defects cannot be rectified, or the record enclosed
is misleading, the application has to be rejected.

84. Beyond the aforesaid practice, the adjudicating authority is not required
to look into any other factor, including the question whether permission or
consent has been obtained from one or other authority, including the JLF.

Therefore, the contention of the petition that the respondent has not
obtained permission or consent of JLF to the present proceeding which
will be adversely affect loan of other members cannot be accepted and fit
to be rejected.”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

17. The impact of the insolvency resolution professional (‘IRP’) on the business
and management of the appel ant, al eged to be as follows :

The interim IRP has been appointed by the adjudicating authority by the
impugned order. On 1st March, 2017 the IRP issued a public notice in

Economic Times therein calling upon the creditors of the company to submit
their claims. From 2nd March, 2017 onwards the IRP has been attending
office from the appellant’s premises and has taken over the management of
affairs of the appel ant.

18. Learned counsel highlighted the events that occurred pursuant to IRP
taking over the management of the affairs of the appel ant.

18.1 G.E Industrial India (P.) Ltd. (‘GE’) has been a crucial and important
client of the appellant. GE had placed several orders in October

2016 and January 2017 for commission of the appellant’s cranes
at its project sites at Lalpur, Kadapa, Jamnagar, etc. The nature of
appellant’s contracts with its clients are such that the appellant is
required to regularly and in a very prompt, timely manner, meet
the requirements raised by its clients such as release of funds for
the day-to-day functioning of the cranes as well as management
of the staff handling the cranes, hiring and dispatching the
necessary contractors, engineers to the project sites as may be
required, etc.

18.2 GE addressed several e-mails dated 6th March and 7th March 2017
and so on to the appel ant in respect of the appellant’s cranes
commissioned at GE’s Kadappa site. GE, inter alia, required the
appellant to urgently release funds for the crane’s diesel, send a
safety engineer at the project site and take necessary action in respect
of replacement of cotter pin in one of the ancil ary equipments.

18.3 The appel ant’s project manager forwarded each of these e-mails to
the IRP along with an explanation regarding the nature of the service
and the timelines for the same, wherever required.

18.4 Despite the lengthy trail of correspondence and constant service
requests, IRP failed to do much as satisfactorily reply to GE’s
concerns, much less release the necessary funds and take actions.

As a result of IRP’s failure to release necessary funds and act on the
service requests in a timely manner, the appellant was unable to
perform its contractual obligations qua GE.

18.5 Ultimately vide an email dated 18th March, 2017, GE has terminated
the contract with the appel ant resulting in a financial loss of at least

PRACTICAL ASPECTS OF INSOLVENCY LAW

397

Rs.2,70,00,000 as wel as loss of goodwil that the appellant has
painstakingly built in this business over the last 30 years.

18.6 It came to the knowledge of one of appel ant’s director Mr. Saket

Agarwal that the IRP had contrary to the powers granted to him under
the I&B Code, instruct some of the employees of the respondent to
disclose the bank account details of the fol owing companies which
are subsidiaries of the appellant –

(i) Starport Logistics Ltd.;

(i ) ABG Turnkey (P.) Ltd.;

(iii) Kandla Container Terminal (P.) Ltd.; and

(iv) ABG Projects & Services Ltd., UK.

18.7 It appears that the IRP had directed employees of the appel ant to
change the mandate of authorised signatories in the bank accounts
of the aforesaid subsidiaries and had also addressed correspondence
to the banks requesting a change in the authorised signatories.

18.8 The I&B Code does not in any manner empower an IRP to interfere
with the affairs of the subsidiaries of the corporate debtor. In fact, the

Explanation to section 18 of the I&B Code explicitly provides that the
assets of the corporate debtor shal not include the assets of its

Indian or foreign subsidiaries. In that view of the matter, the aforesaid
act of the IRP is ex facie il egal and unsustainable in law.

18.9 As a result of the absolute mismanagement and dis-interest in the
management of the affairs of the appel ant, the appel ant has suffered
loss of several valuable human resources, namely, Mr. R C Swamy,
project manager who has been with the employment of the appellant
since 26 years, submitted his resignation therein citing “the working
atmosphere” at the appellant’s office as “severe stress” as the reasons
for his resignation. Mr. Meet Shay, deputy manager e-mailed his
resignation on 28th March, 2017. Mr. Arup Kumar Ghosh, who was
directed by the IRP to take charge of the head office activities of the
appel ant e-mailed his resignation on 29th March, 2017 citing inability
to “bear the stress to do so”. Mr. Varun Kaka, Legal Associate of the
appel ant also resigned on 29th March, 2017.

19. Sub-section (12) of section 3 of I&B Code defined “default” to mean “a
liability or obligation in respect of claim which is due from an person....” The
principal (unmatured) amount, never having become due and payable to the
financial creditor could not have been claimed as the default amount.

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20. Impugned order herein suffers from the vice of non-application of mind
by the adjudicating authority on the fol owing counts :

20.1 The ascertainment of existence of default by the adjudicating authority
which under the provisions of sub-section (4) of section 7 of the I&B

Code has to be based on the application/other evidence submitted
by the financial creditor, suffers from non-application of mind given
the apparent and conspicuous mismatch between the amount
demanded by the respondent from the appel ant in its demand notice
dated 6th February, 2017 and the amount stated to be in default in
the said application.

20.2 Secondly, the Adjudicating Authority in paragraph 8 of the impugned
order has recorded that proof of service showing service of notice
upon the corporate debtor before filing the petition has been filed by
the financial creditor, without considering the true nature and purport
of the so-cal ed notice dated 8th February, 2017 which did not even
mention the essential details which were to be mentioned, such as :

(a) whether the application has been filed;

(b) if the application is filed, what is the filing number; and

(c) date of listing, if notified.

20.3 The notice has been given without considering the provisions of sub-
rule (3) of rule 4 of Insolvency & Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 which mandates that an application
shal “dispatch forthwith”, a copy of the application “filed with the

Adjudicating Authority”. Thereby meaning a post-filing notice and
not “before filing”, the obvious purpose for the same being to put the
corporate debtor to adequate and informed notice. The adjudicating
authority ought to have realised these deviations from the prescribed
procedure and either rejected the application or directed the respondent
to fol ow the provisions of sub-rule (3) of rule 4 of Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and
rule 21 of the National Company Law Tribunal Rules.

20.4 Lastly, the adjudicating authority has reached a conclusion at
paragraph 9 of the impugned order that it is satisfied that the appel ant
has committed a default of Rs.27.77 crore, which finding is not only
perverse, but also is contrary to the very application of the financial
creditor itself in complete disregard to the apparent and conspicuous
mismatch between the amount demanded by the financial creditor
from the appel ant-corporate debtor in its demand notice dated 6th

PRACTICAL ASPECTS OF INSOLVENCY LAW

399

February, 2017 and the amount stated to be in default in the said
application.

21. Showing an incorrect claim, moving the application in a hasty manner
and obtaining an ex parte order from the adjudicating authority which admitted
such an incorrect claim, the financial creditor cannot disprove its mala fide
intention by stating that the claim submitted is correct amount. The I&B

Code does not provide for any such mechanism where post-admission, the
applicant financial creditor can modify their claim amount.

22. In some of the cases, an insolvency resolution process can and may
have adverse consequences on the welfare of the company. This makes it
imperative for the Adjudicating Authority to adopt a cautious approach in
admitting insolvency applications and also ensuring adherence to the
principles of natural justice.

23. Admittedly the impugned order is ex facie il egal and ought to be set
aside by the Appel ate Tribunal. For the reasons aforesaid, we set aside the
ex parte impugned order dated 17th February, 2017 passed by adjudicating
authority, Mumbai Bench in CP No. 12/I&BP/NCLT/MAH/2017 and al ow the
appeal.

24. In effect the appointment of IRP, order declaring moratorium, freezing of
account and al other order passed by adjudicating authority pursuant to
impugned order and action taken by the interim resolution professional,
including the advertisement published in the newspaper calling for
applications are declared il egal. The adjudicating authority is directed to
close the proceeding. The appellant-company is released from the rigour of
law and al ow the appel ant-company to function independently through its

Board of directors from immediate effect.

25. In the facts and circumstances, we impose a cost of Rs. 50,000 on
respondent-financial creditor, ICICI Bank – to be paid in favour of Registrar,

National Company Law Appellate Tribunal, New Delhi by demand draft within
one month towards development of its Library. The appeal is al owed with
aforesaid observations and directions.

(Mr. Balvinder Singh)

(Justice S.J.Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

24th May, 2017

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ANNEXURE X.11

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) No. 09 of 2017

(arising out of Order dated 9th March 2017 passed by NCLT, Allahabad

Bench in C.P.No. 19/Ald/2017)

JK Jute Mills Company Limited

Appellant

Vs.

M/s Surendra Trading Company

Respondent

Present:

For Appellants: Mr. Virendra Ganda, Senior Advocate
with Mr. Arvind Kumar and Mr. Abhijeet Sinha,

Advocates

For Respondent: Mr. Krishnendu Dutta with Ms. Bhawna

Chopra Rustogi, Ms. Prachi Ohri, Advocates for R-l

Mr. Ashok Kumar Jain with Mr. Sahil Dhawan, Advocates
for R-2

For other Respondents: Mr. Shakti Ahmed and Mr. Atanu

Mukherjee, Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA.J.

1. This appeal has been preferred by appel ant-J K Jute Mills Company

Limited against Order dated 9th March, 2017 passed by Adjudicating Authority

(National Company Law Tribunal), Allahabad Bench in CP No. 10/Ald/2017.

2. By the impugned order the Adjudicating Authority overruled the objection
of the appel ant-corporate Debtor and directed the appel ant to maintain
status quo on immovable properties.

3. The question involved in this case is :

Whether the time limit prescribed in Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as 'Code 2016') for admitting or rejecting a
petition or initiation of insolvency resolution process is mandatory?

PRACTICAL ASPECTS OF INSOLVENCY LAW

401

4. The brief fact of the case are as follows :

The respondent/‘operational creditor’ - Surendra Trading Co. issued a demand
notice under section 8 of the ‘Code’ on 6th January, 2017 to the appel ant/

‘corporate debtor’ raising claim of dues pertaining to the year 2001-02.

5. The appel ant/‘corporate debtor’ by letter dated 25th January, 2017 objected
the claim as ‘time barred’. Thereafter, the respondent/‘operational creditor’

filed a petition under section 9 of the ‘Code’, before the Adjudicating Authority,

Al ahabad on 10th February, 2017. In the said application the adjudicating
authority passed the interim order.

6. According to appel ant, the petition under section 9 was filed without
fol owing the mandatory provision of sub-rule (2) of rule 6 of “Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016” (hereinafter
referred to as 'Adjudicating Authority Rules').

7. The case was listed before Adjudicating Authority on 16th February, 2016
but there being defects, learned counsel for the operational creditor sought
time to rectify the defects as also to receive instructions about the stage of
proceedings pending before Board for Industrial and Financial Reconstruction

(‘BIFR’) though such proceeding stood abated by virtue of Companies Act,

2013.

8. The ‘Adjudicating Authority’ noticed that the debt due for payment was
defaulted in the year 2004. The ‘operational creditor’ was asked to clarify
whether the claim is barred by law of limitation and whether any recovery
proceedings were earlier initiated by the operational creditor before any
competent court of law or was deferred or stayed under the provisions of

‘Sick Companies Rehabilitation Act, 1985’. The matter was ordered to be
listed on 28th February, 2017 for removal of objection and procedural defects.

9. On 28th February, 2017, counsel for the operational creditor sought more
time for filing formal memo by providing/furnishing of the latest order passed
by BIFR. The appel ant-corporate debtor was instructed to clarify about the
position of prescribed limitation for making recovery of his debt through its
memo. The case was ordered to be listed for further hearing on 3rd March,

2017.

10. On 9th March, 2017, a third party, J K Jute Mill Majdur Sabha filed a
miscel aneous application for intervention. The Adjudicating Authority after
going through the petition for intervention observed that its ‘locus standi’ is
to be decided first. Therefore, parties were granted time to file reply on
maintainability of the third party application/claims. Further, the operational
creditor was also granted liberty to file rejoinder to objection of the corporate

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PRACTICAL ASPECTS OF INSOLVENCY LAW
debtor. Leaned counsel for the “operational creditor” as also the workers
union requested the Adjudicating Authority to grant order of status quo, as
the corporate debtor may alienate its assets. When it was objected by learned
counsel for the appel ant/corporate debtor, the Adjudicating Authority held
that under rule 11 of NCLT Rules, 2016, it is conferred with the powers to
provide substantial justice to the party concerned.

11. Learned counsel for the appel ant submitted that the Adjudicating Authority
became “functus officio” after the time period specified under section 9 of
the ‘Code’ and, therefore, it has no power to grant stay of sale of assets or

“status quo” in regard to any assets.

12. It was further contended that no prayer having been made by the

“operational creditor” to grant stay, it was not open to the Adjudicating

Authority to pass interim order of status quo.

13. It was further contended that the Adjudicating Authority has no inherent
jurisdiction under the Code to pass any ad interim order.

14. Learned counsel for the appellant highlighted the defects in the demand
notice dated 6th January, 2017 as was sent by respondent/‘operational
creditor’. It was also contended that the petition under section 9 is barred by
law of limitation.

15. On the other hand according to learned counsel for the respondent/

’operational creditor’ 14 days’ time limit prescribed under section 9 of the

‘Code’ for passing orders of admission or rejection of application is directory;
it is not mandatory. It was also contended that the court should avoid any
construction of an enactment which wil lead to an unworkable, inconsistent
or impracticable results. Reliance was placed on Hon’ble Supreme Court’s
decision in H S Vankani v. State of Gujarat AIR 2010 SC 1714.

16. Referring to different situation, learned counsel for the respondent/

‘operational creditor’ further submitted that if 14 days’ period prescribed
under sub-section (5) of section 9 is considered as mandatory, it will result
in numerous anomalous situations which is not the intention of the legislature
in drafting the Code.

17. Further, according to learned counsel for respondent/’operational creditor’

7 days’ period for curing of defects is independent of the 14 days’ period for
prescribed under sub-section (5) of section 9 before admission or rejection
of the application.

18. The case was heard on merit and judgment was reserved on 28th March,

2017. The Adjudicating Authority in the meantime was given liberty to decide

PRACTICAL ASPECTS OF INSOLVENCY LAW

403
the question of maintainability of the petition and the contentions as raised
in this appeal.

19. In the written submissions, it has been brought to the notice of this
court that the Adjudicating Authority fixed 5th April, 2017 as the date for
hearing the petition on the question of maintainability as raised in this appeal.

Therefore, the respondent requested the Appel ate Tribunal to al ow the

Adjudicating Authority to pass the order of maintainability as raised in this
appeal with further prayer “not to deny” the right of appeal after final decision
rendered by the Adjudicating Authority. It is informed that subsequently the

Tribunal taken up the matter on 10th April, 2017, but on certain ground
adjourned the case.

20. We have also noticed that the Adjudicating Authority, Mumbai Bench in
other cases under section 9 of the Code rejected some of the applications
in view of mandatory time limit prescribed under section 9 of the Code.

21. As important question of law is involved and even after three weeks of
reserved judgment, Adjudicating Authority has but passed any final order of
admission or rejection on the petition under section 9 and now more than 60
days have passed after filing of the petition and as important question of
law are involved, we decided to proceed with the matter.

22. To decide the question whether the time limit prescribed for initiation and
completion of insolvency resolution process is mandatory, it is desirable to
notice different time limit prescribed under the Insolvency and Bankruptcy

Code, 2016.

23. “Corporate insolvency resolution process” can be initiated under different
provisions of the Code, such as under section 7 by “financial creditor”,
under section 9 by “operational creditor” and under section 10 by the “corporate
applicant”. Though procedures after ‘admission’ of insolvency resolution
process is almost common, the legislature prescribed different time limit for
admission or rejection of the petitions.

24. For initiation of insolvency resolution process by “financial creditors”

under section 7, the Adjudicating Authority is al owed 14 days of the receipt
of the application to ascertain the existence of a default from the records
with information utility or on the basis of other evidence furnished by the
financial creditors; under sub-section (5) of section 7 before or after 14
days, if Adjudicating Authority is satisfied that a default has occurred and
the application under sub-section (2) of section 7 is complete and there is
no disciplinary proceedings pending against the proposed resolution
professional, the Adjudicating Authority is required to admit the application.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

On the contrary, if the default has not occurred or the application is not
complete then the Adjudicating Authority is required to dismiss the petition.

However, in case of incomplete application the Adjudicating Authority is
required to grant seven days’ time to the applicant/financial creditor to rectify
the defect. The section 7 reads as fol ows :

“Section 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 shal 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

(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).

(5) Where the Adjudicating Authority is satisfied that –

(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against
the proposed resolution professional, it may, by order, admit such
application; or

(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application :

PRACTICAL ASPECTS OF INSOLVENCY LAW

405

Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shal communicate –

(a) the order under clause (a) of sub-section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as the
case may be.”

25. On the contrary in the case of “operational creditors” under sub-section

(5) of section 9, within 14 days of the receipt of the application the

“adjudicating authority” is required to either admit the application, if complete
or reject the application, if not complete or may grant 7 days’ time from the
date of receipt of notice to the operational creditor to rectify the defect, as
evident from section 9 and reads as follows :

“Section 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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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

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PRACTICAL ASPECTS OF INSOLVENCY LAW
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 (4), if any;

(i ) 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, shal before rejecting an application
under sub-clause (a) of clause (i ) 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 shal commence from

PRACTICAL ASPECTS OF INSOLVENCY LAW

407
the date of admission of the application under sub-section (5) of this
section.”

26. Similarly in the case of initiation of corporate insolvency resolution process
by “corporate applicant”, like sub-section (5) of section 9, the Adjudicating

Authority, within a period of 14 days of the receipt of the application, by an
order required to admit the application, if it is complete or reject the application
if it is incomplete.

However, before rejecting the application it is required to give notice and

“corporate applicant” can be allowed 7 days’ period to rectify the defects.

This is evident from sub-section (4) of section 10, as quoted below :

“Section 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) shal 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 shal , 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 shal , 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.

(5) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (4) of this
section.”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

27. Where an application is not disposed of or an order is not passed within
a period specified in the Code, in such case the Adjudicating Authority may
record the reasons for not doing so within the period so specified and may
request the hon’ble President of National Company Law Tribunal for extension
of time, who may after taking into account the reasons so recorded can
extend the period specified in the Act but not exceeding 10 days, as apparent
from sub-section (1) of section 64, as quoted below :

“64. (1) Where an application is not disposed of or an order is not passed
within the period specified in this Code, the National Company Law Tribunal
or the National Company Law Appel ate Tribunal, as the case may be,
shal record the reasons for not doing so within the period so specified;
and the President of the National Company Law Tribunal or the Chairperson
of the National Company Law Appel ate Tribunal, as the case may be,
may, after taking into account the reasons so recorded, extend the period
specified in the Act but not exceeding ten days.”

28. There are other time limit prescribed under the Code such as section

16(1) in terms of which the Adjudicating Authority is required to appoint an
interim resolution professional within 14 days from the insolvency
commencement date (admission of the case). Under sub-section (5) of
section 16, the term of the interim resolution professional cannot exceed 30
days from the date of appointment, as evident from relevant provisions,
which reads as fol ows :

“Section 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 shal make a reference to the Board for the
recommendation of an insolvency professional who may act as an
interim resolution professional;

PRACTICAL ASPECTS OF INSOLVENCY LAW

409

(b) a proposal 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 shal , 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 shal not exceed thirty
days from date of his appointment.”

29. Time limit for completion of insolvency resolution process is prescribed
under section 12 as per which the corporate insolvency resolution process
required to be completed within a period of 180 days from the date of
admission of the application. If resolution professional for any reason not in
a position to complete this job within 180 days may file an application under
sub-section (2) of section 12 before the Adjudicating Authority to extend the
period. Under sub-section (3) of section 12, the Adjudicating Authority may
extend the period, but not exceeding 90 days, i.e., total 270 days has been
al owed for insolvency resolution process. This is evidence from section 12
as quoted below :

“Section 12. Time-limit for completion of insolvency resolution
process.

(1) Subject to sub-section (2), the corporate insolvency resolution process
shal be completed within a period of one hundred and eighty days from
the date of admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating

Authority to extend the period of the corporate insolvency resolution
process beyond one hundred and eighty days, if instructed to do so by a
resolution passed at a meeting of the committee of creditors by a vote of
seventy-five per cent, of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating

Authority is satisfied that the subject-matter of the case is such that
corporate insolvency resolution process cannot be completed within one
hundred and eighty days, it may by order extend the duration of such
process beyond one hundred and eighty days by such further period as it
thinks fit, but not exceeding ninety days :

Provided that any extension of the period of corporate insolvency resolution
process under this section shal not be granted more than once.”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

30. Before expiry of the insolvency resolution process of the maximum
period permitted for completion under section 12 if the Adjudicating Authority
does not receive a resolution plan, under section 33 the Adjudicating Authority
is required to pass an order requiring the corporate debtor to be liquidated in
the manner as laid down in the said chapter. For proper appreciation, section

33 of the Code is quoted below :

“33. Initiation of liquidation – (1) Where the Adjudicating Authority, –

(a) before the expiry of the insolvency resolution process period or the
maximum period permitted for completion of the corporate insolvency
resolution process under section 12 or the fast track corporate
insolvency resolution process under section 56, as the case may be,
does not receive a resolution plan under sub-section (6) of section

30; or

(b) rejects the resolution plan under section 31 for the non-compliance
of the requirements specified therein,
it shal –

(i) pass an order requiring the corporate debtor to be liquidated in the
manner as laid down in this Chapter;

(i ) issue a public announcement stating that the corporate debtor is in
liquidation; and

(iii) require such order to be sent to the authority with which the corporate
debtor is registered.”

31. From the aforesaid provisions we find that time is the essence of the

Insolvency and Bankruptcy Code, 2016, but it is to be seen whether on
failure to do so, the Adjudicating Authority is competent to pass appropriate
order. Further in case resolution process is not completed within the time
prescribed as per section 33 it wil lead to initiation of liquidation proceedings,
which may affect the corporate debtor, which otherwise was not required to
be initiated.

32. In P T Rajan v. T P M Sahir [2003] 8 SCC 498, the Hon’ble Supreme

Court observed that where Adjudicating Authority has to perform a statutory
function like admitting or rejecting an application within a time period
prescribed, the time period would have to held to be directory and not
mandatory. In the said case, Hon’ble Apex Court observed :

‘48. It is wel -settled principle of law that where a statutory functionary is
asked to perform a statutory duty within the time prescribed therefor, the

PRACTICAL ASPECTS OF INSOLVENCY LAW

411
same would be directory and not mandatory – see Shiveshwar Prasad

Sinha v. District Magistrate of Monghur AIR 1966 Patna 144; Nomita

Chowdhury v. State of West Bengal [1999] Comp LJ 21 and Garbari Union

Co-operative Agricultural Credit Society Ltd. v. Swapan Kumar Jana [1997]

1 CHN 189.

49. Furthermore, a provision in a statute which is procedural in nature
although employs the word “shall” may not be held to be mandatory if
thereby no prejudice is caused.’

33. That the Hon’ble Apex Court has on numerous occasions interpreted the
word ‘shall’ to mean ‘may’. An analogous position can be found in the context
of the time period prescribed for filing written statements by defendants to a
suit, wherein, the hon’ble Apex Court was faced with the question of a
court’s power to take on record Written Statements that were filed beyond
the period of 90 days, as prescribed under order VIII, Rule 1 of the Code of

Civil Procedure, 1908. In this regard, the Hon’ble Supreme Court in Kailash
v. Nanhku [2005] 4 SCC 480 held as under :

“27. Three things are clear. Firstly, a careful reading of the language in
which order 8, rule 1 has been drafted, shows that it casts an obligation
on the defendant to file the written statement within 30 days from the date
of service of summons on him and within the extended time falling within

90 days. The provision does not deal with the power of the court and also
does not specifical y take away the power of the court to take the written
statement on record though filed beyond the time as provided for. Secondly,
the nature of the provision contained in order 8, rule 1 is procedural. It is
not a part of the substantive law. Thirdly, the object behind substituting
order 8, rule 1 in the present shape is to curb the mischief of unscrupulous
defendants adopting dilatory tactics, delaying the disposal of cases much
to the chagrin of the plaintiffs and petitioners approaching the court for
quick relief and also to the serious inconvenience of the court faced with
frequent prayers for adjournments. The object is to expedite the hearing
and not to scuttle the same. The process of justice may be speeded up
and hurried but the fairness which is a basic element of justice cannot be
permitted to be buried.”

34. Further, Supreme Court in the matter of Smt. Rani Kusum v. Smt.

Kanchan Devi and Others (2005) 6 SCC 705, concurring with the ratio laid
down in Kailash V. Nanhku (supra) held that :

“10. Al the rules of procedure are the handmaid of justice. The language
employed by the draftsman of processual law may be liberal or stringent,
but the fact remains that the object of prescribing procedure is to advance

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the cause of justice. In an adversarial system, no party should ordinarily
be denied the opportunity of participating in the process of justice
dispensation. Unless compel ed by express and specific language of the
statute, the provisions of CPC or any other procedural enactment ought
not to be construed in a manner which would leave the court helpless to
meet extraordinary situations in the ends of justice.

11. The mortality of justice at the hands of law troubles a judge’s conscience
and points an angry interrogation at the law reformer.

12. The processual law so dominates in certain systems as to overpower
substantive rights and substantial justice. The humanist rule that
procedure should be the handmaid, not the mistress, of legal justice
compels consideration of vesting a residuary power in the judges to act
ex debito justitiae where the tragic sequel otherwise would be wholly
inequitable. Justice is the goal of jurisprudence, processual, as much
as substantive – see Sushil Kumar Sen v. State of Bihar [1975] 1 SCC

774.

13. No person has a vested right in any course of procedure. He has only
the right of prosecution or defence in the manner for the time being by or
for the court in which the case is pending, and if, by an Act of Parliament
the mode of procedure is altered, he has no other right than to proceed
according to the altered mode – see Blyth v. Blyth [1966] 1 Al ER 524/

1966 AC 643/[1966] 2 WLR 634 (HL). A procedural law should not ordinarily
be construed as mandatory; the procedural law is always subservient to
and is in aid to justice. Any interpretation which eludes or frustrates the
recipient of justice is not to be fol owed – see Shreenath v. Rajesh [1998]

4 SCC 543/AIR 1998 SC 1827.

14. Processual law is not to be a tyrant but a servant, not an obstruction
but an aid to justice. Procedural prescriptions are the handmaid and not
the mistress, a lubricant, not a resistant in the administration of justice.”

35. Sub-section (2) of section 7, sub-section (2) of section 9 and sub-section

(2) of section 10 deals with the form and manner in which respective
applications under sections 7, 9 and 10 ought to be filed along with such
process fee as may be prescribed. This is a procedural matter to be verified
by the Registry of the NCLT.

36. Sub-section (1) of section 5 defines “adjudicating authority” for the purpose
of that part means “National Company Law Tribunal”, (NCLT) constituted
under section 408 of the Companies Act, 2013.

PRACTICAL ASPECTS OF INSOLVENCY LAW

413

37. We have noticed that Code, empowers “adjudicating authority” to pass
orders under sections 7, 9 and 10 of the Code, 2016 and not the NCLT. It is
by virtue of the definition under sub-section (1) of section 5 of the Code, the

NCLT plays its role as “adjudicating authority” and not that a Company Law

Tribunal. Therefore, in strict sense, mandate under section 420 of the

Companies Act, 2013 cannot be transpose in Code, 2016 by reading “orders
of Tribunal”, as “Order of Adjudicating Authority”.

38. The Adjudicating Authority has different roles to play at different stages.

The one of such role is somewhat administrative in nature when under sub-
section (4) of section 7 or sub-section (5) of section 9 and sub-section (4) of
section 10, the Adjudicating Authority is required to find out whether (i) the
case is complete in terms of the provisions of sub-section (2) of section 7
or sub-section (2) of section 9 or sub-section (2) of section 10, as the case
may be, or (i ) whether there is a defect, i.e., application is nor in order and
incomplete. Otherwise role of Adjudicating Authority is judicial in nature
particularly when it decides as to whether the “insolvency resolution process”

to be initiated by admitting of the application or to reject the application. As
a judicial authority, in case the application is incomplete, it is also empowered
to decide whether to grant 7 days’ time to rectify the defects. In case the
applications are admitted and resolution process starts, the Adjudicating

Authority is required to pass judicial order under sections 13 and 14 of the

Code and may order for public announcement in terms section 15 and then
to oversee the resolution process and final y, if so required, to pass order
for liquidation.

39. The time period of 14 days prescribed under sub-section (4) of section

7, sub-section (5) of section 9 and sub-section (4) of section 10 are to be
counted from the date of receipt of application. The word “date of receipt of
application” cannot be treated to be “date of filing of the application”. We
have noticed that the Registry is required to find out whether the application
is in proper form and accompanied with such fees as may be prescribed.

So, the Registry will take certain time and during such period, the applications
are not brought to the notice of the “Adjudicating Authority”. Therefore, 14
days’ period granted to the Adjudicating Authority under the provisions of
the Code cannot be counted from the “date of filing of the application” but
from the date when such application is presented before the Adjudicating

Authority, i.e., “the date on which it is listed for admission/order”.

40. In the present scenario, the Insolvency and Bankruptcy Code do not bar
or render the Adjudicating Authority powerless to admit an application or
rejecting the application.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

41. Further, nature of the provisions contained in sub-section (5) of section

7 or sub-section (5) of section 9 and sub-section (4) of section 10 of the

Code like order VIII, Rule 1 being procedural in nature cannot be treated to
be a mandate of law.

42. The object behind the time period prescribed under sub-section (5) of
section 7, sub-section (5) of section 9 and sub-section (4) of section 10,
like order VIII, Rule 1 of CPC is to prevent the delay in hearing the disposal
of the cases. The Adjudicating Authority cannot ignore the provisions. But
in appropriate cases, for the reasons to be recorded in writing, it can admit
or reject the petition after the period prescribed under section 7 or section 9
or section 10.

43. Thus, in view of the aforementioned unambiguous position of law laid
down by the hon’ble Apex Court and discussion as made above, we hold
that the mandate of sub-section (5) of section 7 or sub-section (5) of section

9 or sub-section (4) of section 10 procedural in nature, a tool of aid in
expeditious dispensation of justice and is directory.

44. However, the 7 days’ period for the rectification of defects as stipulated
under proviso to the relevant provisions as noticed above is required to be
complied with by the corporate debtor whose application, otherwise, being
incomplete is fit to be rejected. In this background we hold that the proviso
to sub-section (5) of section 7 or proviso to sub-section (5) of section 9 or
proviso to sub-section (4) of section 10 to remove the defect within 7 days
are mandatory, and on failure applications are fit to be rejected.

45. Section 12 is a “time limit for completion of insolvency resolution process”

which is to be completed within 180 days from the date of admission of the
application. An extension of the period of corporate insolvency resolution
process can be granted by the Adjudicating Authority but it cannot exceed

90 days and cannot be granted more than once.

46. The resultant effect of non-completion of insolvency resolution process
within the time limit of 180 days + extended period of 90 days, i.e., total 270
days wil result in to initiation of liquidation proceedings under section 33.

As the end result of resolution process is approval of resolution plan or
initiation of liquidation of proceedings, we hold the time granted under section

12 of the “Code” is mandatory.

Similarly, term allowed to “Interim resolution professional” is 30 days. Thereby

“Interim resolution professional” cannot exceed 30 days from the date of his
appointment as per sub-section (5) of section 16. However, as the regular
resolution professional starts functioning on completion of period of interim

PRACTICAL ASPECTS OF INSOLVENCY LAW

415
resolution professional the performance of the duties of Interim resolution
professional cannot be held to be mandatory though the period is required
to be counted for completion of the interim resolution process, i.e., 180
days and in appropriate case another 90 days can be granted, i.e., maximum

270 days which is mandatory.

47. It is not mandatory for “operational creditors” to propose the resolution
professional to act as an interim resolution professional. It may or may not
propose. In such case, the Adjudicating Authority wil nominate insolvency
resolution professional as recommended by the Board on reference from
the Adjudicating Authority. This process also may take some time after
admission of the case and, therefore, it is clear that the procedural part of
section 7 or section 9 or section 10 are directory in nature.

48. We have noticed the decision of Hon’ble Supreme Court in Union of

India v. Popular Construction Co. [2001] 8 SCC 470. In the said case, hon’ble

Supreme Court was deciding the question regarding extension of time period
beyond the time prescribed in the statutes and held when the legislatures
prescribed a special limitation for the purpose of the appeal, the court cannot
entertain an application beyond the extended period, if prescribed therein.

49. The aforesaid decision of the Hon’ble Supreme Court in Popular

Construction Co. (supra) cannot be said to be applicable to procedural part
of section 7 or section 9 or section 10, though it is applicable to section 64
which mandates extension of period not beyond 10 days as also to sub-
sections (3) and (4) of section 12 which relates to time limit prescribed for
completion of insolvency resolution process.

50. In these cases, we are not happy with the manner by the Adjudicating

Authority has passed one or other order. The Adjudicating Authority, in spite
of time frame scheme has taken the matter very leisurely and lightly. The
time is the essence of the Code and al the stakeholders, including the

Adjudicating Authority are required to perform its job within time prescribed
under the Code except in exceptional circumstances if the adjudicating
authority for one or other good reason fail to do so. In the case in hand we
find that the Adjudicating Authority has unnecessarily adjourned the case
from time-to-time which is against the essence of the Code.

51. Further, we find that the application was defective, and for the said
reason the application was not admitted within the specified time. Even if it
is presumed that 7 days additional days time was to be granted to the
operational creditor, the defects having pointed out on 16th February, 2017
and having not taken care within time, we hold that the petition under section

416

PRACTICAL ASPECTS OF INSOLVENCY LAW

9 filed by respondent/operational creditor being incomplete was fit to be
rejected.

52. For the reasons aforesaid, we direct the Adjudicating Authority to reject
and close the petition preferred by respondents. After we reserved the
judgment if any order has been passed by the Adjudicating Authority, except
order of dismissal, if any, are also declared illegal.

53. The appeal is al owed. However, there shal be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J.Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

1st May, 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

417

ANNEXURE X.12

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8400 of 2017

M/S. SURENDRA TRADING COMPANY

.....APPELLANT(S)

VERSUS

M/S. JUGGILAL KAMLAPAT JUTE MILLS COMPANY

LIMITED AND OTHERS

.....RESPONDENT(S)

WITH

CIVIL APPEAL NOS.15091-15091 OF 2017

(ARISING OUT OF DIARY NO. 22835 OF 2017)

JUDGMENT

A.K. SIKRI, J.

Permission to file the appeal is granted and delay condoned in Diary No.

22835 of 2017.

2. Though this case has a past history as wel , in the instant appeal, we are
concerned with the correctness of the order dated May 01, 2017 passed by
the National Company Law Appellate Tribunal (hereinafter referred to as, the

‘NCLAT’) whereby it is held that the time of seven days prescribed in proviso
to sub-section (5) of Section 9 of the Insolvency and Bankruptcy Code,

2016 (for short, the ‘Code’) is mandatory in nature and if the defects contained
in the application filed by the ‘operational creditor’ for initiating corporate
insolvency resolution against a corporate debtor are not removed within
seven days of the receipt of notice given by the adjudicating authority for
removal of such objections, then such an application filed under Section 9
of the Code is liable to be rejected. The precise question of law which was
framed by the NCLAT for its decision is to the fol owing effect:

“Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016

(hereinafter referred to as Code 2016) for admitting or rejecting a petition
or initiation of insolvency resolution process is mandatory?”

418

PRACTICAL ASPECTS OF INSOLVENCY LAW

3. Chapter II of Part II of the Code deals with corporate insolvency resolution
process. Under Section 7 of the Code, financial creditor (as per the definition
contained in Section 5(7)) can initiate corporate insolvency resolution
process. Section 8, on the other hand, deals with insolvency resolution by
operational creditor. Operational creditor is defined in Section 5(2) of the

Code to mean a person to whom an operational debt is owed and includes
any person to whom such debt has been legally assigned or transferred.

This Section provides that if ‘default’ has occurred in payment of the said
debt within the meaning of Section 2(12), such an operational creditor may
send a demand notice to the corporate debtor demanding payment of the
amount involved in the default, in the prescribed manner, giving ten days
notice in this behalf. The corporate debtor is given ten days time to bring to
the notice of the operational creditor about the existence of a dispute, if
any, however, send requisite proof for repayment of unpaid operational debt.

However, in case the payment is not received or notice of dispute is not
received, operational creditor can file an application under Section 9 for
initiation of corporate insolvency resolution process. Since we are concerned
with this provision, the same is reproduced below in its entirety:

“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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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.

PRACTICAL ASPECTS OF INSOLVENCY LAW

419

(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 (4), if any.

(i ) 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, shal before rejecting an application
under sub-clause (a) of clause (i ) 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 shal commence from
the date of admission of the application under sub-section (5) of this
section.”

4. A reading of the aforesaid provision would reflect that time limits for
taking certain actions by either the operational creditor or adjudicating

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PRACTICAL ASPECTS OF INSOLVENCY LAW
authority are mentioned therein. As per sub-section (1) of Section 9,
application can be filed after the expiry of period of ten days from the delivery
of notice or invoice demanding payment, which is in tune with the provisions
contained in Section 8 that gives ten days time to the corporate debtor to
take any of the steps mentioned in sub-section (2) of Section 8. As per sub-
section (2) of Section 9, the operational creditor is supposed to file an
application in the prescribed form and manner which needs to be accompanied
by requisite/prescribed fee as wel . Sub-section (3) puts an obligation on the
part of the operational creditor to furnish the information stipulated therein.

Once such an application is filed and received by the adjudicating authority,
fourteen days time is granted to the adjudicating authority to ascertain from
the records of an information utility or on the basis of other evidence furnished
by the operational creditor, whether default on the part of corporate debtor
exists or not. This exercise, as per sub-section (5), is to be accomplished
by the adjudicating authority within fourteen days. Sub-section (5) provides
two alternatives to the adjudicating authority while dealing with such an
application. In case it is satisfied that conditions mentioned in clause (i) of

Section 9(5) are satisfied, the adjudicating authority may pass an order
admitting such an application. On the other hand, if the adjudicating authority
finds existence of any eventuality stated in sub-section (2), it may order
rejection of such an application.

5. One of the conditions, with which we are concerned, is that application
under sub-section (2) has to be complete in all respects. In other words, the
adjudicating authority has to satisfy that it is not defective. In case the
adjudicating authority, after the scrutiny of the application, finds that there
are certain defects therein and it is not complete as per the provisions of
sub-section (2), in that eventuality, the proviso to sub-section (5) mandates
that before rejecting the application, the adjudicating authority has to give a
notice to the applicant to rectify the defect in his application within seven
days of receipt of such notice.

6. Sub-section (5) of Section 9, thus, stipulates two time periods. Insofar as
the adjudicating authority is concerned, it has to take a decision to either
admit or reject the application with the period of fourteen days. Insofar as
defects in the application are concerned, the adjudicating authority has to
give a notice to the applicant to rectify the defects before rejecting the
application on that ground and seven days period is given to the applicant
to remove the defects.

7. The question before the NCLAT was as to whether time of fourteen days
given to the adjudicating authority for ascertaining the existence of default

PRACTICAL ASPECTS OF INSOLVENCY LAW

421
and admitting or rejecting the application is mandatory or directory. Further
question (with which this Court is concerned) was as to whether the period
of seven days for rectifying the defects is mandatory or directory.

8. The NCLAT has held that period of fourteen days prescribed for the
adjudicating authority to pass such an order is directory in nature, whereas
period of seven days given to the applicant/operational creditor for rectifying
the defects is mandatory in nature. Conclusion in this behalf is stated in
paragraphs 43 and 4 of the impugned order and these paragraphs read as
under:

“43. Thus, in view of the aforementioned unambiguous position of law laid
down by the Hon’ble Apex Court and discussion as made above, we hold
that the mandate of sub-section (5) of section 7 or sub-section (5) of
section 9 or sub-section (4) of section 10 is procedural in nature, a tool of
aid in expeditious dispensation of justice and is directory.

44. However, the 7 days’ period for the rectification of defects as stipulated
under proviso to the relevant provisions as noticed above is required to
be complied with by the corporate debtor whose application, otherwise,
being incomplete is fit to be rejected. In this background we hold that the
proviso to sub-section (5) of section 7 or proviso to sub-section (5) of
section 9 or proviso to sub-section (4) of section 10 to remove the defect
within 7 days are mandatory, and on failure applications are fit to be
rejected.”

On the basis of the aforesaid findings, the NCLAT directed rejection of the
application filed by the operational creditor in the fol owing manner:

“51. Further, we find that the application was defective, and for the said
reason the application was not admitted within the specified time. Even if
it is presumed that 7 additional days time was to be granted to the
operational creditor, the defects having pointed out on 16th February 2017
and having not taken care within time, we hold that the petition under
section 9 filed by respondent/operational creditor being incomplete was
fit to be rejected.

52. For the reasons aforesaid, we direct the Adjudicating Authority to
reject and close the Petition preferred by Respondents. After we reserved
the judgment if any order has been passed by the Adjudicating Authority,
except order of dismissal, if any, are also declared il egal.”

9. Before we pronounce as to whether the aforesaid rendition by the NCLAT
is justified or not, it would be apposite to take stock of certain essential
facts.

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10. Before the enactment of the Code, the relevant legislation dealing with
such subject matters was the Sick Industrial Companies (Special Provisions)

Act, 1985 (hereinafter referred to as ‘SICA’). Under this Act, an industrial
undertaking, on becoming sick (i.e. where its net worth got eroded), could
file a reference under Section 15(1) of SICA, before the Board for Industrial
and Financial Reconstruction (for short, ‘BIFR’) constituted under SICA.

BIFR, on admitting such a reference, was supposed to undertake the exercise
whether such a sick company can be revived or not. For this purpose, BIFR
would appoint an Operating Agency (OA) which was supposed to explore
the possibility of revival plan in consultation with the other stakeholders,
particularly the creditors. If such reconstruction/revival scheme prepared
by the OA was found to be feasible by the BIFR, after ascertaining the
views/objections of the concerned parties, BIFR would sanction such a
scheme. If that was not possible, BIFR would recommend winding up of
sick company by making reference in this behalf to the jurisdictional High

Court. There was a provision of appeal before the Appel ate Authority for

Industrial and Financial Reconstruction (AAIFR). This scheme is stated in
brief for the purposes of clarity of the matter though we are not concerned
with any of the provisions of SICA. Another aspect which needs to be
mentioned is that on admitting the reference, all other legal proceedings by
creditors or other persons initiated against the said sick industrial company
had to be put on hold by virtue of the protection granted under Section 22(1)

of SICA.

11. Respondent No.1 herein, namely, Juggilal Kamlapat Jute Mills Company

Limited, became a sick industrial company in the year 1994 and because of
this reason it filed its reference under Section 15(1) of SICA. It was declared
as a sick industrial company by the BIFR on December 16, 1994 as a result
whereof it came under the protective umbrel a of Section 22(1) of SICA.

According to the appellant (who is the operational creditor in this case),
which is a jute trader, it had supplied raw jute to respondent No.1 (the corporate
debtor) in the years 2001, 2002 and 2003 in respect of which the corporate
debtor owned a sum of Rs.17,06,766.95 p. Further, according to the
operational creditor, the corporate debtor had issued Certificate dated October

24, 2004 acknowledging the aforesaid debt. However, it was not in a position
to recover this debt because of the pendency of proceedings which resulted
in stay of proceedings in view of Section 22(1) of SICA. In the year 2007,
one Kolkata based company, known as Rainey Park Suppliers Private

Limited (hereinafter referred to as ‘Rainey Park’), invested in corporate debtor
and took over its management from its erstwhile promoters, i.e. J.K. Singhania

Group. The operational creditor had sent notices to Rainey Park to pay the

PRACTICAL ASPECTS OF INSOLVENCY LAW

423
aforesaid amount. However, it was not paid. Legal notices were also sent
and applications were also filed before the BIFR in this behalf. It led to
various events which are not required to be mentioned for the sake of brevity.

Fact remains that the aforesaid debt was not honoured or liquidated by the
corporate debtor or Rainey Park. While the matter was pending with BIFR,

Sick Industrial Companies Repeal Act was passed on the enactment of the

Code with effect from May 28, 2016. Resultantly, al proceedings before

BIFR and AAIFR stood abated. With this embargo, Section 22(1) of SICA
also vanished.

12. In these changed circumstances, the operational creditor served another
demand notice dated January 06, 2017, in the statutory format prescribed
under the Code, upon the corporate debtor calling up it to pay the outstanding
dues. As it was not paid, the operational creditor filed application for initiation
of corporate insolvency resolution process under Section 9 of the Act. The
chronology of events which took place from the date of filing of the said
application till the passing of the impugned order by the NCLAT are mentioned
herein below:

10.02.2017

ª The appel ant filed the application under Section 9(2)

of the Code, being CP No. 10/ALD/2017, before the
adjudicating authority under the Code.

14.02.2017

ª The registry of the adjudicating authority pointed out
some procedural defects on the basis of the check
list prepared for scrutiny of the petition/application/
appeal/reply as per Order No. 25/2/2016-NCLT dated

28.07.2016 and listed the application for hearing
before the adjudicating authority on 16.02.2017.

16.02.2017

ª The adjudicating authority granted time to the
appellant for removal of the said procedural defects
on 28.02.2017 and also wanted to know about the
stage of the proceedings before BIFR when the
proceedings stood abated.

28.02.2017

ª The appel ant removed the procedural defects. As
inquired by the adjudicating authority, the appel ant’s
counsel sought for some more time for filing formal
memo by providing/furnishing the latest order passed
by BIFR before the Code came into force.

03.03.2017

ª The appellant filed its formal memo/additional
documents/orders arising in/out of the pending BIFR’s

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PRACTICAL ASPECTS OF INSOLVENCY LAW
proceedings which stood abated. On 03.03.2017, the
respondent No. 1 debtor appeared before the

Adjudicating Authority and sought liberty to raise its
objections qua the maintainability of the application.

09.03.2017

ª The Corporate debtor/respondent No.1 company filed
its written objections before the Adjudicating Authority
disputing the maintainability of the application filed
on various grounds like time barred debt; the defective
demand notice; civil suit filed against the appel ant
being Civil Suit No. 225 of 2017 before the District

Court and embargo created by Section 252 of the IB

Code, 2016 the proceedings cannot be initiated for a
period of six months after abatement of SICA.

One JK Jute Mill Mazdoor Morcha, Kanpur i.e.

respondent No. 2 herein moved an application seeking
intervention in the mater and brought on record various
orders including the judgment dated 13.11.2014 passed
by this Court in the matter of Ghanshyam Sarda v.

Shiv Shankar Trading Company & Ors. , reported in

(2015) 1 SCC 298 wherein this Court has found that
the sale of assets without BIFR’s permission as
questionable before the BIFR and also an order dated

18.11.2016 passed by this Court in the case of

Ghanshyam Sarda v. Sashikant Jha (i.e. contempt
petition (civil) No. 338 of 2014), wherein the Director(s)

of the corporate debtor i.e. respondent No. 1 have been
held guilty of contempt. It is also said that the corporate
debtor i.e. respondent No. 1 also failed to clear the
legitimate dues of the workmen of jute mil which are
worth more than 100 crores in rupees.

09.03.2017

ª In light of the foregoing scenario, the Adjudicating

Authority for providing substantial justice inter alia
directed the respondent No. 1/Corporate Debtor to
maintain status quo in respect of its immovable
property until further orders.

21.03.2017

ª The interim order passed by the Adjudicating

Authority, Allahabad Bench on 09.03.2017 was
challenged by the respondent No. 1/Corporate Debtor
under Section 61 of the IB Code, 2016 before the

PRACTICAL ASPECTS OF INSOLVENCY LAW

425

National Company Law Appel ate Tribunal (NCLAT)

being Company Appeal No. 9 of 2017. The NCLAT on

21.03.2017 issued notice in the said appeal inter alia
observing that question of law is involved in this case
and directing the Adjudicating Authority not to admit
the application filed under the IB Code, 2016 by the
appellant.

01.05.2017

ª The NCLAT has al owed the AT No. 09/2017 on the
ground that the application and Section 9 petition
filed by appel ant herein was incomplete, defected
and was fit to be rejected. Hence, the NCLAT was
pleased to direct NCLT to reject and close the
application filed by the appel ant under Section 9 of
the IB Code, 2016 passed in the impugned order inter
alia rejecting the application filed by the appel ant
under Section 9 of the IB Code, 2016 read with IB

(Application to Adjudicating Authority) Rules, 2016
being CP No. (IB)10/ALD/ 2017.

13. We may point out at the outset that the learned senior counsel appearing
for the appel ant had submitted that in the instant case the defects which
were pointed out were not of the nature mentioned in the Code but were in
terms of the Companies Act, 2013. For this purpose, he had referred to the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (hereinafter referred to as ‘Rules 2016’) and on that basis it was argued
that Section 9(5) of the Code did not apply in the instant case inasmuch as
there has to be difference between ‘defective’ application and ‘incomplete’

application. He also submitted that the respondent had been violating interim
orders passed by BIFR in the proceedings pending before it under SICA.

However, we make it clear at the outset that since we are dealing with the
substantial issue as to whether seven days period provided for removing
the defects is mandatory or not, it is not necessary to touch upon these
mundane aspects. Instead, it would be better to concentrate on the
substance of the matter.

14. As mentioned above, insofar as prescription of fourteen days within
which the adjudicating authority has to pass an order under sub-section (5)

of Section 9 for admitting or rejecting the application is concerned, the

NCLAT has held that the same cannot be treated as mandatory. Though this
view is not under challenge (and rightly so), discussion in the impugned
order on this aspect has definite bearing on the other question, with which

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PRACTICAL ASPECTS OF INSOLVENCY LAW
this Court is concerned. Therefore, we deem it apposite to discuss the
rationale which is provided by the NCLAT itself in arriving at the aforesaid
conclusion insofar as first aspect is concerned.

15. It is pointed out by the NCLAT that where an application is not disposed
of or an order is not passed within a period specified in the Code, in such
cases the adjudicating authority may record the reasons for not doing so
within the period so specified and may request the President of the NCLAT
for extension of time, who may, after taking into account the reasons so
recorded, extend the period specified in the Code, but not exceeding ten
days, as provided in Section 64(1) of the Code. The NCLAT has thereafter
scanned through the scheme of the Code by pointing out various steps of
the insolvency resolution process and the time limits prescribed therefor. It
is of relevance to mention here that the corporate insolvency resolution
process can be initiated by the financial creditor under Section 7 of the

Code, by the operational creditor under Section 9 of the Code and by a
corporate applicant under Section 10 of the Code. There is a slight difference
in these provisions insofar as criteria for admission or rejection of the
applications filed under respective provisions is concerned. However, it is
pertinent to note that after the admission of the insolvency resolution
process, the procedure to deal with these applications, whether filed by the
financial creditor or operational creditor or corporate applicant, is the same.

It would be relevant to glance through this procedure.

16. On admission of the application, the adjudicating authority is required to
appoint an Interim Resolution Professional (for short, ‘IRP’) in terms of

Section 16(1) of the Code. This exercise is to be done by the adjudicating
authority within fourteen days from the commencement of the insolvency
date. This commencement date is to reckon from the date of the admission
of the application. Under sub-section (5) of Section 16, the term of IRP
cannot exceed thirty days. Certain functions which are to be performed by
the IRP are mentioned in subsequent provisions of the Code, including
management of affairs of corporate debtor by IRP as wel as duties of IRP
so appointed. One of the important functions of the IRP is to invite all
claims against the corporate debtor, col ate al those claims and determine
the financial position of the corporate debtor. After doing that, IRP is to
constitute a committee of creditors which shall comprise of financial creditors
of the corporate debtor. The first meeting of such a committee of creditors is
to be held within seven days of the constitution of the said committee, as
provided in Section 22 of the Code. In the said first meeting, the committee
of creditors has to take a decision to either appoint IRP as Resolution

Professional (RP) or to replace the IRP by another RP. Since term of IRP is

PRACTICAL ASPECTS OF INSOLVENCY LAW

427
thirty days, al the aforesaid steps are to be accomplished within this thirty
days period. Thereafter, when RP is appointed, he is to conduct the entire
corporate insolvency resolution process and manage the operations of the
corporate debtor during the said period. It is not necessary to state the
further steps which are to be taken by the RP in this behalf. What is important
is that the entire corporate insolvency resolution process is to be completed
within the period of 180 days from the date of admission of the applicant.

This time limit is provided in Section 12 of the Act. This period of 180 days
can be extended, but such extension is capped as extension cannot exceed

90 days. Even such an extension would be given by the adjudicating authority
only after recording a satisfaction that the corporate insolvency resolution
process cannot be completed within the original stipulated period of 180
days. If the resolution process does not get completed within the aforesaid
time limit, serious consequences thereof are provided under Section 33 of
the Code. As per that provision, in such a situation, the adjudicating authority
is required to pass an order requiring the corporate debtor to be liquidated in
the manner as laid down in the said Chapter.

17. The aforesaid statutory scheme laying down time limits sends a clear
message, as rightly held by the NCLAT also, that time is the essence of the

Code. Notwithstanding this salutary theme and spirit behind the Code, the

NCLAT has concluded that as far as fourteen days time provided to the
adjudicating authority for admitting or rejecting the application for initiation
of insolvency resolution process is concerned, this period is not mandatory.

For arriving at such a conclusion, the NCLAT has discussed the law laid
down by this Court in some judgments. Therefore, we deem it proper to
reproduce the discussion of the NCLAT itself in this behalf:

“32. In P.T. Rajan v. T.P.M. Sahir and Ors. [2003] 8 SCC 498, the

Hon’ble Supreme Court observed that where Adjudicating Authority has
to perform a statutory function like admitting or rejecting an application
within a time period prescribed, the time period would have to held to be
directory and not mandatory. In the said case, Hon’ble Apex Court
observed:

“48. It is wel -settled principle of law that where a statutory functionary is
asked to perform a statutory duty within the time prescribed therefor, the
same would be directory and not mandatory. ( See Shiveshwar Prasad

Sinha v. The District Magistrate of Monghur & Anr. AIR (1966) Patna 144,

Nomita Chowdhury v. The State of West Bengal & Ors. [1999] CLJ 21 and

Garbari Union Co-operative Agricultural Credit Society Limited & Anr. v..

Swapan Kumar Jana & Ors. [1997] 1 CHN 189).

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PRACTICAL ASPECTS OF INSOLVENCY LAW

49. Furthermore, a provision in a statute which is procedural in nature
although employs the word “shall” may not be held to be mandatory if
thereby no prejudice is caused.”

33. That the Hon’ble Apex Court has on numerous occasions interpreted
the word ‘shal ’ to mean ‘may’. An analogous position can be found in the
context of the time prescribed for filing Written Statements by Defendants
to a suit, wherein the Hon’ble Apex Court was faced with the question of
a Court’s power to take on record Written Statements that were filed beyond
the period of 90 days, as prescribed under Order VIII Rule 1 of the Code
of Civil Procedure, 1908. In this regard, the Hon’ble Supreme Court in

Kailash v. Nanhku and Ors [2005] 4 SCC 480 held as under:

“27. Three things are clear. Firstly, a careful reading of the language in
which Order 8 Rule 1 has been drafted, shows that it casts an obligation
on the defendant to file the written statement within 30 days from the date
of service of summons on him and within the extended time falling within

90 days. The provision does not deal with the power of the court and also
does not specifical y take away the power of the court to take the written
statement on record though filed beyond the time as provided for. Secondly,
the nature of the provision contained in Order 8 Rule 1 is procedural. It is
not a part of the substantive law. Thirdly, the object behind substituting

Order 8 Rule 1 in the present shape is to curb the mischief of unscrupulous
defendants adopting dilatory tactics, delaying the disposal of cases much
to the chagrin of the plaintiffs and petitioners approaching the court for
quick relief and also to the serious inconvenience of the court faced with
frequent prayers for adjournments. The object is to expedite the hearing
and not to scuttle the same. The process of justice may be speeded up
and hurried but the fairness which is a basic element of justice cannot be
permitted to be buried.”

34. Further, Hon’ble Supreme Court in the matter of Smt. Rani Kusum v.

Smt. Kanchan Devi [2005] 6 SCC 705, concurring with the ratio laid
down in Kailash v. Nanhku (supra) held that:

“10. Al the rules of procedure are the handmaid of justice. The language
employed by the draftsman of processual law may be liberal or stringent,
but the fact remains that the object of prescribing procedure is to advance
the cause of justice. In an adversarial system, no party should ordinarily
be denied the opportunity of participating in the process of justice
dispensation. Unless compel ed by express and specific language of the
statute, the provisions of CPC or any other procedural enactment ought
not to be construed in a manner which would leave the court helpless to
meet extraordinary situations in the ends of justice.

PRACTICAL ASPECTS OF INSOLVENCY LAW

429

11. The mortality of justice at the hands of law troubles a judge’s
conscience and points an angry interrogation at the law reformer.

12. The processual law so dominates in certain systems as to overpower
substantive rights and substantial justice. The humanist rule that procedure
should be the handmaid, not the mistress, of legal justice compels
consideration of vesting a residuary power in the judges to act ex debito
justitiae where the tragic sequel otherwise would be wholly inequitable.

Justice is the goal of jurisprudence, processual, as much as substantive.

(See Sushil Kumar Sen v. State of Bihar [(1975) 1 SCC 774] .)

13. No person has a vested right in any course of procedure. He has only
the right of prosecution or defence in the manner for the time being by or
for the court in which the case is pending, and if, by an Act of Parliament
the mode of procedure is altered, he has no other right than to proceed
according to the altered mode. (See Blyth v. Blyth [(1966) 1 Al ER 524 :

1966 AC 643 : (1966) 2 WLR 634 (HL)] .) A procedural law should not
ordinarily be construed as mandatory; the procedural law is always
subservient to and is in aid to justice. Any interpretation which eludes or
frustrates the recipient of justice is not to be fol owed. (See Shreenath v.

Rajesh [(1998) 4 SCC 543 : AIR 1998 SC 1827] .)

14. Processual law is not to be a tyrant but a servant, not an obstruction
but an aid to justice. Procedural prescriptions are the handmaid and not
the mistress, a lubricant, not a resistant in the administration of justice.”

xxx
xxx
xxx

41. Further, nature of the provisions contained in sub-section (5) of section

7 or sub-section (5) of section 9 and sub-section (4) of section 10 of the

‘Code’ like Order VIII Rule 1 being procedural in nature cannot be treated
to be a mandate of law.

42. The object behind the time period prescribed under sub-section (5) of
section 7, sub-section (5) of section 9 and sub-section (4) of section 10,
like Order VIII, Rule 1 of CPC is to prevent the delay in hearing the disposal
of the cases. The Adjudicating Authority cannot ignore the provisions.

But in appropriate cases, for the reasons to be recorded in writing, it can
admit or reject the petition after the period prescribed under section 7 or
section 9 or section 10.

43. Thus, in view of the aforementioned unambiguous position of law laid
down by the Hon’ble Apex Court and discussion as made above, we hold
that the mandate of sub-section (5) of section 7 or sub-section (5) of

430

PRACTICAL ASPECTS OF INSOLVENCY LAW
section 9 or sub-section (4) of section 10 is procedural in nature, a tool of
aid in expeditious dispensation of justice and is directory.”

18. The NCLAT has also held that fourteen days period is to be calculated

‘from the date of receipt of application’. The NCLAT has clarified that date of
receipt of application cannot be treated to be the date of filing of the
application. Since the Registry is required to find out whether the application
is in proper form and accompanied with such fee as may be prescribed, it
wil take some time in examining the application and, therefore, fourteen
days period granted to the adjudicating authority under the aforesaid
provisions would be from the date when such an application is presented
before the adjudicating authority, i.e. the date on which it is listed for
admission/order.

19. After analysing the provision of fourteen days time within which the
adjudicating authority is to pass the order, the NCLAT immediately jumped
to another conclusion, viz. the period of seven days mentioned in proviso to
sub-section (5) of Section 9 for removing the defect is mandatory, with the
following discussion:

“44. However, the 7 days’ period for the rectification of defects as stipulated
under proviso to the relevant provisions as noticed above is required to
be complied with by the corporate debtor whose application, otherwise,
being incomplete is fit to be rejected. In this background we hold that the
proviso to sub-section (5) of section 7 or proviso to sub-section (5) of
section 9 or proviso to sub-section (4) of section 10 to remove the defect
within 7 days are mandatory, and on failure applications are fit to be
rejected.”

There is no further discussion on this aspect.

20. We are not able to decipher any valid reason given while coming to the
conclusion that the period mentioned in proviso is mandatory. The order of
the NCLAT, thereafter, proceeds to take note of the provisions of Section 12
of the Code and points out the time limit for completion of insolvency
resolution process is 180 days, which period can be extended by another

90 days. However, that can hardly provide any justification to construe the
provisions of proviso to sub-section (5) of Section 9 in the manner in which
it is done. It is to be borne in mind that limit of 180 days mentioned in

Section 12 also starts from the date of admission of the application. Period
prior thereto which is consumed, after the filing of the application under

Section 9 (or for that matter under Section 7 or Section 10), whether by the

Registry of the adjudicating authority in scrutinising the application or by

PRACTICAL ASPECTS OF INSOLVENCY LAW

431
the applicant in removing the defects or by the adjudicating authority in
admitting the application is not to be taken into account. In fact, till the
objections are removed it is not to be treated as application validly filed
inasmuch as only after the application is complete in every respect it is
required to be entertained. In this scenario, making the period of seven
days contained in the proviso as mandatory does not commend to us. No
purpose is going to be served by treating this period as mandatory. In a
given case there may be weighty, valid and justifiable reasons for not able
to remove the defects within seven days. Notwithstanding the same, the
effect would be to reject the application.

21. Let us examine the question from another lens. The moot question would
be as to whether such a rejection would be treated as rejecting the application
on merits thereby debarring the application from filing fresh application or it
is to be treated as an administrative order since the rejection was because
of the reason that defects were not removed and application was not
examined on merits. In the former case it would be travesty of justice that
even if the case of the applicant on merits is very strong, the applicant is
shown the door without adjudication of his application on merits. If the latter
alternative is accepted, then rejection of the application in the first instance
is not going to serve any purpose as the applicant would be permitted to file
fresh application, complete in all aspects, which would have to be entertained.

Thus, in either case, no purpose is served by treating the aforesaid provision
as mandatory.

22. Various provisions of the Code would indicate that there are three stages:

(i) First stage is the filing of the application. When the application is
filed, the Registry of the adjudicating authority is supposed to
scrutinise the same to find out as to whether it is complete in all
respects or there are certain defects. If it is complete, the same
shal be posted for preliminary hearing before the adjudicating authority.

If there are defects, the applicant would be notified about those defects
so that these are removed. For this purpose, seven days time is
given. Once the defects are removed then the application would be
posted before the adjudicating authority.

(i ) When the application is listed before the adjudicating authority, it
has to take a decision to either admit or reject the application. For
this purpose, fourteen days time is granted to the adjudicating
authority. If the application is rejected, the matter is given a quietus
at that level itself. However, if it is admitted, we enter the third stage.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(iii) After admission of the application, insolvency resolution process
commences. Relevant provisions thereof have been mentioned above.

This resolution process is to be completed within 180 days, which is
extendable, in certain cases, up to 90 days. Insofar as the first stage
is concerned, it has no bearing on the insolvency resolution process
at all, inasmuch as, unless the application is complete in every
respect, the adjudicating authority is not supposed to deal with the
same. It is at the second stage that the adjudicating authority is to
apply its mind and decide as to whether the application should be
admitted or rejected. Here adjudication process starts. However, in
spite thereof, when this period of fourteen days given by the statute
to the adjudicating authority to take a decision to admit or reject the
application is directory, there is no reason to make it mandatory in
respect of the first stage, which is pre-adjudication stage.

23. Further, we are of the view that the judgments cited by the NCLAT and
the principle contained therein applied while deciding that period of fourteen
days within which the adjudicating authority has to pass the order is not
mandatory but directory in nature would equally apply while interpreting
proviso to sub-section (5) of Section 7, Section 9 or sub-section (4) of

Section 10 as well. After al , the applicant does not gain anything by not
removing the objections inasmuch as til the objections are removed, such
an application would not be entertained. Therefore, it is in the interest of the
applicant to remove the defects as early as possible.

24. Thus, we hold that the aforesaid provision of removing the defects within
seven days is directory and not mandatory in nature. However, we would
like to enter a caveat.

25. We are also conscious of the fact that sometimes applicants or their
counsel may show laxity by not removing the objections within the time
given and make take it for granted that they would be given unlimited time
for such a purpose. There may also be cases where such applications are
frivolous in nature which would be filed for some oblique motives and the
applicants may want those applications to remain pending and, therefore,
would not remove the defects. In order to take care of such cases, a balanced
approach is needed. Thus, while interpreting the provisions to be directory
in nature, at the same time, it can be laid down that if the objections are not
removed within seven days, the applicant while refilling the application after
removing the objections, file an application in writing showing sufficient
case as to why the applicant could not remove the objections within seven
days. When such an application comes up for admission/order before the

PRACTICAL ASPECTS OF INSOLVENCY LAW

433
adjudicating authority, it would be for the adjudicating authority to decide as
to whether sufficient cause is shown in not removing the defects beyond
the period of seven days. Once the adjudicating authority is satisfied that
such a case is shown, only then it would entertain the application on merits,
otherwise it will have right to dismiss the application. The aforesaid process
indicated by us can find support from the judgment of this Court in Kailash
v. Nanhku & Ors., [2005] 4 SCC 480, wherein the Court held as under:

“46. (iv) The purpose of providing the time schedule for filing the written
statement under Order 8 Rule 1 CPC is to expedite and not to scuttle the
hearing. The provision spells out a disability on the defendant. It does not
impose an embargo on the power of the court to extend the time. Though
the language of the proviso to Rule 1 Order 8 CPC is couched in negative
form, it does not specify any penal consequences flowing from the non-
compliance. The provision being in the domain of the procedural law, it
has to be held directory and not mandatory. The power of the court to
extend time for filing the written statement beyond the time schedule
provided by Order 8 Rule 1 CPC is not completely taken away.

(v) Though Order 8 Rule 1 CPC is a part of procedural law and hence
directory, keeping in view the need for expeditious trial of civil causes
which persuaded Parliament to enact the provision in its present form, it
is held that ordinarily the time schedule contained in the provision is to be
followed as a rule and departure therefrom would be by way of exception.

A prayer for extension of time made by the defendant shall not be granted
just as a matter of routine and merely for the asking, more so when the
period of 90 days has expired. Extension of time may be al owed by way
of an exception, for reasons to be assigned by the defendant and also be
placed on record in writing, howsoever briefly, by the court on its being
satisfied. Extension of time may be al owed if it is needed to be given for
circumstances which are exceptional, occasioned by reasons beyond
the control of the defendant and grave injustice would be occasioned if
the time was not extended. Costs may be imposed and affidavit or
documents in support of the grounds pleaded by the defendant for
extension of time may be demanded, depending on the facts and
circumstances of a given case.”

26. In fine, these appeals are allowed and that part of the impugned judgment
of NCLAT which holds proviso to sub-section (5) of Section 7 or proviso to
sub-section (5) of Section 9 or proviso to sub-section (4) of Section 10 to
remove the defects within seven days as mandatory and on failure
applications to be rejected, is set aside. No costs.

434

PRACTICAL ASPECTS OF INSOLVENCY LAW

Hon’ble Mr. Justice A.K. Sikri pronounced the judgment of the Bench
comprising His Lordship and Hon’ble Mr.Justice A.K. Sikri.

The appeals are al owed in terms of the signed reportable judgment.

.............................................J.

(A.K. SIKRI)

.............................................J.

(ASHOK BHUSHAN)

NEW DELHI;

SEPTEMBER 19, 2017.

ITEM NO.1501

COURT NO.6

SECTION XVII

SUPREME COURT OF INDIA RECORD OF PROCEEDINGS

Civil Appeal No(s).8400/2017

SURENDRA TRADING COMPANY

Appel ant(s)

VERSUS

JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD & ORS.

Respondent(s)

WITH

Diary No(s). 22835/2017 (XVII)

Date : 19-09-2017 These appeals were cal ed on for pronouncement of
judgment today.

For Appellant(s)

Mr. Sunil Fernandes, AOR

Mr. Gaurav Kejriwal, AOR

Mr. Sujit Keshri, Adv.

For Respondent(s)

Mr. Kailash Chand, AOR

Mr. Satish Vig, AOR

Ms. Kanika Singh, Adv.

Ms. R.K. Mohit Gupta, Adv.

Ms. Sangram Singh Hooda, Adv.

M/s. Coac, AOR

Mr. Akshat Kumar, AOR

PRACTICAL ASPECTS OF INSOLVENCY LAW

435

Hon’ble Mr. Justice A.K. Sikri pronounced the judgment of the Bench
comprising His Lordship and Hon’ble Mr.Justice A.K. Sikri.

The appeals are al owed in terms of the signed reportable judgment.

(B.PARVATHI)

(MALA KUMARI SHARMA)

COURT MASTER

COURT MASTER

(Signed reportable judgment is placed on the file)

436

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.13

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 28 of 2017

(arising out of Order dated 31st January 2017 passed by NCLT, Mumbai

Bench in C.P.No. 06/1 & BP/NCLT/MAH/2017)

Smart Timing Steel Ltd.

...Operational

Creditor

Vs.

National Steel and Agro Industries Ltd.

....Corporate Debtor

Present:

For Appellants: Mr. Sanjay Grover, Advocate

For Respondents: Mr. Sandeep S.Deshmukha, Advocate

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

1. This appeal under section 61 of Insolvency and Bankruptcy Code (‘I&B

Code’) has been preferred by appel ant against order dated 31st January,

2017 passed by “Adjudicating Authority” in Mumbai Bench in CP No. 06/1 &

BP/NCLT/MAH/2017, which reads as follows :

“The petitioner/operational creditor filed this creditor petition under section

9 of Insolvency and Bankruptcy Code without filing certificate from the
financial institution maintaining accounts of the operational creditor
confirming that there is no payment of this unpaid operational debt by the
corporate debtor as set out in (c) of sub-section (2) of section 9 of this

Code 2016.

Looking at non-filing of the certificate that is required to be filed along
with this petition, this Bench had already given time to furnish the said
document, but the counsel failed to furnish the said certificate. When this

Bench has put it to the petitioner counsel how this Bench could pass this
order without furnishing the certificate mandatorily to be filed along with
the petition, the counsel appearing on behalf of the operational creditor
submits that it is impossible to file copy of such certificate from the
financial institution for the bank of the operational creditor is situated

PRACTICAL ASPECTS OF INSOLVENCY LAW

437
outside India, therefore, the compliances with such requirements shall be
exempted.

On perusal of section 9 of Insolvency and Bankruptcy Code, it is evident,
that it is mandatory to file copy of the certificate from the financial
institutions reflecting non-payment of the operational debt impugned, for
the operational creditor has failed to annex copy of the said certificate as
required under section 9(3)(c) of the Code, this petition is liable to be
rejected.

Accordingly, the same is hereby rejected.”

2. The question for determination in this appeal is 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 sub-section

(3) of section 9 of the I&B Code is mandatory or directory.

3. The appel ant who claimed to be operational creditor filed an application
under section 9 of I&B Code for initiation of corporate insolvency resolution
process, enclosing some of the relevant documents. However, no copy of
the certificate from the financial institution maintaining account of the
operational creditor as prescribed under clause (c) of sub-section (3) of
section 9 was enclosed. For the said reason the adjudicating authority rejected
the application.

4. For deciding the issue it is desirable to notice relevant provisions of I&B

Code and Rules framed thereunder. Sub-section (14) of section 3 defines

“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); and

(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 a financial institution.

5. The appel ant is a foreign company of Hong–Kong having no office or
bank account in India.

6. As the appel ant has no account in any scheduled bank or financial
institution as defined in section 45-I of the RBI Act 1934 nor having such

438

PRACTICAL ASPECTS OF INSOLVENCY LAW
account with “public financial institution” as defined in clause (72) of section

2 of the Companies Act, 2013 or with any other institution notified by Central

Government as “financial institution”, it failed to enclose any certificate
from “financial institution” maintaining account of the operational creditor.

7. Learned counsel appearing on behalf of the appellant submitted that the
foreign companies and multi-national companies having no office or having
no account in India with any of the “financial institution” will suffer to recover
the debt as due from “corporate debtors” of India. The appel ant being a
foreign based “operational creditor”, the “Adjudicating Authority” was required
to interpret the provisions of I&B Code in such a manner that section 9
would have taken in its fold al the “operational creditors” who are entitled to
recover the debt defaulted by “corporate creditors” of India. Learned counsel
for the appel ant further submitted that the word ‘shal ’ used in sub-section

(3) of section 9 for furnishing documents, etc., should be read as ‘may’, and
hold that sub-section (3) of section 9 is directory. Reliance was placed on
hon’ble Supreme Court decision in Kailash v. Nanhku [2005] 4 SCC 480.

8. In the said case the hon’ble Supreme Court while deciding the question
whether time limit of 90 days as prescribed by the proviso appended to rule

1 of order VIII of CPC is mandatory or directory in nature? The hon’ble

Supreme Court held that ordinarily the time prescribed by order VIII, rule 1
has to be honoured but it held that the provision being part of the procedural
code is directory.

9. With due respect we are of the view that aforesaid decision of hon’ble

Supreme Court in Kailash (supra) is not applicable in the present case, as
clause (c) of sub-section (3) of section 7 does not relate to prescription of
time.

10. Section 9 deals with application for initiation of corporate insolvency
resolution process by “operational creditor” which reads as follows :

“9. Application for initiation of corporate insolvency resolution
process by operational creditor. – (1) After the expiry of the period
often 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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

PRACTICAL ASPECTS OF INSOLVENCY LAW

439

(3) The operational creditor shal , 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

(i ) 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

440

PRACTICAL ASPECTS OF INSOLVENCY LAW

(e) any disciplinary proceeding is pending against any proposed
resolution professional :

Provided that Adjudicating Authority, shal before rejecting an application
under sub-clause (a) of clause (i ) 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 shal commence from
the date of admission of the application under sub-section (5) of this
section.”

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-section (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 (“Adjudicating Authority Rules, 2016”) 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 fol owed by filing an application by
corporate insolvency resolution process. As per rule 6 of the Adjudicating

Authority Rules, 2016, an operational creditor shal 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 despatch 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 fol owed 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

PRACTICAL ASPECTS OF INSOLVENCY LAW

441
before hon’ble Supreme Court on numerous occasions. In Manilal Shah v.

Sardar Sayed Ahmed [1955] 1 SCR 108, the hon’ble Apex Court held that
where statute itself provide consequences of breach or non-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

Mysore v. V K Kangan [1976] 2 SCC 895. In the said case, the hon’ble

Supreme Court specifical y 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, al laws are
mandatory in the sense they impose the duty to obey on those who come
within its purview. But it does not fol ow 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 ‘shal ’ used in sub-section (3) of
section 9 of I&B Code is mandatory, including clause 3 therein.

17. The appellant has enclosed a Final Award given by sole arbitrator, Hong

Kong Special Administrative Region, People’s Republic of China dated 18th

August, 2014 to suggest that the respondent-corporate debtor is liable to

442

PRACTICAL ASPECTS OF INSOLVENCY LAW
pay the amount determined by arbitrator but defaulted to pay the amount.

Even if such submission is accepted, the Adjudicating Authority cannot
assume that the amount has not been paid pursuant to the award til on the
basis of evidence on record, i.e., copy of certificate from the “financial
institution” maintaining accounts of the appellant confirming that there is no
payment of an unpaid operational debt by the corporate debtor.

18. From the record we find that the appel ant was given opportunity to
complete the record by enclosing the certificate of “financial institution” and
thereby to remove the defects within 7 days but failed to do so.

19. In J K Jute Mills Co. Ltd. v. Surendra Trading Company Company Appeal

(AT) No. 09 of 2017, the Appel ate Tribunal was considering whether the time
limit prescribed in I&B Code for admitting or rejecting the petition or initiation
of insolvency resolution process is mandatory? The Appel ate Tribunal, by
judgment dated 1st May, 2017 held that proviso to sub-section (5) of section

7 and proviso to sub-section (5) of section 9 granting “financial creditor/
operational creditor” to complete the documents, if incomplete is mandatory.

20. In view of the aforesaid findings of this Appellate Tribunal in J K Jute

Mills Co. Ltd., the appel ant having failed to complete the documents within

7 days, the Tribunal was right in dismissing the application preferred by the
appellant.

21. The argument that the foreign companies having no office in India or no
account in India with any financial institution will suffer in recovering the
debt from corporate debtor cannot be accepted as apart from the I&B Code,
there are other provisions of recovery like suit which can be preferred by
any person.

22. We find no merit in this appeal. It is accordingly dismissed. However, in
the facts and circumstances, there shal be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

19th May, 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

443

ANNEXURE X.14

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) 39 of 2017

(arising out of order dated 10th April, 2017 passed by National Company

Law Tribunal, Mumbai Bench in CP No. 5/Mah/2017 of 2017)

IN THE MATTER OF:

Uttam Galva Steels Limited

Appellant

V.

DF Deutsche Forfait AG & Anr.

Rspondents

Present: For Appeallant : - Mr Sudip to Sarkar and Mr Virendra Ganda,

Sr. Advocates, Mr Arvind Kumar Gupta, Mr Sumesh Dhawan,

Ms Purti Marwaha Gupta, Mr Mahesh Agarwal, Mr Anuj Kumar,

Ms Vatsala Kak and Mr Rajeev Kumar, Advocate.

For Respondents: - Mr Vivek Sibal, Senior Advocate, Ms Pooja

M Saigal, Mr Akshay Gupta, Advocates and Mr Sahil Bhatia,

POA for the Respondent.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

1. The respondents – both of whom claim to be operational creditor(s) filed
a joint application under section 9 of the Insolvency and Bankruptcy Code,

2016 (‘I&B Code’) for initiation of corporate insolvency resolution process
against appel ant-corporate debtor. By impugned order dated 10th April, 2017,

Learned Adjudicating Authority (National Company Law Tribunal) Mumbai

Bench while rejected the objection as were raised by the appel ant, admitted
the application and directed to refer the matter to the Insolvency and

Bankruptcy Board of India to recommend name of interim resolution
professional for his appointment.

2. Learned counsel for the appellant-corporate debtor challenged the impugned
order on different count. It was submitted that there is a pre-existing bona
fide dispute between the parties and, therefore, the insolvency application
under section 9 of the I&B Code is not maintainable. In support of aforesaid

444

PRACTICAL ASPECTS OF INSOLVENCY LAW
submission, it was contended that :

(i) there is no privity of contract with the respondents;

(i ) respondents violated the contractual terms;

(iii) appel ant disputed execution of contract;

(iv) there is dispute about quantum of default;

(v) there is a dispute as to who is the defaulter (whether the default can
at al be attributed to Uttam Steels in view of actual liability being
that of a 3rd party);

(vi) there is a dispute as to whether the respondents are operational
creditors of the appel ant, etc.

3. It was pointed out that the respondents had issued a winding up notice on

8th December, 2016 much prior to the issuance of so-cal ed notice under
section 8 of the I&B Code. Pursuant to which, the appel ant disputed the
claim by a detailed reply dated 3rd January, 2017. Apart from that, the
respondents are relying on a document dated 27th December, 2013 to fix
liability on the appellant, which has not been signed by appel ant and was
brought to the notice of the respondents in the year 2013 itself.

The learned counsel for the appel ant referred to an e-mail dated 10th April,

2014 forwarded by one of the respondent to demonstrate existence of bona
fide dispute between the parties and submitted that in view of bona fide pre-
existing dispute, in terms of sub-section (6) of section 5 of the I&B Code,
the joint insolvency application is not maintainable.

4. It was further pointed out that the notice under section 8 of I&B Code
dated 28th February, 2017 was issued jointly by two respondents, both of
whom claimed to be “operational creditors” but not by respondents themselves
but through their advocate, Ms Sonu Tandon. According to appellant the
joint petition under section 9 by two separate operational creditors is not
permissible and Demand Notice under section 8 in Form-3 or Form 4 of

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (‘Adjudicating Authority Rules’) was not issued by the “authorised
persons” in accordance with law.

5. It was further submitted that the certificate of “financial institution” as
prescribed and mandatory under clause (c) of sub-section (3) of section 9
of the I&B Code was not filed by respondents in support of their claim that
there is no payment of the unpaid operational debt. Further, according to
appellant, the bank certificate dated 6th March, 2017 submitted by

PRACTICAL ASPECTS OF INSOLVENCY LAW

445
respondents is defective on multiple counts as it was not issued by a
notified “financial institution”, but has been issued by “Misr Bank” which
is not recognised as a “financial institution” in India as per sub-section

(14) of section 3 read with clause (c) of sub-section (3) of section 9 of the

I&B Code. It was further contended that the affidavit in the insolvency
application was also defective and incomplete. According to the learned
counsel for the appellant, the affidavit in support of insolvency application
should have been filed, as prescribed in Form-5 of the Adjudicating

Authority Rules.

6. On the other hand according to learned counsel for the respondents a
joint petition by “operational creditors” is maintainable. Joint petition per say
would indicate or suggest the joinder of more than one cause of action to
enable the parties/litigants to institute a proceeding jointly in the court of
law by pleading, inter alia, a commonality of interest of reliefs. He further
submitted that “AIC Handles GmbH” (supplier) who entered into sales contract
with the appel ant (Uttam Galva Steels Ltd.) for sale of steel bil ets for a
value of US$ 10,800,000 and raised an invoice for US$ 10,787,040. According
to respondents, no disputes were raised by the appel ant with regard to
delivery of the goods, either in terms of the quality or quantity. The debt,
which was secured by a col ateral security in the form of a Bill of Exchange
for US$ 5,387,040 and US$ 5,400,000 was thereafter, assigned to 1st
respondent by forfeiting agreement by supplier.

7. He also highlighted facts relating to sale of goods through sale contracts.

It was submitted that transaction was single had the same has not been
split in two cause of actions as is erroneously contended by the appel ant.

It is only the right to receive payment under the bil s of exchange that has
now been vested in the two entities i.e., 1st respondent and 2nd respondent.

Therefore, in essence, there is no joinder of cause of action but only right to
receive the payment under the bil s of exchange having been vested in two
entities and, therefore, a joint petition has been filed by two entities with
respect to single cause of action and the same is maintainable under section

9 of the I&B Code.

8. Learned counsel for the respondents submitted that in terms of rule 10 of
the “Adjudicating Authority Rules, 2016”, rules 20, 21, 22, 23, 24 and 25 of
the “NCLT Rules 2016” stands adopted. Reliance was also placed on
notification dated 20th December, 2016 whereby NCLT Rules, 2016 was
amended and rule 23A was inserted, which is as fol ows :

“23A. Presentation of joint petition. – (1) The Bench may permit more
than one person to join together and present a single petition if it is

446

PRACTICAL ASPECTS OF INSOLVENCY LAW
satisfied, having regard to the cause of action and the nature of relief
prayed for, that they have a common interest in the matter.

(2) Such permission shall be granted where the joining of the petitioners
by a single petition is specifically permitted by the Act.”

In view of rule 23A it was contended that a joint petition is maintainable.

9. It was further contended that the appel ant himself has admitted that a
suit was filed by appel ant before the hon’ble High Court of Bombay but
therein the appel ant has not disputed the transactions of sale/purchase in
terms of quality/quantity of goods supplied nor has disputed the existence
of debt. The only contention it sought to raise is that the goods were meant
for consumption of another end-user, namely, “Aartee Commodities (UK)

Ltd.” and that the said end user has not paid any amount to the appel ant
despite the notice of demand for supplies made.

10. Insofar as issuance of notice under section 8 of the I&B Code through a
lawyer is concerned, according to respondents, notice under section 8 can
also be given through a lawyer. Learned counsel for the respondents
submitted that settled position is that the procedures are hand maiden of
justice which cannot defeat the substantive rights of the parties. The matter
of procedure is within the realm of curial law and are not to be read in a
manner that defeat the very purpose and the intent of enactment or in a
manner that takes away or abridge, the substantive rights of the party.

Therefore, the format of demand notice cannot be stated to be mandatory
and that it does not suggest or mandate that it is to be issued by an operational
creditor personally.

11. Insofar as certificate by financial institutions is concerned, it was
contended that in the case of Smart Timing Steel Ltd. v. National Steel &

Agro Industries Ltd., the Appel ate Tribunal while held the requirement of
certificate is mandatory, but in that case no such certificate was filed by
the party. In the said case the creditor had no office in India and no certificate
of an financial institution was filed. On the other hand, in the present case,
the respondents along with their application to the Adjudicating Authority
has filed a certificate by a banking company which maintains its operations
to prove that no payment has been received in response to the notice for
demand issued under section 8 of the I&B Code. Since the requirement of
certificate by a financial institution which has been held to be mandatory is
only for the purpose of confirming or ascertaining through a trustworthy
source like any financial institution to find out, whether any payment has
been received in response to the demand notice or not. Learned counsel

PRACTICAL ASPECTS OF INSOLVENCY LAW

447
submitted that in the present case a certificate of bank albeit incorporated
under the law of Germany has been produced to affirm that no payment has
been received.

12. It was also submitted that the appel ant has accepted that the end
customer is “Aartee Commodities (UK) Ltd.” which has to make payment

(though this assertion is being denied by the respondents) and such end
customer has not made payment to the appel ant, therefore, non-payment
of the invoice is an admitted fact and require no further elaboration by way
of independent certificate in the manner interpreted by the Appellate Tribunal.

However, as the certificate of the foreign bank has been produced in support
of the claim that no amount has been received by the respondents any
other interpretation would frustrate the rights of a foreign entities to file an
insolvency petition as an operational creditor under the I&B Code.

13. The questions involved in this appeal are :

(i) Whether a joint application by two or more operational creditors under
section 9 of the I&B Code is maintainable?

(i ) Whether it is mandatory to file of recognised financial institution
along with an application under section 9 of the I&B Code?

(iii) Whether the demand notice with invoice under section 8 of the I&B

Code can be issued by any lawyer on behalf of an operational creditor?

and

(iv) Whether there is an existence of dispute, if any, in the present case?

14. To decide the issues, it is desirable to notice the difference between
sections 7 and 9 of I&B Code. Apart from the fact that some of the questions
already stand decided by this Appel ate Tribunal but in this appeal, we have
given main thrust on the questions not decided earlier, i.e., maintainability
of a joint application under section 9 of the I&B Code and whether a notice
under section 8, can be given through a lawyer.

15. Initiation of insolvency resolution process by ‘financial creditor’ either
by itself or jointly with other Financial Creditors is provided in section 7 of
the I&B Code. As per sub-section (1) of section 7 of the I&B Code, the
trigger of filing of an application by a financial creditor by himself or jointly
with other financial creditors before the Adjudicating Authority is when a
default in respect of any financial debt has occurred. Sub-section (2) of
section 7 of the I&B Code provides that a financial creditor to make an
application on the prescribed form and manner and with documents as
prescribed in sub-section (3) of section 7 of the I&B Code. The relevant

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PRACTICAL ASPECTS OF INSOLVENCY LAW
provision of section 7 of the I&B Code 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

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

16. Unlike section 7 of the I&B Code, before making an application to the

Adjudicating Authority under section 9 of the I&B Code, the requirements
under section 8 of the I&B Code are required to be fulfil ed, as apparent
from the said provision, as quoted below :

‘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 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;

PRACTICAL ASPECTS OF INSOLVENCY LAW

449

(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

(i ) 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 corporate debtor
demanding repayment of the operational debt in respect of which the
default has occurred.

17. Under sub-section (1) of section 8 of the I&B Code, an operational creditor
on occurrence of a default, is required to deliver the notice of payment of
unpaid debt or get copy of the invoice payment of the defaulted amount
served on the corporate debtor. This is the condition, precedent under sections

8 and 9 of the I&B Code, unlike section 7 before making an application to
the adjudicating authority under section 9 of the I&B Code. Under sub-section

(1) of section 9 of the Code, the right to file an application accrues after
expiry of ten days from the delivery of demand notice or copy of invoice, as
the case may be. If the operational creditor does not receive payment from
the corporate debtor or notice of dispute under sub-section (2) of section 8,
the operational creditor only thereafter may file an application before the

Adjudicating Authority for the initiation of corporate insolvency resolution
process.

18. An application under section 9 of I&B Code is required to be filed in such
format and manner and accompanied by such fee, as may be prescribed.

The operational creditor along with the application is required to furnish
documents as mentioned in clauses (a), (b), (c) and (d) of sub-section (3) of
section 9 of I&B Code, and quoted below :

“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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(3) The operational creditor shal , 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.”

19. From the aforesaid provisions of sections 8 and 9 of I&B Code, it is
clear that unlike section 7, a notice under section 8 is to be issued by an

“operational creditor” individually and the petition under section 9 has to be
filed by operational creditor individual y and not jointly.

20. Otherwise also it is not practical for more than one operational creditor
to file a joint petition. Individual operational creditors wil have to issue their
individual claim notice under section 8 of the I&B Code. The claim will vary
which wil be different. Date of notice under section 8 of the I&B Code in
different cases will be different. It will have to be issued in format(s). Separate

Form 3 or Form 4 wil have to be filled. Petition under section 9 in the format
wil contain, separate individual data.

21. The respondents have relied on rule 23A on the NCLT Rules, 2016 but
as the said rule has not been adopted by section 10 of the I&B Code, the
rule 23A is not applicable to the application under section 9 of the I&B

Code. For the reasons aforesaid, we hold that a joint application under section

9 by one or more operational creditor is not maintainable.

22. Second question raised is, whether it is mandatory to file “certificate of
recognised financial institution” along with an application under section 9 of
the I&B Code ?

23. The aforesaid issue was considered by this Appellate Tribunal in Smart

Timing Steel Ltd. (supra). By judgment dated 19th May 2017 in Company

Appeal (AT) (Insolvency) No. 28 of 2017, Appel ate Tribunal while held that
filing of “certificate of recognised financial institution” maintaining account
of the operational creditor confirming that there is no payment of unpaid

PRACTICAL ASPECTS OF INSOLVENCY LAW

451
operational debt made by the corporate debtor is mandatory, observed 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 fol owed and it is
not empty statutory formality.

12. Sub-section (2) stipulates filing of an application under sub-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 (‘Adjudicating Authority Rules, 2016’) are also
enacted in exercise of the power conferred by clauses (c), (d), (e), (f), of
sub-section (3) read with sections 7, 8, 9 and 10 of the I&B Code. The
rules provide the procedure required to be fol owed by filing an application
by corporate insolvency resolution process. As per rule 6 of the

Adjudicating Authority Rules, 2016, an operational creditor shal make
ah 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 despatch 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 v. Sardar Sayed Ahmed [1955] 1 SCR 108, the hon’ble

Apex Court held that where statute itself provide consequences of breach
or non-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

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PRACTICAL ASPECTS OF INSOLVENCY LAW
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 10 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 wil be desirable to refer to decision of hon’ble Supreme Court in

State of Mysore v. V K Kangan [1976] 2 SCC 895. In the said case, the
hon’ble Supreme Court specifical y 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, al laws are
mandatory in the sense they impose the duty to obey on those who
come within its purview. But it does not fol ow that every departure from
it shal 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
fol ow from construing it in one way or the other.”

17. Therefore, it is clear that the word “shal ” used in sub-section (3) of
section 9 of I&B Code is mandatory, including clause (e) therein.’

24. In this case, we find that the certificate dated 6th March, 2017 attached
by respondents has not been issued by any financial institution as defined
in sub-section (14) of section 3 of the I&B Code, 2016 but has been issued
by Misr Bank which is a foreign bank and is not recognised as a financial
institution. The said Certificate has been issued by ‘col ecting agency’ as
distinct from financial institution and genuity of the same cannot be verified
by the adjudicating authority. We also find that the affidavit in support of
insolvency application, as prescribed in Form 5 of the Adjudicating Authority

Rules has not been filed, which mandates that ‘no notice of dispute received

PRACTICAL ASPECTS OF INSOLVENCY LAW

453
to be returned or it is returned when dispute was raised’, has to be enclosed
by the operational creditor. In absence of such certificate from notified
financial institution, and as Form 5 is not complete, we hold that the
application under section 9 of the I&B Code, was not maintainable.

25. Next question is whether the demand notice with invoice under section

8 of the I&B Code can be issued by any “lawyer on behalf of an the operational
creditor” ?

26. To determine the said issue it is desirable to refer to section 8 of the I&B

Code which reads as fol ows :

“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 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 of ten 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

(i ) 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 corporate debtor
demanding repayment of the operational debt in respect of which the
default has occurred.”

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

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PRACTICAL ASPECTS OF INSOLVENCY LAW
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 shal deliver to the corporate debtor
the fol owing documents, namely :

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in Form 4.”

29. Clauses (a) and (b) of sub-rule (1) of Rule 5 of the Adjudicating Authority

Rules provides the 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) and (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 unconditional y repay the unpaid
operational debt (in default) in full within ten days from the receipt of this
letter failing which we shal 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
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

PRACTICAL ASPECTS OF INSOLVENCY LAW

455
demand of payment, with clear understanding that the operational debt (in
default) required to pay the debt, as claimed, unconditional y within ten.

days from the date of receipt of letter failing which the operational creditor
wil 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 Code of Civil Procedure, 1908 (‘CPC’) 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.

33. In the present case as an advocate/lawyer has given notice and there is
nothing on record to suggest that the lawyer has been authorised by “Board
of directors” of the respondent –“DF Deutsche Forfait AG” and there is nothing
on record to suggest that the lawyer hold any position with or in relation with
the respondents, we hold that the notice issued by the lawyer on behalf of
the respondents cannot be treated as a notice under section 8 of the I&B

Code and for that the petition under section 9 at the instance of the
respondents against the appel ant was not maintainable.

34. The other question raised is whether there is existence of dispute, if
any, in the present case ?

35. From bare perusal of record it is clear that the respondents issued a
winding up notice on the appel ant on 8th December, 2015, i.e., much prior
to issuance of lawyer’s notice purported to be under section 8 of the I&B

Code. On receipt of such notice, the appel ant disputed the claim by detailed
reply dated 3rd January, 2017. Apart from that the respondents were relying
on document dated 27th December, 2013 to fix liability on the appel ant,
which according to appel ant was not signed by the appellant such fact was
brought to the notice of the respondents as back as in the year 2013.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

36. In Kirusa Software (P.) Ltd. v. Mobilox Innovations (P.) Ltd. Company

Appeal (AT) (Insolvency) No. 6 of 2017, this Appel ate Tribunal decided as to
what is the meaning of ‘dispute’ and “existence of dispute” in terms of section

8 of the I&B Code and sub-section (5) of section 5 of I&B Code and by
judgment dated 24th May, 2017 held as follows :

‘15. For the purposes of Part II only of the Code, some terms/words have
been defined. Sub-section (6) of section 5 defines “dispute”, to include,
unless the context otherwise requires, a dispute pending in any suit or
arbitration proceedings relating to : (a) existence of amount of the debt;

(b) quality of goods or service; (c) breach of a representation or warranty.

The definition of “dispute” is “inclusive” and not “exhaustive”. The same
has to be given wide meaning provided it is relatable to the existence of
the amount of the debt, quality of good or service or breach of a
representation or warranty.

16. Once the term “dispute” is given its natural and ordinary meaning,
upon reading of the Code as a whole, the width of “dispute” should cover
al disputes on debt, default, etc., and not be limited to only two ways of
disputing a demand made by the operational creditor, i.e. either by showing
a record of pending suit or by showing a record of a pending arbitration.

The intent of the Legislature, as evident from the definition of the term

“dispute”, is that it wanted the same to be il ustrative (and not exhaustive).

If the intent of the Legislature was that a demand by an operational creditor
can be disputed only by showing a record of a suit or arbitration proceeding,
the definition of dispute would have simply said dispute means a dispute
pending in arbitration or a suit.

18. Admittedly in sub-section (6) of section 5 of the I&B Code, the

Legislature used the words “dispute includes a suit or arbitration
proceedings”. If this is harmoniously read with section (2) of section 8 of
the I&B Code, where words used are “existence of a dispute, if any, and
record of the pendency of the suit or arbitration proceedings”, the result
is disputes, if any, applies to al kinds of disputes, in relation to debt and
default. The expression used in sub-section (2) of section 8 of the I&B

Code “existence of a dispute, if any,” is disjunctive from the expression

“record of the pendency of the suit or arbitration proceedings”. Otherwise,
the words “dispute, if any”, in sub-section (2) of section 8 would become
surplus usage.

19. Sub-section (2) of section 8 of the I&B Code cannot be read to mean
that a dispute must be pending between the parties prior to the notice of
demand and that too in arbitration or a civil court. Once parties are already

PRACTICAL ASPECTS OF INSOLVENCY LAW

457
before any judicial forum/authority for adjudication of disputes, notice
becomes irrelevant and such an interpretation renders the expression

“existence of a dispute, if any, in sub-section (2) of section 8 itiose....

21. The statutory requirement in sub-section (2) of section 8 of the I&B

Code is that the dispute has to be brought to the notice of the operational
creditor. The two comes post the word “dispute” (if any) have been added
as a matter of convenience and/or to give meaningfulness to sub-section

(2) of section 8 of the I&B Code. Without going into the grammar and
punctuation being hapless victim of pace of life, if one discovers the true
meaning of sub-section (2)(a) of section 8 of the I&B Code, having regard
to the context of sections 8 and 9 of the I&B Code, it emerges both from
the object and purpose of the I&B Code and the context in which the
expression is used, that disputes raised in the notice sent by the corporate
debtor to the operational creditor would get covered within sub-section

(2) of section 8 of the I&B Code.

22. The true meaning of sub-section (2)(a) of section 8 read with sub-
section (6) of section 5 of the I&B Code clearly brings out the intent of
the Code, namely, the corporate debtor must raise a dispute with sufficient
particulars. And in case a dispute is being raised by simply showing a
record of dispute in a pending arbitration or suit, the dispute must also be
relatable to the three conditions provided under sub-section (6)(a)-(c) of
section 5 only. The words “and record of the pendency of the suit or
arbitration proceedings” under sub-section (2)(a) of section 8 also make
the intent of the Legislature clear that disputes in a pending suit or
arbitration proceeding are such disputes which satisfy the test of sub-
section (6) of section 5 of the I&B Code and that such disputes are within
the ambit of the expression, “dispute, if any”. The record of suit or arbitration
proceeding is required to demonstrate the same, being pending prior to
the notice of demand under section 8 of the I&B Code.

23. It is a fundamental principle of law that multiplicity of proceedings is
required to be avoided. Therefore, if disputes under sub-section (2)(a) of
section 8 read with sub-section (6) of section 5 of the I&B Code are
confined to a dispute in a pending suit and arbitration in relation to the
three classes under subsection (6) of section 5 of the I&B Code, it would
violate the definition of operational debt under sub-section (21) of section

3 of the I&B Code and would become inconsistent thereto, and would bar
operational creditor from invoking sections 8 and 9 of the Code.

24. Sub-section (6) of section 5 read with sub-section (2)(a) of section 8
also cannot be confined to pending arbitration or a civil suit. It must

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PRACTICAL ASPECTS OF INSOLVENCY LAW
include disputes pending before every judicial authority including
mediation, conciliation, etc., as long there are disputes as to existence
of debt or default, etc., it would satisfy sub-section (2) of section 8 of the

I&B Code....

26. The definition of “dispute” for the purpose of section 9 must be read
along with expression operational debt as defined in section 5(21) of I&B

Code, 2016 means :

(21) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the repayment
of dues arising under any law for the time being in force and payable to
the Central Government, any State Government or any local authority;”

Thus the definition of “dispute”, “operational debt” is read together for the
purpose of section 9 is clear that the intention of Legislature to lay down
the nature of “dispute” has not been limited to suit or arbitration proceedings
pending but includes other proceedings “if any”.

27. Therefore, it is clear that for the purpose of sub-section (2) of section

8 and section 9 a “dispute” must be capable of being discerned from
notice of corporate debtor and the meaning of “existence” a “dispute, if
any”, must be understood in the context.

28. The dispute under I&B Code must relate to specified nature in clause

(a), (b) or (c), i.e., existence of amount of debt or quality of goods or
service or breach of representation or warranty. However, it is capable of
being discerned not only from in a suit or arbitration from any document
related to it. For example, the “operational creditor” has issued notice
under Code of Civil Procedure, 1908 prior to initiation of the suit against
the operational creditor which is disputed by “corporate debtor”. Similarly
notice under section 59 of the Sales and Goods Act if issued by one of
the party, a labourer/employee who may claim to be operation creditor
for the purpose of section 9 of I&B Code may have raised the dispute
with the State Government concerning the subject-matter, i.e., existence
of amount of debit and pending consideration before the competent

Government. Similarly, a dispute may be pending in a Labour Court about
existence of amount of debt. A party can move before a High Court
under writ jurisdictions against Government, corporate debtor (public
sector undertaking). There may be cases where one of the party has
moved before the High Court under section 433 of the Companies Act,

1956 for initiation of liquidation proceedings against the “corporate debtor”

and dispute is pending. Similarly, with regard to quality of foods, if the
corporate debtor has raised a dispute, and brought to the notice of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

459

“operational creditor” to take appropriate step, prior to receipt of notice
under sub-section (1) of section 8 of the I&B Code, one can say that a
dispute is pending about the debt. Mere raising a dispute for the sake of
dispute, unrelated or related to clause (a) or (b) or (c) of sub-section (6) of
section 5, if not raised prior to application and not pending before any
competent court of law or authority cannot be relied upon to hold that
there is a “dispute” raised by the corporate debtor. The scope of existence
of “dispute”, if any, which includes pending suits and arbitration
proceedings cannot be limited and confined to suit and arbitration
proceedings only. It includes any other dispute raised prior to section 8 in
this in relation to clause (a) or (b) or (c) of sub-section (6) of section 5. It
must be raised in a court of law or authority and proposed to be moved
before the court of law or authority and not any got up or mala fide dispute
just to stal the insolvency resolution process.

29. There may be other cases such as a suit relating to existence of
amount of debt stands decided and decree is pending for execution.

Similarly, existence of amount of debt or quality of goods or service for
which a suit have been filed and decreed; an award has been passed by

Arbitral Panel, though petition under section 34 of Arbitration and

Conciliation Act, 1996 may be pending. In such 20 case the question will
arise whether a petition under section 9 will be maintainable particularly
when it was a suit or arbitration proceeding is not pending, but stand
decided ? Though one may argue that insolvency resolution process
cannot be misused for execution of a judgment and decree passed in a
suit or award passed by an arbitration Tribunal, but such submission
cannot be accepted in view of Form 5 of Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 wherein a decree in
suit and award has been shown to be a debt for the purpose of default on
non-payment.

30. Thus, it is clear that while sub-section (2) of section 8 deals with

“existence of a dispute”, sub-section (5) of section 9 does not confer any
discretion on adjudicating authority to verify adequacy of the dispute. It
prohibits the adjudicating authority from proceeding further if there is a
genuine dispute raised before any court of law or authority or pending in
a court of law or authority including suit and arbitration proceedings.

Mere a dispute giving a colour of genuine dispute or il usory, raised for
the first time while replying to the notice under section 8 cannot be a tool
to reject an application under section 9 if the operational creditor otherwise
satisfies the adjudicating authority that there is a debt and there is a
default on the part of the corporate debtor.’

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PRACTICAL ASPECTS OF INSOLVENCY LAW

37. In view of the decision of Kirusa Software (P.) Ltd. (supra), as a notice of
winding up dated 8th December, 2016, was issued by respondents and the
claim was disputed by appel ant by detailed reply dated 3rd January, 2017,
i.e., much prior to purported notice under section 8, issued by lawyer and a
suit between the parties is pending, we hold that there is an existence of

‘dispute’, within the meaning of section 8 read with sub-section (5) of section

5 of I&B Code and, therefore, the petition under section 9 preferred by
respondents against the appel ant was not maintainable.

38. In view of detailed reasons and finding recorded above, we hold the
impugned order is illegal and set aside the impugned order dated 10th April,

2017 passed by the learned Adjudicating Authority, Mumbai Bench in

Company Petition No. 45/Mah/2017 of 2017.

39. In effect, order(s), if any, passed by learned Adjudicating Authority
appointing any “interim resolution professional” or declaring moratorium,
freezing of account and al 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
cal ing for applications al such orders and actions are declared il egal and
are set aside. The joint application preferred by respondent under section 9
of the I&B Code is dismissed. Learned Adjudicating Authority will now close
the proceeding. The appel ant-company is released from all the rigour of law
and is al owed to function independently through its Board of directors from
immediate effect.

40. Learned Adjudicating Authority wil fix the fee of interim resolution
professional if appointed and the respondents wil pay the fees of the interim
resolution professional, for the period he has functioned. The appeal is al owed
with aforesaid observation and direction. However, in the facts and
circumstances of the case, there shal be no order as to cost.

Sd/-

Sd/-

(Mr. Balvinder Singh)

(Justice S.J. Multhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

28th July, 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

461

ANNEXURE X.15

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.15135 OF 2017

MACQUARIE BANK LIMITED

…APPELLANT

VERSUS

SHILPI CABLE TECHNOLOGIES LTD.

...RESPONDENT

WITH

CIVIL APPEAL NO.15481 OF 2017

CIVIL APPEAL NO.15447 OF 2017

JUDGMENT

R.F. Nariman, J.

1. The present appeals raise two important questions which arise under the

Insolvency and Bankruptcy Code, 2016 (‘the Code’). The first question is
whether, in relation to an operational debt, the provision contained in Section

9(3)(c) of the Code is mandatory; and secondly, whether a demand notice of
an unpaid operational debt can be issued by a lawyer on behalf of the
operational creditor.

2. The facts contained in the three appeals are similar. For the purpose of
this judgment, the facts contained in Civil Appeal No.15481 of 2017 will now
be set out. Hamera International (P.) Ltd. executed an agreement with the
appellant, Macquarie Bank Ltd., Singapore, on 27th July, 2015, by which
the appel ant purchased the original supplier’s right, title and interest in a
supply agreement in favour of the respondent. The respondent entered into
an agreement dated 2nd December, 2015 for supply of goods worth

US$6,321,337.11 in accordance with the terms and conditions contained in
the said sales contract. The supplier issued two invoices dated 21st December,

2015 and 31st December, 2015. Payment terms under the said invoices
were 150 days from the date of bil of ladings dated 17th December, 2015/

19th December, 2015. Since amounts under the said bills of lading were due
for payment, the appel ant sent an email dated 3rd May, 2016 to the contesting

462

PRACTICAL ASPECTS OF INSOLVENCY LAW
respondent for payment of the outstanding amounts. Several such emails
by way of reminders were sent, and it is alleged that the contesting respondent
stated that it will sort out pending matters. Ultimately, the appel ant issued
a statutory notice under Sections 433 and 434 of the Companies Act, 1956.

A reply dated 5th October, 2016 denied the fact that there was any
outstanding amount.

3. After the enactment of the Code, the appellant issued a demand notice
under Section 8 of the Code on 14th February, 2017 at the registered office
of the contesting respondent, calling upon it to pay the outstanding amount
of US$6,321,337.11. By a reply dated 22nd February, 2017, the contesting
respondent stated that nothing was owed by them to the appel ant. They
further went on to question the validity of the purchase agreement dated

27th July, 2015 in favour of the appel ant. On 7th March, 2017, the appellant
initiated the insolvency proceedings by filing a petition under Section 9 of
the Code. On 1st June, 2017, the National Company Law Tribunal (‘NCLT’)

rejected the petition holding that Section 9(3)(c) of the Code was not complied
with, inasmuch as no certificate, as required by the said provision,
accompanied the application filed under Section 9. It, therefore, held that
there being non-compliance of the mandatory provision of Section 9(3)(c) of
the Code, the application would have to be dismissed at the threshold.

However, the NCLT also went into the question as to whether a dispute has
been raised in relation to the operational debt and found that such dispute
was in fact raised by the reply to the statutory notice sent under Sections

433 and 434 of the Companies Act, 1956 and that, therefore, under Section

9(5)(i )(d), the application would have to be dismissed.

4. By the impugned judgment dated 17th July, 2017, the National Company

Law Appel ate Tribunal(‘NCLAT’) agreed with the NCLT holding that the
application would have to be dismissed for non-compliance of the mandatory
provision contained in Section 9(3)(c) of the Code. It further went on to hold
that an advocate/lawyer cannot issue a notice under Section 8 on behalf of
the operational creditor in the fol owing terms :

“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 authorised
by the appel ant, 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 appel ant against the respondent was not maintainable.”

PRACTICAL ASPECTS OF INSOLVENCY LAW

463

5. Shri Mukul Rohatgi, learned senior advocate appearing on behalf of the
appel ant, referred us to various provisions of the Code. According to learned
senior counsel, on a conjoint reading of Section 9(3)(c), rule 6 and Form 5 of
the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (‘Adjudicating Authority Rules’), it is clear that Section 9(3)(c) is not
mandatory, but only directory and that, in the said Section, ‘shal ’ should be
read as ‘may’. He cited a number of judgments for the proposition that when
serious general inconvenience is caused to innocent persons or the general
public without really furthering the object of the particular Act, the said
provision should not be read as mandatory, but as directory only. Further,
according to learned senior counsel, Section 9(3)(c) is a procedural Section,
which is not a condition precedent to the allowing of an application filed
under Section 9(1). This is further clear from the fact that under Section

9(5), if there is no such certificate, the application does not need to be
rejected. He also stressed the fact that at the end of Form 5, what has to be
attached to the application, by way of Annexure III, is a copy of the relevant
accounts from banks/financial institutions maintaining accounts of the
operational creditor confirming that there is no payment of the operational
debt only “if available”. Also, according to learned counsel, this is only an
additional document, which along with other documents that are mentioned
in Item 8 of Part V, would go to prove the existence of the operational debt.

The word “confirming” in Section 9(3)(c) would also show that this is only
one more document that can be relied upon by the operational creditor,
apart from other documents, which may wel prove the existence of the
operational debt. According to learned senior counsel, on the second ground
as well it is clear, on a perusal of Form 5, that a “person authorised to act on
behalf of the operational creditor” is a person who can sign Form 5 on behalf
of the operational creditor. Also, the expression “position with or in relation
to the operational creditor” shows that a lawyer, who is authorised by the
operational creditor, is certainly within the said expression. He also referred
us to Section 30 of the Advocates Act, 1961 and judgments on the effect of
the expression “practise” when it applies to lawyers, vis-a-vis Tribunals such
as the NCLT and NCLAT.

6. Shri Arvind Datar, learned senior advocate, supported the arguments of

Shri Rohatgi and went on to add that the definition of ‘person’ contained in

Section 2(23) of the Code includes a person resident outside India, and
when read with the definition of “operational creditor” in Section 5(20) of the

Code would make it clear that persons, such as the appel ant, are certainly
operational creditors within the meaning of the Code. He stressed the fact
that if a copy of the certificate under Section 9(3)(c) can only be from a

464

PRACTICAL ASPECTS OF INSOLVENCY LAW

“financial institution” as defined under Section 3(14) of the Code, and if a
non resident bank or financial institution, such as the appellant, may not be
included either as a scheduled bank under Section 3(14)(a) or as such other
institution as the Central Government may by notification specify as a
financial institution under Section 3(14)(d), it is clear that Section 9(3)(c)

cannot operate to non-suit the appel ant, as it would be impossible to get a
certificate from a financial institution as defined. This being the case, he
argued that the Court should add words into the expression “financial
institution”, as it would otherwise lead to absurdity and that if Section 9(3)(c)

is held to be mandatory, then a certificate from a foreign bank, who is not a

“financial institution” as defined under the Code, should be read into Section

9(3)(c). Otherwise, the learned senior counsel supported Shri Rohatgi’s
argument that Section 9(3)(c) is a directory provision which need not
mandatorily be complied with. A further argument was made that the definition
in Section 3(14), though exhaustive, is subject to context to the contrary
and that, therefore, it is clear that a financial institution would include a
bank outside the categories mentioned in Section 3(14) when it comes to
an operational creditor who is a resident outside India.

7. Al these arguments were countered by Dr. A M Singhvi, learned senior
counsel appearing on behalf of the respondent. First and foremost, according
to learned senior counsel, the object of the Code is not that persons may
use the Code as a means of recovering debts. The Code is an extremely
draconian piece of legislation and must, therefore, be construed strictly. If
this is kept in mind, it is clear that Section 9(3)(c) is mandatory and requires
to be complied with strictly or else the application should be dismissed at
the threshold. He stated that in the context of it being recognised by our
judgments that a financial creditor and operational creditor are completely,
differently and separately dealt with in the Code, and that so far as an
operational creditor is concerned, it is important to bear in mind that a very
low threshold is required in order that an operational creditor’s application be
rejected, namely, there being a pre-existing dispute between the parties.

According to learned senior counsel Section 9(3)(c) is a jurisdictional
condition precedent, which is clear from the expression ‘initiation’ and the
expression ‘shall’, both showing that the Section is a mandatory condition
precedent which has to be satisfied before the Adjudicating Authority can
proceed further. According to learned senior counsel, a copy of the certificate
from a financial institution is a very important document which makes it
clear, almost conclusively, that there is an unpaid operational debt. According
to him, the principle contained in Taylor v. Taylor (1875) 1 Ch.D 426, has
been fol owed by a number of judgments and is applicable inasmuch as

PRACTICAL ASPECTS OF INSOLVENCY LAW

465
when a statute requires a particular thing to be done in a particular manner,
it must be done in that manner or not at al . He also referred us to various

Sections of the Code, the Insolvency and the Adjudicating Authority Rules,

Form 5 in particular, together with the Viswanathan Committee Report and

Joint Committee Report of the Parliament. According to the learned senior
counsel, it is clear from the definition of “financial institution” contained in

Section 3(14) that certain foreign banks are included within the expression

“scheduled banks” under Section 3(14)(a) and that, under Section 3(14)(d),
the Central Government may, by notification, specify other foreign banks
as financial institutions. It is only where operational creditors have dealings
with banks which fall within Section 3(14), that they can avail the opportunity
of declaring a corporate debtor as insolvent under Sections 8 and 9 of the

Code. Persons who may be residents outside India and who bank with entities
that are not contained within the definition of Section 3(14) would, therefore,
be outside the Code.

8. According to the learned senior counsel, the consequence of not furnishing
a copy of the certificate under Section 9(3)(c) is that, under Section 9(5)(ii)(a),
the application that is made would be incomplete and, subject to the proviso,
would have to be dismissed on that score. Also, according to the learned
senior counsel, the NCLAT was right in fol owing the judgment contained in

Smart Timing Steel Ltd. v. National Steel & Agro Industries Ltd. decided
on 19th May, 2017, which, according to the learned senior counsel, has
merged in an order of this Court dismissing an appeal from the said judgment.

9. According to the learned senior counsel, a lawyer’s notice cannot be
given under Section 8, read with the Adjudicating Authority Rules and Form

5 therein. Either the operational creditor himself must send the requisite
notice, or a duly authorised agent on his behalf should do so, and such
authorised agent can only be an ‘insider’, namely, a person who is authorised
by the operational creditor, being an employee, director or other person from
within who alone can send the notice under Section 8 and sign the application
under Section 9. Dr. Singhvi also stated that it is clear, from Forms 3 and 5,
that only a person authorised to act on behalf of the operational creditor can
send the notice and/or sign the application. He stressed the word ‘position’

with or in relation to the operational creditor and stated that this would also
indicate that it is only an insider who can be so authorised by the operational
creditor and not a lawyer. According to learned senior counsel, the provisions
contained in certain statutes such as Section 434(2) of the Companies Act,

1956 and rule 4 of the Debts Recovery Tribunal (Procedure) Rules, 1993
under the Recovery of Debts Due to Banks and Financial Institutions Act,

1993 (‘Debts Recovery Rules’) would also make it clear that where a lawyer

466

PRACTICAL ASPECTS OF INSOLVENCY LAW
can do things on behalf of a party, it is expressly so mentioned unlike the
present case.

10. Having heard learned counsel for the parties, it is necessary to set out
the relevant Sections of the Code and the Adjudicating Authority Rules.

‘3. In this Code, unless the context otherwise requires, –....

(10) “creditor” means any person to whom a debt is owed and includes a
financial creditor, an operational creditor, a secured creditor, an
unsecured creditor and a decree-holder;....

(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;

(c) public financial institution as defined in clause (72) of Section 2
of the Companies Act, 2013; and

(d) such other institution as the Central Government may by
notification specify as a financial institution;....

(23) “person” includes –

(a) an individual;

(b) a Hindu undivided family;

(c) a company;

(d) a trust;

(e) a partnership;

(f) a limited liability partnership; and

(g) any other entity established under a statute, and includes a
person resident outside India;

(25) “person resident outside India” means a person other than a person
resident in India;

****

5. In this Part, unless the context otherwise requires, –

(20) “operational creditor” means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally
assigned or transferred;

PRACTICAL ASPECTS OF INSOLVENCY LAW

467

(21) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the
repayment of dues arising under any law for the time being in force
and payable to the Central Government, any State Government or
any local authority;

****

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 in the default to the corporate debtor in such form and manner
as may be prescribed.

(2) The corporate debtor shal , within a period of ten 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

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.

****

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.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(2) The application under sub-Section (1) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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 (4), if any;

(i ) 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

PRACTICAL ASPECTS OF INSOLVENCY LAW

469

(e) any disciplinary proceeding is pending against any proposed
resolution professional :

Provided that Adjudicating Authority, shal before rejecting an application
under sub-clause (a) of clause (i ) 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 shal commence from
the date of admission of the application under sub-Section (5) of this

Section.

****

The Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016

5. Demand notice by operational creditor. – (1) An operational creditor
shal deliver to the corporate debtor, the fol owing 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.

(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.

6. Application by operational creditor. – (1) An operational creditor, shall
make an application for initiating the corporate insolvency resolution
process against a corporate debtor under Section 9 of the Code in Form

5, accompanied with documents and records required therein and as
specified in the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016.

(2) The applicant under sub-rule (1) shal despatch forthwith, a copy of
the application filed with the Adjudicating Authority, by registered post or
speed post to the registered office of the corporate debtor.

470

PRACTICAL ASPECTS OF INSOLVENCY LAW

FORM 3

[See clause (a) of sub-rule (1) of rule 5]

Form of demand notice/invoice demanding payment under
the Insolvency and Bankruptcy Code, 2016

( Under rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016)

[Date]

To,

[ Name and address of the registered office of the corporate debtor]

From,

[ Name and address of the registered office of the operational creditor]

Subject : Demand notice/invoice demanding payment in respect of
unpaid operational debt due from [corporate debtor] under the Code.

Madam/Sir,

1. This letter is a demand notice/invoice demanding payment of an
unpaid operational debt due from [name of corporate debtor].

2. Please find particulars of the unpaid operational debt below :

PARTICULARS OF OPERATIONAL DEBT

1. TOTAL AMOUNT OF DEBT, DETAILS OF

TRANSACTIONS ON ACCOUNT OF

WHICH DEBT FELL DUE, AND THE

DATE FROM WHICH SUCH DEBT FELL

DUE

2. AMOUNT CLAIMED TO BE IN DEFAULT

AND THE DATE ON WHICH THE DEFAULT

OCCURRED (ATTACH THE WORKINGS

FOR COMPUTATION OF DEFAULT IN

TABULAR FORM)

3. 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

PRACTICAL ASPECTS OF INSOLVENCY LAW

471

COMPANIES (IF THE CORPORATE

DEBTOR IS A COMPANY)

4. DETAILS OF RETENTION OF TITLE

ARRANGEMENTS (IF ANY) IN RESPECT

OF GOODS TO WHICH THE OPERATIONAL

DEBT REFERS

5. RECORD OF DEFAULT WITH THE

INFORMATION UTILITY (IF ANY)

6. PROVISION OF LAW, CONTRACT OR

OTHER DOCUMENT UNDER WHICH

DEBT HAS BECOME DUE

7. LIST OF DOCUMENTS ATTACHED TO THIS

APPLICATION IN ORDER TO PROVE THE

EXISTENCE OF OPERATIONAL DEBT

AND THE AMOUNT IN DEFAULT

3. If you dispute the existence or amount of unpaid operational debt (in
default) please provide the undersigned, within ten days of the receipt
of this letter, of the pendency of the suit or arbitration proceedings in
relation to such dispute filed before the receipt of this letter/notice.

4. If you believe that the debt has been repaid before the receipt of this
letter, please demonstrate such repayment by sending to us, within
ten days of receipt of this letter, the following :

(a) an attested copy of the record of electronic transfer of the unpaid
amount from the bank account of the corporate debtor; or

(b) an attested copy of any record that [name of the operational
creditor] has received the payment.

5. The undersigned, hereby, attaches a certificate from an information
utility confirming that no record of a dispute raised in relation to the
relevant operational debt has been filed by any person at any
information utility (if applicable).

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,

472

PRACTICAL ASPECTS OF INSOLVENCY LAW

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

Instructions

1. Please serve a copy of this form on the corporate debtor, ten days in
advance of filing an application under Section 9 of the Code.

2. Please append a copy of such served notice to the application made by
the operational creditor to the Adjudicating Authority.

FORM 5

[See sub-rule (1) of rule 6]

Application by operational creditor to initiate corporate insolvency
resolution process under the Code

[ Under rule 6 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016]

[Date]

To,

The National Company Law Tribunal

[Address]

From,

[ Name and address for correspondence of the operational creditor]

In the matter of [ name of the corporate debtor]

Subject : Application to initiate corporate insolvency resolution process
in respect of [name of the corporate debtor] under the Insolvency and

Bankruptcy Code, 2016.

Madam/Sir,

[Name of the operational creditor], hereby submits this application to initiate
a corporate insolvency resolution process in the case of [name of corporate
debtor]. The details for the purpose of this application are set out below :

PRACTICAL ASPECTS OF INSOLVENCY LAW

473

Part - I

PARTICULARS OF APPLICANT

1. NAME OF OPERATIONAL CREDITOR

2. IDENTIFICATION NUMBER OF

OPERATIONAL CREDITOR (IF ANY)

3. ADDRESS FOR CORRESPONDENCE

OF THE OPERATIONAL CREDITOR

Part - II

PARTICULARS OF CORPORATE

DEBTOR

1. NAME OF THE CORPORATE DEBTOR

2. IDENTIFICATION NUMBER OF

CORPORATE DEBTOR

3. DATE OF INCORPORATION OF

CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND THE

PAID-UP SHARE CAPITAL OF THE

CORPORATE DEBTOR AND/OR

DETAILS OF GUARANTEE CLAUSE AS

PER

MEMORANDUM

OF

ASSOCIATION (AS APPLICABLE)

5. ADDRESS OF THE REGISTERED

OFFICE OF THE CORPORATE DEBTOR

6. NAME, ADDRESS AND AUTHORITY

OF

PERSON

SUBMITTING

APPLICATION ON BEHALF OF

OPERATIONAL CREDITOR (ENCLOSE

AUTHORISATION)

7. NAME AND ADDRESS OF PERSON

RESIDENT IN INDIA AUTHORISED TO

ACCEPT THE SERVICE OF PROCESS

ON ITS BEHALF (ENCLOSE

AUTHORISATION)

474

PRACTICAL ASPECTS OF INSOLVENCY LAW

Part-III

PARTICULARS OF THE PROPOSED

INTERIM

RESOLUTION

PROFESSIONAL [IF PROPOSED]

1. NAME, ADDRESS, EMAIL ADDRESS

AND THE REGISTRATION NUMBER OF

THE PROPOSED INSOLVENCY

PROFESSIONAL

Part-IV

PARTICULARS OF OPERATIONAL

DEBT

1. TOTAL AMOUNT OF DEBT,

2. DETAILS OF TRANSACTIONS ON

ACCOUNT OF WHICH DEBT FELL DUE,

AND THE DATE FROM WHICH SUCH

DEBT FELL DUE AMOUNT CLAIMED TO

BE IN DEFAULT AND THE DATE ON

WHICH THE DEFAULT OCCURRED

(ATTACH THE WORKINGS FOR

COMPUTATION OF AMOUNT AND

DATES OF DEFAULT IN TABULAR

FORM)

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

PRACTICAL ASPECTS OF INSOLVENCY LAW

475

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 IN

ORDER TO PROVE THE EXISTENCE OF

OPERATIONAL DEBT AND THE

AMOUNT IN DEFAULT

I, [ Name of the operational creditor/person authorised to act on behalf of the
operational creditor] hereby certify that, to the best of my knowledge, [ name

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PRACTICAL ASPECTS OF INSOLVENCY LAW
of proposed insolvency professional], is ful y qualified and permitted to act
as an insolvency professional in accordance with the Code and the rules
and regulations made thereunder. [ where applicable]

[ Name of the operational creditor] has paid the requisite fee for this application
through [ state means of payment] on [ date].

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

Instructions –

Please attach the fol owing to this application :

Annex I – Copy of the invoice/demand notice as in Form 3 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 served
on the corporate debtor.

Annex II – Copies of al documents referred to in this application.

Annex III – Copy of the relevant accounts from the banks/financial institutions
maintaining accounts of the operational creditor confirming that there is no
payment of the relevant unpaid operational debt by the operational debtor, if
available.

Annex IV – Affidavit in support of the application in accordance with the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016.

Annex V – Written communication by the proposed interim resolution
professional as set out in Form 2 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016. [where applicable]

Annex VI – Proof that the specified application fee has been paid.

Note : Where workmen/employees are operational creditors, the application
may be made either in an individual capacity or in a joint capacity by one of
them who is duly authorised for the purpose.’

11. The first thing to be noticed on a conjoint reading of Sections 8 and 9 of
the Code, as explained in Mobilox Innovations (P.) Ltd. v. Kirusa Software

(P.) Ltd., Civil Appeal No. 9405 of 2017 decided on 21st September, 2017,
at paragraphs 33 to 36, is that Section 9(1) contains the conditions precedent
for triggering the Code insofar as an operational creditor is concerned. The
requisite elements necessary to trigger the Code are :

PRACTICAL ASPECTS OF INSOLVENCY LAW

477

(i) occurrence of a default;

(i ) delivery of a demand notice of an unpaid operational debt or invoice
demanding payment of the amount involved; and

(iii) the fact that the operational creditor has not received payment from
the corporate debtor within a period of 10 days of receipt of the demand
notice or copy of invoice demanding payment, or received a reply
from the corporate debtor which does not indicate the existence of a
pre-existing dispute or repayment of the unpaid operational debt.

12. It is only when these conditions are met that an application may then be
filed under Section 9(2) of the Code in the prescribed manner, accompanied
with such fee as has been prescribed. Under Section 9(3), what is clear is
that, along with the application, certain other information is also to be
furnished. Obviously, under Section 9(3)(a), a copy of the invoice demanding
payment or demand notice delivered by the operational creditor to the
corporate debtor is to be furnished. We may only indicate that under Rules

5 and 6 of the Adjudicating Authority Rules, read with Forms 3 and 5, it is
clear that, as Annexure I thereto, the application in any case must have a
copy of the invoice/demand notice attached to the application. That this is a
mandatory condition precedent to the filing of an application is clear from a
conjoint reading of Sections 8 and 9(1) of the Code.

13. When we come to Section 9(3)(b), it is obvious that an affidavit to the
effect that there is no notice given by the corporate debtor relating to a
dispute of the unpaid operational debt can only be in a situation where the
corporate debtor has not, within the period of 10 days, sent the requisite
notice by way of reply to the operational creditor. In a case where such
notice has, in fact, been sent in reply by the corporate debtor, obviously an
affidavit to that effect cannot be given.

14. When we come to clause (c) of Section 9(3), it is equally clear that a
copy of the certificate from the financial institution maintaining accounts of
the operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor is certainly not a condition precedent
to triggering the insolvency process under the Code. The expression

‘confirming’ makes it clear that this is only a piece of evidence, albeit a very
important piece of evidence, which only “confirms” that there is no payment
of an unpaid operational debt. This becomes clearer when we go to sub-
clause (d) of Section 9(3) which requires such other information as may be
specified has also to be furnished along with the application.

15. When Form 5 under rule 6 is perused, it becomes clear that Part V

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PRACTICAL ASPECTS OF INSOLVENCY LAW
thereof speaks of particulars of the operational debt. There are 8 entries in

Part V dealing with documents, records and evidence of default. Item 7 of

Part V is only one of such documents and has to be read along with Item 8,
which speaks of other documents in order to prove the existence of an
operational debt and the amount in default. Further, annexure III in the Form
also speaks of copies of relevant accounts kept by banks/financial
institutions maintaining accounts of the operational creditor, confirming that
there is no payment of the unpaid operational debt, only “if available”. This
would show that such accounts are not a pre-condition to trigger the Code,
and that if such accounts are not available, a certificate based on such
accounts cannot be given, if Section 9 is to be read the Adjudicating Authority

Rules and the Forms therein, al of which set out the statutory conditions
necessary to invoke the Code.

16. In State of UP v. Babu Ram [1961] 2 SCR 679 at 701-702, this Court
dealt with the position of rules made under a statute as follows :

‘What then is the effect of the said propositions in their application to the
provisions of the Police Act and the rules made thereunder ? The Police

Act of 1861 continues to be good law under the Constitution. Para 477 of
the Police Regulations shows that the rules in Chapter XXXII thereof
have been framed under Section 7 of the Police Act. Presumably, they
were also made by the Government in exercise of its power under Section

46(2) of the Police Act. Under para 479(a) the Governor’s power of
punishment with reference to al officers is preserved; that is to say, this
provision expressly saves the power of the Governor under article 310 of
the Constitution. “Rules made under a statute must be treated for all
purposes of construction or obligation exactly as if they were in the Act
and are to be of the same effect as if contained in the Act, and are to be
judicially noticed for all purposes of construction or obligation” : see Maxwell

“On the Interpretation of Statutes”, 10th edn., pp. 50-51. The statutory
rules cannot be described as, or equated with, administrative directions.

If so, the Police Act and the rules made thereunder constitute a self-
contained code providing for the appointment of police officers and
prescribing the procedure for their removal.’

Equally, in Desh Bandhu Gupta v. Delhi Stock Exchange [1979] 4 SCC

565 at 572, this Court laid down the principle of contemporanea expositio
as under :

‘The principle of contemporanea expositio (interpreting a statute or any
other document by reference to the exposition it has received from
contemporary authority) can be invoked though the same wil not always

PRACTICAL ASPECTS OF INSOLVENCY LAW

479
be decisive of the question of construction (Maxwel 12th ed. p. 268). In

Crawford on Statutory Construction (1940 edn.) in para 219 (at pp. 393-

395) it has been stated that administrative construction (i.e.,
contemporaneous construction placed by administrative or executive
officers charged with executing a statute) generally should be clearly wrong
before it is overturned; such a construction, commonly referred to as
practical construction, although not controlling, is nevertheless entitled
to considerable weight; it is highly persuasive. In Baleshwar Bagarti v.

Bhagirathi Dass [ILR 35 Cal. 701 at 713] the principle, which was reiterated
in Mathura Mohan Saha v. Ram Kumar Saha [ILR 43 Cal. 790 : AIR 1916

Cal. 136] has been stated by Mukerjee, J, thus :

“It is a well settled principle of interpretation that Courts in construing a
statute wil give much weight to the interpretation put upon it, at the time
of its enactment and since, by those whose duty it has been to construe,
execute and apply it. I do not suggest for a moment that such interpretation
has by any means a control ing effect upon the Courts; such interpretation
may, if occasion arises, have to be disregarded for cogent and persuasive
reasons, and in a clear case of error, a Court would without hesitation
refuse to fol ow such construction.”’

However, Dr. Singhvi referred to the following three judgments for the
proposition that rules cannot override the substantive provisions of an Act :

D T U v. B B L Hajelay [1972] 2 SCC 744 (para 13); ADM (Rev.) Delhi

Admn. v. Siri Ram [2000] 5 SCC 451 (para 16) and Ispat Industries Ltd. v.

Commissioner of Customs [2006] 12 SCC 583 (para 21). The aforesaid
judgments only have application when rules are ultra vires the parent statute.

In the present case, the rules merely flesh out what is already contained in
the statute and must, therefore, be construed along with the statute. Read
with the Code, they form a self-contained code being contemporanea
expositio by the Executive which is charged with carrying out the provisions
of the Code. The true construction of Section 9(3)(c) is that it is a procedural
provision, which is directory in nature, as the Adjudicatory Authority Rules
read with the Code clearly demonstrate.

17. There may be situations of operational creditors who may have dealings
with a financial institution as defined in Section 3(14) of the Code. There
may also be situations where an operational creditor may have as his banker
a non-scheduled bank, for example, in which case, it would be impossible
for him to fulfil the aforesaid condition. A foreign supplier or assignee of
such supplier may have a foreign banker who is not within Section 3(14) of
the Code. The fact that such foreign supplier is an operational creditor is

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PRACTICAL ASPECTS OF INSOLVENCY LAW
established from a reading of the definition of ‘person’ contained in Section

3(23), as including persons resident outside India, together with the definition
of “operational creditor” contained in Section 5(20), which in turn is defined
as “a person to whom an operational debt is owed and includes any person
to whom such debt has been legally assigned or transferred”. That such
person may have a bank/financial institution with whom it deals and which
is not contained within the definition of Section 3(14) of the Code would
show that Section 9(3)(c) in such a case would, if Dr. Singhvi is right about
the sub-Section being a condition precedent, amount to a threshold bar to
proceeding further under the Code. The Code cannot be construed in a
discriminatory fashion so as to include only those operational creditors who
are residents outside India who happen to bank with financial institutions
which may be included under Section 3(14) of the Code. It is no answer to
state that such person can approach the Central Government to include its
foreign banker under Section 3(14) of the Code, for the Central Government
may never do so. Equally, Dr. Singhvi’s other argument that such persons
ought to be left out of the triggering of the Code against their corporate
debtor, despite being operational creditors as defined, would not sound well
with article 14 of the Constitution, which applies to al persons including
foreigners. Therefore, as the facts of these cases show, a so-cal ed condition
precedent impossible of compliance cannot be put as a threshold bar to the
processing of an application under Section 9 of the Code.

18. However, it was argued that there are various other categories of creditors
who cannot file insolvency petitions, such as government authorities who
have pending tax dues. Such authorities have ample powers under taxation
statutes to coercively col ect outstanding tax arrears. Besides they form a
class, as a whole, who are kept out of the Code, unlike persons who are
resident outside India who, though being operational creditors, are artificially
divided, if we are to accept Dr. Singhvi’s argument, into two sub-classes,
namely, those who bank with an institution that is recognised by Section

3(14) of the Code and those who do not. This argument also does not
commend itself to us.

19. It is true that the expression ‘initiation’ contained in the marginal note to

Section 9 does indicate the drift of the provision, but from such drift, to build
an argument that the expression ‘initiation’ would lead to the conclusion that

Section 9(3) contains mandatory conditions precedent before which the Code
can be triggered is a long shot. Equally, the expression ‘shall’ in Section 9(3)

does not take us much further when it is clear that Section 9(3)(c) becomes
impossible of compliance in cases like the present. It would amount to a
situation wherein serious general inconvenience would be caused to innocent

PRACTICAL ASPECTS OF INSOLVENCY LAW

481
persons, such as the appel ant, without very much furthering the object of
the Act, as has been held in the State of Haryana v. Raghubir Dayal [1995]

1 SCC 133 at paragraph 5 and obviously, therefore, Section 9(3)(c) would
have to be construed as being directory in nature.

20. Even otherwise, the important condition precedent is an occurrence of a
default, which can be proved, as has been stated hereinabove, by means of
other documentary evidence. Take for example the case of an earlier letter
written by the corporate debtor to the operational creditor confirming that a
particular operational debt is due and payable. This piece of evidence would
be sufficient to demonstrate that such debt is due and that default has
taken place, as may have been admitted by the corporate debtor. If Dr.

Singhvi’s submissions were to be accepted, despite the availability of such
documentary evidence contained in the Section 9 application as other
information as may be specified, such application filed under Section 9
would yet have to be rejected because there is no copy of the requisite
certificate under Section 9(3)(c). Obviously, such an absurd result militates
against such a provision being construed as mandatory.

21. It is unnecessary to further refer to arguments made on the footing that

Section 7 qua financial creditors has a process which is different from that
of operational creditors under Sections 8 and 9 of the Code. The fact that
there is no requirement of a bank certificate under Section 7 of the Code, as
compared to Section 9, does not take us very much further. The difference
between Sections 7 and 9 has already been noticed by this Court in

Innoventive Industries Ltd. v. ICICI Bank Civil Appeal Nos. 8337-8338 of

2017 decided on 31st August, 2017, as follows :

‘29. The scheme of Section 7 stands in contrast with the scheme under

Section 8 where an operational creditor is, on the occurrence of a default,
to first deliver a demand notice of the unpaid debt to the operational debtor
in the manner provided in Section 8(1) of the Code. Under Section 8(2),
the corporate debtor can, within a period of 10 days of receipt of the
demand notice or copy of the invoice mentioned in sub-Section (1), bring
to the notice of the operational creditor the existence of a dispute or the
record of the pendency of a suit or arbitration proceedings, which is pre-
existing – i.e., before such notice or invoice was received by the corporate
debtor. The moment there is existence of such a dispute, the operational
creditor gets out of the clutches of the Code.

30. On the other hand, as we have seen, in the case of a corporate debtor
who commits a default of a financial debt, the Adjudicating Authority has
merely to see the records of the information utility or other evidence

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PRACTICAL ASPECTS OF INSOLVENCY LAW
produced by the financial creditor to satisfy itself that a default has
occurred. It is of no matter that the debt is disputed so long as the debt is

“due”, i.e., payable unless interdicted by some law or has not yet become
due in the sense that it is payable at some future date. It is only when this
is proved to the satisfaction of the Adjudicating Authority that the

Adjudicating Authority may reject an application and not otherwise.’

The fact that these differences obtain under the Code would have no direct
bearing on whether Section 9(3)(c) ought to be construed in the manner
indicated by Dr. Singhvi.

22. It was also submitted that Sections 65 and 76 of the Code provide for
criminal prosecution against banks issuing false bank certificates and that
a foreign bank issuing such a certificate may not be amenable to the
jurisdiction of the Code. It is unnecessary to answer this submission in view
of the fact that the necessity for such a certificate has itself been held by
this judgment to be directory in nature.

23. Equal y, Dr. Singhvi’s argument that the Code leads to very drastic action
being taken once an application for insolvency is filed and admitted and
that, therefore, al conditions precedent must be strictly construed is also
not in sync with the recent trend of authorities as has been noticed by a
concurring judgment in Ms. Eera through Dr. Manjula Krippendorf v. State

(Govt. of NCT of Delhi) Criminal Appeal Nos. 1217-1219 of 2017 decided
on 21st July, 2017. In this judgment, the correct interpretation of Section

2(1)(d) of the Protection of Children from Sexual Offences Act, 2012 arose.

After referring to the celebrated Heydon’s case, 76 ER 637 [1584] and to
the judgments in which the golden rule of interpretation of statutes was set
out, the concurring judgment of R F Nariman, J, after an exhaustive survey
of the relevant case law, came to the conclusion that the modern trend of
case law is that creative interpretation is within the Lakshman Rekha of the

Judiciary. Creative interpretation is when the Court looks at both the literal
language as wel as the purpose or object of the statute, in order to better
determine what the words used by the draftsman of the legislation mean.

The concurring judgment then concluded :

‘It is, thus, clear on a reading of English, U.S., Australian and our own

Supreme Court judgments that the “Lakshman Rekha” has in fact been
extended to move away from the strictly literal rule of interpretation back
to the rule of the old English case of Heydon, where the Court must have
recourse to the purpose, object, text, and context of a particular provision
before arriving at a judicial result. In fact, the wheel has turned ful circle.

It started out by the rule as stated in 1584 in Heydon’s case, which was

PRACTICAL ASPECTS OF INSOLVENCY LAW

483
then waylaid by the literal interpretation rule laid down by the Privy Council
and the House of Lords in the mid-1800s, and has come back to restate
the rule somewhat in terms of what was most felicitously put over 400
years ago in Heydon’s case.’

In dealing with penal statutes, the Court was confronted with a body of case
law which stated that as penal consequences ensue, the provisions of such
statutes should be strictly construed. Here again, the modern trend in
construing penal statutes has moved away from a mechanical incantation
of strict construction. Several judgments were referred to and it was held
that a purposive interpretation of such statutes is not ruled out. Ultimately,
it was held that a fair construction of penal statutes based on purposive as
wel as literal interpretation is the correct modern day approach.

24. However, Dr. Singhvi cited Raghunath Rai Bareja v. Punjab National

Bank [2007] 2 SCC 230 and relied upon paragraphs 39 to 47 for the
proposition that the literal construction of a statute is the only mode of
interpretation when the statute is clear and unambiguous. Paragraph 43 of
the said judgment was relied upon strongly by the learned counsel, which
states :

“In other words, once we depart from the literal rule, then any number of
interpretations can be put to a statutory provision, each judge having a
free play to put his own interpretation as he likes. This would be destructive
of judicial discipline, and also the basic principle in a democracy that it is
not for the Judge to legislate as that is the task of the elected
representatives of the people. Even if the literal interpretation results in
hardship or inconvenience, it has to be followed (see G P Singh’s Principles
of Statutory Interpretations, 9th edn., pp. 45-49). Hence, departure from
the literal rule should only be done in very rare cases, and ordinarily there
should be judicial restraint in this connection.”

Regard being had to the modern trend of authorities referred to in the
concurring judgment in Ms. Eera through Dr. Manjula Krippendorf (supra),
we need not be afraid of each Judge having a free play to put forth his own
interpretation as he likes. Any arbitrary interpretation, as opposed to fair
interpretation, of a statute, keeping the object of the Legislature in mind,
would be outside the judicial ken. The task of a Judge, when he looks at the
literal language of the statute as wel as the object and purpose of the
statute, is not to interpret the provision as he likes but is to interpret the
provision keeping in mind Parliament’s language and the object that

Parliament had in mind. With this caveat, it is clear that judges are not
knight-errants free to roam around in the interpretative world doing as each

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Judge likes. They are bound by the text of the statute, together with the
context in which the statute is enacted; and both text and context are

Parliaments’, and not what the Judge thinks the statute has been enacted
for. Also, it is clear that for the reasons stated by us above, a fair construction
of Section 9(3)(c), in consonance with the object sought to be achieved by
the Code, would lead to the conclusion that it cannot be construed as a
threshold bar or a condition precedent as has been contended by Dr. Singhvi.

25. Dr. Singhvi then argued that the application of the principle in Taylor

(supra) should be fol owed when it comes to the correct interpretation of

Section 9(3)(c) of the Code. The principle of Taylor (supra), namely, that
where a statute states that a particular act is to be done in a particular
manner; it must be done in that manner or not at al , was fol owed by the

Privy Council in Nazir Ahmad v. King Emperor 63 IA 372 (1936). In that
case, the Privy Council held that Sections 164 and 364 of the Code of

Criminal Procedure, 1898 prescribed the mode in which confessions are to
be recorded by Magistrates, when made during investigation, and a
confession before a Magistrate not recorded in the manner provided was
inadmissible. In Ukha Kolhe v. State of Maharashtra [1964] 1 SCR 926 at

948-949, a Constitution Bench of this Court held that the principle contained
in Taylor (supra) would not apply when proof of a specified fact could be
obtained by means other than that statutorily specified. The argument in
that case was that Sections 129A and 129B prescribed the mode of taking
blood in the course of investigation of an offence under the Bombay

Prohibition Act, 1949, and that, therefore, production or examination of a
person before a registered medical practitioner during the course of such
investigation is the only method by which consumption of an intoxicant
may be proved. After setting out Sections 129A and 129B and the judgment
of the Privy Council in Nazir Ahmad (supra), this Court held :

“The rule in Taylor v. Taylor [1875] I Ch.D 426 on which the Judicial

Committee relied has, in our judgment, no application to this case. Section

66(2), as we have already observed, does not prescribe any particular
method of proof of concentration of alcohol in the blood of a person charged
with consumption or use of an intoxicant. Section 129A is enacted primarily
with the object of providing when the conditions prescribed are fulfil ed,
that a person shal submit himself to be produced before a registered
medical practitioner for examination and for collection of blood.

Undoubtedly, Section 129A(1) confers power upon a Police or a Prohibition

Officer in the conditions set out to compel a person suspected by him of
having consumed illicit liquor, to be produced for examination and for
col ection of blood before a registered medical practitioner. But proof of

PRACTICAL ASPECTS OF INSOLVENCY LAW

485
concentration of alcohol may be obtained in the manner described in

Section 129A(1) and (2), or otherwise; that is expressly provided by sub-

Section (8) of Section 129A. The power of a Police Officer to secure
examination of a person suspected of having consumed an intoxicant in
the course of investigation for an offence under the Act is undoubtedly
restricted by Section 129A. But in the present case the Police Officer
investigating the offence had not produced the accused before a medical
officer; it was in the course of his examination that Dr. Kulkarni, before
any investigation was commenced, came to suspect that the appel ant
had consumed liquor, and he directed that specimen of blood of the
appellant be col ected. This step may have been taken for deciding upon
the line of treatment, but certainly not for col ecting evidence to be used
against the appellant in any possible trial for a charge of an offence of
consuming liquor contrary to the provisions of the Act. If unlawful
consumption of an intoxicant by a person accused, may be proved
otherwise than by a report obtained in the conditions mentioned in Section

129A(1) and (2), there would be no reason to suppose that other evidence
about excessive concentration of alcohol probative of consumption is
inadmissible. Admissibility of evidence about concentration of alcohol in
blood does not depend upon the exercise of any power of the Police or

Prohibition Officer. Considerations which were present in Nazir Ahmad
case [1936] LR 63 IA 372 regarding the inappropriateness of Magistrates
being placed in the same position as ordinary citizens and being required
to transgress statutory provisions relating to the method of recording
confessions also do not arise in the present case.”

26. This judgment applies on al fours to the facts of the present case
inasmuch as, like Section 129A(8) of the aforesaid Act, proof of the existence
of a debt and a default in relation to such debt can be proved by other
documentary evidence, as is specifically contemplated by Section 9(3)(d)

of the Code. Like Section 66(2) of the aforesaid Act in Ukha Kolhe (supra),

Section 8 of the Code does not prescribe any particular method of proof of
occurrence of default. Consequently, we are of the opinion that the principle
contained in Taylor (supra) does not apply in the present situation.

27. Also, in Madan & Co. v. Wazir Jaivir Chand [1989] 1 SCC 264 at 268-

270, the interpretation of Section 11 of the Jammu and Kashmir Houses
and Shops Rent Control Act, 1966 was under consideration of this Court.

As stated in paragraph 4 of the judgment, the controversy in that case
turned on the question whether the notice sent by the respondent by registered
post can be said to have been served and the petitioner can be said to have
been in receipt of the said notice.

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In the words of the judgment :

“4. On the terms of the above Sections, the controversy in this case
turned on the question whether the notice sent by the respondent by
registered post on 26th November, 1976 can be said to have been served
and the petitioner can be said to have been in receipt of the said notice. If
the answer to this question is in the affirmative, as held by al the Courts
concurrently, there is nothing further to be said. The contention of the
appel ant tenant, however, is that the statute postulates a factual service
of the notice on, and the actual receipt of it by, the tenant and that this
admittedly not being the position in the present case, no eviction could
have been decreed.

5. Shri Soli J Sorabjee, learned counsel appearing for the tenant
submitted that the safeguards in Sections 11 and 12 of the Act are
intended for the benefit and protection of the tenant and that, therefore,
where the Act provides for the service of the notice, by post, this
requirement has to be strictly complied with. He referred to the decisions
in Hare Krishna Das v. Hahnemann Publishing Co. Ltd. [1965-66] 70 Cal.

WN 262 and Surajmull Ghanshyamdas v. Samadarshan Sur AIR 1969

Cal. 109/ILR [1969] 1 Cal. 379 to contend that such postal service can
neither be presumed nor considered to be good service where the letter
is returned to the sender due to the non-availability of the addressee. He
urges that, in the absence of any enabling provision such as the one
provided for in Section 106 of the Transfer of Property Act, service by
some other mode, such as affixture, cannot be treated as sufficient
compliance with the statute. In this context, he referred to the frequently
applied rule in Taylor v. Taylor [1875] 1 Ch.D 426 that where a power is
given to do a certain thing in a certain way, the thing must be done in
that way or not at all and that other methods of performance are
necessarily forbidden. He urged that even if service by affixture can be
considered to be permissible, there are stringent prerequisites for service
by affixture, such as those outlined in order V, rules 17 to 19, of the

Code of Civil Procedure (‘CPC’) and that these prerequisites were not
fulfilled in the present case. He pointed out that even under the CPC,
service by such affixture can be recognised as valid only if sincere and
vigilant attempts to serve the notice on the addressee personally are
unsuccessful. In the present case, it is submitted, the evidence shows
that the postman made no serious efforts to ascertain the whereabouts
of the addressee even though the evidence showed that a servant of
the petitioner firm was known to the postman and was present in the
neighbourhood. He, therefore, submitted that the High Court should have

PRACTICAL ASPECTS OF INSOLVENCY LAW

487
dismissed the suit for eviction filed by the landlord on the ground that
the requirements of Sections 11 and 12 of the Act were not satisfied.”

The Court turned down the contention based on Taylor (supra) in the following
terms :

“We are of opinion that the conclusion arrived at by the Courts below is
correct and should be upheld. It is true that the proviso to clause (i) of

Section 11(1) and the proviso to Section 12(3) are intended for the
protection of the tenant. Nevertheless it will be easy to see that too strict
and literal a compliance of their language would be impractical and
unworkable.”

***

‘In this situation, we have to choose the more reasonable, effective,

equitable and practical interpretation and that would be to read the word

“served” as “sent by post”, correctly and properly addressed to the tenant,
and the word “receipt” as the tender of the letter by the postal peon at
the address mentioned in the letter. No other interpretation, we think,
will fit the situation as it is simply not possible for a landlord to ensure
that a registered letter sent by him gets served on, or is received by, the
tenant.’

This judgment is also supportive of the proposition that when the principle
in Taylor (supra) leads to impractical, unworkable and inequitable results, it
cannot be applied out of context in situations which are predominantly
procedural in nature.

28. The decision in Smart Timing (supra) by the NCLAT, which was relied
upon by the impugned judgment, was then pressed into service by Dr. Singhvi
stating that an appeal from this judgment has been dismissed by this Court
and that, therefore, following the principle in Kunhayammed v. State of

Kerala [2000] 6 SCC 359, the NCLAT’s judgment has merged with the

Supreme Court’s order dated 18th August, 2017, which reads as follows :

“Heard the learned counsel appearing for the appellant. We do not find
any reason to interfere with the order dated 19th May, 2017 passed by the

National Company Law Appel ate Tribunal, New Delhi. In view of this, we
find no merit in the appeal.

Accordingly, the appeal is dismissed.”

Whether or not there is a merger, it is clear that the order dated 18th August,

2017 is not “law declared” within the meaning of article 141 of the Constitution
and is of no precedential value. Suffice it to state that the said order was

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PRACTICAL ASPECTS OF INSOLVENCY LAW
also a threshold dismissal by the Supreme Court, having heard only the
learned counsel appearing for the appellant.

29. Dr. Singhvi then relied upon the Viswanathan Report dated November

2015, in particular Box 5.2, which reads as fol ows :

Box 5.2 - Trigger for IRP

1. The IRP can be triggered by either the debtor or the creditors by
submitting documentation specified in the Code to the Adjudicating

Authority.

2. For the debtor to trigger the IRP, she must be able to submit all
the documentation that is defined in the Code, and may be specified
by the Regulator above this.

3. The Code differentiates two categories of creditors : financial
creditors where the liability to the debtor arises from a solely
financial transaction, and operational creditors where the liability
to the debtor arises in the form of future payments in exchange for
goods or services already delivered. In cases where a creditor has
both a solely financial transaction as well as an operational
transaction with the entity, the creditor wil be considered a financial
creditor to the extent of the financial debt and an operational creditor
to the extent of the operational debt is more than half the full
liability it has with the debtor.

4. The Code will require different documentation for a debtor, a financial
creditor, and an operational creditor to trigger the IRP. These are
listed Box 5.3 under what the Adjudicator will accept as
requirements to trigger the IRP.

30. Item 2 in Box 5.2 does show that for the corporate debtor to trigger the

IRP, it must be able to submit al the documentation that is defined in the

Code and that different documentation is required insofar as financial creditors
and operational creditors are concerned, as is evident from Item 4 in Box

5.2. The sentence which is after Box 5.2 is significant. It reads, “therefore,
the Code requires that the creditor can only trigger the IRP on clear evidence
of default.” Nowhere does the report state that such “clear evidence” can
only be in the shape of the certificate, referred to in Section 9(3)(c), as a
condition precedent to triggering the Code. In fact, in Item 2(c) in Box 5.3,
the Committee, by way of drafting instructions for how the IRP can be
triggered, states :

“If an operational creditor has applied, the application contains :

PRACTICAL ASPECTS OF INSOLVENCY LAW

489

(i) Record of an undisputed bill against the entity, and where applicable,
information of such undisputed as filed at a registered information
utility.”

31. When it comes to the Joint Committee report dated April 2016, the draft

Section contained therein, namely, the definition of financial institution
contained in Section 3(14) of the Code, has added into it a sub-clause (c)

which is a public financial institution as defined in Section 2(72) of the

Companies Act, 2013. Apart from this, the draft statute that was placed
before the Joint Committee contains Section 9(3)(c) exactly as it is in the
present Code. This report again does not throw much light on the point at
issue before us.

32. Shri Mukul Rohatgi strongly relied upon a recent judgment delivered by
this Court in Surendra Trading Co. v. Juggilal Kamlapat Jute Mills Co.

Ltd. Civil Appeal No. 8400 of 2017 decided on 19th September, 2017. In this
case, the question of law framed by the NCLAT for its decision was whether
the time limit prescribed for admitting or rejecting a petition for initiation of
the insolvency resolution process is mandatory. The precise question was
whether, under the proviso to Section 9(5), the rectification of defects in an
application within 7 days of the date of receipt of notice from the Adjudicating

Authority was a hard and fast time limit which could never be altered. The

NCLAT had held that the 7 day period was sacrosanct and could not be
extended, whereas, insofar as the Adjudicating Authority is concerned, the
decision to either admit or reject the application within the period of 14 days
was held to be directory. This Court, in disagreeing with the NCLAT on the 7-
day period being mandatory, held :

“We are not able to decipher any valid reason given while coming to the
conclusion that the period mentioned in proviso is mandatory. The order
of the NCLAT, thereafter, proceeds to take note of the provisions of Section

12 of the Code and points out the time limit for completion of insolvency
resolution process is 180 days, which period can be extended by another

90 days. However, that can hardly provide any justification to construe
the provisions of proviso to sub-Section (5) of Section 9 in the manner in
which it is done. It is to be borne in mind that limit of 180 days mentioned
in Section 12 also starts from the date of admission of the application.

Period prior thereto which is consumed, after the filing of the application
under Section 9 (or for that matter under Section 7 or Section 10), whether
by the Registry of the Adjudicating Authority in scrutinising the application
or by the applicant in removing the defects or by the Adjudicating Authority
in admitting the application is not to be taken into account. In fact, till the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
objections are removed it is not to be treated as application validly filed
inasmuch as only after the application is complete in every respect it is
required to be entertained. In this scenario, making the period of seven
days contained in the proviso as mandatory does not commend to us. No
purpose is going to be served by treating this period as mandatory. In a
given case there may be weighty, valid and justifiable reasons for not
able to remove the defects within seven days. Notwithstanding the same,
the effect would be to reject the application.”

The Court further went on to hold :

“Further, we are of the view that the judgments cited by the NCLAT and
the principle contained therein applied while deciding that period of fourteen
days within which the Adjudicating Authority has to pass the order is not
mandatory but directory in nature would equally apply while interpreting
proviso to sub-Section (5) of Section 7, Section 9 or sub-Section (4) of

Section 10 as well. After al , the applicant does not gain anything by not
removing the objections inasmuch as til the objections are removed,
such an application would not be entertained. Therefore, it is in the interest
of the applicant to remove the defects as early as possible.

Thus, we hold that the aforesaid provision of removing the defects within
seven days is directory and not mandatory in nature. However, we would
like to enter a caveat.

We are also conscious of the fact that sometimes applicants or their
counsel may show laxity by not removing the objections within the time
given and may take it for granted that they would be given unlimited time
for such a purpose. There may also be cases where such applications are
frivolous in nature which would be filed for some oblique motives and the
applicants may want those applications to remain pending and, therefore,
would not remove the defects. In order to take care of such cases, a
balanced approach is needed.

Thus, while interpreting the provisions to be directory in nature, at the
same time, it can be laid down that if the objections are not removed
within seven days, the applicant while refilling the application after removing
the objections, file an application in writing showing sufficient case as to
why the applicant could not remove the objections within seven days.

When such an application comes up for admission/order before the

Adjudicating Authority, it would be for the Adjudicating Authority to decide
as to whether sufficient cause is shown in not removing the defects beyond
the period of seven days. Once the Adjudicating Authority is satisfied

PRACTICAL ASPECTS OF INSOLVENCY LAW

491
that such a case is shown, only then it would entertain the application on
merits, otherwise it wil have right to dismiss the application.”

This judgment also lends support to the argument for the appellant in that
it is well settled that procedure is the handmaid of justice and a procedural
provision cannot be stretched and considered as mandatory, when it causes
serious general inconvenience. As has been held in Mahanth Ram Das v.

Ganga Das [1961] 3 SCR 763 at 767-768, we have travel ed far from the
days of the laws of the Medes and the Persians wherein, once a decree
was promulgated, it was cast in stone and could not be varied or extended
later :

“Such procedural orders, though peremptory (conditional decrees apart)

are, in essence, in terrorem, so that dilatory litigants might put themselves
in order and avoid delay. They do not, however, completely estop a Court
from taking note of events and circumstances which happen within the
time fixed. For example, it cannot be said that, if the appel ant had started
with the ful money ordered to be paid and came wel in time but was set
upon and robbed by thieves the day previous, he could not ask for extension
of time, or that the Court was powerless to extend it. Such orders are not
like the law of the Medes and the Persians. Cases are known in which

Courts have moulded their practice to meet a situation such as this and
to have restored a suit or proceeding, even though a final order had been
passed.”

33. Insofar as the second point is concerned, the first thing that is to be
noticed is that Section 8 of the Code speaks of an operational creditor
delivering a demand notice. It is clear that had the Legislature wished to
restrict such demand notice being sent by the operational creditor himself,
the expression used would perhaps have been ‘issued’ and not ‘delivered’.

Delivery, therefore, would postulate that such notice could be made by an
authorised agent. In fact, in Forms 3 and 5 extracted hereinabove, it is clear
that this is the understanding of the draftsman of the Adjudicatory Authority

Rules, because the signature of the person “authorised to act” on behalf of
the operational creditor must be appended to both the demand notice as
wel as the application under Section 9 of the Code. The position further
becomes clear that both forms require such authorised agent to state his
position with or in relation to the operational creditor. A position with the
operational creditor would perhaps be a position in the company or firm of
the operational creditor, but the expression “in relation to” is significant. It is
a very wide expression, as has been held in Renusagar Power Co. Ltd. v.

General Electric Co. [1984] 4 SCC 679 at 704 and State of Karnataka v.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Azad Coach Builders (P.) Ltd. [2010] 9 SCC 524 at 535, which specifically
includes a position which is outside or indirectly related to the operational
creditor. It is clear, therefore, that both the expression “authorised to act”

and “position in relation to the operational creditor” go to show that an
authorised agent or a lawyer acting on behalf of his client is included within
the aforesaid expression.

34. Quite apart from the above, Section 30 of the Advocates Act states as
follows :

“Right of advocates to practise. – Subject to provisions of this Act, every
advocate whose name is entered in the State rol shal be entitled as of
right to practise throughout the territories to which this Act extends, –

(i) in all Courts including the Supreme Court;

(i ) before any tribunal or person legal y authorised to take evidence; and

(iii) before any other authority or person before whom such advocate is
by or under any law for the time being in force entitled to practise.”

That the expression ‘practise’ is an expression of extremely wide import,
and would include all preparatory steps leading to the filing of an application
before a Tribunal. This is clear from a Constitution Bench judgment of this

Court in Harish Uppal (Ex-Capt.) v. Union of India [2003] 2 SCC 45 at 72,
which states :

“The right of the advocate to practise envelopes a lot of acts to be performed
by him in discharge of his professional duties. Apart from appearing in
the Courts he can be consulted by his clients, he can give his legal
opinion whenever sought for, he can draft instruments, pleadings, affidavits
or any other documents, he can participate in any conference involving
legal discussions, he can work in any office or firm as a legal officer, he
can appear for clients before an arbitrator or arbitrators, etc.”

35. The doctrine of harmonious construction of a statute extends also to a
harmonious construction of all statutes made by Parliament. In Harshad S

Mehta v. State of Maharashtra [2001] 8 SCC 257 at 280-81, the Special

Court (Trial of Offences Relating to Transactions in Securities) Act, 1992
was held, insofar as the criminal jurisdiction of the Special Court was
concerned, to be harmoniously construed with the Code of Criminal Procedure,

1973 in the fol owing terms :

‘48. To our mind, the Special Court has al the powers of a Court of Session
and/or Magistrate, as the case may be, after the prosecution is instituted
or transferred before that Court. The width of the power of the Special

PRACTICAL ASPECTS OF INSOLVENCY LAW

493

Court will be same whether trying such cases as are instituted before it or
transferred to it. The use of different words in Sections 6 and 7 of the Act
as already noticed earlier also shows that the words in Section 7 that the
prosecution for any offence shal be instituted only in the Special Court
deserve a liberal and wider construction. They confer on the Special Court
all powers of the Magistrate including the one at the stage of investigation
or inquiry. Here, the institution of the prosecution means taking any steps
in respect thereof before the Special Court. The scheme of the Act nowhere
contemplates that it was intended that steps at pre-cognisance stage
shall be taken before a Court other than a Special Court. We may note an
il ustration given by Mr. Salve referring to Section 157 of the Code. Learned
counsel submitted that the report under that Section is required to be
sent to a Magistrate empowered to take cognisance of offence. In relation
to offence under the Act, the Magistrate has no power to take cognisance.

That power is exclusively with the Special Court and, thus, report under

Section 157 of the Code will have to be sent to the Special Court though
the Section requires it to be sent to the Magistrate. It is clear that for the
expression “Magistrate” in Section 157, so far as the Act is concerned, it
is required to be read as “Special Court” and likewise in respect of other
provisions of the Code. If the expression “Special Court” is read for the
expression “Magistrate”, everything will fall in line. This harmonious
construction of the provisions of the Act and the Code makes the Act
work. That is what is required by principles of statutory interpretation.

Section 9(1) of the Act provides that the Special Court shal in the trial of
such cases fol ow the procedure prescribed by the Code for the trial of
warrant cases before the Magistrate. The expression “trial” is not defined
in the Act or the Code. For the purpose of the Act, it has a wider connotation
and also includes in it the pre-trial stage as well. Section 9(2) makes the

Special Court, a Court of Sessions by a fiction by providing that the

Special Court shal be deemed to be a Court of Sessions and shal have
al the powers of a Court of Sessions. In case, the Special Court is held
not to have the dual capacity and powers both of the Magistrate and the

Court of Sessions, depending upon the stage of the case, there will be a
complete hiatus. It is also to be kept in view that the Special Court under
the Act comprises of a High Court Judge and it is a Court of exclusive
jurisdiction in respect of any offence as provided in Section 3(2) which
wil include offences under the Indian Penal Code, the Prevention of

Corruption Act and other penal laws. It is only in the event of inconsistency
that the provisions of the Act would prevail as provided in Section 13
thereof. Any other interpretation wil make the provision of the Act
unworkable which could not be the intention of the Legislature. Section

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9(2) does not exclude Sections 306 to 308 of the Code from the purview
of the Act. This Section rather provides that the provisions of the Code
shal apply to the proceedings before the Special Court. The inconsistency
seems to be only imaginary. There is nothing in the Act to show that

Sections 306 to 308 were intended to be excluded from the purview of the

Act.’

Similarly, in CTO v. Binani Cements Ltd. [2014] 8 SCC 319 at 332, the rule
of construction of two Parliamentary statutes being harmoniously construed
was laid down as follows :

“35. Generally, the principle has found vast application in cases of there
being two statutes : general or specific with the latter treating the common
subject-matter more specifically or minutely than the former. Corpus Juris

Secundum, 82 CJS Statutes § 482 states that when construing a general
and a specific statute pertaining to the same topic, it is necessary to
consider the statutes as consistent with one another and such statutes,
therefore, should be harmonised, if possible, with the objective of giving
effect to a consistent legislative policy. On the other hand, where a general
statute and a specific statute relating to the same subject-matter cannot
be reconciled, the special or specific statute ordinarily wil control. The
provision more specifically directed to the matter at issue prevails as an
exception to or qualification of the provision which is more general in
nature, provided that the specific or special statute clearly includes the
matter in controversy – Edmond v. United States 137 L Ed 2d 917/520

US 651 (1997), Warden v. Marrero 41 L Ed 2d 383/417 US 653 (1974).”

More recently, in Binoy Viswam v. Union of India [2017] 7 SCC 59 at 132,
this Court construed the Income-tax Act, 1961 and the Aadhaar (Targeted

Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016
harmoniously in the fol owing manner :

“98. In view of the above, we are not impressed by the contention of the
petitioners that the two enactments are contradictory with each other. A
harmonious reading of the two enactments would clearly suggest that
whereas enrolment of Aadhaar is voluntary when it comes to taking benefits
of various welfare schemes even if it is presumed that requirement of

Section 7 of the Aadhaar Act that it is necessary to provide Aadhaar
number to avail the benefits of schemes and services, it is up to a person
to avail those benefits or not. On the other hand, purpose behind enacting

Section 139AA of the Act is to check a menace of black money as well
as money laundering and also to widen the income-tax net so as to cover
those persons who are evading the payment of tax.”

PRACTICAL ASPECTS OF INSOLVENCY LAW

495

36. The non-obstante clause contained in Section 238 of the Code wil not
override the Advocates Act as there is no inconsistency between Section

9, read with the Adjudicating Authority Rules and Forms referred to
hereinabove, and the Advocates Act. In Balchand Jain v. State of MP

[1976] 4 SCC 572 at 585-86, the anticipatory bail provision contained in

Section 438 of the Code of Criminal Procedure was held not to be wiped out
by the non-obstante clause contained in rule 184 of the Defence and Internal

Security of India Rules, 1971. Fazal Ali, J concurring with the main judgment,
held :

“16. Having regard to the principles enunciated above, we feel that there
does not appear to be any direct conflict between the provisions of rule

184 of the Rules and Section 438 of the Code. However, we hold that the
conditions required by rule 184 of the Rules must be impliedly imported in

Section 438 of the Code so as to form the main guidelines which have to
be fol owed while the Court exercises its power under Section 438 of the

Code in offences contemplated by rule 184 of the Rules. Such an
interpretation would meet the ends of justice, avoid all possible anomalies
and would at the same time ensure and protect the liberty of the subject
which appears to be the real intention of the Legislature in enshrining

Section 438 as a new provision for the first time in the Code. We think
that there is no real inconsistency between Section 438 of the Code and
rule 184 of the Rules and, therefore, the non obstante clause cannot be
interpreted in a manner so as to repeal or override the provisions of Section

438 of the Code in respect of cases where rule 184 of the Rules applies.”

Similarly, in R S Raghunath v. State of Karnataka [1992] 1 SCC 335 at

348, the non-obstante clause contained in rule 3(2) of the Karnataka Civil

Services (General Recruitment) Rules, 1977 was held not to override the

Karnataka General Service (Motor Vehicles Branch) (Recruitment) Rules,

1976. It was held :

“As already noted, there should be a clear inconsistency between the two
enactments before giving an overriding effect to the non-obstante clause
but when the scope of the provisions of an earlier enactment is clear the
same cannot be cut down by resort to non-obstante clause. In the instant
case we have noticed that even the General Rules of which rule 3(2)

forms a part provide for promotion by selection. As a matter of fact rules

1(3)(a), 3(1) and 4 also provide for the enforceability of the Special Rules.

The very rule 3 of the General Rules which provides for recruitment also
provides for promotion by selection and further lays down that the methods
of recruitment shal be as specified in the Special Rules, if any. In this

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PRACTICAL ASPECTS OF INSOLVENCY LAW
background if we examine the General Rules it becomes clear that the
object of these Rules only is to provide broadly for recruitment to services
of all the departments and they are framed generally to cover situations
that are not covered by the Special Rules of any particular department. In
such a situation both the Rules including rules 1(3)(a), 3(1) and 4 of General

Rules should be read together. If so read it becomes plain that there is no
inconsistency and that amendment by inserting rule 3(2) is only an
amendment to the General Rules and it cannot be interpreted as to
supersede the Special Rules. The amendment also must be read as being
subject to rules 1(3)(a), 3(1) and 4(2) of the General Rules themselves.

The amendment cannot be read as abrogating al other Special Rules in
respect of al departments. In a given case where there are no Special

Rules then naturally the General Rules would be applicable. Just because
there is a non-obstante clause, in rule 3(2) it cannot be interpreted that
the said amendment to the General Rules though later in point of time
would abrogate the special rule the scope of which is very clear and
which co-exists particularly when no patent conflict or inconsistency can
be spelt out.

As already noted rules 1(3)(a), 3(1) and 4 of the General Rules themselves
provide for promotion by selection and for enforceability of the Special

Rules in that regard. Therefore, there is no patent conflict or inconsistency
at all between the General and the Special Rules.”

In Central Bank of India v. State of Kerala [2009] 4 SCC 94 at 141-42, the
non-obstante clauses contained in Section 34(1) of Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 and Section 35 of the

Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 were held not to override specific provisions
contained in the Bombay Sales Tax Act, 1959 and the Kerala Sales Tax Act

1963 dealing with a declaration of a first charge in the fol owing terms :

“130. Undisputedly, the two enactments do not contain provision similar
to the Workmen’s Compensation Act, etc. In the absence of any specific
provision to that effect, it is not possible to read any conflict or
inconsistency or overlapping between the provisions of the DRT Act and
the Securitisation Act on the one hand and Section 38C of the Bombay

Act and Section 26B of the Kerala Act on the other and the non-obstante
clauses contained in Section 34(1) of the DRT Act and Section 35 of the

Securitisation Act cannot be invoked for declaring that the first charge
created under the State legislation wil not operate qua or affect the
proceedings initiated by banks, financial institutions and other secured

PRACTICAL ASPECTS OF INSOLVENCY LAW

497
creditors for recovery of their dues or enforcement of security interest, as
the case may be.

131. The Court could have given effect to the non-obstante clauses
contained in Section 34(1) of the DRT Act and Section 35 of the

Securitisation Act vis-a-vis Section 38C of the Bombay Act and Section

26B of the Kerala Act and similar other State legislations only if there was
a specific provision in the two enactments creating first charge in favour
of the banks, financial institutions and other secured creditors but as

Parliament has not made any such provision in either of the enactments,
the first charge created by the State legislations on the property of the
dealer or any other person, liable to pay sales tax, etc., cannot be destroyed
by implication or inference, notwithstanding the fact that banks, etc., fall
in the category of secured creditors.”

Since there is no clear disharmony between the two Parliamentary statutes
in the present case which cannot be resolved by harmonious interpretation,
it is clear that both statutes must be read together. Also, we must not forget
that Section 30 of the Advocates Act deals with the fundamental right under
article 19(1)(g) of the Constitution to practice one’s profession. Therefore, a
conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of
the Code together with the Adjudicatory Authority Rules and Forms thereunder
would yield the result that a notice sent on behalf of an operational creditor
by a lawyer would be in order.

37. However, Dr. Singhvi referred to rule 4 of the Debts Recovery Rules and

Section 434(2) of the Companies Act, 1956, which state as follows :

“4. Procedure for filing applications. –

(1) The application under Section 19 or Section 31A, or under Section

30(1) of the Act may be presented as nearly as possible in Form-I, Form-

II and Form-III, respectively annexed to these rules by the applicant in
person or by his agent or by a duly authorised legal practitioner to the

Registrar of the Bench within whose jurisdiction his case fal s or shal be
sent by registered post addressed to the Registrar.

(2) An application sent by post under sub-rule (1) shal be deemed to
have been presented to the Registrar the day on which it was received in
the office of the Registrar.

(3) The application under sub-rule (1) shall be presented in two sets, in a
paper book along with an empty file size envelope bearing full address of
the defendant and where the number of defendants is more than one,
then sufficient number of extra paper-books together with empty file size

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PRACTICAL ASPECTS OF INSOLVENCY LAW
envelopes bearing ful address of each of the defendant shal be furnished
by the applicant.

***

434. Company when deemed unable to pay its debts. –

(2) The demand referred to in clause (a) of sub-Section (1) shal be deemed
to have been duly given under the hand of the creditor if it is signed by
any agent or legal adviser duly authorised on his behalf, or in the case of
a firm, if it is signed by any such agent or legal adviser or by any member
of the firm.”

The argument then made was that when Parliament wishes to include a
lawyer for the purposes of litigation or to a pre-litigation stage, it expressly
so provides, and this not being so in the Code, it must be inferred that
lawyers are excluded when it comes to issuing notices under Section 8 of
the Code. We are afraid that this argument must be rejected, not only in
view of what has been held by us on a reading of the Code and on the
harmonious construction of Section 30 of the Advocates Act read with the

Code, but also on the basis of a judgment of this Court in Byram Pestonji

Gariwala v. Union Bank of India [1992] 1 SCC 31 at 47-48. In this judgment,
what fel for consideration was order XXIII, rule 3 of the Code of Civil

Procedure, 1908 after its amendment in 1976. It was argued in that case
that a compromise in a suit had, under order XXIII, rule 3, to be in writing
and “signed by the parties”. It was, therefore, argued that a compromise
effected by counsel on behalf of his client would not be effective in law,
unless the party himself signed the compromise. This was turned down
stating that Courts in India have consistently recognised the traditional
role of lawyers and the extent and nature of the implied authority to act on
behalf of their clients, which included compromising matters on behalf of
their clients. The Court held there is no reason to assume that the Legislature
intended to curtail such implied authority of counsel. It then went on to
hold :

‘38. Considering the traditionally recognised role of counsel in the common
law system, and the evil sought to be remedied by Parliament by the

CPC (Amendment) Act, 1976, namely, attainment of certainty and
expeditious disposal of cases by reducing the terms of compromise to
writing signed by the parties, and al owing the compromise decree to
comprehend even matters fal ing outside the subject-matter of the suit,
but relating to the parties, the Legislature cannot, in the absence of express
words to such effect, be presumed to have disallowed the parties to enter
into a compromise by counsel in their cause or by their duly authorised

PRACTICAL ASPECTS OF INSOLVENCY LAW

499
agents. Any such presumption would be inconsistent with the legislative
object of attaining quick reduction of arrears in Court by elimination of
uncertainties and enlargement of the scope of compromise.

39. To insist upon the party himself personally signing the agreement or
compromise would often cause undue delay, loss and inconvenience,
especially in the case of non-resident persons. It has always been
universally understood that a party can always act by his duly authorised
representative. If a power of attorney holder can enter into an agreement
or compromise on behalf of his principal, so can counsel, possessed of
the requisite authorisation by vakalatnama, act on behalf of his client.

Not to recognise such capacity is not only to cause much inconvenience
and loss to the parties personal y, but also to delay the progress of
proceedings in Court. If the Legislature had intended to make such a
fundamental change, even at the risk of delay, inconvenience and needless
expenditure, it would have expressly so stated.

40. Accordingly, we are of the view that the words “in writing and signed
by the parties”, inserted by the CPC (Amendment) Act, 1976, must
necessarily mean, to borrow the language of order III, rule 1, CPC :

“[A]ny appearance, application or act in or to any Court, required or
authorised by law to be made or done by a party in such Court, may
except where otherwise expressly provided by any law for the time being
in force, be made or done by the party in person, or by his recognised
agent, or by a pleader, appearing, applying or acting as the case may be,
on his behalf :

Provided that any such appearance shall, if the Court so directs, be made
by the party in person.”’

38. Just as has been held in Gariwala (supra), the expression “an operational
creditor may on the occurrence of a default deliver a demand notice “ under

Section 8 of the Code must be read as including an operational creditor’s
authorised agent and lawyer, as has been fleshed out in Forms 3 and 5
appended to the Adjudicatory Authority Rules.

39. For all these reasons, we are of the view that the NCLAT judgment has
to be set aside on both counts. Inasmuch as the two threshold bars to the
applications filed under Section 9 have now been removed by us, the NCLAT
will proceed further with these matters under the Code on a remand of these
matters to it. The appeals are al owed in the aforesaid terms.

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ANNEXURE X.16

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

COMPANY

APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 44 of 2017

(arising out of Order dated 21st April 2017 passed by NCLT, Mumbai

Bench, Mumbai in C.P.No. 69/I&BP/NCLT/MAH/2017

Neelkanth Township and Construction Pvt. Ltd.

...Appellant

Vs.

Urban Infrastructure Trustees Limited

.... Respondent

Present:

For Appellants: Dr. U.K. Chaudhary, Senior Advocate with

Mr. Kush Chaturvedi, Ms. Anshula Grover, Ms. Chaitrika Pathi,

Mr. Aman Uarma, Mr. Saket Mone and Mr. Himanshu Vij,

Advocates.

For Respondents: Mr. Jaideep Gupta, Sr. Advocate with

Mr. Arif Doctor, Ms. Surekharaman and Anuj Sharma,

Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

This appeal has been preferred by Appellant/ Corporate Debtor against order
dated 21st April 2017 passed by Learned Adjudicating Authority, (National

Company Law Tribunal), Mumbai Bench, Mumbai, in C.P. No. 69/I&BP/NCLT/

MAH/2017. By the impugned order Learned Adjudicating Authority
entertained the application preferred by the Respondent-Financial Creditor
under Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter
referred to as ‘I & B Code’), admitted the application and ordered moratorium
with further order to appoint an Insolvency Resolution Professional and
passed consequential directions.

2. Learned Counsel for the Appel ant-Corporate Debtor assailed the impugned
order mainly on the following grounds:—

(i) The application filed by Respondent under Section 7 is defective and

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501
not complete as it was not accompanying the documents, as
mandated by sub-section (3) of Section 7 of the ‘I & B Code’.

(i ) The application under section 7 is time barred, as the debt claimed
related to the years 2011, 2012 and 2013.

(iii) That the ‘default of debt’ as claimed by Respondent has not been
admitted by the Corporate Debtor and

(iv) That the Respondent is not a ‘Financial Creditor’, but an Investor.

3. Learned counsel for the appel ant submitted that an application by a

‘Financial Creditor’ under Section 7 can only be filed when it is furnished
with the documents provided under sub-section (3) of Section 7 and none
other, namely (a) a record of the default as recorded with the information
utility (b) Such other record or evidence of default as may be specified.

4. The expression “such other record of evidence of default” as may be
specified can only be such record or evidence as is specified by the Insolvency
and Bankruptcy Board of India (hereinafter referred to as “the Board”) under
sub-section 2(f) of Section 240 of ‘I & B Code’. Reliance was also placed on
definition of the word “specified” as defined under Section 3(32) of the ‘I&B

Code’.

5. Learned counsel for the appel ant placed reliance on decision of this

Appel ate Tribunal in “Smart Timing Steel Ltd. v. National Steel & Agro

Industries Ltd.” Company Appeal (AT) (Insolvency) No. 28 of 2017 to suggest
that the provision of sub-section 3(a) of Section 7 is mandatory.

6. It was also submitted that it was the duty of the Insolvency and Bankruptcy

Board of India (In short “Board”) to specify Regulations and in absence of
the same the proceeding under Section 7 of ‘I & B Code’ cannot be initiated.

7. In support of the second contention it was submitted that the time barred
debt cannot be enforced by filing an application for Corporate Insolvency

Resolution Process. The claim of the ‘Financial Creditor’, is completely time
barred as the debenture certificates were due for redemption as far back as
in the years 2011, 2012 and 2013 respectively. Consequently, the application
filed by the ‘Financial Creditor’ in the year 2017 is hopelessly time barred.

8. It was next submitted that the respondent does not come within the
meaning of “Financial Creditor” as defined in sub-section (7) read with sub-
section (8) of Section 5 of the ‘I & B code’. No ‘financial debt’ is owed to the

Respondent.

9. Counsel for the Appellant further submitted that ‘Debenture Certificates’

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forming basis of claim of the Respondent do not fal within the definition of

‘financial debt’ as provided under sub-section (8) of Section 5 of the ‘I & B

Code’. A plain reading of the definition of ‘financial debt’ makes it apparent
that it is the debt which is only if disbursed against the consideration for
time value of money. Therefore, there has to be a consideration flowing from
the advance of money which is at par with the time value of money. Since
the ‘debenture certificates’ issued to the Respondent were carrying zero
interest and another was carrying only one percent interest, the same were
not issued against consideration for time value of money, as envisaged
under sub-section (8) of Section 5. The debenture certificates were
purchased by Respondent only by way of an investment, and do not come
within the meaning of ‘financial debt’.

10. Learned Counsel for the appel ant also placed reliance on definition of

“debt” as defined under sub-section (11) of Section 3 of the ‘I & B Code’. It
was further contended that there is pendency of proceedings between the
parties as the ‘Financial Creditor’ has already invoked arbitration against
the ‘Corporate Debtor’ for the same cause of action which is an admitted
fact.

11. In reply Learned Counsel appearing on behalf of the respondent submitted
that in absence of the Regulations framed by the Board, the statutes (I & B

Code) cannot be made ineffective, having come into force since 15th

December 2016. Reliance was also placed on Insolvency and Bankruptcy

(Adjudicating Authority Rules, 2016) (hereinafter referred to as Adjudicatory

Rules) framed by the Central Government, under section 239 of the I & B

Code’.

12. Learned Counsel for the respondent submitted that the Balance Sheet
of ‘Corporate Debtor’ was noticed by Learned Adjudicating Authority, before
admitting the case. Reliance was also placed on Regulation 8(2) and ‘Form-

C’ of Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations 2016 (hereinafter referred to

‘Corporate Person’), Regulation 2016.

13. The question to be determined is whether in absence of record of default
as recorded with the information utility or any other “record or evidence of
default” specified by the Board, an application under Section 7 is maintainable
or not?

14. Process of initiation of Insolvency Resolution process by a financial
creditor is provided in Section 7 of the I & B Code. As per sub-section (1) of

Section 7 of the I & B Code, the trigger for filing of an application by a
financial creditor before the Adjudicating Authority is when a default in respect

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503
of any financial debt has occurred. Sub-section (2) of Section 7 provides
that the financial creditor shal make an application in prescribed form and
manner and with prescribed documents, including “record of the default”

recorded with the information utility or such other record or evidence of
default as may be specified”.

15. Once the application is filed by the ‘Financial Creditor’ with the Adjudicating

Authority, the Adjudicating Authority, within 14 days of the receipt of the
application under sub-section (2) of Section 8 required to ascertain the
existence of default from the records of an information utility or on the basis
of other evidence furnished by the ‘financial creditor’ under sub-section (3)(a)

of Section 7.

16. ‘Financial Creditor’ along with the application required to be furnished
information and other facts as prescribed under sub-section (3) of Section

7. Where the Adjudicating Authority is satisfied that a default has occurred
and the application under sub-section (2) is complete, and there are no
disciplinary proceedings pending against the proposed resolution
professional, it can admit such application and in case the application is
incomplete, required to provide 7 days’ time to complete the record and on
failure is to dismiss the application.

17. The aforesaid facts are to be considered from the procedure for initiation
of corporate insolvency resolution process by ‘financial creditor’ as mandated
under Section 7 of ‘I & B Code’, and quoted below: -

“7. (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 shal 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 shal , 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

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(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).

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against
the proposed resolution professional, it may, by order, admit such
application; or

(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application:

Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shal communicate—

(a) the order under clause (a) of sub-section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as
the case may be.”

18. It is wel settled that rules of procedure are to be construed not to frustrate
or obstruct the process of adjudication under the substantive provisions of
law. A procedural provision cannot override or affect the substantive obligation
of the adjudicating authority to deal with applications under Section 7 merely
on the ground that Board has not stipulated or framed Regulations with
regard to sub-section 3(a) of Section 7. The language of Section 240, whereby

Board have been empowered to frame regulations is clear that the said
regulation should be consistent with the ‘I & B’ Code and the rules made
thereunder by the Central Government.

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505

19. In exercise of power conferred by Section 239 read with Sections 7, 8,

9 and 10 of the ‘I & B code, the Central Government framed the rules known
as “Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (hereinafter referred to as Adjudicating Authority Rules, 2016). As per

Rule 41, a ‘Financial Creditor’ required to apply itself or jointly in an application
under Section 7 in terms of Form-1 attached thereto. Part V of Form-1 deals
with particulars of ‘Financial Debt’ (documents, record and evidence of
default), as quoted below: -

“PART V

PARTICULARS OF FINANCIAL 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. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR

ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY

(ATTACH A COPY OF THE ORDER)

3. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY

(ATTACH A COPY OF SUCH RECORD)

4. 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)

5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL

CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO

DATE (ATTACH A COPY)

6. A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT

INFORMATION COMPANY (ATTACH A COPY)

7. COPIES OF ENTIRES IN A BANKERS BOOK IN ACCORDANCE

WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 1891)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION

IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT

AND THE AMOUNT IN DEFAULT”

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20. The rules framed by the Central Government under Section 239 having
prescribed the documents, record and evidence of default as noticed above,
we hold that in absence of regulation framed by the Board relating to record
of default recorded with the information utility or other record of evidence of
default specified, “the documents”, ‘record’ and ‘evidence of default’ prescribed
at Part V of Form-1, of the Adjudicatory Rules 2016 will hold good to decide
the default of debt for the purpose of Section 7 of the ‘I & B Code’.

21. We further hold that the ‘Regulations framed by the Board’ being subject
to the provisions of ‘I & B Code’ and rules framed by the Central Government
under Section 239, ‘Part V of Form - 1’ of Adjudicating Authority Rules, 2016
framed by Central Government relating to ‘documents’, ‘record’ and ‘evidence
of default’, will override the regulations, if framed by the Board and if
inconsistent with the Rule. However, it is always open to Board to prescribe
additional records in support of default of debt, such as records of default
recorded with the information utility or such other record or evidence of
default in addition to the records as mentioned in Part V of Form-I.

22. At this stage, it is pertinent to note that the Board has also framed

Insolvency Resolution Process for Corporate Persons, Regulations, 2016

(‘Corporate Persons Regulation’ for short). It has come into force since

Notification dated 30th November 2016 was issued. Regulation 8 of ‘Corporate

Persons Regulation’, 2016 relate to claims by ‘Financial Creditor’. Regulation

11(2) relates to existence of debt due to ‘Financial Creditor’, which is to be
proved on the basis documents mentioned therein and quoted below: -

“8. Claims by financial creditors.

(1) A person claiming to be a financial creditor of the corporate debtor
shal submit proof of claim to the interim resolution professional in
electronic form in Form C of the Schedule:

Provided that such person may submit supplementary documents or
clarifications in support of the claim before the constitution of the
committee.

(2) The existence of debt due to the financial creditor may be proved on
the basis of —

(a) the records available with an information utility, if any; or

(b) other relevant documents, including —

(i) a financial contract supported by financial statements as
evidence of the debt;

PRACTICAL ASPECTS OF INSOLVENCY LAW

507

(i ) a record evidencing that the amounts committed by the financial
creditor to the corporate debtor under a facility has been drawn
by the corporate debtor;

(iii) financial statements showing that the debt has not been repaid;
or

(iv) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any.”

23. ‘Form - C attached to the Regulation relates to proof of claim of ‘Financial

Creditor’ whereunder at Serial No. 10, the ‘Financial Creditor’ is supposed to
refer the list of documents in proof of claim in order to prove the existence
and non-payment of claim dues to the ‘Operational Creditor’.

Therefore, the stand of the appel ant that the Board has not framed any

Regulations, relating to clause (a) of sub-section (3) of Section 7, cannot be
accepted.

24. The next ground taken on behalf of the appel ant is that the claim of the
respondent is barred by limitation, as the Debentures were matured between
the year 2011 - 2013 is not based on Law. There is nothing on the record that

Limitation Act, 2013 is applicable to I & B Code. Learned Counsel for the
appellant also failed to lay hand on any of the provision of I & B Code to
suggest that the Law of Limitation Act, 1963 is applicable. The I & B Code,

2016 is not an Act for recovery of money claim, it relates to initiation of

Corporate Insolvency Resolution Process. If there is a debt which includes
interest and there is default of debt and having continuous course of action,
the argument that the claim of money by Respondent is barred by Limitation
cannot be accepted.

25. Next question arises is whether the respondent come within the meaning
of ‘Financial Creditor’ or not.

26. For determination of the aforesaid issue, it is desirable to notice meaning
of ‘Financial Creditor’, as defined in sub-section (7) of Section 5 of I & B

Code’, and quoted hereunder: -

‘(7) “financial creditor” means any person to whom a financial debt is
owed and includes a person to whom such debt has been legal y assigned
or transferred to’

27. ‘Financial Debt’ means a debt along with interest, if any, which is disbursed
against the consideration of time value and money as defined in sub-section

(8) of Section 5, as quoted below: -

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‘Sec.5. Definitions - In this Part, unless the context otherwise requires, —
xxxx

(8) “financial debt” means a debt alongwith interest, if any, which is disbursed
against the consideration for the time value of money and includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility
or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue
of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase
contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as
may be prescribed;

(e) receivables sold or discounted other than any receivables sold on
non-recourse basis;

(f) any amount raised under any other transaction, including any forward
sale or purchase agreement, having the commercial effect of a
borrowing;

(g) any derivative transaction entered into in connection with protection
against or benefit from fluctuation in any rate or price and for
calculating the value of any derivative transaction, only the market
value of such transaction shal be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, documentary letter of credit or any other instrument issued by
a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause.’

28. Clause (c) of sub-section (8) of Section 5 deals with any amount raised
pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument.

29. From the aforesaid provision, we find that the debentures come within
the meaning of ‘Financial Debt’ as defined in Clause (c) of sub-section (8) of

Section 5.

30. ‘Debt’ is defined in sub-section (11) of Section 3 means:

PRACTICAL ASPECTS OF INSOLVENCY LAW

509

‘(11) “debt” means a liability or obligation in respect of a claim which is
due from any person and includes a financial debt and operational debt’

31. It is admitted that the appel ant is debenture holder. The Respondent-

‘Corporate Debtor’ also pleaded that the appel ant is Investor. From the relevant
facts as we noticed above, we find that the Respondent- ‘Corporate Debtor
has a liability and obligation in respect of amount which is due to the debenture
holder from the ‘Corporate Debtor’, including ‘Financial Debt’ i.e the amount
due on maturity of debentures.

32. The ‘default’ means non-payment of debt as defined in sub-section (12)

of Section 3, as below:—

‘(12) “default” means non-payment of debt when whole or any part or
instalment of the amount of debt has become due and payable and is not
repaid by the debtor or the corporate debtor, as the case may be’

33. The fact as pleaded and not disputed by Respondent - ‘Corporate Debtor’

that the ‘debenture holder’ (Appel ant) and amount matured in the year 2011,

2012 and 2013 has not been paid. Thus, we find there is a default as defined
under section 3(12) of the I & B Code.

The ‘Corporate Debtor’ had a liability and obligation in respect of claim of
respondent which includes the ‘Financial Debt’, including those come within
clause (c) of sub-section (8) of Section 5. As per the agreement, the same
was liable to be paid from the date of maturity along with interest, if any and
the same having not paid, the default of debt is apparent.

34. This apart we find that the amount of debt and interest, as shown by
appellant was to be disbursed against consideration for time value of the
money. Therefore, it cannot be stated that debentures on maturity do not
come within the purview of amount payable against the consideration for
the time value of the money.

35. In the aforesaid background, the Learned Adjudicating Authority having
admitted the application under Section 7, the application being complete,
no interference is cal ed for.

36. In absence of any merit the appeal is dismissed. However, in the facts
and circumstances, there shall be no order as to cost.

Sd/-

Sd/-

(Mr. Balvinder Singh)

(Justice S.J. Multhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

11th August, 2017

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PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.17

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

NEW DELHI

(Arising out of Order dated 11.04.2017 passed by the National Company

Law Tribunal, New Delhi Bench, New Delhi in Company Petition No.

(IB)41(ND)/2017)

Company Appeal (AT) (Insolvency) No. 47 of 2017

IN THE MATTER OF:

M/s. Speculum Plast Pvt. Ltd.

... Appellant

Versus

PTC Techno Pvt. Ltd.

... Respondent

Present:

For Appel ant: Shri Shubho Jana and Ms. Kanti Mohan

Rustagi, Advocates

For Respondent: Shri Dhruv Gupta, Advocate

WITH

Company Appeal (AT) (Insolvency) No. 76 of 2017

(Arising out of Order dated 25.04.2017 passed by the National Company

Law Tribunal, New Delhi Bench, New Delhi in Company Petition No.

(IB)-27(PB)/2017)

IN THE MATTER OF:

Parag Gupta & Associates

Appellant

Versus

B.K. Educational Services Pvt. Ltd.

Respondent

Present:

For Appel ant: Shri Mukul K. Gupta and Shri N.K. Singh,

Advocates

For Respondent: Ms. Ruchi Khurana and Shri Pertpal Singh,

Advocates

PRACTICAL ASPECTS OF INSOLVENCY LAW

511

WITH

Company Appeal (AT) (Insolvency) No. 78 of 2017

(Arising out of Order dated 04.05.2017 passed by the National Company

Law Tribunal, New Delhi Bench, New Delhi in Company Petition No.

(IB)-77(ND)/2017)

IN THE MATTER OF:

Ashlay Infrastructure Pvt. Ltd.

Appellant

Versus

LDS Engineers Pvt. Ltd.

Respondent

Present:

For Appel ant: Ms. Jhankar Rastogi with Shri Navodaya

Singh Rajpurohit, Advocates

For Respondent: Shri H.D. Arya, Advocate

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

1. In all these appeals as common question of law is involved, they were
heard together and are being disposed of by this common judgment.

2. The question that arises for determination in these appeals is :

Whether Limitation Act, 1963 is applicable for triggering “corporate insolvency
resolution process” under Insolvency and Bankruptcy Code, 2016 (‘I&B

Code’)?

3. According to learned counsel for the appel ant(s) I&B Code is a ‘Special

Act’ enacted by Parliament and is a “self-contained code” and in absence of
any specific provision made therein the Limitation Act, 1963 is not applicable
for triggering “corporate insolvency resolution process”.

4. To substantiate the arguments, learned counsel for the appellant(s) relied
on the report of the “Bankruptcy Law Reforms Committee” to suggest that
the legislative intent behind the formulation of the I&B Code is to formulate
a “single law”, independent of any other law including the Limitation Act.

5. On the other hand, according to learned counsel for the respondents-

”corporate debtor(s)” the Limitation Act, 1963 is applicable for triggering

“corporate insolvency resolution process” under I&B Code which is to be
read in conjunction with the provisions of the Companies Act, 2013 and
other Acts, as far as they are applicable.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

6. It was submitted that the “Adjudicating Authority”, as defined in sub-

Section (1) of Section 5 of the I&B Code being “National Company Law

Tribunal” as constituted under Section 408 of the Companies Act, 2013, the
provisions of Chapter XXVII of the Companies Act, 2013 including Section

433 of the said Act are applicable as it is not in conflict with the provisions
of the I&B Code.

7. Further, according to learned counsel for the “corporate debtor(s)”, as the

I&B Code nowhere specifically bars the applicability of the Companies Act,

2013, Section 433 of the Companies Act, 2013 is applicable to I&B Code.

8. Referring to Sections 424, 425, 433, 434 and 430 of the Companies Act,

2013, it was contended that the aforesaid provisions necessarily imply that the
law of limitation and procedure of the Tribunal are applicable to the I&B Code.

9. On merit, learned counsel for the “corporate debtor(s)” submitted that all
the application in question, having filed beyond the period of three years,
the application for triggering “corporate insolvency resolution process” were
not maintainable.

10. Mr. A S Chandhiok, learned senior counsel, who assisted the court as
amicus curiae, submitted that the doctrine of limitation and prescription is
based on two broad considerations.

First, there is a presumption that the right not exercised for a long time
becomes non-existent. The second is that the rights of debt or right on
property or rights in general should not be in a state of constant uncertainty,
doubt and suspense.

Reliance was placed on Salmond : Jurisprudence 12th edn., pp. 438 and

439, and observation of hon’ble Abbott, CJ, in Battley v. Faulkner [1820] 3 B

& Aid 288.

11. It was submitted that the above principles were also recognised by the

Supreme Court of India in Rajinder Singh v. Santa Singh AIR 1973 SC

2537.

12. It was further submitted that the object of fixing time-limit for litigation is
based on Public Policy, fixing a life span of legal remedies for the purpose
of general welfare as held by Supreme Court in N Balakrishnan v. M A

Krishnamurthy [1998] 31 CLA 139 (SC)/[1998] 7 SCC 123.

13. According to learned amicus curiae, the Limitation Act was enacted in
the year 1963, when the provisions relating to al kinds of winding up of the
companies were governed by the Companies Act, 1956 wherein the question
of limitation arose at two stages, i.e. ,

PRACTICAL ASPECTS OF INSOLVENCY LAW

513

(i) When winding up petition was presented before the hon’ble High Court,
and

(i ) When the creditor presented its claim against the company in winding
up before the official liquidator.

14. It was contended that it is a settled principle of law, that bar of limitation
applied to the winding up petitions which used to be presented before the
hon’ble High Court and a creditor is not entitled to file a winding up petition
based on a debt, if the debt is, otherwise time-barred.

15. Learned amicus curiae referred to Section 3 of Limitation Act, 1963 and
submitted that the bar of limitation would apply to a claim filed by a creditor
before the official liquidator attached to the hon’ble High Court in terms of

Companies Act, 1956, though the official liquidator is not a court or a Judicial

Tribunal or Quasi-Judicial Tribunal, but an executive appointed and authority
recognised under the Companies Act, 1956. Such official liquidator merely
invites claims and submits report before the hon’ble High Court.

16. According to him now under the I&B Code the insolvency professional
takes the position of the official liquidator, but with greater role to play, than
the official liquidator.

17. Learned amicus curiae also relied on Section 433 of the Companies

Act, which provides that the provision of Limitation Act, 1963 shal , as far
as may be, apply to proceedings or appeals before the Tribunal or the

Appellate Tribunal as the case may be. It was also submitted that the

Limitation Act, 1963 is also applicable for “corporate insolvency resolution
process”.

18. Learned amicus curiae placing reliance on sub-Section (6) of Section 60
of the I&B Code submitted that the said provision makes it clear that the

Limitation Act, 1963 is applicable to the proceedings under I&B Code.

19. It was further submitted that the Legislature in sub-Section (5) of Section

60 has not used the expression “Adjudicating Authority”, but retained the
word “National Company Law Tribunal” which also clears the intent of the

Legislature that Section 433 of the Companies Act, 2013 is applicable for
triggering the corporate insolvency resolution process under Sections 7 or 9
and 10 of the I&B Code.

Reliance was also placed on definition of “Adjudicating Authority” as defined
under sub-Section (1) of Section 5 of the I&B Code which means National

Company Law Tribunal constituted under Section 408 of the Companies

Act, 2013.

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20. According to learned senior counsel, even if it is accepted that I&B

Code is self-contained code, unless it expressly bars the provision(s), the
other provisions can be made applicable. Reliance was placed on hon’ble

Supreme Court decision in Girnar Traders (3) v. State of Maharashtra

[2011] 3 SCC 1, wherein two legislations fel for consideration before the

Apex Court, namely, the Maharashtra Regional and Town Planning Act,

1966 (‘MRTP Act’), and the “Land Acquisition Act, 1894”. The appel ant in
the said case had urged that the provisions of the Land Acquisition Act
would mutatis mutandis apply to an acquisition under the MRTP Act. The
respondent had, in contradiction, taken plea that MRTP Act was a self-
contained code in itself and as such the provisions of Land Acquisition Act
could not be referred to. In the said case, the Supreme Court considering
the aforesaid question raised by the parties held :

“69. For an Act to be a self-contained code, it is required to be shown that
it is a complete legislation for the purpose for which it is enacted. The
provisions of the MRTP Act relate to preparation, submission and sanction
of approval of different plans by the authorities concerned which are aimed
at achieving the object of planned development in contradistinction to
haphazard development. An owner/person interested in the land and who
wishes to object to the plans at the appropriate stage a self-contained
adjudicatory machinery has been spelt out in the MRTP Act. Even the
remedy of appeal is available under the MRTP Act with a complete chapter
being devoted to acquisition of land for the planned development. Providing
adjudicatory mechanism is one of the most important facets of deciding
whether a particular statute is a complete code in itself or not.”

21. We have noticed the rival contentions, the relevant provisions of law
and decisions, as referred to above.

22. For determination of the issue, it is to be noticed as to whether I&B

Code is a self- contained code or not.

In M/s. Innoventive Industries Ltd v. ICICI Bank and Anr. [2017] 140 CLA

39 (SC)/2017 SCC OnLine SC 1025 the Supreme Court noticed the

Statement of Objects and Reasons in passing the I&B Code based on
various reports, most important of which the report of Bankruptcy Law

Reforms Committee of November 2015, and observed :

“13. One of the important objectives of the Code is to bring the insolvency
law in India under a single unified umbrel a with the object of speeding up
of the insolvency process. As per the data available with the World Bank
in 2016, insolvency resolution in India took 4.3 years on an average,
which was much higher when compared with the United Kingdom (1 year),

PRACTICAL ASPECTS OF INSOLVENCY LAW

515

USA (1.5 years) and South Africa (2 years). The World Bank’s Ease of

Doing Business Index, 2015, ranked India as country number 135 out of

190 countries on the ease of resolving insolvency based on various indicia.”

23. In paragraph 16 of the said judgment, the Supreme Court noticed the

Bankruptcy Law Reforms Committee Report of November 2015 and the

“key economic question” in the Bankruptcy Process highlighted by Bankruptcy

Law Reforms Committee, as quoted below :

“The key economic question in the bankruptcy process

When a firm (referred to as the corporate debtor in the draft law) defaults,
the question arises about what is to be done. Many possibilities can be
envisioned. One possibility is to take the firm into liquidation. Another
possibility is to negotiate a debt restructuring, where the creditors accept
a reduction of debt on an NPV basis, and hope that the negotiated value
exceeds the liquidation value. Another possibility is to sel the firm as a
going concern and use the proceeds to pay creditors. Many hybrid
structures of these broad categories can be envisioned.

The committee believes that there is only one correct forum for evaluating
such possibilities, and making a decision: a creditors committee, where
al financial creditors have votes in proportion to the magnitude of debt
that then hold. In the past laws in India have brought arms of the
government (Legislature, Executive or Judiciary) into this question. This
has been strictly avoided by the Committee. The appropriate disposition
of a defaulting firm is a business decision, and only the creditors should
make it.”.

***

‘Speed is of essence

Speed is of essence for the working of the bankruptcy code, for two
reasons. First, while the “calm period” can help keep an organisation afloat,
without the ful clarity of ownership and control, significant decisions
cannot be made. Without effective leadership, the firm will tend to atrophy
and fail. The longer the delay, the more likely it is that liquidation wil be
the only answer. Second, the liquidation value tends to go down with time
as many assets suffer from a high economic rate of depreciation.

From the viewpoint of creditors, a good realisation can generally be obtained
if the firm is sold as a going concern. Hence, when delays induce
liquidation, there is value destruction. Further, even in liquidation, the
realisation is lower when there are delays. Hence, delays cause value

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PRACTICAL ASPECTS OF INSOLVENCY LAW
destruction. Thus, achieving a high recovery rate is primarily about
identifying and combating the sources of delay.’’

***

“The role that insolvency and bankruptcy plays in debt financing

Creditors put money into debt investments today in return for the promise
of fixed future cash flows. But the returns expected on these investments
are stil uncertain because at the time of repayment, the sel er (debtor)

may make repayments as promised, or he may default and does not
make the payment. When this happens, the debtor is considered insolvent.

Other than cases of outright fraud, the debtor may be insolvent because
of –

• Financial failure – a persistent mismatch between payments by the
enterprise and receivables into the enterprise, even though the
business model is generating revenues, or

• Business failure – which is a breakdown in the business model of the
enterprise, and it is unable to generate sufficient revenues to meet
payments.

Often, an enterprise may be a successful business model while still
failing to repay its creditors. A sound bankruptcy process is one that
helps creditors and debtors realise and agree on whether the entity is
facing financial failure and business failure. This is important to al ow
both parties to realise the maximum value of the business in the
insolvency.”

***

“Control of a company is not divine right. When a firm defaults on its
debt, control of the company should shift to the creditors. In the absence
of swift and decisive mechanisms for achieving this, management teams
and shareholders retain control after default. Bankruptcy law must address
this.“

24. In the said decision of Supreme Court the “Principles driving the design”

the new Insolvency and Bankruptcy Resolution framework has been noticed
as quoted below :

“Principles driving the design

The committee chose the fol owing principles to design the new insolvency
and bankruptcy resolution framework :

I. The Code wil facilitate the assessment of viability of the enterprise at a
very early stage.

1. The law must explicitly state that the viability of the enterprise is a
matter of business, and that matters of business can only be
negotiated between creditors and debtor. While viability is assessed
as a negotiation between creditors and debtor, the final decision has
to be an agreement among creditors who are the financiers willing to
bear the loss in the insolvency.

2. The Legislature and the courts must control the process of resolution,
but not be burdened to make business decisions.

3. The law must set up a calm period for insolvency resolution where
the debtor can negotiate in the assessment of viability without fear
of debt recovery enforcement by creditors.

4. The law must appoint a resolution professional as the manager of
the resolution period, so that the creditors can negotiate the
assessment of viability with the confidence that the debtors will not
take any action to erode the value of the enterprise. The professional
wil have the power and responsibility to monitor and manage the
operations and assets of the enterprise. The professional wil manage
the resolution process of negotiation to ensure balance of power
between the creditors and debtor, and protect the rights of all creditors.

The professional will ensure the reduction of asymmetry of information
between creditors and debtor in the resolution process.

II. The Code will enable symmetry of information between creditors and
debtors.

5. The law must ensure that information that is essential for the
insolvency and the bankruptcy resolution process is created and
available when it is required.

6. The law must ensure that access to this information is made available
to all creditors to the enterprise, either directly or through the regulated
professional.

7. The law must enable access to this information to third parties who
can participate in the resolution process, through the regulated
professional.

III. The Code will ensure a time-bound process to better preserve economic
value.

8. The law must ensure that time value of money is preserved, and that
delaying tactics in these negotiations will not extend the time set for
negotiations at the start.

IV. The Code wil ensure a col ective process.

9. The law must ensure that al key stakeholders wil participate to
col ectively assess viability. The law must ensure that al creditors
who have the capability and the willingness to restructure their liabilities
must be part of the negotiation process. The liabilities of al creditors
who are not part of the negotiation process must also be met in any
negotiated solution.

V. The Code wil respect the rights of all creditors equal y.

10. The law must be impartial to the type of creditor in counting their
weight in the vote on the final solution in resolving insolvency.

VI. The Code must ensure that, when the negotiations fail to establish
viability, the outcome of bankruptcy must be binding.

11. The law must order the liquidation of an enterprise which has been
found unviable. This outcome of the negotiations should be protected
against al appeals other than for very exceptional cases.

VII. The Code must ensure clarity of priority, and that the rights of all
stakeholders are upheld in resolving bankruptcy.

12. The law must clearly lay out the priority of distributions in bankruptcy
to all stakeholders. The priority must be designed so as to incentivise
al stakeholders to participate in the cycle of building enterprises
with confidence.

13. While the law must incentivise collective action in resolving
bankruptcy, there must be a greater flexibility to al ow individual action
in resolution and recovery during bankruptcy compared with the phase
of insolvency resolution.”

25. The aforesaid “principles driving the design” shows that the Code has
been framed to facilitate the assessment of viability of the enterprise at a
very early stage; to enable symmetry of information between creditors and
debtors; to ensure a time-bound process to better preserve economic value;
to ensure a col ective process; to respect the rights of al creditors equally;
to ensure that when the negotiations fail to establish viability; the outcome
of bankruptcy must be binding and to ensure clarity of priority, and that the
rights of all stakeholders are upheld in resolving bankruptcy.

PRACTICAL ASPECTS OF INSOLVENCY LAW

519

26. The Supreme Court in Innoventive Industries Ltd. (supra) referring to
different provisions of the I&B Code, observed :

“59. The Insolvency and Bankruptcy Code, 2016 is an Act to consolidate
and amend the laws relating to reorganisation and insolvency resolution,
inter alia, of corporate persons. Insofar as corporate persons are concerned,
amendments are made to the fol owing enactments by Sections 249 to

252 and 255….”

The hon’ble Supreme Court further held :

“60. It is settled law that a consolidating and amending Act like the present

Central enactment forms a code complete in itself and is exhaustive of
the matters dealt with therein….”

The hon’ble Supreme Court further proceeded to hold :

‘63. There can be no doubt, therefore, that the Code is a Parliamentary
law that is an exhaustive code on the subject-matter of insolvency in
relation to corporate entities, and is made under Entry 9, List III in the 7th

Schedule which reads as under :

“9. Bankruptcy and insolvency.”’

27. Thereby it is clear that the I&B Code is complete code in itself.

28. Limitation Act, 1963 is the general legislation on the law of limitation.

Section 3 prescribes “bar of limitation”, as quoted below :

“3. Bar of limitation. – (1) Subject to the provisions contained in Sections

4 to 24 (inclusive), every suit instituted, appeal preferred, and application
made after the prescribed period shal be dismissed, although limitation
has not been set up as a defence.

(2) For the purposes of this Act – (2) For the purposes of this Act –

(a) a suit is instituted –

(i) in an ordinary case, when the plaint is presented to the proper
officer;

(i ) in the case of a pauper, when his application for leave to sue as
a pauper is made; and

(iii) in the case of a claim against a company which is being wound
up by the court, when the claimant first sends in his claim to
the official liquidator;

(b) any claim by way of a set off or a counter-claim, shal be treated as

520

PRACTICAL ASPECTS OF INSOLVENCY LAW
a separate suit and shall be deemed to have been instituted –

(i) in the case of a set off, on the same date as the suit in which
the set off is pleaded;

(i ) in the case of a counter-claim, on the date on which the counter-
claim is made in court;

(c) an application by notice of motion in a High Court is made when the
application is presented to the proper officer of that court.”

29. In view of aforesaid provisions in Mukri Gopalan v. Cheppilat

Puthanpuravil Aboobacker [1995] 5 SCC 5, the Supreme Court examined
the question whether Limitation Act, 1963 wil apply to the Kerala Buildings

(Lease and Rent) Control Act, 1965. Though, the court noticed that the Act
prescribes a period of limitation, which is different from the period of limitation
under the Limitation Act, 1963, in absence of any exclusion of Sections 4 to

24 of the Limitation Act 1963, the Supreme Court held that those Sections

4 to 24 of Limitation Act, 1963 shall be applicable to the Kerala Buildings

(Lease and Rent) Control Act, 1965.

30. However, in Hukumdev Narain Yadav v. Lalit Narain Mishra [1974] 2

SCC 133, a three-Judges Bench of the Supreme Court, while examining the
question as to whether the Limitation Act, 1963 would be applicable to the
provisions of Representation of People Act, held as under :

“17…. but what we have to see is whether the scheme of the special law,
that is in this case the Act, and the nature of the remedy provided therein
are such that the Legislature intended it to be a complete code by itself
which alone should govern the several matters provided by it. If on an
examination of the relevant provisions it is clear that the provisions of the

Limitation Act are necessarily excluded, then the benefits conferred therein
cannot be cal ed in aid to supplement the provisions of the Act. In our
view, even in a case where the special law does not exclude the provisions
of Sections 4 to 24 of the Limitation Act by an express reference, it would
nonetheless be open to the court to examine whether and to what extent
the nature of those provisions or the nature of the subject-matter and
scheme of the special law exclude their operation.”

31. From the decision of Supreme Court in Hukumdev Narain Yadav (supra),
it is clear that even if there exists no express exclusion in the special law,
the court reserves the right to examine the provisions of the special law, to
arrive at a conclusion as to whether the legislative intent was to exclude the
operation of the Limitation Act, 1963 or not.

PRACTICAL ASPECTS OF INSOLVENCY LAW

521

32. To examine the legislative intent to decide whether the I&B Code excludes
the operation of the Limitation Act, 1963, it is desirable to refer the previous

Acts on Insolvency, namely, the Presidency-Towns Insolvency Act, 1909
and the Provincial Insolvency Act, 1920.

33. In Part VII of the “Presidency-Towns Insolvency Act, 1909”, the period
of limitation was prescribed under Sections 101, which reads as fol ows :

“101. Limitation.

The period of limitation for an appeal from any act or decision of the
official assignee, or from an order made by an officer of the court
empowered under Section 6, shal be twenty days from the date of such
act, decision or order, as the case may be.”

34. Section 101A related to computing the period of limitation for any suit or
other legal proceedings, which reads as fol ows :

“101A. Where an order of adjudication has been annul ed under this Act,
in computing the period of limitation prescribed for any suit or other legal
proceeding (other than a suit or legal proceeding in respect of which the
leave of the court was obtained under Section 17) which might have been
brought but for the making of an order of adjudication under this Act, the
period from the date of the order of adjudication to the date of the order of
annulment shall be excluded :

Provided that nothing in this Section shal apply to any suit or other legal
proceeding in respect of a debt provable but not proved under this Act.”

35. Similarly in the Provincial Insolvency Act, 1920 under Section 78 the
limitation was prescribed, as quoted below :

“78. Limitation. – (1) The provisions of Sections 5 and 12 of the Indian

Limitation Act, 1908 (9 of 1908), shal apply to appeals and applications
under this Act, and for the purpose of the said Section 12, a decision
under Section 4 shal be deemed to be a decree.

(2) Where an order of adjudication has been annul ed under this Act, in
computing the period of limitation prescribed for any suit or application for
the execution of a decree or [other than a suit or application in respect of
which the leave of the court was obtained under sub-Section (2) of Section

28] which might have been brought or made but for the making of an order
of adjudication under this Act, the period from the date of the order of
adjudication to the date of the order of annulment shal be excluded :

Provided that nothing in this Section shal apply to a suit or application in

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PRACTICAL ASPECTS OF INSOLVENCY LAW
respect of a debt provable but not proved under this Act.”

36. The Presidency-Towns Insolvency Act, 1909 and the Provincial

Insolvency Act, 1920 have been repealed by Section 243 of the I&B Code,
relevant provision of which reads as fol ows :

“243. Repeal of certain enactments and savings. – (1) The Presidency

Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 are
hereby repealed.

(2) Notwithstanding the repeal under sub-Sections (1), –

(i) al proceedings pending under and relating to the Presidency Towns

Insolvency Act, 1909, and the Provincial Insolvency Act, 1920
immediately before the commencement of this Code shal continue
to be governed under the aforementioned Acts and be heard and
disposed of by the concerned courts or tribunals, as if the
aforementioned Acts have not been repealed;

(i ) any order, rule, notification, regulation, appointment, conveyance,
mortgage, deed, document or agreement made, fee directed,
resolution passed, direction given, proceeding taken, instrument
executed or issued, or thing done under or in pursuance of any repealed
enactment shal , if in force at the commencement of this Code,
continue to be in force, and shall have effect as if the aforementioned

Acts have not been repealed;

(iii) anything done or any action taken or purported to have been done or
taken, including any rule, notification, inspection, order or notice made
or issued or any appointment or declaration made or any operation
undertaken or any direction given or any proceeding taken or any
penalty, punishment, forfeiture or fine imposed under the repealed
enactments shall be deemed valid;

(iv) any principle or rule of law, or established jurisdiction, form or course
of pleading, practice or procedure or existing usage, custom, privilege,
restriction or exemption shal not be affected, notwithstanding that
the same respectively may have been in any manner affirmed or
recognised or derived by, in, or from, the repealed enactments;

(v) any prosecution instituted under the repealed enactments and pending
immediately before the commencement of this Code before any court
or tribunal shal , subject to the provisions of this Code, continue to
be heard and disposed of by the concerned court or tribunal;

(vi) any person appointed to any office under or by virtue of any repealed

PRACTICAL ASPECTS OF INSOLVENCY LAW

523
enactment shal continue to hold such office until such time as may
be prescribed; and

(vi ) any jurisdiction, custom, liability, right, title, privilege, restriction,
exemption, usage, practice, procedure or other matter or thing not in
existence or in force shal not be revised or restored.

(3) The mention of particular matters in sub-Section (2) shall not be held
to prejudice the general application of Section 6 of the General Clauses

Act, 1897 with regard to the effect of repeal of the repealed enactments
or provisions of the enactments mentioned in the Schedule.”

37. Though the aforesaid two Acts have been repealed, in the I&B Code, the

Legislature did not choose to prescribe any separate provisions of ‘limitation’

as was made in Section 101 of the Presidency-Towns Insolvency Act, 1909
or sub-Section (1) of Section 78 of the Provincial Insolvency Act, 1920
whereunder provisions of Sections 5 and 12 of the Indian Limitation Act,

1908 were made applicable to appeals and applications under the aforesaid

Acts and the decision under the provisions was treated to be decree.

38. However, the provision of computing the period of limitation prescribed
for any suit or other legal proceeding, as ordered to be excluded in Section

101A of the Presidency-Towns Insolvency Act, 1909 and sub-Section (2) of

Section 78 of the Provincial Insolvency Act, 1920 has been retained with
appropriate modification under sub-Section (6) of Section 60 of the I&B

Code, as quoted below :

“60. Adjudicating Authority for corporate persons. – (6)

Notwithstanding anything contained in the Limitation Act, 1963 or in any
other law for the time being in force, in computing the period of limitation
specified for any suit or application by or against a corporate debtor for
which an order of moratorium has been made under this Part, the period
during which such moratorium is in place shal be excluded.”

39. The aforesaid provisions, makes clear the intent of the Legislature which
necessarily excluded the provisions of Sections 4 to 24 of the Limitation

Act, 1963.

40. A separate time period has been prescribed under different provisions of
the I&B Code such as :

Fourteen days’ time al owed under sub-Section (4) of Section 7 and sub-

Section (4) of Section 10 of the I&B Code has been allowed to the

Adjudicating Authority to ascertain fact and thereafter to admit or reject the
application, if incomplete.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

41. Similarly, ten days’ expiry period prescribed under sub-Section (1) of

Section 9 from the date of delivery of the notice or invoice demanding
payment under sub-Section (1) of Section 8 of the I&B Code has been
prescribed for filing an application under Section 9 of the I&B Code.

42. Like, Sections 7 and 8 of the I&B Code under sub-Section (5) of Section

9, the Adjudicating Authority has been al owed fourteen days’ time to admit
or reject the application if incomplete, provided before rejecting an application
seven days’ time is to be granted to the applicant to remove the defects.

43. Under Section 12 of the I&B Code, one hundred and eighty days time
has been prescribed for completion of insolvency resolution process though
it is open to the Adjudicating Authority to extend the period, but not exceeding
ninety days’ (Total 270 days). If the Resolution Plan is not received within
the aforesaid period by Adjudicating Authority or it rejects the same, under

Section 33 liquidation proceedings shal be initiated.

44. For preferring appeals under Section 61 while thirty days time has been
al owed, the Appel ate Tribunal has been al owed only fifteen days time
beyond thirty days to condone the delay.

45. Under Section 62 of the I&B Code, against order of Appel ate Tribunal,
an appeal can be preferred by aggrieved person to the Supreme Court but
such appeal is required to be preferred within forty-five days and the Supreme

Court has been allowed to condone the delay but not exceeding fifteen
days.

There are other provisions where such time limit has been prescribed, which
is different from the time prescribed under the Limitation Act, 1963.

46. From the aforesaid provision, we find that the scheme of the Special

Act, i.e., the I&B Code, and the nature of the remedy provided therein are
such that the Legislature intended it to be a complete code by itself which
alone should govern the several matters provided by it.

47. Insofar as, the application under Section 433 of the Companies Act,

2013 is concerned, we are of the view that the said provision is not applicable
for the fol owing reasons :

Under Section 255 of the I&B Code, certain provisions of the Companies

Act, 2013 have been amended in the manner specified in the Eleventh

Schedule of the I&B Code. Thereunder Section 424 of the Companies Act,

2013 has been made part of the I&B Code for the purpose of fol owing
procedural or principles of natural justice.

Section 433 of the Companies Act, 2013 relates to limitation as quoted

PRACTICAL ASPECTS OF INSOLVENCY LAW

525
below :

“433. Limitation. – The provisions of the Limitation Act, 1963 (36 of

1963) shall, as far as may be, apply to proceedings or appeals before the

Tribunal or the Appel ate Tribunal, as the case may be.”

However, Section 433 of the Companies Act, 2013 has not been amended
to make it as a part of the I&B Code, therefore, we hold that Section 433
which relates to limitation of the Companies Act, 2013, ipso facto wil not be
applicable to I&B Code.

48. There is a provision of limitation under the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 (‘DRT Act’) and Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 (‘SARFAESI Act’).

49. By Section 249 of the I&B Code, the DRT Act has been amended in the
manner specified in the Fifth Schedule. In the said Act, sub-Section (1) and
sub-Section (4) of Section 1 has been amended, as quoted below :

‘(a) In sub-Section (1), for the words “Due to Banks and Financial

Institutions” the words “and Bankruptcy” shal be substituted;

(b) In sub-Section (4), for the words “the provision of this Code”, the
words “Save as otherwise provided, the provisions of this Code”,
shal be substituted.’

50. Section 24 of the DRT Act relates to limitation, as quoted below :

“24. Limitation.– The provisions of the Limitation Act, 1963 (36 of 1963),
shal , as far as may be, apply to an application made to a Tribunal.”

Section 24 of the said Act has not been amended by I&B Code and thereby
not made applicable to I&B Code.

51. Similarly, by Section 251 of the I&B Code the SARFAESI Act has been
amended in the manner specified in the Seventh Schedule. Thereunder in
sub-Section (9) of Section 13, for the words “In the case of”, the words and
figures “Subject to the provisions of the ‘I&B Code, in the case of” have
been substituted.

52. Section 36 of the SARFAESI Act relate to limitation, as quoted below :

“36. Limitation. – No secured creditor shall be entitled to take all or any
of the measures under sub-Section (4) of Section 13, unless his claim in
respect of financial asset is made within the period of limitation prescribed
under the Limitation Act, 1963 (36 of 1963).”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

However, Section 36 of the SARFAESI Act has not been amended to make
applicable to I&B Code.

53. In view of the aforesaid discussion, we hold that Section 24 of the

Recovery of Debts and Bankruptcy Act, 1993 and Section 36 of the

SARFAESI Act, 2002 are not applicable to the proceedings for initiation of
corporate insolvency resolution process.

54. On the other hand, the committee by its report suggested to frame law
for insolvency resolution process to facilitate the assessment of viability of
the enterprise at a very early stage; to enable symmetry of information
between creditors and debtors; to ensure a time-bound process to better
preserve economic value; to ensure a col ective process; to respect the
rights of all creditors equally; to ensure that when the negotiations fail to
establish viability, the outcome of bankruptcy must be binding and to ensure
clarity of priority, and that the rights of all stakeholders are upheld in resolving
bankruptcy, as noticed above.

55. In Innoventive Industries Ltd. (supra) the Supreme Court held that one
of the important objectives of the Code is to bring the insolvency law in

India under a single unified umbrel a with the object of speeding up of the
insolvency process. While noticing the key economic question in the
bankruptcy process, the Supreme Court noticed the report of the Bankruptcy

Law Reforms Committee, and observed that there is only one forum for
evaluating possibilities, and for taking a decision there is a creditors
committee, where al “financial creditors” have votes in proportion to the
magnitude of debt that they hold. As mentioned, the Supreme Court also
noticed that “speed is the essence” under I&B Code. We find that the

Committee never suggested that for admitting the “resolution process”

question of limitation, should also be considered.

56. The matter can be looked at from another angle. If law of limitation
prescribed under the Limitation Act, 1963 is made applicable, one may take
a plea that default of debt is barred by limitation to initiate corporate
insolvency resolution process under Section 7 or Section 9 of the I&B Code.

However, such stand cannot be taken, where a corporate applicant applies
for initiation of corporate insolvency resolution process against itself

(‘corporate debtor’), having no capacity to pay back the debt and default
having occurred. The law of limitation cannot be made applicable for filing
an application under Section 10, which otherwise will render the provisions
of Section 10 of the I&B Code redundant as the corporate applicants, do not
file application for money claim. This apart, there may be companies which
are closed for more than three years and having failed to pay a debt, such

PRACTICAL ASPECTS OF INSOLVENCY LAW

527
sick companies will have to be allowed to continue resulting in depreciation
of the value of its assets for time to come, which is against the Statement
and Object of the I&B Code.

57. Similarly, in a case which is not barred by limitation, if application filed
under Section 7 or Section 9 or Section 10 of the I&B Code is admitted,
pursuant to public notice under Section 15 of the I&B Code, the interim
resolution professional is required to receive and col ect al the claims as
may be submitted by creditors to him, as stipulated in clause (b) of sub-

Section (1) of Section 18. In such case, once the creditors put their claim,
the insolvency resolution professional cannot reject the claim on the ground
that the claim is barred by limitation, as the provision of Limitation Act,

1963 wil not be applicable for filing a claim before the interim resolution
professional. Similarly, the committee of creditors while deciding the resolution
plan, cannot reject any such claim, on the ground that the same is barred
by limitation though the committee of creditors may not make any provision
in the resolution plan on the ground of unexplained delay.

58. Even if it is accepted that the Limitation Act, 1963 is applicable, though
we have held otherwise, in that case also application under Section 7 or 9 or

10 cannot be rejected on the ground that the application is barred by limitation
for being filed beyond three years for fol owing reasons.

Except article 137 of Part II, i.e., ‘other applications’, as quoted below, no
other provisions of Limitation is applicable in the matter of filing application
under Section 7 or 9 or 10 :

Part II – Other application

Description of

Period of Limitation
application

137.

Any other application for

Three years

Time from which period
which no period of
begins to run when the
limitation is provided
right to apply accrues
elsewhere in this division.

59. From article 137 of the Limitation Act, 1963, it is clear that the period of
three years is to be counted from the date right to apply accrues to a financial
creditor or operational creditor or corporate debtor.

60. For initiation of corporate insolvency resolution process, the right to
apply accrues under Section 7 or Section 9 or Section 10 only with effect
from 1st December, 2016 when I&B Code has come into force, therefore,
the right to apply under Section 7 or Section 9 or Section 10 in al present

528

PRACTICAL ASPECTS OF INSOLVENCY LAW
cases having accrued after 1st December, 2016, such applications cannot
be rejected on the ground that the application is barred by limitation.

61. Learned amicus curiae rightly contended that there should be a time
limit for raising claim, including money claim. In this regard, it is desirable to
refer the definition of ‘debt’ and ‘default’ as defined in sub-Sections (11) and

(12) of Section 3 of the I&B Code, and quoted below :

‘3(11) “debt” means a liability or obligation in respect of a claim which is
due from any person and includes a financial debt and operational debt;

3(12) “default” means non-payment of debt when whole or any part or
instalment of the amount of debt has become due and payable and is not
repaid by the debtor or the corporate debtor; as the case may be.’

62. From the aforesaid definition, it is clear that ‘debt’ is a liability or obligation
in respect of a claim which is due from any person and includes a “financial
debt” and “operational debt”. It is further clear that when whole or any part or
instalment of the amount of debt has become due and payable and is not
repaid by the debtor or the “corporate debtor”, it amounts to ‘default’.

63. Now, the question arises, whether a person can claim any amount due
from another, a corporate debtor after long delay on the ground that Limitation

Act, 1963 is not applicable?

64. To decide the aforesaid issue, it is necessary to notice the doctrine of
limitation and prescription, as held by jurists and hon’ble courts. The doctrine
of limitation and prescription is based on two broad considerations. First,
there is a presumption that the right not exercised for a long time is non-
existent. In Salmond : Jurisprudence 12th edn., pp.438 and 439, the learned
author described the doctrine in the fol owing words :

“In order to avoid the difficulty and error that necessarily result from lapse
of time the presumption of the coincidence of fact and right is rightly
accepted as final after a certain number of years. Whoever wishes to
dispute this presumption must do so within the period, otherwise his right,
if has one wil be forfeited as a penalty for his neglect, vigilantibus non
dormientibus jura subvenient (laws come to the assistance of the vigilant
and not of the sleepy).”

65. It is also necessary to ensure that the rights of debt, in property or rights
in general should not be in a state of constant uncertainty, doubt and
suspense. Abbott, CJ, in Battley (supra) the court observed that “the statute
of limitation was intended for relief and quiet of the defendant and to prevent
the persons from being harassed at a distant period of time after the
committing of the injury complained of”.

PRACTICAL ASPECTS OF INSOLVENCY LAW

529

66. The above principles have been also recognised by the Supreme Court
of India in Rajinder Singh (supra), wherein the Supreme Court observed :

“The object of law of limitation is to prevent disturbance or deprivation of
what may have been acquired in equity and justice by long enjoyment or
what may have been lost by a party’s own inaction, negligence or laches.”

67. The object of fixing time-limit for litigation is based on Public Policy,
fixing a life span of legal remedies for the purpose of general welfare. The

Supreme Court in N Balakrishnan (supra), inter alia, observed :

“.....the rules of limitation are not meant to destroy the rights of the parties
but are meant to see that the parties do not resort to dilatory tactics but
seek their remedy promptly and the law of limitation fixes a life span for
legal injury suffered and that it is enshrined in the maxim interest reipublicae
ut sit finis litum, i.e., it is for the general welfare that a period to be put to
litigation and this is not meant to destroy the rights of the parties, but
they are meant to see that the party do not resort to dilatory tactics but
seek their remedy promptly because the idea is that every legal remedy
must be alive for a legislatively fixed period of time.”

68. In view of the settled principle, while we hold that the Limitation Act,

1963 is not applicable for initiation of corporate insolvency resolution
process, we further hold that the doctrine of limitation and prescription is
necessary to be looked into for determining the question whether the
application under Section 7 or Section 9 can be entertained after long delay,
amounting to laches and thereby the person forfeited his claim.

69. If there is a delay of more than three years from the date of cause of
action and no laches on the part of the applicant, the applicant can explain
the delay. Where there is a continuing cause of action, the question of
rejecting any application on the ground of delay does not arise.

70. Therefore, if it comes to the notice of the Adjudicating Authority that the
application for initiation of corporate insolvency resolution process under

Section 7 or Section 9 has been filed after long delay, the Adjudicating

Authority may give opportunity to the applicant to explain the delay within a
reasonable period to find out whether there are any laches on the part of the
applicant.

71. The stale claim of dues without explaining delay, normally should not be
entertained for triggering corporate insolvency resolution process under

Section 7 and 9 of the I&B Code.

72. However, the aforesaid principle for triggering an application under Section

530

PRACTICAL ASPECTS OF INSOLVENCY LAW

10 of the I&B Code cannot be made applicable as the corporate applicant
does not claim money but prays for initiation of corporate insolvency resolution
process against itself, having defaulted to pay the dues of creditors.

Insofar it relates to filing of claim before the insolvency resolution professional,
in case of stale claim, long delay and in absence of any continuous cause
of action, it is open to resolution applicant to decide whether such claim is
to be accepted or not, and on submission of resolution plan, the committee
of creditors may decide such question. If any adverse decision is taken in
regard to any creditor disputing the claim on ground of delay and laches, it
will be open to the aggrieved creditor to file objection before the Adjudicating

Authority against resolution plan and for its necessary correction who may
decide the same in accordance with the observations as made above.

73. Coming to merits of present matter, in the case of Speculum Plast (P.)

Ltd. v. PTC Techno (P.) Ltd. in Company Appeal (AT) (Insolvency) No. 47 of

2017, the Adjudicating Authority by impugned order dated 11th April, 2017
has not decided the question whether Limitation Act, 1963 is applicable in
the proceeding for initiation of corporate insolvency resolution process or
not and without deciding the same rejected the case on the ground that the
amount legally recoverable is beyond the period of limitation. It has not
been noticed that the invoices raised are of the period from 1st April, 2013
to 19th September, 2013, and, therefore, default must have occurred after

September 2013. The I&B Code having come into effect on 1st December,

2016, the Adjudicating Authority was not correct in dismissing the application
on the ground that the application is beyond the period of limitation.

74. For the reasons aforesaid, we set aside the impugned order dated 11th

April, 2017 passed by the Adjudicating Authority (National Company Law

Tribunal) New Delhi in Company Petition No. (IB)-41(ND)/2017 and remit
back the case to the Adjudicating Authority, New Delhi to find out whether
the application is otherwise complete or not and, after notice and hearing
the parties, will pass appropriate orders in accordance with law. In case, the
application is complete, the Adjudicating Authority will admit the application
preferred by the appel ants. In case it is incomplete, the appel ant be granted
minimum seven days’ time to remove the defects in terms of proviso to
sub-Section (5) of Section 9 of the I&B Code.

75. In Parag Gupta v. B K Educational Services (P.) Ltd. in Company

Appeal (AT) (Insolvency) No. 76 of 2017, the Adjudicating Authority observed
that the amount having been paid between the period 1st October, 2012 and

5th February, 2013, there was nothing on the record to suggest that it would
extend the limitation to recover the same. The Income-tax Returns filed by

PRACTICAL ASPECTS OF INSOLVENCY LAW

531
corporate debtor for the assessment years 2014-15 and 2015-16 were not
taken into consideration as it does not specify that the short-term borrowings
of over 8 crore including the loans alleged to have been given by the
appel ants as barred by limitation has taken into consideration for rejecting
the application for non-initiation of corporate insolvency resolution process,
the impugned order dated 25th April, 2017 cannot be sustained.

76. For the reasons aforesaid, the impugned order dated 25th April, 2017
passed by the Adjudicating Authority in Company Petition No. (IB)-27(PB)/

2017 is set aside and we remit the case to the Adjudicating Authority who
after notice and hearing the parties will consider the application under Section

7 of the I&B Code preferred by the appel ant-Mr. Parag Gupta and without
going into question of limitation, if application is complete, wil admit the
application. In case of any defect, the appel ant be granted seven days’

time to remove the defects in terms of proviso to sub-Section (5) of Section

9 of the I&B Code. Further, if the application is not maintainable for any
other reasons, the Adjudicating Authority record such reason.

77. In Ashlay Infrastructure (P.) Ltd. v. LDS Engineers (P.) Ltd. in Company

Appeal (AT) (Insolvency) No. 78 of 2017, the Adjudicating Authority rejected
the application preferred by the appel ant on the ground that it is time barred.

The impugned order dated 4th May, 2017 having been passed on the basis
that the Limitation Act, 1963 is applicable for initiation of corporate insolvency
resolution process, the said order cannot be sustained.

78. We accordingly set aside the impugned order dated 4th May, 2017 passed
in Company Petition No. (IB)-77(ND)/2017 and remit the case to the

Adjudicating Authority who after notice and hearing the parties will consider
the application preferred by appellant under Section 9 of the I&B Code and
without going into question of limitation, if application is complete, will admit
the application. In case of any defect, the appel ant be granted seven days’

time to remove the defects in terms of proviso to sub-Section (5) of Section

9 of the I&B Code. Further, if the application is not maintainable for any
other reasons, the Adjudicating Authority may record such reason.

79. Al the appeals are al owed with aforesaid observations and directions.

However, in the facts and circumstances, there shal be no order as to cost.

532

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.18

ITEM NO.30

COURT NO.12

SECTION XVII

SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS

Civil Appeal No(s). 23988/2017

B.K EDUCATIONAL SERVICES PVT LTD

Appel ant(s)

VERSUS

PARAG GUPTA AND ASSOCIATES

Respondent(s)

(FOR ADMISSION and IA No.140884/2017-STAY APPLICATION)

Date : 10-01-2018 This appeal was cal ed on for hearing today.

CORAM :

HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN

HON'BLE MR. JUSTICE NAVIN SINHA

For Appellant(s) Mr. Robin R. David, Adv.

Mr. Pritpal Singh, Adv.

Ms. Ruchi Khurana, Adv.

Mr. Munawwar Naseem, Adv.

Mr. Dhiraj Philip, Adv.

For M/s. Dua Associates, AOR

For Respondent(s)

UPON hearing the counsel the Court made the fol owing

O R D E R

Issue notice, returnable within two weeks.

There shal be a stay of remand in the meantime.

(R. NATARAJAN)

(SAROJ KUMARI GAUR)

COURT MASTER (SH)

COURT MASTER

PRACTICAL ASPECTS OF INSOLVENCY LAW

533

ANNEXURE X.19

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeals (AT)(Ins) No.31 of 2017

IN THE MATTER OF:

Era Infra Engineering Ltd.

...Appellant

Vs

Prideco Commercial Projects Pvt Ltd.

...Respondent

Present: Mr. Manoj K. Singh, Mr. Vijaya Singh, Ms Bornali Roy, Mr Mahip

Singh, Mr. Gyanendra Kumar, Mr. Tanuka De, Advocates for the
appellant.

ORDER

03.05.2017- The Appel ant/Corporate Debtor has chal enged the order(s)

dated 12th April, 2017, passed by the Adjudicating Authority, Principal Bench,

New Delhi in Insolvency Petition No. 26(ND) of 2017. By one of the order the

Adjudicating Authority held that the order is being passed, within 14 days,
as per Section 9 of Insolvency and Bankruptcy Code, 2016 (hereinafter
referred to as the ‘I&B Code’ for short). By the other order dated 12th April

2017, the Adjudicating Authority initiated Insolvency Resolution Process
by admitting the application, appointed interim resolution professional,
ordered Moratorium and passed the fol owing directions:

“14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency
commencement date, the Adjudicating Authority shal by order declare
moratorium for prohibiting al of the fol owing, namely:—

(a) the institution of suits or continuation of pending suits or proceedings
against the corporate debtor including execution of any judgment, decree
or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate
debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest
created by the corporate debtor in respect of its property including
any action under the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002;

534

PRACTICAL ASPECTS OF INSOLVENCY LAW

(d) the recovery of any property by an owner or lessor where such property
is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as
may be specified shal not be terminated or suspended or interrupted
during moratorium period.

(3) The provisions of sub-section (1) shal not apply to such transactions
as may be notified by the Central Government in consultation with any
financial sector regulator.

(4) The order of moratorium shal have effect from the date of such order
til the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution
process period, if the Adjudicating Authority approves the resolution plan
under sub-section (1) of section 31 or passes an order for liquidation of
corporate debtor under section 33, the moratorium shal cease to have
effect from the date of such approval or liquidation order, as the case
may be.

10. The insolvency resolution professional shal also take steps and perform
his duties in terms of Section 15, 17 &

18. All personnel of the Corporate Debtor including its promoters are
expected to extend full cooperation to the interim resolution professional
as is provided by Section 19 and any other provisions of the Code. The
insolvency professional shal submit his report to us within four weeks.

11. The petition stands disposed of in above terms.”

2. Counsel for the Appel ant/Corporate Debtor submitted that the Adjudicating

Authority initiated the insolvency process under section 9 of the I & B

Code, 2016, and admitted the case, though the Application
preferred by Operational Creditor was not complete. It is contended that the

Appellant/ Corporate Debtor was not served any notice under section 8 of
the I & B Code, 2016, and the petition was not filed in terms of (Form 3)

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016.

3. On notice, the Respondent/Operational Creditor has appeared and filed
reply affidavit. Ld. Counsel appearing on behalf of Operational Creditor while
accepted that no notice under section 8 of I & B Code, 2016, was served on
the Appel ant/Corporate Debtor, it is submitted that the other formalities
were completed. It is further submitted that earlier a notice was issued to
the Appel ant/Corporate Debtor under section 271 of the Companies Act,

2013, for winding up which should be treated to be a notice for the purpose

PRACTICAL ASPECTS OF INSOLVENCY LAW

535
of section 8 of the I & B Code, 2016. However, such submissions made on
behalf of the Operational Creditor cannot be accepted in view of the mandatory
provision under section 8 of the I 8& B Code read with Rule 5 of Insolvency
and Bankruptcy, (Application to Adjudicating Authority) Rules, 2016

(hereinafter referred to as I & B ‘Rules’ for short).

4. Insolvency resolution by an Operational Creditor can be initiated only on
the occurrence of a default which is to be fol owed by a demand notice of
unpaid Operational Debtor as stipulated sub-section (1) of Section 8, as
quoted below:

“ 8(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 in the default to the corporate debtor in
such form and manner as may be prescribed.”

5. Rule 5 of I 8& B Rules also mandates an Operational Creditor to deliver
the Corporate Debtor a demand notice in Form 3 or a copy of an invoice
attached with a notice in Form 4, as quoted below:

“5. Demand notice by operational creditor. — (1) An operational creditor
shal deliver to the corporate debtor, the fol owing 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.

(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.”

6. The application for initiation of corporate insolvency resolution process,
thereafter can be filed by Operational Creditor after expiry of period of 10
days from the date of delivery of the notice or invoice demanding payment,
as provided under sub-section (1) of section 9.

7. Only thereafter, in terms of sub-section (5) of Section 9, the Adjudicating

Authority, within 14 days of receipt of the application, by an order is required
to either admit the application, if complete or to reject the application if

536

PRACTICAL ASPECTS OF INSOLVENCY LAW
incomplete, provided seven days’ time is granted for completion of the
application if incomplete. As per clause (i ) (c) & (d) of sub-section (5) of
section 9, the adjudicating authority is required to reject the application, in
absence of affidavit that the Operational Creditor in absence of delivery of
demand of notice or invoice demanding payment to the Corporate Debtor. In
this connection we refer Section 9 of the I & B Code, as quoted below:

9. (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) shal be filed in such form and
manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shal , 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

PRACTICAL ASPECTS OF INSOLVENCY LAW

537

(e) there is no disciplinary proceeding pending against any resolution
professional proposed under sub-section (4), if any.

Provided that Adjudicating Authority, shal before rejecting an application
under sub clause (a) of clause (i ) 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 shal commence from
the date of admission of the application under sub-section

(5) of this section”

Section 230 reads as fol ows: “The Board may, by general or special
order in writing delegate to any member or officer of the Board subject to
such conditions, if any, as may be specified in the order, such of its
powers and functions under this Code (except the powers under section

240 as it may deem necessary”

8. Admittedly, no notice was issued by Operational Creditor under section 8
of the I & B Code, 2016. Demand notice by Operational Creditor stipulated
under Rule 5 in Form 3 has not been served. Therefore, in absence of any
expiry period of tenure of 10 days there was no question of preferring an
application under section 9 of I & B Code, 2016.

9. The Adjudicating Authority has failed to notice the aforesaid facts and the
mandatory provisions of law as discussed above. Though the application
was not complete and there was no other way to cure the defect, the impugned
order cannot be upheld.

10. For the reasons aforesaid, we set aside the order dated 12th April 2014
passed by the Adjudicating Authority. The application preferred by Operational

Creditor under section 9 stands dismissed being incomplete. Al orders,
interim arrangement etc. as has been made are vacated, moratorium as
declared earlier is quashed, appointment of interim resolution professional
also stands quashed. Al action taken by interim resolution profession is
declared illegal. The appeal is al owed with the aforesaid observations.

(Justice S.J. Mukhopadhaya)

Chairperson

(Mr. Balvinder Singh)

Member (Technical)

538

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.20

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

COMPANY APPELLATE JURISDICTION

Company Appeal (AT) (Insolvency) No. 07 of 2017

(arising out of Order dated 23RD January, 2017 passed by NCLT, New

Delhi Bench in C.P No (ISB)-03(PB)/2017)

IN THE MATTER OF:

Nikhil Mehta and Sons

...Appellants

Vs

AMR Infrastructure Ltd.

...Respondent

Present:

For Appel ant: - Mr. Varun Kathuria, Advocate

For Respondent: - Mr. Ajay Verma, Advocate

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

This appeal has been preferred by appel ants against order dated 23rd January

2017 passed by ‘Adjudicating Authority (National Company Law Tribunal),

Principal bench, New Delhi whereby and whereunder the ‘Adjudicating

Authority’ held that appellants are not ‘Financial Creditor’ as defined under
section 5(7) of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred
to as ‘I & B’ Code). The adjudicatory authority further held that as many
winding up petitions are pending before the Hon’ble Delhi High Court against
the ‘Corporate Debtor’ and Financial Liquidator has been appointed, the
application preferred by appel ants for triggering insolvency process by
invoking Section 7 of the ‘I & B’ Code read with Rule-4 and Rule-9(1) of the

Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules,

2016 (hereinafter referred to as ‘Adjudicating Authority’ Rules, 2016) is not
maintainable.

2. The case of the appel ants and the submission as made by learned counsel
for the appel ants are as follows:—

The appel ants reached different agreements/Memorandum of Understanding
with respondent M/s. AMR Infrastructures Limited (hereinafter referred to

PRACTICAL ASPECTS OF INSOLVENCY LAW

539
as ‘Corporate Debtor’) for purchase of three units being a residential flat,
shop and office space in the projects, Kessel-I Val ey, One Mal and One

Home which were being developed by and promoted by ‘Corporate Debtor’.

3. The one of the unit was purchased by the Appel ant(s) under the ‘Committed

Return Plan’ as per which if the Appel ant(s) were to pay a substantial portion
of the total sale consideration upfront at the time of Execution of the MOU,
and the Respondent undertook to pay a particular amount to the buyer/
purchaser (The appellant(s) in this case) each month, as Committed Returns/

Assured Returns from the date of execution of the MOU til the time the
actual physical possession of the unit is handed over to the buyer/purchaser.

In the said projects the appel ants also had an option to choose the
construction/time linked payment plan as per which they were required to
pay a certain percentage of the sale consideration amount at various stages
of construction of the project.

4. The Respondent started paying the committed returns to the Appellant(s)

as per the MOU, but stopped paying the committed returns to the Appellant(s)

from April, 2014, for the unit of the Appellants No. 3 and 4, and from January,

2014, for the units of the remaining Appel ants, unilateral y and without
assigning any reason. The Appellants contacted the Respondent on various
occasions demanding the release/payment for their monthly committed
returns but to no avail.

5. Having no other option, the Appel ants had jointly filed an Application U/
s. 7 of the Insolvency and Bankruptcy Code, 2016, before the Adjudicating

Authority on 16.01.2017 which was dismissed vide order dated 23.01.2017,
which is why the present Appeal has been filed.

6. It is the case of the Appel ants that the concept and plan of payment of

Committed Returns/Assured Returns by the builders/real estate developers
such as the Respondent, is a method adopted by them to mobilise funds/
raise finance from the general public/open market at much lower rates than
what is normal y made available to them by banking and other financial
institutions without having the obligation to offer security or any col ateral
and without there being any regulatory body to supervise and oversee such
a transaction thereby making the Appel ants the “Financial Creditors” of the

Respondent as defined U/s. (5)(8)(f) of the I & B Code.

7. It is for this reason that the Respondent had offered to pay a fixed monthly
amount to the Appellants as Committed Returns/Assured Returns if the

Appellants were willing to pay a substantial portion of the entire consideration
amount upfront to them at the time of booking their units, as the Respondent

540

PRACTICAL ASPECTS OF INSOLVENCY LAW
was getting easy access to the funds of the Appellants without having to
offer/pledge any col ateral/security in return. It is pertinent to mention here
that there were no other contingencies/conditions/criteria which were to be
fulfilled/met by the Appel ants in order to get the monthly committed returns
and therefore, the agreement/Memorandum of Understanding and transaction
between the Appellants and the Respondent were not a simple real-estate
transaction. The Appel ants have also placed on record the order dated

19.12.2014 passed by SEBI in the matter of M/s. MVL Limited wherein it
has held that such transactions where the developer offers to pay assured
returns to the buyers “are not pure real estate transactions, rather they
satisfy all the ingredients of a Col ective Investment Scheme as defined
under Section 11AA of the SEBI Act,” and has made other observations as
wel stating that the developer was engaged in “fund mobilization activity”

by offering assured returns. Copy of the SEBI Order is at pages 451 to 473
of the Appeal.

8. It is the case of the Appel ants that various winding up petitions have
been filed and are pending against the Respondent for non-payment of the
assured returns to various buyers wherein the Respondent has admitted
liability and has offered to settle the claims but has not yet been able to do
so. Therefore, since the provision of the Winding up under the Companies

Act, stands substituted by the Insolvency and Bankruptcy Code, 2016,
then the Appel ants should be entitled to relief under the I & B Code itself.

9. It is the case of the Appel ants that they are undoubtedly “creditors” of the

Respondent as defined under the I & B Code, to whom an admitted and
quantified “debt” is owed by the Respondent and who have a valid “claim”

against the Respondent as has been defined under the I & B Code and
therefore, the Adjudicating Authority should have heard and al owed the
claim/application of the Appel ants holding them to be “Financial Creditors”

as defined under the I & B Code.

10. Further case of the Appel ants is that as per the latest balance sheet of
the respondent, the amount which is to be paid to the Appel ants by the

Respondent as Committed Returns/Assured Returns is shown as

“Commitment Charges” under the header of “Financial Costs”. The

Respondents has not filed any reply to the said claim of the Appel ants
despite of being given an opportunity to do so by this Appel ate Tribunal.

The said balance sheet is at pages 34-63 of the paper book dated 17.04.2017
of the Appel ants and the relevant entry is at page 60 of the said paper
book.

11. According to Appellants they are the “Financial Creditors” of the

PRACTICAL ASPECTS OF INSOLVENCY LAW

541

Respondent, and the Respondent was deducting TDS on the amount which
it was paying to the Appel ants as Committed Returns/Assured Returns
under Section 194(A) of the Income Tax Act, which is applicable to deduction
of TDS on the amount which is paid to some as “Interest, other than Interest
on Securities”. This therefore, makes it clear that the payment made by the

Respondent to the Appel ants in the form of Committed Returns/Assured

Returns is nothing but a payment of “interest” to the Appel ants by the

Respondent thereby making the amount paid by the Appel ants to the

Respondent at the time of booking of their unit a Loan given by the Appel ants
to the Respondent for constructing the project. In support of the above
claim the Appel ants have placed on records, their Form 16A and 26AS
which are at pages 5-33 of their paper book dated 17.-04.2017, filed before
this Appellate Tribunal.

12. The Respondent-Corporate Debtor has appeared but not filed any affidavit
denying the averments made by appellants or the enclosures attached with
the appeal.

13. The petition for condonation of delay of seven days in preferring the
appeal under Section 61(2) of the I & B Code’ has been filed. Taking into
consideration the grounds taken therein particularly that number of petitions
were wrongly mentioned in the original impugned judgment and on hearing
the parties the delay of seven days in preferring the appeal is condoned.

14. The question arises for consideration in this appeal are: -

(i) Whether the appel ants who reached with agreements/Memorandum
of Understandings with respondent for the purchase of three units
being a residential flat, shop and office space in the projects
developed, promoted and marketed by the respondent come within
the meaning of ‘Financial Creditor’ as defined under the provisions of
sub-section (5) of Section 7 of the I & B code and

(i ) Whether an application for triggering insolvency process under

Section 7 of I & B code’ is maintainable where winding up petitions
have been initiated and pending before Hon’ble High Court against
the ‘Corporate Debtor’.

15. To determine the first question it is desirable to notice and refer provisions
of Section 5(7) and 5(8) and Section 7 of the ‘I & B code’, which are set out
below:—

“5. In this Part, unless the context otherwise requires, —

(7) “financial creditor” means any person to whom a financial debt is owed

542

PRACTICAL ASPECTS OF INSOLVENCY LAW
and includes a person to whom such debt has been legal y assigned or
transferred to;

(8) “financial debt” means a debt along with interest, if any, which is
disbursed against the consideration for the time value of money and
includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility
or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue
of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase
contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as
may be prescribed;

(e) receivables sold or discounted other than any receivables sold on
non-recourse basis;

(f) any amount raised under any other transaction, including any forward
sale or purchase agreement, having the commercial effect of a
borrowing;

(g) any derivative transaction entered into in connection with protection
against or benefit from fluctuation in any rate or price and for
calculating the value of any derivative transaction, only the market
value of such transaction shal be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, documentary letter of credit or any other instrument issued by
a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause;

“7. (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.

PRACTICAL ASPECTS OF INSOLVENCY LAW

543

(2) The financial creditor shal 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 shal , 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 (c)

any other information as may be specified by the Board.

(3) The financial creditor shal , 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

(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).

(5) Where the Adjudicating Authority is satisfied that— (a) a default has
occurred and the application under sub-section (2) is complete, and there
is no disciplinary proceedings pending against the proposed resolution
professional, it may, by order, admit such application; or (b) default has
not occurred or the application under sub-section (2) is incomplete or any
disciplinary proceeding is pending against the proposed resolution
professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shal , before rejecting the
application under clause (b) of sub-section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shal communicate—

(a) the order under clause (a) of sub-section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as
the case may be”

544

PRACTICAL ASPECTS OF INSOLVENCY LAW

16. From a bare perusal of Section 7, it is patent that the insolvency process
can be triggered by a ‘Financial Creditor’ or jointly against the ‘Corporate

Debtor’ when default or debt has occurred.

17. The first question arises for consideration is as to who is a ‘Financial

Creditor’. Learned Adjudicating Authority, for determination of the aforesaid
issue examined the definition provided in Section 5 (7) and 5(8) and in the
impugned judgment rightly observed:—

“12. A perusal of definition of expression ‘Financial Creditor’ would show
that it refers to a person to whom a Financial debt is owed and includes
even a person to whom such debt has been legally assigned or transferred
to. In order to understand the expression ‘Financial Creditor’, the
requirements of expression ‘financial debt’ have to be satisfied which is
defined in Section 5(8) of the IBC. The opening words of the definition
clause would indicate that a financial debt is a debt along with interest
which is disbursed against the consideration for the time value of money
and it may include any of the events enumerated in sub-clauses (a) to (i).

Therefore the first essential requirement of financial debt has to be met
viz. that the debt is disbursed against the consideration for the time value
of money and which may include the events enumerated in various sub-
clauses. A Financial Creditor is a person who has right to a financial debt.

The key feature of financial transaction as postulated by section 5(8) is
its consideration for time value of money. In other words, the legislature
has included such financial transactions in the definition of ‘Financial
debt’ which are usual y for a sum of money received today to be paid for
over a period of time in a single or series of payments in future. It may
also be a sum of money invested today to be repaid over a period of time
in a single or series of instalments to be paid in future. In Black’s Law

Dictionary (9th edition) the expression ‘Time Value’ has been defined to
mean “the price associated with the length of time that an investor must
wait until an investment matures or the related income is earned”. In both
the cases, the inflows and outflows are distanced by time and there is a
compensation for time value of money. It is significant to notice that in
order to satisfy the requirement of this provision, the financial transaction
should be in the nature of debt and no equity has been implied by the
opening words of Section 5(8) of the IBC. It is true that there are complex
financial instruments which may not provide a happy situation to decipher
the true nature and meaning of a transaction. It is pertinent to point out
that the concept ‘Financial Debt’ as envisaged under Section 5(8) of the

IBC is distinctly different than the one prevalent in England as provided in
its Insolvency Act, 1986 and the ‘Rules’ framed thereunder. It appears

PRACTICAL ASPECTS OF INSOLVENCY LAW

545
that in England there is no exclusive element of disbursement of debt
laced with the consideration for the time value of money. However, forward
sale or purchase agreement as contemplated by Section 5(8)(f) may or
may not be regarded as a financial transaction. A forward contract to sell
product at the end of a specified period is not a financial contract. It is
essentially a contract for sale of specified goods. It is true that some time
financial transactions seemingly restructured as sale and repurchase. Any
repurchase and reverse repo transaction are sometimes used as devices
for raising money. In a transaction of this nature an entity may require
liquidity against an asset and the financer in return sel it back by way of
a forward contract. The difference between the two prices would imply the
rate of return to the financer. (See Taxman’s Law Relating to IBC, 2016 by

Vinod Kothari & Sikha Bansal).”

18. However, while examining the nature of transactions of the present case
the learned Adjudicating Authority came to a conclusion that the appellants
do not come within the meaning of ‘Financial Creditor’, as in the case in
hand “Assured Returns” is associated with the delivery of possession of the
properties and has got nothing to do with the requirement of Section 5(8),
the time value of money which is mercifully missing in the transaction in
hand, with fol owing observations:—

“When we examine the nature of transactions in the present case, we
find that it is a pure and simple agreement of sale or purchase of a piece
of property.

The agreement to sel a flat or office space etc. Merely because some

“assured amount” of return has been promised and it stands breached,
such a transaction would not acquire the status of a ‘financial debt’ as
the transaction does not have consideration for the time value of money,
which is a substantive ingredient to be satisfied for fulfilling requirements
of the expression ‘Financial Debt’.

Essential y in the case in hand ‘Assured Returns’ is associated with the
delivery of possession of the aforementioned properties and has got
nothing to do with the requirement of sub-section (8) of section 5. It is the
consideration for the time value of money which is mercifully missing in
the transaction in hand. The classical transaction which would cover the
definition of financial debts is il ustrated in sub-clause (a) of sub-section

(8) of Section 5 i.e. the money borrowed against the payment of interest.

Learned Counsel of Applicants has not been able to show from any
material on record or otherwise that it is a financial transaction in which a
debt has been disbursed against the consideration for the time value of

546

PRACTICAL ASPECTS OF INSOLVENCY LAW
money and he being the Financial Creditor is entitled to trigger the
insolvency process against the Respondent in accordance with Section

7 of the IBC.”

From the provisions of Law and discussion as made and quoted above, we
find that fol owing essential criteria’s to be fulfil ed for a Creditor to come
within the meaning of ‘Financial Creditor’:—

(i) A person to whom a ‘Financial debt’ is owed and includes a person
whom such debt has been legally assigned or transferred to

(i ) The debt along with interest, if any, is disbursed against the
consideration for time value of money and include any one or more
mode of disbursed as mentioned in clauses (a) to (i) of sub-section

(8) of Section 5.

19. To determine the question whether appellants came within the meaning
of ‘Financial Creditor’, it is desirable to notice the relevant clause of one of
the Memorandum of Understanding dated 12th April 2008 reached between
the appel ants and the Respondent-Corporate Debtor, relevant portion of
which is quoted below:—

“AND whereas the Developer has represented that it shal complete the
construction of the Shopping Mal on or before December 2009, in all
respects and shall render the shopping mal ready for occupation &
possession by the said date unless the construction is stoped or odelayed
on account of factors beyond the control of Developer, as stipulated in
the later part of this memorandum of Understanding.”

AND WHEREAS the Investor is interested in booking of Shop No. E-47
measuring 1453.432 sq. ft. For a total consideration amount of Rs.

46,67,402/- (rupees Forty Six Lachs Sixty Seven Thousand four Hundred

Two Only). The Investor acknowledge, that the Developer has readily
provided al information & clarifications as required by them but that they
has not unduly relied upon and is not influenced by any architect’s plans,
advertisements representations, warranties, statements or estimates of
any nature whatsoever whether written or oral made by the Developer.

“Cheque of Rs. 27,00,000/- payable on Punjab National Bank vide Cheque

No. 462365 dated 19.03.2008.

Cheque of Rs. 9,00,000/- payable Punjab National Bank vide Cheque No.

462350 dated 19.03.2008.

The receipt of which is acknowledged by the Developer and the Developer
hereby discharge the Investor of al the Payments under this MOU except

PRACTICAL ASPECTS OF INSOLVENCY LAW

547
the amount of Rs. 10,17,402/- which is payable at the time of possession.

Since the Investor has paid most of the consideration as on 19.03.2008,
the Developer is ready to pay the monthly committed return to the Investor
but the Investor does not require the monthly return til December, 2008
i.e. for the 9 month. So the DEVELOPER hereby undertakes to make a
consolidated payment of Rs. 99,600/- (Rupees Ninety Nine Thousand Six

Hundred only) less TDS as applicable every calendar month to the

INVESTOR as a committed return w.e.f January 2009 up to the date of
handing over of possession to the INVESTOR.

The Investor has given the first leasing rights to the Developer and

Developer hereby assures the investor that they wil assist the Investor
in leasing out the shop as per general market trends and practices prevailing
til time of possession. The developer further assures the investor that if
they are not able to lease the unit til possession they wil pay the amount
of Rs. 1,10,000/-per month w.e.f. dated of possession till unit is first leased
out.”

20. From the aforesaid agreement/Memorandum of Understanding it is clear
that appel ants are “investors” and has chosen “committed return plan”. The
respondent in their turn agreed upon to pay monthly committed return to
investors. Thus, the amount due to the appel ants come within the meaning
of ‘debt’ as defined in Section 3(11) of the I & B Code’ which reads as
fol ows:—

“(11) “debt” means a liability or obligation in respect of a claim which is
due from any person and includes a financial debt and operational debt;”

21. The appel ants have enclosed the annual return of Respondent-Corporate

Debtor dated 31st March 2014. Therein the amount deposited by ‘investors’

including the appel ants as has been shown as committed return while giving
the ‘financial cost’/at par with interest on loans, as shown below:-

“27 FINANCIAL COSTS

Interest on Loans

39,83,980.89.00

9,33,359.01.00

Leasing Charges

5,93,29,559.00

1,96,67,593.00

Interest & Penalties for
non-compliance

55,85,518.00

59,75,659.05

Commitment Charges

15,30,91,296.00

32,32,97,199.00

Processing Fee

7,49,449.00

548

PRACTICAL ASPECTS OF INSOLVENCY LAW

Bank Charges

7,76,690.19

4,71,313.03

23,35,16,293.00

35,03,45,123.09"

22. Form 16-A shows the TDS deducted from the interest earned by the
appel ant Nikhil Mehta under Section 194-A of the Income-tax Act 1961.

Therein summary of payment including amount credited has been shown as
fol ows:—

Summary of Payment

Amount

Nature of

Date of

Status
paid/

Payment
payment/
of Booking
credited (Rs.)

credit

(dd/mm/yyyy)

41,107.00

194A-Interest other than

30/04/2011

MATCHED

Interest on Securities

41,107.00

194A-Interest other than

30/05/2011

MATCHED

Interest on Securities

41,107.00

194A-Interest other than

30/06/2011

MATCHED

Interest on Securities

Summary of Tax Deducted at Source in respect of deductee

Quarter

Receipt Numbers of

Amount of tax

Amount
original quarterly
deducted in
of tax
statements of TDS
respect of
deposited/
under sub-section (3)

the deductee
remitted in
of section 200

(Rs.)

respect of
deductee

(Rs.)

Q1

BHRXHRAC

12,333.00

12,333.00

23. From the ‘Annual Return’ of the Respondent and Form-16A, we find that
the ‘Corporate Debtor’ treated the appellants as ‘investors’ and borrowed the
amount pursuant to sale purchase agreement for their commercial purpose
treating at par with ‘loan’ in their return. Thereby, the amount invested by
appel ants come within the meaning of ‘Financial Debt’, as defined in Section

5(8)(f) of I & B Code, 2016 subject to satisfaction as to whether such
disbursement against the consideration is for time value of money, as
discussed in the subsequent paragraphs.

24. Learned Adjudicating Authority has rightly highlighted the opening word

PRACTICAL ASPECTS OF INSOLVENCY LAW

549
of the definition clause which indicate that a ‘financial debt’ is a debt along
with interest which is disbursed against the consideration for the time
value of money and may include any of the events enumerated in sub-
clauses (a) to (i). Therefore, it is to be seen whether the amount paid by the
appel ants to the Corporate Debtor, fulfil the other condition of “disbursement
against consideration of time value and money”, to come within the definition
of “Financial Creditor” having satisfied that the Corporate Debtor raised the
amount through a transaction of sale and purchase of agreement having
commercial effect of a borrowing (Section 5(8)(f)).

25. The agreement shows that the respondent agreed to complete the
construction of shopping mal on or before December 2009, in al respects,
and was required to complete and handover the shop in the shopping mall
before the said date. It is not the case of the respondent that the construction
was stopped or delayed on account of factors beyond the control of the
respondent, as stipulated in the later part of the Memorandum of

Understanding. It was agreed upon by the respondent that since the
appellants have paid most of the amount the respondent was ready to pay

“monthly committed returns” to the appel ants. However, as the appel ants
were not required the monthly return till December 2008 i.e. for 9 months so
the Respondent-Corporate Debtor undertook to make a consolidated payment
of Rs. 99,600/- less TDS. For every calendar month the Corporate Debtor
was liable to pay committee return w.e.f. January 2009 till the date of handing
over of the possession to the appel ants. Therefore, it is clear that the amount
disbursed by the appel ants was “against the consideration of the time value
of the money” and “the Respondent-Corporate Debtor raised the amount by
way of sale - purchase agreement, having a commercial effect of borrowing.”

This is also clear from annual returns filed by Respondent and not disputed
by the Respondent-Corporate Debtor in their annual returns, wherein the
amount so raised/borrowed has been shown as ‘commitment charges’ under
the head “Financial cost”. The financial cost includes “Interest of loans” and
other charges. Therefore, the ‘commitment charge’, which include interest
on loan, shown against the head “Financial cost” having accepted by the

Corporate Debtor in their annual return, we hold that the appel ants have
successfully proved that they are ‘financial Creditor’ within the meaning of

Section 5(7) of the I & B Code’.

26. Learned Adjudicating Authority while rightly interpreted the provisions of
law to understand the meaning of expression ‘financial creditor’ at paragraph

12 of the impugned judgment as quoted above, but failed to appreciate the
nature of transactions in the present case and wrongly came to a conclusion

“that it is a pure and simple agreement of sale and purchase of a piece of

550

PRACTICAL ASPECTS OF INSOLVENCY LAW
property and has not acquired the status of a financial debt as the transaction
does not have consideration for the time value of money”.

27. For the reasons aforesaid, we set aside the impugned judgment dated

23rd January 2017 passed by the learned Adjudicating Authority in C.P. No.

(ISB)-03(PB)/2017 and remit the matter to Adjudicating Authority to admit
the application preferred by appellants and pass appropriate order, if the
application under Section 7 of the ‘I & B Code’ is otherwise complete. In
case it is found to be not complete, the appel ants should be given seven
days’ time to complete the application as per proviso to Section 7 of the ‘I &

B Code’.

28. The appeal is allowed with aforesaid observations and directions.

However, in the facts and circumstances, there shal be no order as to cost.

(Mr. Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

21st July, 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

551

ANNEXURE X.21

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

NEW DELHI

Company Appeal (AT) (Insolvency) No. 95 of 2017

IN THE MATTER OF:

Lokhandwala Kataria Construction Pvt. Ltd.

...Appellant

Versus

Nisus Finance & Investment Manager LLP.

...Respondent

Present:

For Appellant: - Shri Abhiman Vashist, Sr. Advocate, Shri

Peshwan Jehangir and Shri Snehal Kakrania, Advocates

For Respondent: Shri Shiv Kumar Suri and Shri Shikhil Suri,

Advocates

ORDER

13.07.2017 This appeal is preferred by the appel ant, Corporate Debtor against
order dated 15th June, 2017 passed by learned Adjudicating Authority

(National Company Law Tribunal) Mumbai Bench, Mumbai in CP No.61/

1&BP/NCLT/MAH/2017 whereby and whereunder the application preferred
by the respondent, financial creditor under Section 7 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as I&B Code’) has been
admitted, with fol owing observation and direction:

“It is very much evident on the record the first cheque issued for redemption
of the part of the debenture being dishonoured, it is evident that default
has occurred and the Corporate Debtor is under obligation to make
repayment to the debenture holders, the same not being made, this
application is fit for initiating corporate insolvency resolution process.

Accordingly, this application is hereby admitted.”

Learned counsel appearing on behalf of the respondent - Financial Creditor
submitted that the parties have settled the dispute and part amount has
already been paid. This is also highlighted by learned counsel for Corporate

Debtor. However, such settlement cannot be ground to interfere with the
impugned order in absence of any other infirmity.

At this stage, we may notice and refer Rule 8 of I&B (Application to

552

PRACTICAL ASPECTS OF INSOLVENCY LAW

Adjudicating Authority) Rules, 2016, which reads as fol ows:

“8 Withdrawal of Application - The Adjudicating Authority may permit
withdrawal of the application made under Rules 4, 6 or 7, as the case
may be, on a request made by the applicant before its admission. ”

Thus, before admission of an application under Section 7, it is open to the

Financial Creditor to withdraw the application but once it is admitted, it
cannot be withdrawn and is required to fol ow the procedures laid down
under Sections 13, 14, 15, 16 and 17 of I&B Code, 2016. Even the Financial

Creditor cannot be al owed to withdraw the application once admitted, and
matter can not be closed til claim of al the creditors are satisfied by the
corporate debtor.

Mere admission without subsequent step of advertisement having carried
out, would not amount to refusal of claim of other creditors. Such submission
as made by learned counsel for the appellant cannot be accepted in view of
the provisions of the Act.

Learned counsel for the appel ant requests to exercise inherent power, under

Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 which
reads as fol ows:

.

“11. Inherent powers - Noting in these rules shall be deemed to limit or
otherwise affect the inherent powers of the Appel ate Tribunal to make
such orders or give such directions as may be necessary for meeting the
ends of justice or to prevent abuse of the process of the Appel ate Tribunal.”

However, as the said Rule 11 has not been adopted for the purpose of I&B

Code, 2016 and only Rules 20 to 26 have been adopted in absence of any
specific inherent power and where there is no merit, the question of exercising
inherent power does not arise.

‘

We find no merit in this appeal. The appeal is accordingly dismissed. No
cost.

[Justice S.J. Mukhopadhaya]

Chairperson

[Balvinder Singh]

Member (Technical)

PRACTICAL ASPECTS OF INSOLVENCY LAW

553

ANNEXURE X.22

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE

JURISDICTION

CIVIL APPEAL NO. 9279 OF 2017

LOKHANDWALA KATARIA CONSTRUCTION PRIVATE LIMITED

Appellant(s)

VERSUS

NISUS FINANCE AND INVESTMENT MANAGERS LLP Respondent(s)

O R D E R

1) Heard the learned Senior Counsel appearing for the parties.

2) The present appeal raises an interesting question as to whether, in view
of Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016, the

National Company Law Appel ate Tribunal could utilize the inherent power
recognized by Rule 11 of the National Company Law Appellate Tribunal

Rules, 2016 to allow a compromise before it by the parties after admission
of the matter.

3) By the impugned order dated 13.07.2017, the National Company Law

Appellate Tribunal was of the view that the inherent power could not be so
utilized. According to us, prima facie this appears to be the correct position
in law.

4) However, since al the parties are before us today, we utilize our powers
under Article 142 of the Constitution of India to put a quietus to the matter
before us. We take the Consent Terms dated 28.06.2017 and 12.07.2017
entered into between the parties on record and also record the undertaking
of the appellant before us to abide by the Consent Terms in toto. The appellant
also undertakes to pay the sums due on or before the dates mentioned in
the aforesaid Consent Terms.

5) With this, the present appeal is disposed of.

554

PRACTICAL ASPECTS OF INSOLVENCY LAW

6) In view of our order made today, nothing further survives in the aforesaid
appeal.

.................... J

(ROHINTON FALI NARIMAN)

....................

(SANJAY KISHAN KAUL)

New Delhi;

July 24, 2017

ITEM NO.41

COURT NO.12

SECTION XIV

SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS

Civil Appeal No(s). 9279/2017

LOKHANDWALA KATARIA CONSTRUCTION PRIVATE LIMITED

Appel ant(s)

VERSUS

NISUS FINANCE AND INVESTMENT MANAGERS LLP

Respondent(s)

(IA No.58825/2017-STAY APPLICATION AND IA No.58826/2017-

EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT and IA

No.59782/2017-PERMISSION TO FILE ADDITIONAL DOCUMENTS)

Date : 24-07-2017 This appeal was cal ed on for hearing today.

CORAM :

HON’BLE MR. JUSTICE ROHINTON FALI NARIMAN

HON’BLE MR. JUSTICE SANJAY KISHAN KAUL

For Appellant(s)

Mr. Mukul Rohatgi, Sr. Adv.

Mr. K.V. Viswanathan, Sr. Adv. Mr. Prateek Kumar, Adv.

Snehal Kakrania, Adv.

Mr. Peshwan Jehangir, Adv.

Ms. Anushak Sharda, Adv.

M/s. Khaitan & Co., AOR

For Respondent(s)

Mr. Krishnan Venugopal, Sr. Adv. Mr. Shikhil Suri,

Adv.

Mr. Shiv Kumar Suri, AOR Ms. Shilpa Saini, Adv.

PRACTICAL ASPECTS OF INSOLVENCY LAW

555

UPON hearing the counsel the Court made the fol owing

O R D E R

The appeal is disposed of in terms of the signed order. Pending applications,
if any, also stand disposed of.

(R. NATARAJAN)

(SAROJ KUMARI GAUR)

COURT MASTER

COURT MASTER

(Signed order is placed on the file)

556

PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.23

IN THE SUPREME COURT OF INDIA

CIVIL APPELLANT JURISDICTION

CIVIL APPEAL NO. 18520 OF 2017

(Arising out of SLP(C) No. 26824 of 2017)

UTTARA FOODS AND FEEDS PRIVATE LIMITED

... Appellant(s)

Versus

MONA PHARMACHEM

... Respondent(s)

O R D E R

Leave granted.

Mr. Shyam Divan, learned senior counsel appearing on behalf of the appellant
and the learned counsel appearing on behalf of the respondent both agree
that the matter has since been settled amicably between the parties.

In an earlier order dated 24.07.2017, this Bench had observed that in view
of Rule 8 of the I & B (Application to Adjudicating Authority) Rules, 2016,
the National Company Law Appellate Tribunal prima facie could not avail of
the inherent powers recognised by Rule 11 of the National Law Appel ate

Tribunal Rules, 2016 to al ow a compromise to take effect after admission
of the insolvency petition. We are of the view that instead of al such orders
coming to the Supreme Court as only the Supreme Court may utilise its
powers under Article 142 of the Constitution of India, the relevant Rules be
amended by the competent authority so as to include such inherent powers.

This will obviate unnecessary appeals being filed before this Court in matters
where such agreement has been reached. On the facts of the present case,
we take on record the settlement between the parties and set aside the

NCLAT order.

As a result, the appeal is al owed in the aforesaid terms.

A copy of this order be sent to the Ministry of Law & Justice immediately.

....................J.

(ROHINTON FALI NARIMAN)

New Delhi,

.....................J.

Dated: 13th November, 2017.

(SANJAY KISHAN KAUL)

PRACTICAL ASPECTS OF INSOLVENCY LAW

557

ITEM NO.6

COURT NO.12

SECTION IX

SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C) No(s). 26824/2017

(Arising out of impugned final judgment and order dated 19-07-2017 in CP

No. 1081/2017 passed by the National Company Law Tribunal, Mumbai Bench)

UTTARA FOODS AND FEEDS PRIVATE LIMITED

Petitioner(s)

VERSUS

MONA PHARMACHEM

Respondent(s)

Date : 13-11-2017 This petition was cal ed on for hearing today.

CORAM :

HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN

HON'BLE MR. JUSTICE SANJAY KISHAN KAUL

For Petitioner(s)

Mr. Shyam Divan, Sr. Adv.

Ms. Malini Sud, Adv.

Mr. Hemant Sethi, Adv.

Mr. Vikas Mishra, Adv.

Mr. S.P.Singh Chawla, Adv.

Ms. B. Vijayalakshmi Menon, AOR

For Respondent(s)

Mr. Diggaj Pathak, Adv.

Ms. Shweta Sharma, Adv.

Ms. Vishaki Bhatia, Adv.

UPON hearing the counsel the Court made the fol owing

ORDER

Leave granted.

The appeal is al owed in terms of the signed order.

Pending applications, if any, shal stand disposed of.

(SHASHI SAREEN)

(SAROJ KUMARI GAUR)

AR CUM PS

BRANCH OFFICER

(Signed order is placed on the file)

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PRACTICAL ASPECTS OF INSOLVENCY LAW

ANNEXURE X.24

REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 8337-8338 OF 2017

M/S. INNOVENTIVE INDUSTRIES LTD.

…APPELLANT

VERSUS

ICICI BANK & ANR.

...RESPONDENTS

JUDGMENT

R.F. Nariman, J

1. The present case raises interesting questions which arise under the

Insolvency and Bankruptcy Code, 2016 (‘the Code’), which received the

Presidential assent on 28th May, 2016, but which provisions were brought
into force only in November-December 2016.

2. The appellant before us is a multi-product company catering to applications
in diverse sectors. From August 2012, owing to labour problems, the appellant
began to suffer losses. Since the appel ant was not able to service the
financial assistance given to it by 19 banking entities, which had extended
credit to the appellant, the appellant itself proposed corporate debt
restructuring. The 19 entities formed a consortium, led by the Central Bank
of India, and by a joint meeting dated 22nd February, 2014, it was decided
that a CDR resolution plan would be approved. The details of this plan are
not immediately relevant to the issues to be decided in the present case.

The lenders, upon perusing the terms of the CDR proposal given by the
appellant and a techno-economic viability study, (which was done at the
instance of the lenders), a CDR empowered group admitted the restructuring
proposal vide minutes of a meeting dated 23rd May, 2014. The joint lenders
forum at a meeting of 24th June, 2014 final y approved the restructuring
plan.

3. In terms of the restructuring plan, a master restructuring agreement was
entered into on 9th September, 2014 (‘the MRA’), by which funds were to be
infused by the creditors, and certain obligations were to be met by the
debtors. The aforesaid restructuring plan was implementable over a period
of 2 years.

PRACTICAL ASPECTS OF INSOLVENCY LAW

559

4. Suffice it to say that both sides have copiously referred to various letters
which passed between the parties and various minutes of meetings.

Ultimately, an application was made on 7th December, 2016 by ICICI Bank

Ltd., in which it was stated that the appel ant being a defaulter within the
meaning of the Code, the insolvency resolution process ought to be set in
motion. To this application, a reply was filed by means of an interim application
on behalf of the appel ant dated 17th December, 2016, in which the appel ant
claimed that there was no debt legally due inasmuch as vide two notifications
dated 22nd July, 2015 and 18th July, 2016, both under the Maharashtra

Relief Undertakings (Special Provisions) Act, 1958 (‘the Maharashtra Act’),
al liabilities of the appel ant, except certain liabilities with which we are not
concerned, and remedies for enforcement thereof were temporarily
suspended for a period of one year in the first instance under the first
notification of 22nd July, 2015 and another period of one year under the
second notification of 18th July, 2016. It may be added that this was the
only point raised on behalf of the appel ant in order to stave off the admission
of the ICICI Bank application made before the NCLT. We are informed that
hearings took place in the matter on 22nd and 23rd December, 2016, after
which the NCLT adjourned the case to 16th January, 2017.

5. On this date, a second application was filed by the appel ant in which a
different plea was taken. This time, the appellant pleaded that owing to non-
release of funds under the MRA, the appel ant was unable to pay back its
debts as envisaged. Further, it repaid only some amounts to five lenders,
who, according to the appel ant, complied with their obligations under the

MRA. In the aforesaid circumstances, it was pleaded that no default was
committed by it.

6. By an order dated 17th January, 2017, the NCLT held that the Code would
prevail against the Maharashtra Act in view of the non-obstante clause in

Section 238 of the Code. It, therefore, held that the Parliamentary statute
would prevail over the State statute and this being so, it is obvious that the
corporate debtor had defaulted in making payments, as per the evidence
placed by the financial creditors. Hence, the application was admitted and a
moratorium was declared.

7. By a separate order dated 23rd January, 2017 passed by the NCLT, in
which a clarification application was dismissed, it was held that the second
application of 16th January, 2017 was raised belatedly and would not be
maintainable for two reasons – (1) because no audience has been given to
the corporate debtor in the Tribunal by the Code; and (2) the corporate debtor
has not taken the plea contained in the second application in the earlier
application.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

This was because a limited timeframe of only 14 days was available under
the Code from the date of filing of the creditors’ petition, to decide the
application.

8. From the aforesaid order, an appeal was carried to the NCLAT, which met
with the same fate. The NCLAT, however, held that the Code and the

Maharashtra Act operate in different fields and, therefore, are not repugnant
to each other. Having recorded this, however, the NCLAT went on to hold
that the appellant cannot derive any advantage from the Maharashtra Act to
stal the insolvency resolution process under Section 7 of the Code. It was
further held as under :

“80. Insofar as master restructuring agreement dated 8th September, 2014
is concerned; the appel ant cannot take advantage of the same. Even if it
is presumed that fresh agreement came into existence, it does not absolve
the Appel ant from paying the previous debts which are due to the financial
creditor.

81. The Tribunal has noticed that there is a failure on the part of appel ant
to pay debts. The financial creditor has attached different records in support
of default of payment. Apart from that it is not supposed to go beyond the
question to see whether there is a failure on fulfilment of obligation by the
financial creditor under one or other agreement, including the master
restructuring agreement. In that view of the matter, the appel ant cannot
derive any advantage of the master restructuring agreement dated 8th

September, 2014.”

9. Dr. A M Singhvi, learned senior advocate, who appeared on behalf of the
appellants, has argued before us that the Appellate Tribunal, in fact, decided
in his favour by holding the two Acts to be not repugnant to each other, but
then went on to say that the Maharashtra Act will not apply. According to
him, the Maharashtra Act would apply for the reason that the moratorium
imposed by the two notifications under the Maharashtra Act continued in
force at the time when the insolvency application was made by ICICI and
that, therefore, the Code would not apply. According to him, the debt was
kept in temporary abeyance, after which the Code would apply. He argued
that he had a vested right under the Maharashtra Act and that the debt was
only suspended temporarily. According to him, no repugnancy exists between
the two statutes under article 254 of the Constitution and each operates in
its own field. The Maharashtra Act provides for relief against unemployment,
whereas the Code is a liquidation process. Further, the Code is made under

Entry 9, List III of the Seventh Schedule to the Constitution, whereas the

Maharashtra Act, which is a measure for unemployment relief, is made

PRACTICAL ASPECTS OF INSOLVENCY LAW

561
under Entry 23, List III of the Seventh Schedule. This being so, as correctly
held by the appellate Tribunal, the two Acts operated in different spheres
and, therefore, do not clash. Dr. Singhvi mounted a severe attack on the

Appel ate Tribunal by stating that the Tribunal ought to have gone into the

MRA, in which case it would have discovered that there was no debt due by
the appel ant, inasmuch as the funds that were to be disbursed by the
creditors to the appel ant were never disbursed, as a result of which the
corporate restructuring package never took off from the ground. He further
argued that amounts due under the MRA had not yet fructified and for that
reason also the application was premature.

10. Shri H N Salve, learned senior advocate, appearing on behalf of the
respondents, took us through the Code in some detail and argued before us
that the object of this Code is that the interests of all stakeholders, namely,
shareholders, creditors and workmen, are to be balanced and the old notion
of a sick management which cannot pay its financial debts continuing
nevertheless in the management seat has been debunked by the Code. The
entire object of the Code would be stultified if we were to heed Dr. Singhvi’s
submission, as according to Shri Salve, when an application is made under

Section 7 of the Code, the only limited scope of argument before the NCLT
by a corporate debtor is that the debt is not due for any reason. According to

Shri Salve, the first application in reply to the corporate debtor was, in fact,
the only arguable point in the case which has been concurrently turned
down.

According to Shri Salve, after an interim resolution professional has been
appointed and a moratorium declared, the directors of the company are no
longer in management and could not, therefore, maintain the appeal before
us. Also, according to Shri Salve, the NCLT and NCLAT were both right in
refusing to go into the plea that, since the financial creditors had not pumped
in funds, the corporate debtor could not pay back its debts in accordance
with the MRA, as this plea was an after-thought which could easily have
been taken in the first reply. Further, in order to satisfy our conscience, he
has taken us through the MRA to some detail to show us that the appel ant
would emerge as a defaulter under the MRA in any case.

He has also argued that it is obvious that the two Acts are repugnant to
each other, inasmuch as they cannot stand together. Under the Maharashtra

Act, a limited moratorium is imposed after which the State Government
may take over management of the company.

Under the Code, however, a ful moratorium is to automatically attach the
moment an application is admitted by the NCLT, and management of the

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PRACTICAL ASPECTS OF INSOLVENCY LAW
company is then taken over by an interim resolution professional. Obviously,
the moratorium under the Maharashtra Act and the management taken over
by the State Government cannot stand together with the moratorium imposed
under the Central Act and takeover of the management by the interim
resolution professional. According to him, therefore, no case whatsoever is
made out and the appeal should be dismissed, both on grounds of
maintainability and on merits.

11. Having heard learned counsel for both the parties, we find substance in
the plea taken by Shri Salve that the present appeal at the behest of the
erstwhile directors of the appel ant is not maintainable. Dr. Singhvi stated
that this is a technical point and he could move an application to amend the
cause title stating that the erstwhile directors do not represent the company,
but are filing the appeal as persons aggrieved by the impugned order as
their management right of the company has been taken away and as they
are otherwise affected as shareholders of the company. According to us,
once an insolvency professional is appointed to manage the company, the
erstwhile directors who are no longer in management, obviously cannot
maintain an appeal on behalf of the company. In the present case, the
company is the sole appel ant. This being the case, the present appeal is
obviously not maintainable. However, we are not inclined to dismiss the
appeal on this score alone.

Having heard both the learned counsel at some length, and because this is
the very first application that has been moved under the Code, we thought
it necessary to deliver a detailed judgment so that al Courts and Tribunals
may take notice of a paradigm shift in the law.

Entrenched managements are no longer allowed to continue in management
if they cannot pay their debts.

12. The Insolvency and Bankruptcy Code, 2016 has been passed after great
deliberation and pursuant to various committee reports, the most important
of which is the report of the Bankruptcy Law Reforms Committee of

November 2015. The Statement of Objects and Reasons of the Code reads
as under :

“STATEMENT OF OBJECTS AND REASONS

There is no single law in India that deals with insolvency and bankruptcy.

Provisions relating to insolvency and bankruptcy for companies can be
found in the Sick Industrial Companies (Special Provisions) Act, 1985,
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993,
the Securitisation and Reconstruction of Financial Assets and Enforcement

PRACTICAL ASPECTS OF INSOLVENCY LAW

563
of Security Interest Act, 2002 and the Companies Act, 2013. These statutes
provide for creation of multiple fora such as Board for Industrial and

Financial Reconstruction (‘BIFR’), Debts Recovery Tribunal (‘DRT’) and

National Company Law Tribunal (‘NCLT’) and their respective Appel ate

Tribunals. Liquidation of companies is handled by the High Courts. Individual
bankruptcy and insolvency is dealt with under the Presidency Towns

Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is
dealt with by the Courts. The existing framework for insolvency and
bankruptcy is inadequate, ineffective and results in undue delays in
resolution, therefore, the proposed legislation.

2. The objective of the Insolvency and Bankruptcy Code, 2015 is to
consolidate and amend the laws relating to reorganisation and insolvency
resolution of corporate persons, partnership firms and individuals in a
time bound manner for maximisation of value of assets of such persons,
to promote entrepreneurship, availability of credit and balance the interests
of all the stakeholders including alteration in the priority of payment of
government dues and to establish an Insolvency and Bankruptcy Fund,
and matters connected therewith or incidental thereto. An effective legal
framework for timely resolution of insolvency and bankruptcy would support
development of credit markets and encourage entrepreneurship. It would
also improve Ease of Doing Business, and facilitate more investments
leading to higher economic growth and development.

3. The Code seeks to provide for designating the NCLT and DRT as the

Adjudicating Authorities for corporate persons and firms and individuals,
respectively, for resolution of insolvency, liquidation and bankruptcy. The

Code separates commercial aspects of insolvency and bankruptcy
proceedings from judicial aspects. The Code also seeks to provide for
establishment of the Insolvency and Bankruptcy Board of India (‘Board’)

for regulation of insolvency professionals, insolvency professional agencies
and information utilities. Till the Board is established, the Central

Government shal exercise al powers of the Board or designate any
financial sector regulator to exercise the powers and functions of the

Board. Insolvency professionals will assist in completion of insolvency
resolution, liquidation and bankruptcy proceedings envisaged in the Code.

Information Utilities would col ect, col ate, authenticate and disseminate
financial information to facilitate such proceedings. The Code also
proposes to establish a fund to be cal ed the Insolvency and Bankruptcy

Fund of India for the purposes specified in the Code.

4. The Code seeks to provide for amendments in the Indian Partnership

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income-tax

Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002, the

Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the

Payment and Settlement Systems Act, 2007, the Limited Liability

Partnership Act, 2008, and the Companies Act, 2013.

5. The Code seeks to achieve the above objectives.” [emphasis supplied]

13. One of the important objectives of the Code is to bring the insolvency
law in India under a single unified umbrella with the object of speeding up of
the insolvency process. As per the data available with the World Bank in

2016, insolvency resolution in India took 4.3 years on an average, which
was much higher when compared with the United Kingdom (1 year), USA

(1.5 years) and South Africa (2 years). The World Bank’s Ease of Doing

Business Index, 2015, ranked India as country number 135 out of 190
countries on the ease of resolving insolvency based on various indicia.

14. Other nations are have marched ahead much before us. For example,
the USA has adopted the Bankruptcy Reform Act of 1978, which has since
been codified in Title XI of the United States Code.

The US Code continues to favour the debtor. In a reorganisation case under

Chapter 11, the debtor and its existing management ordinarily continue to
operate the business as a “debtor in possession” – See USC 11, Section

1107-1108. The Court can appoint a trustee to take over management of the
debtor’s affairs only for “cause” which includes fraud, dishonesty or gross
mismanagement of the affairs of the debtor – See USC 11, Section 1104.

Having regard to the aforesaid grounds, such appointments are rare. Creditors
are not permitted a direct role in operating the on-going business operations
of the debtor. However, the United States Trustee is to appoint a committee
of creditors to monitor the debtor’s ongoing operations. A moratorium is
provided, which gives the debtor a breathing spel in which he is to seek to
reorganise his business.

While a Chapter 11 case is pending, the debtor only needs to pay post-
petition wages, expenses, etc. In the meanwhile, the debtor can work on
permanent financial resolution of its pre-petition debts. It is only when this
does not work that the bankruptcy process is then put into effect.

15. The UK law, on the other hand, is governed by the Insolvency Act of

1986 which has served as a model for the present Code.

PRACTICAL ASPECTS OF INSOLVENCY LAW

565

While piloting the Code in Parliament, Shri Arun Jaitley, learned Finance

Minister, stated on the floor of the House :

“SHRI ARUN JAITLEY : One of the differences between your Chapter 11
and this is that in Chapter 11, the debtor continues to be in possession.

Here the creditors wil be in possession. Now, the SICA is being phased
out, and I wil tell you one of the reasons why SICA didn’t function. Under

SICA, the predominant experience has been this, and that is why a decision
was taken way back in 2002 to repeal SICA when the original Company

Law amendments were passed. Now since they were challenged before
the Supreme Court, it didn’t come into operation. Now, the object behind

SICA was revival of sick companies. But not too many revivals took
place.

But what happened in the process was that a protective wall was created
under SICA that once you enter the BIFR, nobody can recover money
from you. So, that non-performing investment became more non-performing
because the companies were not being revived and the banks were also
unable to pursue any demand as far as those sick companies were
concerned, and, therefore, SICA runs contrary to this whole concept of
exit that if a particular management is not in a position to run a company,
then instead of the company closing down under this management, a
more liquid and a professional management must come and then save
this company. That is the whole object. And if nobody can save it, rather
than allowing it to be squandered, the assets must be distributed — as
the Joint Committee has decided — in accordance with the waterfall
mechanism which they have created.” [emphasis supplied]

16. At this stage, it is important to set out the important paragraphs contained
in the report of the Bankruptcy Law Reforms Committee of November 2015,
as these excerpts give us a good insight into why the Code was enacted
and the purpose for which it was enacted :

“As Chairman of the Committee on bankruptcy law reforms, I have had
the privilege of overseeing the design and drafting of a new legal framework
for resolving matters of insolvency and bankruptcy. This is a matter of
critical importance : India is one of the youngest republics in the world,
with a high concentration of the most dynamic entrepreneurs. Yet these
game changers and growth drivers are crippled by an environment that
takes some of the longest times and highest costs by world standards to
resolve any problems that arise while repaying dues on debt. This problem
leads to grave consequences : India has some of the lowest credit
compared to the size of the economy. This is a troublesome state to be

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PRACTICAL ASPECTS OF INSOLVENCY LAW
in, particularly for a young emerging economy with the entrepreneurial
dynamism of India. Such dynamism not only needs reforms, but reforms
done urgently.”

***

“The limited liability company is a contract between equity and debt. As

long as debt obligations are met, equity owners have complete control,
and creditors have no say in how the business is run. When default takes
place, control is supposed to transfer to the creditors; equity owners have
no say.

This is not how companies in India work today. For many decades, creditors
have had low power when faced with default. Promoters stay in control of
the company even after default. Only one element of a bankruptcy
framework has been put into place : to a limited extent, banks are able to
repossess fixed assets which were pledged with them.

While the existing framework for secured credit has given rights to banks,
some of the most important lenders in society are not banks. They are
the dispersed mass of households and financial firms who buy corporate
bonds. The lack of power in the hands of a bondholder has been one

(though not the only) reason why the corporate bond market has not worked.

This, in turn, has far reaching ramifications such as the difficulties of
infrastructure financing.

Under these conditions, the recovery rates obtained in India are among
the lowest in the world. When default takes place, broadly speaking, lenders
seem to recover 20 per cent of the value of debt, on an NPV basis.

When creditors know that they have weak rights resulting in a low recovery
rate, they are averse to lend. Hence, lending in India is concentrated in a
few large companies that have a low probability of failure. Further, secured
credit dominates, as creditors rights are partially present only in this case.

Lenders have an emphasis on secured credit. In this case, credit analysis
is relatively easy : It only requires taking a view on the market value of
the collateral. As a consequence, credit analysis as a sophisticated
analysis of the business prospects of a firm has shriveled.

Both these phenomena are unsatisfactory. In many settings, debt is an
efficient tool for corporate finance; there needs to be much more debt in
the financing of Indian firms. E.g. long-dated corporate bonds are essential
for most infrastructure projects. The lack of lending without collateral, and
the lack of lending based on the prospects of the firm, has emphasised
debt financing of asset-heavy industries. However, some of the most

PRACTICAL ASPECTS OF INSOLVENCY LAW

567
important industries for India’s rapid growth are those which are more
labour intensive. These industries have been starved of credit.”

***

“The key economic question in the bankruptcy process

When a firm (referred to as the corporate debtor in the draft law) defaults,
the question arises about what is to be done. Many possibilities can be
envisioned. One possibility is to take the firm into liquidation. Another
possibility is to negotiate a debt restructuring, where the creditors accept
a reduction of debt on an NPV basis, and hope that the negotiated value
exceeds the liquidation value. Another possibility is to sel the firm as a
going concern and use the proceeds to pay creditors. Many hybrid
structures of these broad categories can be envisioned.

The Committee believes that there is only one correct forum for evaluating
such possibilities, and making a decision : a creditors committee, where
al financial creditors have votes in proportion to the magnitude of debt
that they hold. In the past, laws in India have brought arms of the
government (Legislature, Executive or Judiciary) into this question. This
has been strictly avoided by the Committee. The appropriate disposition
of a defaulting firm is a business decision, and only the creditors should
make it.”

***

“Speed is of essence

Speed is of essence for the working of the bankruptcy code, for two
reasons. First, while the “calm period” can help keep an organisation afloat,
without the ful clarity of ownership and control, significant decisions
cannot be made. Without effective leadership, the firm will tend to atrophy
and fail. The longer the delay, the more likely it is that liquidation wil be
the only answer. Second, the liquidation value tends to go down with time
as many assets suffer from a high economic rate of depreciation.

From the viewpoint of creditors, a good realisation can generally be obtained
if the firm is sold as a going concern. Hence, when delays induce
liquidation, there is value destruction. Further, even in liquidation, the
realisation is lower when there are delays. Hence, delays cause value
destruction. Thus, achieving a high recovery rate is primarily about
identifying and combating the sources of delay.”

***

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PRACTICAL ASPECTS OF INSOLVENCY LAW

“The role that insolvency and bankruptcy plays in debt financing

Creditors put money into debt investments today in return for the promise
of fixed future cash flows. But the returns expected on these investments
are stil uncertain because at the time of repayment, the sel er (debtor)

may make repayments as promised, or he may default and does not
make the payment. When this happens, the debtor is considered insolvent.

Other than cases of outright fraud, the debtor may be insolvent because
of

• Financial failure – a persistent mismatch between payments by the
enterprise and receivables into the enterprise, even though the
business model is generating revenues, or

• Business failure – which is a breakdown in the business model of the
enterprise, and it is unable to generate sufficient revenues to meet
payments.

Often, an enterprise may be a successful business model while still failing
to repay its creditors. A sound bankruptcy process is one that helps
creditors and debtors realise and agree on whether the entity is facing
financial failure and business failure. This is important to al ow both parties
to realise the maximum value of the business in the insolvency.”

***

“Control of a company is not divine right. When a firm defaults on its debt,

control of the company should shift to the creditors. In the absence of
swift and decisive mechanisms for achieving this, management teams
and shareholders retain control after default. Bankruptcy law must address
this.”

***

“Objectives

The Committee set the following as objectives desired from implementing
a new Code to resolve insolvency and bankruptcy :

1. Low time to resolution.

2. Low loss in recovery.

3. Higher levels of debt financing across a wide variety of debt
instruments.

The performance of the new Code in implementation will be based on
measures of the above outcomes.

PRACTICAL ASPECTS OF INSOLVENCY LAW

569

Principles driving the design

The Committee chose the following principles to design the new insolvency
and bankruptcy resolution framework :

I. The Code will facilitate the assessment of viability of the enterprise
at a very early stage.

1. The law must explicitly state that the viability of the enterprise
is a matter of business, and that matters of business can only
be negotiated between creditors and debtor. While viability is
assessed as a negotiation between creditors and debtor, the
final decision has to be an agreement among creditors who are
the financiers willing to bear the loss in the insolvency.

2. The Legislature and the Courts must control the process of
resolution, but not be burdened to make business decisions.

3. The law must set up a calm period for insolvency resolution
where the debtor can negotiate in the assessment of viability
without fear of debt recovery enforcement by creditors.

4. The law must appoint a resolution professional as the manager
of the resolution period, so that the creditors can negotiate the
assessment of viability with the confidence that the debtors
will not take any action to erode the value of the enterprise. The
professional wil have the power and responsibility to monitor
and manage the operations and assets of the enterprise. The
professional wil manage the resolution process of negotiation
to ensure balance of power between the creditors and debtor,
and protect the rights of all creditors. The professional will ensure
the reduction of asymmetry of information between creditors
and debtor in the resolution process.

II. The Code will enable symmetry of information between creditors and
debtors.

5. The law must ensure that information that is essential for the
insolvency and the bankruptcy resolution process is created
and available when it is required.

6. The law must ensure that access to this information is made
available to al creditors to the enterprise, either directly or
through the regulated professional.

7. The law must enable access to this information to third parties

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PRACTICAL ASPECTS OF INSOLVENCY LAW
who can participate in the resolution process, through the
regulated professional.

III. The Code will ensure a time-bound process to better preserve
economic value.

8. The law must ensure that time value of money is preserved,
and that delaying tactics in these negotiations will not extend
the time set for negotiations at the start.

IV. The Code will ensure a col ective process.

9. The law must ensure that all key stakeholders will participate
to col ectively assess viability. The law must ensure that all
creditors who have the capability and the willingness to
restructure their liabilities must be part of the negotiation
process. The liabilities of al creditors who are not part of the
negotiation process must also be met in any negotiated solution.

V. The Code will respect the rights of all creditors equal y.

10. The law must be impartial to the type of creditor in counting
their weight in the vote on the final solution in resolving
insolvency.

VI. The Code must ensure that, when the negotiations fail to establish
viability, the outcome of bankruptcy must be binding.

11. The law must order the liquidation of an enterprise which has
been found unviable. This outcome of the negotiations should
be protected against all appeals other than for very exceptional
cases.

VII. The Code must ensure clarity of priority, and that the rights of all
stakeholders are upheld in resolving bankruptcy.

12. The law must clearly lay out the priority of distributions in
bankruptcy to al stakeholders. The priority must be designed
so as to incentivise al stakeholders to participate in the cycle
of building enterprises with confidence.

13. While the law must incentivise col ective action in resolving
bankruptcy, there must be a greater flexibility to allow individual
action in resolution and recovery during bankruptcy compared
with the phase of insolvency resolution.”

***

PRACTICAL ASPECTS OF INSOLVENCY LAW

571

“An application from a creditor must have a record of the liability and
evidence of the entity having defaulted on payments. The Committee
recommends different documentation requirements depending upon the
type of creditor, either financial or operational. A financial creditor must
submit a record of default by the entity as recorded in a registered

Information Utility (referred to as the IU) as described in Section 4.3 (or
on the basis of other evidence). The default can be to any financial creditor
to the entity, and not restricted to the creditor who triggers the IRP. The

Code requires that the financial creditor propose a registered insolvency
professional to manage the IRP. Operational creditors must present an

“undisputed bil ” which may be filed at a registered information utility as
requirement to trigger the IRP. The Code does not require the operational
creditor to propose a registered insolvency professional to manage the

IRP. If a professional is not proposed by the operational creditor, and the

IRP is successfully triggered, the Code requires the Adjudicator to
approach the Regulator for a registered insolvency professional for the
case.

In case the financial creditor triggers the IRP, the Adjudicator verifies the
default from the information utility (if the default has been filed with an
information utility, tit such be incontrovertible evidence of the existence
of a default) or otherwise confirms the existence of default through the
additional evidence adduced by the financial creditor, and puts forward
the proposal for the RP to the Regulator for validation. In case the
operational creditor triggers the IRP, the Adjudicator verifies the
documentation. Simultaneously, the Adjudicator requests the Regulator
for an RP. If either step cannot be verified, or the process verification
exceeds the specified amount of time, then the Adjudicator rejects the
application, with a reasoned order for the rejection. The order rejecting the
application cannot be appealed against. Instead, application has to be
made afresh. Once the documents are verified within a specified amount
of time, the Adjudicator will trigger the IRP and register the IRP by issuing
an order. The order will contain a unique ID that will be issued for the case
by which al reports and records that are generated during the IRP will be
stored, and accessed.”

***

“Steps at the start of the IRP : In order to ensure that the resolution can

proceed in an orderly manner, it is important for the Adjudicator to put in
place an environment of a “calm period” with a definite time of closure,
that wil assure both the debtor and creditors of a time-bound and level

572

PRACTICAL ASPECTS OF INSOLVENCY LAW
field in their negotiations to assess viability. The first steps that the

Adjudicator takes is put in place an order for a moratorium on debt recovery
actions and any existing or new law suits being filed in other Courts, a
public announcement to col ect claims of liabilities, the appointment of
an interim RP and the creation of a creditor committee.” [emphasis supplied]

17. The stage is now set for an in-depth examination of Part II of the Code,
with which we are immediately concerned in this case.

18. There are two sets of definition Sections. They are rather involved, the
dovetailing of one definition going into another. Section 3 defines various
terms as follows :

“Section 3(6) “claim” means –

(a) a right to payment, whether or not such right is reduced to judgment,
fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time
being in force, if such breach gives rise to a right to payment, whether
or not such right is reduced to judgment, fixed, matured, unmatured,
disputed, undisputed, secured or unsecured;

Section 3(10) “creditor” means any person to whom a debt is owed and
includes a financial creditor, an operational creditor, a secured creditor,
an unsecured creditor and a decree-holder;

Section 3(11) “debt” means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt and operational
debt;

Section 3(12) “default” means non-payment of debt when whole or any
part or instalment of the amount of debt has become due and payable
and is not repaid by the debtor or the corporate debtor, as the case may
be;

Section 3(13) “financial information”, in relation to a person, means one or
more of the fol owing categories of information, namely :

(a) records of the debt of the person;

(b) records of liabilities when the person is solvent;

(c) records of assets of person over which security interest has been
created;

(d) records, if any, of instances of default by the person against any
debt;

PRACTICAL ASPECTS OF INSOLVENCY LAW

573

(e) records of the balance sheet and cash-flow statements of the person;
and

(f) such other information as may be specified.

Section 3(19) “insolvency professional” means a person enrol ed under

Section 206 with an insolvency professional agency as its member and
registered with the Board as an insolvency professional under Section

207;’ [emphasis supplied]

19. Certain definitions contained in Section 5 are also important from our
point of view. Section 5(7), (8), (12), (14), (20) and (27) read as under :

“5. (7) “financial creditor” means any person to whom a financial debt is
owed and includes a person to whom such debt has been legally assigned
or transferred to;

(8) “financial debt” means a debt along with interest, if any, which is
disbursed against the consideration for the time value of money and
includes –

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility
or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue
of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase
contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as
may be prescribed;

(e) receivables sold or discounted other than any receivables sold on
non-recourse basis;

(f) any amount raised under any other transaction, including any forward
sale or purchase agreement, having the commercial effect of a
borrowing;

(g) any derivative transaction entered into in connection with protection
against or benefit from fluctuation in any rate or price and for
calculating the value of any derivative transaction, only the market
value of such transaction shal be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, documentary letter of credit or any other instrument issued by

574

PRACTICAL ASPECTS OF INSOLVENCY LAW
a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause;

***

(12) “insolvency commencement date” means the date of admission of

an application for initiating corporate insolvency resolution process by
the Adjudicating Authority under Sections 7, 9 or Section 10, as the case
may be;....

(14) “insolvency resolution process period” means the period of one hundred
and eighty days beginning from the insolvency commencement date and
ending on one hundred and eightieth day;....

(20) “operational creditor” means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally
assigned or transferred;....

(27) “resolution professional”, for the purposes of this Part, means an
insolvency professional appointed to conduct the corporate insolvency
resolution process and includes an interim resolution professional;”

20. Under Section 4 of the Code, Part II applies to matters relating to the
insolvency and liquidation of corporate debtors, where the minimum amount
of default is rupees one lakh. Sections 6, 7 and 8 form part of one scheme
and are very important for the decision in the present case. They read as
fol ows :

‘6. Persons who may initiate corporate insolvency resolution process.

– Where any corporate debtor commits a default, a financial creditor, an
operational creditor or the corporate debtor itself may initiate corporate
insolvency resolution process in respect of such corporate debtor in the
manner as provided under this Chapter.

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.

PRACTICAL ASPECTS OF INSOLVENCY LAW

575

(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

(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).

(5) Where the Adjudicating Authority is satisfied that –

(a) a default has occurred and the application under sub-Section (2) is
complete, and there is no disciplinary proceedings pending against
the proposed resolution professional, it may, by order, admit such
application; or

(b) default has not occurred or the application under sub-Section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application :

Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-Section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shal commence from
the date of admission of the application under sub-Section (5).

(7) The Adjudicating Authority shal communicate –

(a) the order under clause (a) of sub-Section (5) to the financial creditor
and the corporate debtor;

(b) the order under clause (b) of sub-Section (5) to the financial creditor,
within seven days of admission or rejection of such application, as
the case may be.

576

PRACTICAL ASPECTS OF INSOLVENCY LAW

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 in the default to the corporate debtor in such form and
manner as may be prescribed.

(2) The corporate debtor shal , within a period of ten 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

(i ) 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 corporate debtor demanding
repayment of the operational debt in respect of which the default has
occurred.’

21. Section 12 provides for a time limit for completion of the insolvency
resolution process and reads as fol ows :

“12. Time-limit for completion of insolvency resolution process. –

(1) Subject to sub-Section (2), the corporate insolvency resolution process
shal be completed within a period of one hundred and eighty days from
the date of admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating

Authority to extend the period of the corporate insolvency resolution
process beyond one hundred and eighty days, if instructed to do so by a
resolution passed at a meeting of the committee of creditors by a vote of
seventy-five per cent of the voting shares.

(3) On receipt of an application under sub-Section (2), if the Adjudicating

Authority is satisfied that the subject-matter of the case is such that
corporate insolvency resolution process cannot be completed within one
hundred and eighty days, it may by order extend the duration of such

PRACTICAL ASPECTS OF INSOLVENCY LAW

577
process beyond one hundred and eighty days by such further period as it
thinks fit, but not exceeding ninety days :

Provided that any extension of the period of corporate insolvency resolution
process under this Section shal not be granted more than once.”

22. Sections 13 and 14 deal with the declaration of moratorium and public
announcements and read as under :

“13. Declaration of moratorium and public announcement. – (1) The

Adjudicating Authority, after admission of the application under Section 7
or Section 9 or Section 10, shal , by an order –

(a) declare a moratorium for the purposes referred to in Section 14;

(b) cause a public announcement of the initiation of corporate
insolvency resolution process and call for the submission of claims
under Section 15; and

(c) appoint an interim resolution professional in the manner as laid down
in Section 16.

(2) The public announcement referred to in clause (b) of sub-Section (1)

shal be made immediately after the appointment of the interim resolution
professional.

14 Moratorium. – (1) Subject to provisions of sub-Sections (2) and (3),
on the insolvency commencement date, the Adjudicating Authority shall
by order declare moratorium for prohibiting al of the fol owing, namely :

(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution of
any judgment, decree or order in any Court of law, tribunal,
arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate
debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest
created by the corporate debtor in respect of its property including
any action under the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property
is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as
may be specified shal not be terminated or suspended or interrupted

578

PRACTICAL ASPECTS OF INSOLVENCY LAW
during moratorium period.

(3) The provisions of sub-Section (1) shal not apply to such transactions
as may be notified by the Central Government in consultation with any
financial sector regulator.

(4) The order of moratorium shal have effect from the date of such order
til the completion of the corporate insolvency resolution process :

Provided that where at any time during the corporate insolvency resolution
process period, if the Adjudicating Authority approves the resolution plan
under sub-Section (1) of Section 31 or passes an order for liquidation of
corporate debtor under Section 33, the moratorium shal cease to have
effect from the date of such approval or liquidation order, as the case
may be.”

23. Under Section 17, from the date of appointment of the interim resolution
professional, the management of the affairs of the corporate debtor vests
with interim resolution professional. Section 17(1)(a) reads as under :

“17. Management of affairs of corporate debtor by interim resolution
professional. – (1) From the date of appointment of the interim resolution
professional, –

(a) the management of the affairs of the corporate debtor shal vest in
the interim resolution professional;”

24. Under Section 20 of the Act, the interim resolution professional shall
manage the operations of the corporate debtor as a going concern. Section

21 is extremely important and provides for appointment of a committee of
creditors. Section 21 reads as follows :

“21. Committee of creditors. – (1) The interim resolution professional
shal after col ation of al claims received against the corporate debtor
and determination of the financial position of the corporate debtor, constitute
a committee of creditors.

(2) The committee of creditors shal comprise al financial creditors of the
corporate debtor :

Provided that a related party to whom a corporate debtor owes a financial
debt shal not have any right of representation, participation or voting in a
meeting of the committee of creditors.

(3) Where the corporate debtor owes financial debts to two or more financial
creditors as part of a consortium or agreement, each such financial
creditor shal be part of the committee of creditors and their voting share

PRACTICAL ASPECTS OF INSOLVENCY LAW

579
shal be determined on the basis of the financial debts owed to them.

(4) Where any person is a financial creditor as wel as an operational
creditor, –

(a) such person shal be a financial creditor to the extent of the financial
debt owed by the corporate debtor, and shal be included in the
committee of creditors, with voting share proportionate to the extent
of financial debts owed to such creditor;

(b) such person shal be considered to be an operational creditor to the
extent of the operational debt owed by the corporate debtor to such
creditor.

(5) Where an operational creditor has assigned or legally transferred any
operational debt to a financial creditor, the assignee or transferee shall be
considered as an operational creditor to the extent of such assignment or
legal transfer.

(6) Where the terms of the financial debt extended as part of a consortium
arrangement or syndicated facility or issued as securities provide for a
single trustee or agent to act for al financial creditors, each financial
creditor may –

(a) authorise the trustee or agent to act on his behalf in the committee
of creditors to the extent of his voting share;

(b) represent himself in the committee of creditors to the extent of his
voting share;

(c) appoint an insolvency professional (other than the resolution
professional) at his own cost to represent himself in the committee
of creditors to the extent of his voting share; or

(d) exercise his right to vote to the extent of his voting share with one or
more financial creditors jointly or several y.

(7) The Board may specify the manner of determining the voting share in
respect of financial debts issued as securities under sub-Section (6).

(8) Al decisions of the committee of creditors shal be taken by a vote of
not less than seventy-five per cent of voting share of the financial creditors

:

Provided that where a corporate debtor does not have any financial
creditors, the committee of creditors shal be constituted and comprise of
such persons to exercise such functions in such manner as may be

580

PRACTICAL ASPECTS OF INSOLVENCY LAW
specified by the Board.

(9) The committee of creditors shall have the right to require the resolution
professional to furnish any financial information in relation to the corporate
debtor at any time during the corporate insolvency resolution process.

(10) The resolution professional shall make available any financial
information so required by the committee of creditors under sub-Section

(9) within a period of seven days of such requisition.”

25. Under Section 24, members of the committee of creditors may conduct
meetings in order to protect their interests. Under Section 28, a resolution
professional appointed under Section 25 cannot take certain actions
without the prior approval of the committee of creditors. Section 28 reads
as under :

“28. Approval of committee of creditors for certain actions. – (1)

Notwithstanding anything contained in any other law for the time being in
force, the resolution professional, during the corporate insolvency
resolution process, shall not take any of the fol owing actions without the
prior approval of the committee of creditors namely :

(a) raise any interim finance in excess of the amount as may be decided
by the committee of creditors in their meeting;

(b) create any security interest over the assets of the corporate debtor;

(c) change the capital structure of the corporate debtor, including by
way of issuance of additional securities, creating a new class of
securities or buying back or redemption of issued securities in case
the corporate debtor is a company;

(d) record any change in the ownership interest of the corporate debtor;

(e) give instructions to financial institutions maintaining accounts of the
corporate debtor for a debit transaction from any such accounts in
excess of the amount as may be decided by the committee of creditors
in their meeting;

(f) undertake any related party transaction;

(g) amend any constitutional documents of the corporate debtor;

(h) delegate its authority to any other person;

(i) dispose of or permit the disposal of shares of any shareholder of the
corporate debtor or their nominees to third parties;

PRACTICAL ASPECTS OF INSOLVENCY LAW

581

(j) make any change in the management of the corporate debtor or its
subsidiary;

(k) transfer rights or financial debts or operational debts under material
contracts otherwise than in the ordinary course of business;

(l) make changes in the appointment or terms of contract of such
personnel as specified by the committee of creditors; or

(m) make changes in the appointment or terms of contract of statutory
auditors or internal auditors of the corporate debtor.

(2) The resolution professional shall convene a meeting of the committee
of creditors and seek the vote of the creditors prior to taking any of the
actions under sub-Section (1).

(3) No action under sub-Section (1) shal be approved by the committee
of creditors unless approved by a vote of seventy-five per cent of the
voting shares.

(4) Where any action under sub-Section (1) is taken by the resolution
professional without seeking the approval of the committee of creditors in
the manner as required in this Section, such action shal be void.

(5) The committee of creditors may report the actions of the resolution
professional under sub-Section (4) to the Board for taking necessary
actions against him under this Code.”

26. The most important Sections dealing with the restructuring of the corporate
debtor are Sections 30 and 31, which read as under :

“30. Submission of resolution plan. – (1) A resolution applicant may
submit a resolution plan to the resolution professional prepared on the
basis of the information memorandum.

(2) The resolution professional shall examine each resolution plan received
by him to confirm that each resolution plan –

(a) provides for the payment of insolvency resolution process costs in a
manner specified by the Board in priority to the repayment of other
debts of the corporate debtor;

(b) provides for the repayment of the debts of operational creditors in
such manner as may be specified by the Board which shall not be
less than the amount to be paid to the operational creditors in the
event of a liquidation of the corporate debtor under Section 53;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(c) provides for the management of the affairs of the corporate debtor
after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time
being in force;

(f) conforms to such other requirements as may be specified by the

Board.

(3) The resolution professional shall present to the committee of creditors
for its approval such resolution plans which confirm the conditions referred
to in sub-Section (2).

(4) The committee of creditors may approve a resolution plan by a vote of
not less than seventy-five per cent of voting share of the financial creditors.

(5) The resolution applicant may attend the meeting of the committee of
creditors in which the resolution plan of the applicant is considered :

Provided that the resolution applicant shal not have a right to vote at the
meeting of the committee of creditors unless such resolution applicant is
also a financial creditor.

(6) The resolution professional shall submit the resolution plan as approved
by the committee of creditors to the Adjudicating Authority.

31. Approval of resolution plan. – (1) If the Adjudicating Authority is
satisfied that the resolution plan as approved by the committee of creditors
under sub-Section (4) of Section 30 meets the requirements as referred
to in sub-Section (2) of Section 30, it shall by order approve the resolution
plan which shal be binding on the corporate debtor and its employees,
members, creditors, guarantors and other stakeholders involved in the
resolution plan.

(2) Where the Adjudicating Authority is satisfied that the resolution plan
does not confirm to the requirements referred to in sub-Section (1), it
may, by an order, reject the resolution plan.

(3) After the order of approval under sub-Section (1), –

(a) the moratorium order passed by the Adjudicating Authority under

Section 14 shal cease to have effect; and

(b) the resolution professional shal forward al records relating to the
conduct of the corporate insolvency resolution process and the
resolution plan to the Board to be recorded on its database.”

PRACTICAL ASPECTS OF INSOLVENCY LAW

583

27. The scheme of the Code is to ensure that when a default takes place, in
the sense that a debt becomes due and is not paid, the insolvency resolution
process begins. Default is defined in Section 3(12) in very wide terms as
meaning non-payment of a debt once it becomes due and payable, which
includes non-payment of even part thereof or an instalment amount. For the
meaning of ‘debt’, we have to go to Section 3(11), which in turn tells us that
a debt means a liability of obligation in respect of a ‘claim’ and for the
meaning of ‘claim’, we have to go back to Section 3(6) which defines ‘claim’

to mean a right to payment even if it is disputed. The Code gets triggered
the moment default is of rupees one lakh or more (Section 4). The corporate
insolvency resolution process may be triggered by the corporate debtor
itself or a financial creditor or operational creditor. A distinction is made by
the Code between debts owed to financial creditors and operational creditors.

A financial creditor has been defined under Section 5(7) as a person to
whom a financial debt is owed and a financial debt is defined in Section 5(8)

to mean a debt which is disbursed against consideration for the time value
of money. As opposed to this, an operational creditor means a person to
whom an operational debt is owed and an operational debt under Section

5(21) means a claim in respect of provision of goods or services.

28. When it comes to a financial creditor triggering the process, Section 7
becomes relevant. Under the Explanation to Section 7(1), a default is in
respect of a financial debt owed to any financial creditor of the corporate
debtor – it need not be a debt owed to the applicant financial creditor. Under

Section 7(2), an application is to be made under sub-Section (1) in such
form and manner as is prescribed, which takes us to the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under rule

4, the application is made by a financial creditor in Form 1 accompanied by
documents and records required therein. Form 1 is a detailed form in 5
parts, which requires particulars of the applicant in Part I, particulars of the
corporate debtor in Part II, particulars of the proposed interim resolution
professional in Part III, particulars of the financial debt in Part IV and
documents, records and evidence of default in Part V. Under rule 4(3), the
applicant is to despatch a copy of the application filed with the adjudicating
authority by registered post or speed post to the registered office of the
corporate debtor.

The speed, within which the adjudicating authority is to ascertain the
existence of a default from the records of the information utility or on the
basis of evidence furnished by the financial creditor, is important.

This it must do within 14 days of the receipt of the application. It is at the

584

PRACTICAL ASPECTS OF INSOLVENCY LAW
stage of Section 7(5), where the adjudicating authority is to be satisfied that
a default has occurred, that the corporate debtor is entitled to point out that
a default has not occurred in the sense that the ‘debt’, which may also
include a disputed claim, is not due. A debt may not be due if it is not
payable in law or in fact. The moment the adjudicating authority is satisfied
that a default has occurred, the application must be admitted unless it is
incomplete, in which case it may give notice to the applicant to rectify the
defect within 7 days of receipt of a notice from the adjudicating authority.

Under sub-Section (7), the adjudicating authority shall then communicate
the order passed to the financial creditor and corporate debtor within 7 days
of admission or rejection of such application, as the case may be.

29. The scheme of Section 7 stands in contrast with the scheme under

Section 8 where an operational creditor is, on the occurrence of a default, to
first deliver a demand notice of the unpaid debt to the operational debtor in
the manner provided in Section 8(1) of the Code. Under Section 8(2), the
corporate debtor can, within a period of 10 days of receipt of the demand
notice or copy of the invoice mentioned in sub-Section (1), bring to the
notice of the operational creditor the existence of a dispute or the record of
the pendency of a suit or arbitration proceedings, which is pre-existing –
i.e., before such notice or invoice was received by the corporate debtor. The
moment there is existence of such a dispute, the operational creditor gets
out of the clutches of the Code.

30. On the other hand, as we have seen, in the case of a corporate debtor
who commits a default of a financial debt, the adjudicating authority has
merely to see the records of the information utility or other evidence produced
by the financial creditor to satisfy itself that a default has occurred. It is of
no matter that the debt is disputed so long as the debt is ‘due’, i.e., payable
unless interdicted by some law or has not yet become due in the sense that
it is payable at some future date. It is only when this is proved to the
satisfaction of the adjudicating authority that the adjudicating authority may
reject an application and not otherwise.

31. The rest of the insolvency resolution process is also very important. The
entire process is to be completed within a period of 180 days from the date
of admission of the application under Section 12 and can only be extended
beyond 180 days for a further period of not exceeding 90 days if the committee
of creditors by a voting of 75 per cent of voting shares so decides. It can be
seen that time is of essence in seeing whether the corporate body can be
put back on its feet, so as to stave off liquidation.

PRACTICAL ASPECTS OF INSOLVENCY LAW

585

32. As soon as the application is admitted, a moratorium in terms of Section

14 of the Code is to be declared by the adjudicating authority and a public
announcement is made stating, inter alia, the last date for submission of
claims and the details of the interim resolution professional who shal be
vested with the management of the corporate debtor and be responsible for
receiving claims. Under Section 17, the erstwhile management of the
corporate debtor is vested in an interim resolution professional who is a
trained person registered under Chapter IV of the Code. This interim resolution
professional is now to manage the operations of the corporate debtor as a
going concern under the directions of a committee of creditors appointed
under Section 21 of the Act. Decisions by this committee are to be taken by
a vote of not less than 75 per cent of the voting share of the financial
creditors. Under Section 28, a resolution professional, who is none other
than an interim resolution professional who is appointed to carry out the
resolution process, is then given wide powers to raise finances, create
security interests, etc., subject to prior approval of the committee of creditors.

33. Under Section 30, any person who is interested in putting the corporate
body back on its feet may submit a resolution plan to the resolution
professional, which is prepared on the basis of an information memorandum.

This plan must provide for payment of insolvency resolution process costs,
management of the affairs of the corporate debtor after approval of the plan,
and implementation and supervision of the plan. It is only when such plan is
approved by a vote of not less than 75 per cent of the voting share of the
financial creditors and the adjudicating authority is satisfied that the plan,
as approved, meets the statutory requirements mentioned in Section 30,
that it ultimately approves such plan, which is then binding on the corporate
debtor as wel as its employees, members, creditors, guarantors and other
stakeholders. Importantly, and this is a major departure from previous
legislation on the subject, the moment the adjudicating authority approves
the resolution plan, the moratorium order passed by the authority under

Section 14 shal cease to have effect. The scheme of the Code, therefore,
is to make an attempt, by divesting the erstwhile management of its powers
and vesting it in a professional agency, to continue the business of the
corporate body as a going concern until a resolution plan is drawn up, in
which event the management is handed over under the plan so that the
corporate body is able to pay back its debts and get back on its feet.

Al this is to be done within a period of 6 months with a maximum extension
of another 90 days or else the chopper comes down and the liquidation
process begins.

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PRACTICAL ASPECTS OF INSOLVENCY LAW

34. On the facts of the present case, we find that in answer to the application
made under Section 7 of the Code, the appel ant only raised the plea of
suspension of its debt under the Maharashtra Act, which, therefore, was
that no debt was due in law. The adjudicating authority correctly referred to
the non-obstante clause in Section 238 and arrived at a conclusion that a
notification under the Maharashtra Act would not stand in the way of the
corporate insolvency resolution process under the Code. However, the

Appel ate Tribunal by the impugned judgment held, thus :

“78. Fol owing the law laid down by hon’ble Supreme Court in Yogendra

Krishnan Jaiswal and Madras Petrochem Ltd. we hold that there is no
repugnancy between I&B Code, 2016 and the MRU Act as they both
operate in different fields. The Parliament has expressly stated that the
provisions of the I&B Code, 2016 (which is a later enactment to the MRU

Act) shal have effect notwithstanding the provisions of any other law for
the time being in force. This stipulation does not mean that the provisions
of MRU Act or for that matter any other law are repugnant to the provisions
of the Code.

79. In view of the finding as recorded above, we hold that the appellant is
not entitled to derive any advantage from MRU Act, 1956 to stal the
insolvency resolution process under Section 7 of the Insolvency and

Bankruptcy Code, 2016.”

This statement by the Appel ate Tribunal has to be tested with reference to
the constitutional position on repugnancy.

35. Article 254 of the Constitution of India is substantially modeled on Section

107 of the Government of India Act, 1935. Article 254 reads as under :

“Article 254 – Inconsistency between laws made by Parliament and
laws made by the Legislatures of States.

(1) If any provision of a law made by the Legislature of a State is repugnant
to any provision of a law made by Parliament which Parliament is competent
to enact, or to any provision of an existing law with respect to one of the
matters enumerated in the Concurrent List, then, subject to the provisions
of clause (2), the law made by Parliament, whether passed before or after
the law made by the Legislature of such State, or, as the case may be,
the existing law, shall prevail and the law made by the Legislature of the

State shal , to the extent of the repugnancy, be void.

(2) Where a law made by the Legislature of a State with respect to one of
the matters enumerated in the Concurrent List contains any provision
repugnant to the provisions of an earlier law made by Parliament or an

PRACTICAL ASPECTS OF INSOLVENCY LAW

587
existing law with respect to that matter, then, the law so made by the

Legislature of such State shal , if it has been reserved for the consideration
of the President and has received his assent, prevail in that State :

Provided that nothing in this clause shal prevent Parliament from enacting
at any time any law with respect to the same matter including a law
adding to, amending, varying or repealing the law so made by the

Legislature of the State.”

Section 107 reads as follows :

“Inconsistency between Federal Laws and Provincial or State Laws.

(1) If any provision of a Provincial law is repugnant to any provision of a

Federal law which the Federal Legislature is competent to enact or to any
provision of an existing Indian law with respect to one of the matters
enumerated in the Concurrent Legislative List, then, subject to the
provisions of this Section, the Federal law, whether passed before or
after the Provincial law, or as the case may be, the existing Indian law,
shal prevail and the Provincial law shall, to the extent of the repugnancy,
be void.

(2) Where a Provincial law with respect to one of the matters enumerated
in the Concurrent Legislative List contains any provision repugnant to the
provisions of an earlier Federal law or an existing Indian law with respect
to that matter, then, if the Provincial law, having been reserved for the
consideration of the Governor-General has received the assent of the

Governor-General or for the signification of His Majesty’s pleasure has
received the assent of the Governor-General or of His Majesty, the

Provincial law shall in that Province prevail, but nevertheless the Federal

Legislature may at any time enact further legislation with respect to the
same matter :

Provided that no Bil or amendment for making any provision repugnant
to any Provincial law, which, having been so reserved has received the
assent of the Governor-General or of His Majesty, shall be introduced or
moved in either Chamber of the Federal Legislature without the previous
sanction of the Governor-General in his discretion.

(3) If any provision of a law of a Federated State is repugnant to a Federal
law which extends to that State, the Federal law, whether passed before
or after the law of the State, shal prevail and the law of the State shal , to
the extent of the repugnancy be void.”

36. The British North America Act, which is the oldest among the

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Constitutions framed by the British Parliament for its colonies, had under

Sections 91 and 92 exclusive law making power for the different subjects
set out therein which is distributed between Parliament and the Provincial

Legislatures. The only concurrent subject was stated in Section 95 of the
said Act, which reads as fol ows :

“In each Province the Legislature may make laws in relation to agriculture
in the Province, and to immigration into the Province; and it is hereby
declared that the Parliament of Canada may from time-to-time make laws
in relation to agriculture in al or any of the Provinces, and to immigration
into all or any of the Provinces; and any law of the Legislature of a Province
relative to agriculture or to immigration shal have effect in and for the

Province as long and as far only as it is not repugnant to any Act of the

Parliament of Canada.”

It is for this reason that the Canadian cases on repugnancy were said to be
somewhat restricted and have rarely been applied in construing article 254.

37. Insofar as the US Constitution is concerned, there again legislative
powers are reserved completely to the States and Congress is given the
power to legislate only on enumerated subjects that are set out in article 1,

Section 8 of the US Constitution. In this context, no questions of repugnancy
can arise as the States can legislate even with respect to matters laid down
in article 1 Section 8 so long as they do not exceed the territorial boundary
of the State. It is only when Congress actually enacts legislation under
article 1, Section 8 that State legislation, if any, on the same subject-matter
can be said to be ousted. However, when Congress passed the Eighteenth

Amendment to the US Constitution, by which it imposed prohibition, Section

2 thereof stated that Congress and the several States shall have concurrent
powers to enforce this article by appropriate legislation. The question that
arose in State of Rhode Island v. Palmer 253 US 350, was as to the meaning
of the expression “concurrent power”. It was argued that, unless both

Congress and the State Legislatures concurrently enact laws, laws under

Section 2 of the Eighteenth Amendment could not be made. This argument
was turned down by the majority judgment of Van Devanter, J which, strangely
enough, merely announced conclusions on the questions involved without
any reasoning 1. Van Devanter, J.’s majority judgment held (at 387) :

‘8. The words “concurrent power” in that Section do not mean joint power,
or require that legislation thereunder by Congress, to be effective, shall
be approved or sanctioned by the several States or any of them; nor do
they mean that the power to enforce is divided between Congress and the
several States along the lines which separate or distinguish foreign and

PRACTICAL ASPECTS OF INSOLVENCY LAW

589
interstate commerce from intra-State affairs.

9. The power confided to Congress by that Section, while not exclusive,
is territorially co-extensive with the prohibition of the first Section, embraces
manufacture and other intra-State transactions as wel as importation,
exportation and inter-State traffic, and is in no wise dependent on or
affected by action or inaction on the part of the several States or any of
them.”

Two dissents, on the other hand, held that unless the Congress and the

States concurrently legislate, Section 2 does not give them the power to
enforce prohibition. The US cases also do not, therefore, assist in this
context.

38. On the other hand, the Commonwealth of Australia Constitution Act of

1900, also enacted by the British Parliament, has a scheme by which

Parliament, in Section 51, has power to make laws with respect to 39 stated
matters. Under Section 52, Parliament, subject to the Constitution, has
exclusive power to make laws only qua three subjects set out therein. Section

109 of the Australian Constitution reads as under :

“When a law of a State is inconsistent with a law of the Commonwealth,
the latter shall prevail, and the former shall, to the extent of the
inconsistency, be invalid.”

39. Since the Australian cases deal with repugnancy in great detail, they
have been referred to by the early judgments of this Court.

40. In Zaverbhai Amaidas v. State of Bombay [1955] 1 SCR 799, a question
arose as to the efficacy of a Bombay Act of 1947 vis-a-vis the Essential

Supplies (Temporary Powers) Act of 1946, as amended in 1950. This Court,
after referring to Section 107 of the Government of India Act and article 254
of the Constitution, stated that article 254, is in substance, a reproduction
of Section 107 with one difference – that the power of Parliament under
article 254(2) goes even to the extent of repealing a State law. This Court
then examined the subject-matters of the two Acts and found that the

Parliamentary enactment as amended in 1950 prevailed over the Bombay

Act in as much as the higher punishment given for the same offence under
the Bombay Act was repugnant to the lesser punishment given by Section

7 of the Parliamentary enactment.

41. In Tika Ramji v. State of UP [1956] SCR 393, this Court, after setting
out article 254 of the Constitution, referred in detail to a treatise on the

Australian Constitution and to various Australian judgments as follows :

590

PRACTICAL ASPECTS OF INSOLVENCY LAW

“Nicholas in his Australian Constitution, 2nd ed., p. 303, refers to three
tests of inconsistency or repugnancy. – (1) There may be inconsistency
in the actual terms of the competing statutes – R v. Brisbane Licensing

Court [1920] 28 CLR 23.

(2) Though there may be no direct conflict, a State law may be inoperative
because the Commonwealth law, or the award of the Commonwealth Court,
is intended to be a complete exhaustive code – Clyde Engineering Co.

Ltd. v. Cowburn [1926] 37 CLR 466.

(3) Even in the absence of intention, a conflict may arise when both State
and Commonwealth seek to exercise their powers over the same subject-
matter – Victoria v. Commonwealth [1937] 58 CLR 618; Wenn v. Attorney-

General (Vict.) [1948] 77 CLR 84 Isaacs, J, in Clyde Engineering Co., Ltd.

v. Cowburn [1926] 37 CLR 466, 489 laid down one test of inconsistency
as conclusive : “If, however, a competent Legislature expressly or implicitly
evinces its intention to cover the whole field, that is a conclusive test of
inconsistency where another Legislature assumes to enter to any extent
upon the same field”.

Dixon, J, elaborated this theme in Ex parte McLean [1930] 43 CLR 472,

483 :

“When the Parliament of the Commonwealth and the Parliament of a State
each legislate upon the same subject and prescribe what the rule of conduct
shall be, they make laws which are inconsistent, notwithstanding that the
rule of conduct is identical which each prescribes, and Section 109 applies.

That this is so is settled, at least when the sanctions they impose are
diverse. But the reason is that, by prescribing the rule to be observed, the

Federal statute shows an intention to cover the subject-matter and provide
what the law upon it shal be. If it appeared that the Federal law was
intended to be supplementary to or cumulative upon State law, then no
inconsistency would be exhibited in imposing the same duties or in inflicting
different penalties. The inconsistency does not lie in the mere co-existence
of two laws which are susceptible of simultaneous obedience. It depends
upon the intention of the paramount Legislature to express by its enactment,
completely, exhaustively, or exclusively, what shal be the law governing
the particular conduct or matter to which its attention is directed. When a

Federal statute discloses such an intention, it is inconsistent with it for
the law of a State to govern the same conduct or matter.”

To the same effect are the observations of Evatt, J in Stock Motor Plough

Ltd. v. Forsyth [1932] 48 CLR 128, 147 :

PRACTICAL ASPECTS OF INSOLVENCY LAW

591

‘It is now established, therefore, that State and Federal laws may be
inconsistent, although obedience to both laws is possible. There may
even be inconsistency although each law imposes the very same duty of
obedience. These conclusions have, in the main, been reached, by
ascribing “inconsistency” to a State law, not because the Federal law
directly invalidates or conflicts with it, but because the Federal law is
said to “cover the field”. This is a very ambiguous phrase, because subject-
matters of legislation bear little resemblance to geographical areas. It is
no more than a cliche for expressing the fact that, by reason of the subject-
matter dealt with, and the method of dealing with it, and the nature and
multiplicity of the regulations prescribed, the Federal authority has adopted
a plan or scheme which wil be hindered and obstructed if any additional
regulations whatever are prescribed upon the subject by any other authority;
if, in other words, the subject is either touched or trenched upon by State
authority.’

The Calcutta High Court in G P Stewart v. B K Roy Chaudhury AIR 1939

Cal. 628 had occasion to consider the meaning of repugnancy and B N Rau,

J, who delivered the judgment of the Court observed at p. 632 :

“It is sometimes said that two laws cannot be said to be properly repugnant
unless there is a direct conflict between them, as when one says “do” and
the other “don’t”, there is no true repugnancy, according to this view, if it
is possible to obey both the laws. For reasons which we shal set forth
presently, we think that this is too narrow a test : there may wel be cases
of repugnancy where both laws say “don’t” but in different ways. For
example, one law may say, “No person shal sel liquor by retail, that is, in
quantities of less than five gallons at a time” and another law may say,

“No person shal sel liquor by retail, that is, in quantities of less than ten
gal ons at a time”. Here, it is obviously possible to obey both laws, by
obeying the more stringent of the two, namely, the second one; yet it is
equally obvious that the two laws are repugnant, for to the extent to which
a citizen is compel ed to obey one of them, the other, though not actually
disobeyed, is nullified.”

The learned Judge then discussed the various authorities which laid down
the test of repugnancy in Australia, Canada, and England and concluded at
p. 634 :

“The principle deducible from the English cases, as from the Canadian
cases, seems, therefore, to be the same as that enunciated by Isaacs,

J, in the Australian 44 hour case (37 CLR 466) if the dominant law has
expressly or impliedly evinced its intention to cover the whole field, then

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PRACTICAL ASPECTS OF INSOLVENCY LAW
a subordinate law in the same field is repugnant and, therefore, inoperative.

Whether and to what extent in a given case, the dominant law evinces
such an intention must necessarily depend on the language of the
particular law”.

Sulaiman, J in Shyamakant Lal v. Rambhajan Singh [1939] FCR 188,

212, thus, laid down the principle of construction in regard to repugnancy :

“When the question is whether a Provincial legislation is repugnant to
an existing Indian law, the onus of showing its repugnancy and the extent
to which it is repugnant should be on the party attacking its validity.

There ought to be a presumption in favour of its validity, and every
effort should be made to reconcile them and construe both so as to
avoid their being repugnant to each other; and care should be taken to
see whether the two do not really operate in different fields without
encroachment. Further, repugnancy must exist in fact, and not depend
merely on a possibility. Their lordships can discover no adequate grounds
for holding that there exists repugnancy between the two laws in districts
of the Province of Ontario where the prohibitions of the Canadian Act
are not and may never be in force : Attorney-General for Ontario v.

Attorney-General for the Dominion [1896] AC 348, 369-70.” (at pp. 424-

427) (emphasis supplied)

This Court expressly held that the pith and substance doctrine has no
application to repugnancy principles for the reason that :

“The pith and substance argument also cannot be imported here for the
simple reason that, when both the Centre as wel as the State Legislatures
were operating in the concurrent field, there was no question of any
trespass upon the exclusive jurisdiction vested in the Centre under Entry

52 of List I, the only question which survived being whether, putting both
the pieces of legislation enacted by the Centre and the State Legislature
together, there was any repugnancy, a contention which wil be dealt with
hereafter.” (at pp. 420-421)

42. In Deep Chand v. State of UP [1959] Supp (2) SCR 8, this Court
referred to its earlier judgments in Zaverbhai (supra) and Tika Ramji

(supra) and held :

“Repugnancy between two statutes may, thus, be ascertained on the
basis of the fol owing three principles :

(1) Whether there is direct conflict between the two provisions;

(2) Whether Parliament intended to lay down an exhaustive code in

PRACTICAL ASPECTS OF INSOLVENCY LAW

593
respect of the subject-matter replacing the Act of the State Legislature;
and

(3) Whether the law made by Parliament and the law made by the State

Legislature occupy the same field.” (at page 43)

43. In Pandit Ukha Kolhe v. State of Maharashtra [1964] 1 SCR 926, this

Court found that Sections 129A and 129B did not repeal in its entirety an
existing law contained in Section 510 of the Code of Criminal Procedure in
its application to offences under Section 66 of the Bombay Prohibition Act.

It was held that Sections 129A and 129B must be regarded as enacted in
exercise of power conferred by Entries 2 and 12 in the Concurrent List. It
was then held :

“It is, difficult to regard Section 129B of the Act as so repugnant to Section

510 of the Code as to make the latter provision whol y inapplicable to
trials for offences under the Bombay Prohibition Act. Section 510 is a
general provision dealing with proof of reports of the Chemical Examiner
in respect of matters or things duly submitted to him for examination or
analysis and report.

Section 129B deals with a special class of reports and certificates. In the
investigation of an offence under the Bombay Prohibition Act, examination
of a person suspected by a Police Officer or Prohibition Officer of having
consumed an intoxicant, or of his blood may be carried out only in the
manner prescribed by Section 129A : and the evidence to prove the facts
disclosed thereby wil be the certificate or the examination viva voce of
the registered Medical Practitioner, or the Chemical Examiner, for
examination in the course of an investigation of an offence under the Act
of the person so suspected or of his blood has by the clearest implication
of the law to be carried out in the manner laid down or not at al . Report of
the Chemical Examiner in respect of blood col ected in the course of
investigation of an offence under the Bombay Prohibition Act, otherwise
than in the manner set out in Section 129A cannot therefore, be used as
evidence in the case. To that extent Section 510 of the Code is superseded
by Section 129B. But the report of the Chemical Examiner relating to the
examination of blood of an accused person col ected at a time when no
investigation was pending, or at the instance not of a Police Officer or a

Prohibition Officer remains admissible under Section 510 of the Code.”

(at pages 953-954)

44. In M Karunanidhi v. Union of India [1979] 3 SCR 254, this Court
referred to a number of Australian judgments and judgments of this Court
and held :

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PRACTICAL ASPECTS OF INSOLVENCY LAW

“It is well settled that the presumption is always in favour of the
constitutionality of a statute and the onus lies on the person assailing the

Act to prove that it is unconstitutional. Prima facie, there does not appear
to us to be any inconsistency between the State Act and the Central

Acts. Before any repugnancy can arise, the following conditions must be
satisfied :

1. That there is a clear and direct inconsistency between the Central

Act and the State Act.

2. That such an inconsistency is absolutely irreconcilable.

3. That the inconsistency between the provisions of the two Acts is of
such a nature as to bring the two Acts into direct col ision with each
other and a situation is reached where it is impossible to obey the
one without disobeying the other.

In Colin Howard’s Australian Federal Constitutional Law, 2nd edn. the author
while describing the nature of inconsistency between the two enactments
observed as follows :

“An obvious inconsistency arises when the two enactments produce
different legal results when applied to the same facts.”

In the case of Hume v. Palmer 38 CLR 441 Knox, CJ observed as
follows :

“The rules prescribed by the Commonwealth law and the State law
respectively are for present purposes substantial y identical, but the
penalties imposed for the contravention differ… In these circumstances,
it is I think, clear that the reasons given by my brothers Issacs and Starke
for the decisions of this Court in Union Steamship Co. of New Zealand
v. Commonwealth 36 CLR 130 and Clyde Engineering Co. v. Cowburn 37

CLR 466 establish that the provisions of the law of the State for the
breach of which the appellant was convicted are inconsistent with the law
of the Commonwealth within the meaning of Section 109 of the Constitution
and are, therefore, invalid.”

Issacs, J observed as follows :

“There can be no question that the Commonwealth Navigation Act, by its
own direct provisions and the Regulations made under its authority, applies
upon construction to the circumstances of the case. It is inconsistent
with the State Act in various ways, including (1) general supersession of
the regulations of conduct, and so displacing the State Regulations,
whatever those may be; (2) the jurisdiction to convict, the State law

PRACTICAL ASPECTS OF INSOLVENCY LAW

595
empowering the Court to convict summarily, the Commonwealth law making
the contravention an indictable offence, and, therefore, bringing into
operation Section 80 of the Constitution, requiring a jury; (3) the penalty,
the State providing a maximum of £50 the Commonwealth Act prescribing
a maximum of £100, or imprisonment, or both; (4) the tribunal itself.”

Starke, J observed as follows :

“It is not difficult to see that the Federal Code would be “disturbed or
deranged” if the State Code applied a different sanction in respect of the
same act. Consequently the State regulations are, in my opinion,
inconsistent with the law of the Commonwealth and rendered invalid by
force of Section 109 of the Constitution.”

In a later case of the Australian High Court in Ex. Parte Mclean 43 CLR

472 Issacs and Starke, JJ, while dwel ing on the question of repugnancy
made the following observation :

“In Cowburn’s case (supra) is stated the reasoning for that conclusion
and we wil now refer to those statements without repeating them. In short,
the very same conduct by the same persons is dealt with in conflicting
terms by the Commonwealth and State Acts. A Court, seeing that, has
no authority to inquire further, or to seek to ascertain the scope or bearing
of the State Act. It must simply apply Section 109 of the Constitution,
which declares the invalidity pro tanto of the State Act.”

Similarly Dixon, J observed, thus :

“When the Parliament of the Commonwealth and the Parliament of a State
each legislate upon the same subject and prescribe what the rule of conduct
shall be, they make laws which are inconsistent, notwithstanding that the
rule of conduct is identical which each prescribes, and Section 109 applies.

That this is so is settled, at least when the sanctions they impose are
diverse Hume v. Palmer (supra).”

In the case of Zaverbhai Amaidas v. State of Bombay [1955] 1 SCR

799 this Court laid down the various tests to determine the inconsistency
between two enactments and observed as fol ows –

“The important thing to consider with reference to this provision is whether
the legislation is “in respect of the same matter”. If the later legislation
deals not with the matters which formed the subject of the earlier legislation
but with other and distinct matters though of a cognate and allied character,
then article 254(2) wil have no application. The principle embodied in

Section 107(2) and article 254(2) is that when there is legislation covering

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the same ground both by the Centre and by the Province, both of them
being competent to enact the same, the law of the Centre should prevail
over that of the State.”

“It is true, as already pointed out, that on a question under article 254(1)

whether an Act of Parliament prevails against a law of the State, no
question of repeal arises; but the principle on which the rule of implied
repeal rests, namely, that if subject-matter of the later legislation is identical
with that of the earlier, so that they cannot both stand together, then the
earlier is repealed by the later enactment, wil be equal y applicable to a
question under article 254(2) whether the further legislation by Parliament
is in respect of the same matter as that of the State law.”

In the case of Ch. Tika Ramji v. State of Uttar Pradesh [1956] SCR 393
while dealing with the question of repugnancy between a Central and a

State enactment, this Court relied on the observations of Nicholas in his

Australian Constitution, 2nd Ed. p.303, where three tests of inconsistency
or repugnancy have been laid down and which are as follows :

“(1) There may be inconsistency in the actual terms of the competing
statutes – R v. Brisbane Licensing Court [1920] 28 CLR 23.

(2) Though there may be no direct conflict, a State law may be inoperative
because the Commonwealth law, or the award of the Commonwealth

Court, is intended to be a complete exhaustive code – Clyde

Engineering Co. Ltd. v. Cowburn [1926] 37 CLR 466.

(3) Even in the absence of intention, a conflict may arise when both

State and Commonwealth seek to exercise their powers over the
same subject-matter – Victoria v. Commonwealth [1937] 58 CLR

618; Wenn v. Attorney-General (Vict.) [1948] 77 CLR 84. This Court
also relied on the decisions in the case of Hume v. Palmer as also
the case of Ex. Parte Mclean (supra) referred to above. This Court
also endorsed the observations of Sulaiman, J, in the case of

Shyamakant Lal v. Rambhajan Singh [1939] FCR 188 where

Sulaiman, J, observed as fol ows :

“When the question is whether a Provincial legislation is repugnant to an
existing Indian law, the onus of showing its repugnancy and the extent to
which it is repugnant should be on the party attacking its validity. There
ought to be a presumption in favour of its validity, and every effort should
be made to reconcile them and construe both so as to avoid their being
repugnant to each other, and care should be taken to see whether the two
do not really operate in different fields without encroachment. Further,

PRACTICAL ASPECTS OF INSOLVENCY LAW

597
repugnancy must exist in fact, and not depend merely on a possibility.”

In the case of Om Prakash Gupta v. State of UP [1957] SCR 423 where
this Court was considering the question of the inconsistency between the
two Central enactments, namely, the Indian Penal Code and the Prevention
of Corruption Act held that there was no inconsistency and observed as
follows :

“It seems to us, therefore, that the two offences are distinct and separate.

This is the view taken in Amarendra Nath Roy v. State AIR 1955 Cal.

236 and we endorse the opinion of the learned Judges, expressed therein.

Our conclusion, therefore, is that the offence created under Section 5(1)(c)

of the Corruption Act is distinct and separate from the one under Section

405 of the Indian Penal Code and, therefore, there can be no question of

Section 5(1)(c) repealing Section 405 of the Indian Penal Code. If that is
so, then, article 14 of the Constitution can be no bar.”

Similarly in the case of Deep Chand v. State of Uttar Pradesh [1959]

Supp 2 SCR 8 this Court indicated the various tests to ascertain the
question of repugnancy between the two statutes and observed as
follows :

“Repugnancy between two statutes may, thus, be ascertained on the
basis of the fol owing three principles :

(1) Whether there is direct conflict between the two provisions;

(2) Whether Parliament intended to lay down an exhaustive code in
respect of the subject-matter replacing the Act of the State Legislature;
and

(3) Whether the law made by Parliament and the law made by the State

Legislature occupy the same field.”

In the case of Megh Raj v. Allah Rakha AIR 1942 FC 27 where

Varadachariar, J, speaking for the Court pointed out that where as in

Australia a provision similar to Section 107 of the Government of India

Act, 1935 existed in the shape of Section 109 of the Australian Constitution,
there was no corresponding provision in the American Constitution.

Similarly, the Canadian cases have laid down a principle too narrow for
application to Indian cases. According to the learned Judge, the safe rule
to follow was that where the paramount legislation does not purport to be
exhaustive or unqualified there is no inconsistency and in this connection
observed as follows :

“The principle of that decision is that where the paramount legislation

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PRACTICAL ASPECTS OF INSOLVENCY LAW
does not purport to be exhaustive or unqualified, but itself permits or
recognises other laws restricting or qualifying the general provision made
in it, it cannot be said that any qualification or restriction introduced by
another law is repugnant to the provision in the main or paramount law.”

“The position wil be even more obvious, if another test of repugnancy
which has been suggested in some cases is applied, namely, whether
there is such an inconsistency between the two provisions that one must
be taken to repeal the other by necessary implication.”

In the case of State of Orissa v. M A Tulloch & Co. [1964] 4 SCR 461

Ayyangar, J, speaking for the Court observed as follows :

“Repugnancy arises when two enactments both within the competence of
the two Legislatures col ide and when the Constitution expressly or by
necessary implication provides that the enactment of one Legislature has
superiority over the other then to the extent of the repugnancy the one
supersedes the other. But two enactments may be repugnant to each
other even though obedience to each of them is possible without disobeying
the other. The test of two legislations containing contradictory provisions
is not, however, the only criterion of repugnancy, for if a competent

Legislature with a superior efficacy expressly or impliedly evinces by its
legislation an intention to cover the whole field, the enactments of the
other Legislature whether passed before or after would be overborne on
the ground of repugnance. Where such is the position, the inconsistency
is demonstrated not by a detailed comparison of provisions of the two
statutes but by the mere existence of the two pieces of legislation.”

In the case of T S Balliah v. T S Rangachari [1969] 3 SCR 65 it was
pointed out by this Court that before coming to the conclusion that there
is a repeal by implication, the Court must be satisfied that the two
enactments are so inconsistent that it becomes impossible for them to
stand together. In other words, this Court held that when there is a direct
col ision between the two enactments which is irreconcilable then only
repugnancy results. In this connection, the Court made the fol owing
observations :

“Before coming to the conclusion that there is a repeal by implication, the

Court must be satisfied that the two enactments are so inconsistent or
repugnant that they cannot stand together and the repeal of the express
prior enactment must flow from necessary implication of the language of
the later enactment. It is, therefore, necessary in this connection to
scrutinise the terms and consider the true meaning and effect of the two
enactments.”

PRACTICAL ASPECTS OF INSOLVENCY LAW

599

“The provisions enacted in Section 52 of the 1922 Act do not alter the
nature or quality of the offence enacted in Section 177, Indian Penal Code
but it merely provides a new course of procedure for what was already an
offence. In a case of this description the new statute is regarded not as
superseding, nor repealing by implication the previous law, but as
cumulative.”

“A plain reading of the Section shows that there is no bar to the trial or
conviction of the offender under both enactments but there is only a bar
to the punishment of the offender twice for the same offence. In other
words, the Section provides that where an act or omission constitutes an
offence under two enactments, the offender may be prosecuted and
punished under either or both the enactments but shal not be liable to be
punished twice for the same offence.”

On a careful consideration, therefore, of the authorities referred to above,
the fol owing propositions emerge :

1. That in order to decide the question of repugnancy it must be shown
that the two enactments contain inconsistent and irreconcilable
provisions, so that they cannot stand together or operate in the same
field.

2. That there can be no repeal by implication unless the inconsistency
appears on the face of the two statutes.

3. That where the two statutes occupy a particular field, there is room
or possibility of both the statutes operating in the same field without
coming into col ision with each other, no repugnancy results.

4. That where there is no inconsistency but a statute occupying the
same field seeks to create distinct and separate offences, no question
of repugnancy arises and both the statutes continue to operate in the
same field.’ (at pages 272-278) [emphasis supplied]

45. In Hoechst Pharmaceuticals Ltd. v. State of Bihar [1983] 3 SCR 130,
this Court after referring to the earlier judgments held :

‘Article 254 of the Constitution makes provision first, as to what would
happen in the case of conflict between a Central and State law with regard
to the subjects enumerated in the Concurrent List, and secondly, for
resolving such conflict. Article 254(1) enunciates the normal rule that in
the event of a conflict between a Union and a State law in the concurrent
field, the former prevails over the latter. Clause (1) lays down that if a

State law relating to a concurrent subject is “repugnant” to a Union law

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relating to that subject, then, whether the Union law is prior or later in
time, the Union law will prevail and the State law shal , to the extent of
such repugnancy, be void. To the general rule laid down in clause (1),
clause (2) engrafts an exception, viz., that if the President assents to a

State law which has been reserved for his consideration, it wil prevail
notwithstanding its repugnancy to an earlier law of the Union, both laws
dealing with a concurrent subject. In such a case, the Central Act will
give way to the State Act only to the extent of inconsistency between the
two, and no more. In short, the result of obtaining the assent of the

President to a State Act which is inconsistent with a previous Union law
relating to a concurrent subject would be that the State Act will prevail in
that State and override the provisions of the Central Act in their applicability
to that State only. The predominance of the State law may, however, be
taken away if Parliament legislates under the proviso to clause (2). The
proviso to article 254(2) empowers the Union Parliament to repeal or amend
a repugnant State law, either directly, or by itself enacting a law repugnant
to the State law with respect to the “same matter”. Even though the
subsequent law made by Parliament does not expressly repeal a State
law, even then, the State law will become void as soon as the subsequent
law of Parliament creating repugnancy is made. A State law would be
repugnant to the Union law when there is direct conflict between the two
laws. Such repugnancy may also arise where both laws operate in the
same field and the two cannot possibly stand together – see Zaverbhai

Amaidas v. State of Bombay [1955] 1 SCR 799, M Karunanidhi v. Union
of India [1979] 3 SCR 254 and T Barai v. Henry Ah Hoe [1983] 1 SCC 177.

We may briefly refer to the three Australian decisions relied upon. As
stated above, the decision in Clyde Engineering Co.’s case (supra), lays
down that inconsistency is also created when one statute takes away
rights conferred by the other. In Ex Parte McLean’s case (supra), Dixon,

J, laid down another test, viz., two statutes could be said to be inconsistent
if they, in respect of an identical subject-matter, imposed identical duty
upon the subject, but provided for different sanctions for enforcing those
duties. In Stock Motor Ploughs Ltd.’s case (supra), Evatt, J held that
even in respect of cases where two laws impose one and the same duty
of obedience there may be inconsistency. As already stated the
controversy in these appeals falls to be determined by the true nature
and character of the impugned enactment, its pith and substance, as to
whether it fal s within the legislative competence of the State Legislature
under article 246(3) and does not involve any question of repugnancy
under article 254(1).

PRACTICAL ASPECTS OF INSOLVENCY LAW

601

We fail to comprehend the basis for the submission put forward on behalf
of the appellants that there is repugnancy between sub-Section (3) of

Section 5 of the Act which is relatable to Entry 54 of List II of the Seventh

Schedule and paragraph 21 of the Control order issued by the Central

Government under sub-Section (1) of Section 3 of the Essential

Commodities Act relatable to Entry 33 of List III and, therefore, sub-

Section (3) of Section 5 of the Act which is a law made by the State

Legislature is void under article 254(1). The question of repugnancy under
article 254(1) between a law made by Parliament and a law made by the

State Legislature arises only in case both the legislations occupy the
same field with respect to one of the matters enumerated in the Concurrent

List, and there is direct conflict between the two laws. It is only when both
these requirements are fulfilled that the State law wil , to the extent of
repugnancy become void. Article 254(1) has no application to cases of
repugnancy due to overlapping found between List II on the one hand and

List I and List III on the other. If such overlapping exists in any particular
case, the State law will be ultra vires because of the non-obstante clause
in article 246(1) read with the opening words “Subject to” in article 246(3).

In such a case, the State law will fail not because of repugnance to the

Union law but due to want of legislative competence. It is no doubt true
that the expression “a law made by Parliament which Parliament is
competent to enact” in article 254(1) is susceptible of a construction that
repugnance between a State law and a law made by Parliament may take
place outside the concurrent sphere because Parliament is competent to
enact law with respect to subjects included in List III as wel as “List I”.

But if article 254(1) is read as a whole, it will be seen that it is expressly
made subject to clause (2) which makes reference to repugnancy in the
field of Concurrent List – in other words, if clause (2) is to be the guide in
the determination of scope of clause (1), the repugnancy between Union
and State law must be taken to refer only to the Concurrent field. Article

254(1) speaks of a State law being repugnant to (a) a law made by

Parliament, or (b) an existing law.

There was a controversy at one time as to whether the succeeding words

“with respect to one of the matters enumerated in the Concurrent List”

govern both (a) and (b) or (b) alone. It is now settled that the words “with
respect to” qualify both the clauses in article 254(1), viz., a law made by

Parliament which Parliament is competent to enact as well as any provision
of an existing law. The underlying principle is that the question of
repugnancy arises only when both the Legislatures are competent to
legislate in the same field, i.e., with respect to one of the matters

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enumerated in the Concurrent List. Hence, article 254(1) can not apply
unless both the Union and the State laws relate to a subject specified in
the Concurrent List, and they occupy the same field.

This construction of ours is supported by the observations of Venkatarama

Ayyar, J, speaking for the Court in A S Krishna’s case (supra), while
dealing with Section 107(1) of the Government of India Act, 1935 to the
effect :

“For this Section to apply, two conditions must be fulfilled : (1) The
provisions of the Provincial law and those of the Central legislation must
both be in respect of a matter which is enumerated in the Concurrent List,
and (2) they must be repugnant to each other. It is only when both these
requirements are satisfied that the Provincial law wil , to the extent of the
repugnancy, become void.” In Ch. Tika Ramji’s case (supra), the Court
observed that no question of repugnancy under article 254 of the

Constitution could arise where parliamentary legislation and State
legislation occupy different fields and deal with separate and distinct
matters even though of a cognate and allied character and that where, as
in that case, there was no inconsistency in the actual terms of the Acts
enacted by Parliament and the State Legislature relatable to Entry 33 of

List III, the test of repugnancy would be whether Parliament and State

Legislature, in legislating on an entry in the Concurrent List, exercised
their powers over the same subject-matter or whether the laws enacted
by Parliament were intended to be exhausted as to cover the entire field,
and added :

“The pith and substance argument cannot be imported here for the simple
reason that, when both the Centre as wel as the State Legislatures were
operating in the concurrent field, there was no question of any trespass
upon the exclusive jurisdiction of the Centre under Entry 52 of List I, the
only question which survived being whether put in both the pieces of
legislation enacted by the Centre and the State Legislature, there was
any such repugnancy.” This observation lends support to the view that in
cases of overlapping between List II on the one hand and Lists I and III
on the other, there is no question of repugnancy under article 254(1).

Subba Rao, J, speaking for the Court in Deep Chand’s case (supra),
interpreted article 254(1) in these terms :

“Article 254(1) lays down a general rule. Clause (2) is an exception to that
article and the proviso qualified the said exception. If there is repugnancy
between the law made by the State and that made by the Parliament with
respect to one of the matters enumerated in the Concurrent List, the law

PRACTICAL ASPECTS OF INSOLVENCY LAW

603
made by Parliament shal prevail to the extent of the repugnancy and law
made by the State shal , to the extent of such repugnancy, be void.”’ (at
pages 179-183) [emphasis supplied]

46. In Vijay Kumar Sharma v. State of Karnataka [1990] 2 SCC 562, this

Court held that the Karnataka Contract Carriages (Acquisition) Act, 1976
enacted under Entry 42 of List III was not repugnant to the Motor Vehicles

Act, 1988 enacted under Entry 35 of the same List. In so holding, Sawant,

J, laid down :

“32. Thus, the Karnataka Act and the MV Act, 1988 deal with two different
subject-matters. As stated earlier the Karnataka Act is enacted by the

State Legislature for acquisition of contract carriages under Entry 42 of
the Concurrent List read with Article 31 of the Constitution to give effect
to the provisions of articles 39(b) and (c) thereof. The MV Act 1988 on the
other hand is enacted by the Parliament under Entry 35 of the Concurrent

List to regulate the operation of the motor vehicles. The objects and the
subject-matters of the two enactments are materially different. Hence,
the provisions of article 254 do not come into play in the present case
and, hence, there is no question of repugnancy between the two
legislations.” (at page 581)

47. Ranganath Misra, J, in a concurring judgment, posed the question as to
whether when the State law is under one head of legislation in the Concurrent

List and the Parliamentary legislation is under another head in the same list,
can there be repugnancy at all?

The question was answered, thus :

“13. In clause (1) of article 254 it has been clearly indicated that the
competing legislations must be in respect of one of the matters enumerated
in the Concurrent List. The seven-Judge Bench examining the vires of the

Karnataka Act did hold that the State Act was an Act for acquisition and
came within Entry 42 of the Concurrent List. That position is not disputed
before us. There is unanimity at the bar that the Motor Vehicles Act is a
legislation coming within Entry 35 of the Concurrent List. Therefore, the

Acquisition Act and the 1988 Act as such do not relate to one common
head of legislation enumerated in the Concurrent List and the State Act
and the parliamentary statute deal with different matters of legislation.”

“19. A number of precedents have been cited at the hearing and those
have been examined and even some which were not referred to at the bar.

There is no clear authority in support of the stand of the petitioners –
where the State law is under one head of legislation in the Concurrent

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PRACTICAL ASPECTS OF INSOLVENCY LAW

List, the subsequent Parliamentary legislation is under another head of
legislation in the same list and in the working of the two it is said to give
rise to a question of repugnancy.” (at pages 575 and 577)

48. In Rajiv Sarin v. State of Uttarakhand [2011] 8 SCC 708, this Court
examined the Kumaun and Uttarakhand Zamindari Abolition and Land

Reforms Act, 1960 vis-a-vis the Forest Act, 1927 and found that there was
no repugnancy between the two. This Court held :

‘52. The aforesaid position makes it quite clear that even if both the
legislations are relatable to List III of the Seventh Schedule of the

Constitution, the test for repugnancy is whether the two legislations

“exercise their power over the same subject-matter...” and secondly, whether
the law of Parliament was intended “to be exhaustive to cover the entire
field”. The answer to both these questions in the instant case is in the
negative, as the Indian Forest Act, 1927 deals with the law relating to
forest transit, forest levy and forest produce, whereas the KUZALR Act
deals with the land and agrarian reforms.

53. In respect of the Concurrent List under Seventh Schedule to the

Constitution, by definition both the Legislatures, viz., the Parliament and
the State Legislatures are competent to enact a law. Thus, the only way
in which the doctrine of pith and substance can and is utilised in determining
the question of repugnancy is to find out whether in pith and substance
the two laws operate and relate to the same matter or not. This can be
either in the context of the same Entry in List III or different Entries in List

III of the Seventh Schedule of the Constitution. In other words, what has
to be examined is whether the two Acts deal with the same field in the
sense of the same subject-matter or deal with different matters.” (at page

727) [emphasis supplied]

49. It wil be noticed that the Constitution Bench judgment in Rajiv Sarin

(supra) does not at al refer to Tika Ramji (supra). Tika Ramji (supra) had
clearly held that the doctrine of pith and substance cannot be referred to in
determining questions of repugnancy, once it is found that both the

Parliamentary law and State law are referable to the Concurrent List.

Therefore, the statement in paragraph 53 in Rajiv Sarin (supra), that the
doctrine of pith and substance has utility in finding out whether, in substance,
the two laws operate and relate to the same matter, may not be a correct
statement of the law in view of the unequivocal statement made in Tika

Ramji (supra) by an earlier Constitution Bench decision. However, the
following sentence is of great importance, which is, that the two laws, namely,
the Parliamentary and the State legislation, do not need to find their origin in

PRACTICAL ASPECTS OF INSOLVENCY LAW

605
the same Entry in List III so long as they deal, either as a whole or in part,
with the same subject-matter. This clarification of the law is important in
that Ranganath Misra, J.’s separate concurring opinion in Vijay Kumar Sharma

(supra) seems to point to a different direction. However, Hoechst

Pharmaceuticals (supra), also does not agree with this view and indicates
that so long as the two laws are traceable to a matter in the Concurrent List
and there is repugnancy, the State law wil have to be yield to the Central
law except if the State law is covered by article 254(2).

50. The case law referred to above, therefore, yields the following
propositions :

(i) Repugnancy under article 254 arises only if both the Parliamentary

(or existing law) and the State law are referable to List III in the 7th

Schedule to the Constitution of India.

(i ) In order to determine whether the Parliamentary (or existing law) is
referable to the Concurrent List and whether the State law is also
referable to the Concurrent List, the doctrine of pith and substance
must be applied in order to find out as to where in pith and substance
the competing statutes as a whole fal . It is only if both fal , as a
whole, within the Concurrent List, that repugnancy can be applied to
determine as to whether one particular statute or part thereof has to
give way to the other.

(iii) The question is what is the subject-matter of the statutes in question
and not as to which entry in List III the competing statutes are
traceable, as the entries in List III are only fields of legislation; also,
the language of article 254 speaks of repugnancy not merely of a
statute as a whole but also “any provision” thereof.

(iv) Since there is a presumption in favour of the validity of statutes
general y, the onus of showing that a statute is repugnant to another
has to be on the party attacking its validity. It must not be forgotten
that that every effort should be made to reconcile the competing
statutes and construe them both so as to avoid repugnancy – care
should be taken to see whether the two do not real y operate in different
fields qua different subject-matters.

(v) Repugnancy must exist in fact and not depend upon a mere possibility.

(vi) Repugnancy may be direct in the sense that there is inconsistency
in the actual terms of the competing statutes and there is, therefore,
a direct conflict between two or more provisions of the competing
statutes. In this sense, the inconsistency must be clear and direct

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PRACTICAL ASPECTS OF INSOLVENCY LAW
and be of such a nature as to bring the two Acts or parts thereof into
direct collision with each other, reaching a situation where it is
impossible to obey the one without disobeying the other.

This happens when two enactments produce different legal results
when applied to the same facts.

(vi ) Though there may be no direct conflict, a State law may be inoperative
because the Parliamentary law is intended to be a complete,
exhaustive or exclusive code. In such a case, the State law is
inconsistent and repugnant, even though obedience to both laws is
possible, because so long as the State law is referable to the same
subject-matter as the Parliamentary law to any extent, it must give
way. One test of seeing whether the subject-matter of the Parliamentary
law is encroached upon is to find out whether the Parliamentary statute
has adopted a plan or scheme which will be hindered and/or obstructed
by giving effect to the State law. It can then be said that the State
law trenches upon the Parliamentary statute. Negatively put, where

Parliamentary legislation does not purport to be exhaustive or
unqualified, but itself permits or recognises other laws restricting or
qualifying the general provisions made in it, there can be said to be
no repugnancy.

(vii ) A conflict may arise when Parliamentary law and State law seek to
exercise their powers over the same subject-matter. This need not be
in the form of a direct conflict, where one says “do” and the other
says “don’t”. Laws under this head are repugnant even if the rule of
conduct prescribed by both laws is identical. The test that has been
applied in such cases is based on the principle on which the rule of
implied repeal rests, namely, that if the subject-matter of the State
legislation or part thereof is identical with that of the Parliamentary
legislation, so that they cannot both stand together, then the State
legislation will be said to be repugnant to the Parliamentary legislation.

However, if the State legislation or part thereof deals not with the
matters which formed the subject-matter of Parliamentary legislation
but with other and distinct matters though of a cognate and al ied
nature, there is no repugnancy.

(ix) Repugnant legislation by the State is void only to the extent of the
repugnancy. In other words, only that portion of the State’s statute
which is found to be repugnant is to be declared void.

(x) The only exception to the above is when it is found that a State
legislation is repugnant to Parliamentary legislation or an existing

PRACTICAL ASPECTS OF INSOLVENCY LAW

607
law if the case fal s within article 254(2), and Presidential assent is
received for State legislation, in which case State legislation prevails
over Parliamentary legislation or an existing law within that State.

Here again, the State law must give way to any subsequent Parliamentary
law which adds to, amends, varies or repeals the law made by the Legislature
of the State, by virtue of the operation of article 254(2) proviso.

51. Applying the aforesaid rules to the facts of the present case, we find
that the State statute in question is the Maharashtra Act.

The Statement of Objects and Reasons for the aforesaid Act reads, thus :

‘In order to mitigate the hardship that may be caused to the workers who
may be thrown out of employment by the closure of an undertaking,

Government may take over such undertaking either on lease or on such
conditions as may be deemed suitable and run it as a measure of
unemployment relief. In such cases Government may have to fix revised
terms of employment of the workers or to make other changes which may
not be in consonance with the existing labour laws or any agreements or
awards applicable to the undertaking. It may become necessary even to
exempt the undertaking from certain legal provisions. For these reasons
it is proposed to obtain power to exclude an undertaking, run by or under
the authority of Government as a measure of unemployment relief, from
the operation of certain labour laws or any specified provisions thereof
subject to such conditions and for such periods as may be specified. It is
also proposed to make a provision to secure that while the rights and
liabilities of the original employer and workmen may remain suspended
during the period the undertaking is run by Government, they would revive
and become enforceable as soon as the undertaking ceases to be under
the control of Government.” There is no doubt that this Maharashtra Act is
referable to Entry 23, List III in the 7th Schedule to the Constitution,
which reads as under :

“23. Social security and social insurance; employment and unemployment.”

Sections 3 and 4 of the Maharashtra Act are material and are set out
herein :

“3. Declaration of relief undertaking. – (1) If at any time it appears to
the State Government necessary to do so, the State Government may,
by notification in the Official Gazette, declare that an industrial undertaking
specified in the notification, whether started, acquired or otherwise taken
over by the State Government, and carried on or proposed to be carried
on by itself or under its authority, or to which any loan, guarantee or

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financial assistance has been provided by the State Government shall,
with effect from the date specified for the purpose in the notification, be
conducted to serve as a measure of preventing unemployment or of
unemployment relief and the undertaking shall accordingly be deemed to
be a relief undertaking for the purposes of this Act.

(2) A notification under sub-Section (1) shal have effect for such period
not exceeding twelve months as may be specified in the notification; but
it shal be renewable by like notifications from time-to-time for further
periods not exceeding twelve months at a time, so, however, that al the
periods in the aggregate do not exceed fifteen years.

4. Power to prescribe industrial relations and other facilities
temporarily for relief undertakings. – (1) Notwithstanding any law, usage,
custom, contract, instrument, decree, order, award, submission,
settlement, standing order or other provision whatsoever, the State

Government may, by notification in the Official Gazette, direct that –

(a) in relation to any relief undertaking and in respect of the period for
which the relief undertaking continues as such under sub-Section

(2) of Section 3 –

(i) al or any of the laws in the Schedule to this Act or any provisions
thereof shall not apply (and such relief undertaking shal be
exempt therefrom), or shall, if so directed by the State

Government, be applied with such modifications (which do not,
however, affect the policy of the said laws) as may be specified
in the notification;

(i ) al or any of the agreements, settlements, awards or standing
orders made under any of the laws in the Schedule to this Act,
which may be applicable to the undertaking immediately before
it was acquired or taken over by the State Government or before
any loan, guarantee or other financial assistance was provided
to it by, or with the approval of the State Government, for being
run as a relief undertaking, shal be suspended in operation or
shal , if so directed by the State Government, be applied with
such modifications as may be specified in the notification;

(iii) rights, privileges, obligations and liabilities shall be determined
and be enforceable in accordance with clauses (i) and (ii) and
the notification;

(iv) any right, privilege, obligation on liability accrued or incurred
before the undertaking was declared a relief undertaking and

PRACTICAL ASPECTS OF INSOLVENCY LAW

609
any remedy for the enforcement thereof shal be suspended
and al proceedings relative thereto pending before any Court,
tribunal, officer or authority shal be stayed;

(b) the right, privilege, obligation and liability referred to in clause (a)(iv)

shall, on the notification ceasing to have force, revive and be enforceable
and the proceedings referred to therein shal be continued :

Provided that in computing the period of limitation for the enforcement of
such right, privilege, obligation or liability, the period during which it was
suspended under clause (a)(iv) shall be excluded notwithstanding anything
contained in any law for the time being in force.

(2) A notification under sub-Section (1) shal have effect from such date,
not being earlier than the date referred to in sub-Section (1) of Section 3,
as may be specified therein, and the provisions of Section 21 of the

Bombay General Clauses Act, 1904, shal apply to the power to issue
such notification.’

52. On the other hand, the Insolvency and Bankruptcy Code, 2016 is an Act
to consolidate and amend the laws relating to reorganisation and insolvency
resolution, inter alia, of corporate persons. Insofar as corporate persons are
concerned, amendments are made to the following enactments by Sections

249 to 252 and 255 :

“249. Amendments of Act 51 of 1993.

The Recovery of Debts due to Banks and Financial Institutions Act, 1993
shal be amended in the manner specified in the Fifth Schedule.

250. Amendments of Act 32 of 1994.

The Finance Act, 1994 shal be amended in the manner specified in the

Sixth Schedule.

251. Amendments of Act 54 of 2002.

The Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 shall be amended in the manner
specified in the Seventh Schedule.

252. Amendments of Act 1 of 2004.

The Sick Industrial Companies (Special Provisions) Repeal Act, 2003
shal be amended in the manner specified in the Eighth Schedule….

255. Amendments of Act 18 of 2013.

The Companies Act, 2013 shal be amended in the manner specified in
the Eleventh Schedule.”

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53. It is settled law that a consolidating and amending Act like the present

Central enactment forms a code complete in itself and is exhaustive of the
matters dealt with therein. In Ravula Subba Rao v. Commissioner of Income-
tax [1956] SCR 577, this Court held :

‘The Act is, as stated in the preamble, one to consolidate and amend the
law relating to income-tax. The rule of construction to be applied to such
a statute is, thus, stated by Lord Herschel in Bank of England v. Vagliano

[1891] AC 107, 141 :

“I think the proper course is in the first instance to examine the
language of the statute, and to ask what is its natural meaning,
uninfluenced by any considerations derived from the previous state of
the law, and not to start with inquiring how the law previously stood,
and then, assuming that it was probably “intended to leave it unaltered...”

We must, therefore, construe the provisions of the Indian Income-tax

Act as forming a code complete in itself and exhaustive of the matters
dealt with therein, and ascertain what their true scope is.” (at page

585) Similarly in Union of India v. Mohindra Supply Co. [1962] 3

SCR 497, this Court held :

“The Arbitration Act, 1940 is a consolidating and amending statute and is
for al purposes a code relating to arbitration. In dealing with the interpretation
of the Indian Succession Act, 1865, the Privy Council in Narendra Nath

Sircar v. Kamlabasini Desai [1896] LR 23, IA 18 observed that a code
must be construed according to the natural meaning of the language used
and not on the presumption that it was intended to leave the existing law
unaltered. The Judicial Committee approved of the observations of Lord

Herschell in Bank of England v. Vagliano Brothers [1891] AC 107, 144-

145] to the fol owing effect :

“I think the proper course is in the first instance to examine the language
of the statute and to ask what is its natural meaning uninfluenced by any
considerations derived from the previous state of the law, and not to start
with enquiring how the law previously stood, and then, assuming that it
was probably intended to leave it unaltered, to see if the words of the
enactment wil bear an interpretation in conformity with this view. If a
statute, intended to embody in a code a particular branch of the law, is to
be treated in this fashion, it appears to me that its utility wil be almost
entirely destroyed, and the very object with which it was enacted wil be
frustrated. The purpose of such a statute surely was that on any point
specifically dealt with by it the law should be ascertained by interpreting
the language used instead of, as before, by roaming over a vast number

PRACTICAL ASPECTS OF INSOLVENCY LAW

611
of authorities in order to discover what the law was, extracting it by a
minute critical examination of the prior decisions….” The Court in
interpreting a statute must, therefore, proceed without seeking to add
words which are not to be found in the statute, nor is it permissible in
interpreting a statute which codifies a branch of the law to start with the
assumption that it was not intended to alter the pre-existing law; nor to
add words which are not to be found in the statute, or “for which authority
is not found in the statute”.” (at pages 506-508) In Joseph Peter v. State
of Goa, Daman and Diu [1977] 3 SCC 280, this Court dealt with a Goa
regulation vis-a-vis the Code of Criminal Procedure. In that context, this

Court observed :

“A Code is complete and that marks the distinction between a Code and
an ordinary enactment. The Criminal Procedure Code, by that canon, is
self-contained and complete.” (at page 282) There can be no doubt, therefore,
that the Code is a Parliamentary law that is an exhaustive code on the
subject-matter of insolvency in relation to corporate entities, and is made
under Entry 9, List III in the 7th Schedule which reads as under :

“9. Bankruptcy and insolvency”

54. On reading its provisions, the moment initiation of the corporate
insolvency resolution process takes place, a moratorium is announced by
the adjudicating authority vide Sections 13 and 14 of the Code, by which
institution of suits and pending proceedings, etc., cannot be proceeded
with. This continues until the approval of a resolution plan under Section 31
of the said Code. In the interim, an interim resolution professional is appointed
under Section 16 to manage the affairs of corporate debtors under Section

17.

55. It is clear, therefore, that the earlier State law is repugnant to the later

Parliamentary enactment as under the said State law, the State Government
may take over the management of the relief undertaking, after which a
temporary moratorium in much the same manner as that contained in

Sections 13 and 14 of the Code takes place under Section 4 of the

Maharashtra Act. There is no doubt that by giving effect to the State law,
the aforesaid plan or scheme which may be adopted under the Parliamentary
statute wil directly be hindered and/or obstructed to that extent in that the
management of the relief undertaking, which, if taken over by the State

Government, would directly impede or come in the way of the taking over of
the management of the corporate body by the interim resolution professional.

Also, the moratorium imposed under Section 4 of the Maharashtra Act would
directly clash with the moratorium to be issued under Sections 13 and 14 of

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PRACTICAL ASPECTS OF INSOLVENCY LAW
the Code. It wil be noticed that whereas the moratorium imposed under the

Maharashtra Act is discretionary and may relate to one or more of the matters
contained in Section 4(1), the moratorium imposed under the Code relates
to al matters listed in Section 14 and fol ows as a matter of course. In the
present case it is clear, therefore, that unless the Maharashtra Act is out of
the way, the Parliamentary enactment wil be hindered and obstructed in
such a manner that it wil not be possible to go ahead with the insolvency
resolution process outlined in the Code. Further, the non-obstante clause
contained in Section 4 of the Maharashtra Act cannot possibly be held to
apply to the Central enactment, inasmuch as a matter of constitutional law,
the later Central enactment being repugnant to the earlier State enactment
by virtue of article 254 (1), would operate to render the Maharashtra Act
void vis-a-vis action taken under the later Central enactment. Also, Section

238 of the Code reads as under :

“238. Provisions of this Code to override other laws.

The provisions of this Code shal have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in
force or any instrument having effect by virtue of any such law.”

It is clear that the later non-obstante clause of the Parliamentary enactment
wil also prevail over the limited non-obstante clause contained in Section 4
of the Maharashtra Act. For these reasons, we are of the view that the

Maharashtra Act cannot stand in the way of the corporate insolvency
resolution process under the Code.

56. Dr. Singhvi, however, argued that the notification under the Maharashtra

Act only kept in temporary abeyance the debt which would become due the
moment the notification under the said Act ceases to have effect. We are
afraid that we cannot accede to this contention. The notification under the

Maharashtra Act continues for one year at a time and can go upto 15 years.

Given the fact that the timeframe within which the company is either to be
put back on its feet or is to go into liquidation is only 6 months, it is obvious
that the period of one year or more of suspension of liability would completely
unsettle the scheme of the Code and the object with which it was enacted,
namely, to bring defaulter companies back to the commercial fold or otherwise
face liquidation. If the moratorium imposed by the Maharashtra Act were to
continue from one year up to 15 years, the whole scheme and object of the

Code would be set at naught. Undeterred by this, Dr. Singhvi, however,
argued that since the suspension of the debt took place from July 2015
onwards, the appel ant had a vested right which could not be interfered with
by the Code. It is precisely for this reason that the non-obstante clause, in

PRACTICAL ASPECTS OF INSOLVENCY LAW

613
the widest terms possible, is contained in Section 238 of the Code, so that
any right of the corporate debtor under any other law cannot come in the
way of the Code. For al these reasons, we are of the view that the Tribunal
was correct in appreciating that there would be repugnancy between the
provisions of the two enactments. The judgment of the Appel ate Tribunal is
not correct on this score because repugnancy does exist in fact.

57. Both the Tribunal and the Appel ate Tribunal refused to go into the other
contentions of Dr. Singhvi, viz., that under the MRA, it was because the
creditors did not disburse the amounts thereunder that the appel ant was
not able to pay its dues. We are of the view that the Tribunal and the Appel ate

Tribunal were right in not going into this contention for the very good reason
that the period of 14 days within which the application is to be decided was
long over by the time the second application was made before the Tribunal.

Also, the second application clearly appears to be an after-thought for the
reason that the corporate debtor was ful y aware of the fact that the MRA
had failed and could easily have pointed out these facts in the first application
itself. However, for reasons best known to it, the appel ant chose to take up
only a law point before the Tribunal. The law point before the Tribunal was
argued on 22nd and 23rd December, 2016, presumably with little success.

It is only as an after-thought that the second application was then filed to
add an additional string to a bow which appeared to the appellants to have
already been broken.

58. Even otherwise, Shri Salve took us through the MRA in great detail. Dr.

Singhvi did likewise to buttress his point of view that having promised to
infuse funds into the appel ant, not a single naya paisa was ever disbursed.

According to us, one particular clause in the MRA is determinative on the
merits of this case, even if we were to go into the same. Under Article V
entitled “Representations and Warranties”, clause 20(t) states as fol ows :

“(t) Nature of obligations.

The obligations under this agreement and the other Restructuring

Documents constitute direct, unconditional and general obligations
of the Borrower and the Reconstituted Facilities, rank at least pari
passu as to priority of payment to all other unsubordinated
indebtedness of the Borrower other than any priority established under
applicable law.”

59. The obligation of the corporate debtor was, therefore, unconditional and
did not depend upon infusing of funds by the creditors into the appel ant
company. Also, the argument taken for the first time before us that no debt

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was in fact due under the MRA as it has not fal en due (owing to the default
of the secured creditor) is not something that can be countenanced at this
stage of the proceedings. In this view of the matter, we are of the considered
view that the Tribunal and the Appel ate Tribunal were right in admitting the
application filed by the financial creditor ICICI Bank Ltd.

60. The appeals, accordingly, stand dismissed. There shall, however, be no
order as to costs.

…………………………......J.

(R.F. Nariman)

…………………………......J.

(Sanjay Kishan Kaul)

New Delhi;

August 31, 2017.

PRACTICAL ASPECTS OF INSOLVENCY LAW

615

ANNEXURE X.25

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) (Insolvency) No. 51 of 2017

(arising out of Order dated 19th April, 2017 passed by the National

Company Law Tribunal, Ahmedabad Bench in CP (IB) No. 5/7/NCLT/

AHM/ 2017).

IN THE MATTER OF:

Steel Konnect (India) Private Limited

....Appellant

Vs.

M/s Hero Fincorp Limited

...Respondent

Present:

For Appellant: - Shri Vivek Sibal, Ms. Pooja

M.Saizal, Advocates and Shri Ajoy Tola, C.A.

For Respondent: - Shri Venancio D’Costa and Ms. Astha

JUDGEMENT

Justice Sudhansu Jyoti Mukhopadhaya, Chairperson

The respondent M/s. Hero Fincorp Limited (hereinafter referred to as

‘Financial Creditor’) preferred 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

Appellant-’Corporate Debtor’. The Learned Adjudicating Authority (National

Company Law Tribunal), Ahmedabad Bench, by impugned order dated 19th

April 2017 in C.P. No. (IB) 05/NCLT/AHM/2017, admitted the application,
appointed an Interim Resolution Professional and passed order of
moratorium with certain observations and directions in terms of ‘I & B

Code’.

2. Learned Counsel for the appel ant submitted that the impugned order was
passed by the Adjudicating Authority in violation of Rules of natural justice
without giving any notice to the Appel ant - ‘Corporate Debtor’.

3. It was also submitted that no post filing notice under Rule 4(3) of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (hereinafter referred to as ‘Adjudicating Authority Rules’) was given by
the respondent - “Financial Creditor”. A notice was served on appel ant,

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PRACTICAL ASPECTS OF INSOLVENCY LAW
purported to be a notice under Rule 4(3), was pre-filing notice with wrong
date of admission of the application mentioned therein.

4. It was further submitted that a record of default recorded with the
information utility or a record of default available with any Credit Information

Company (CIBIL) or copies of entries in Banker’s book in accordance with
the Bankers Book Evidence Act, 1891 as required in terms of Form - I read
with Rule 4 of the Adjudicating Authority Rules was not filed. Reliance was
also placed on sub-section (3) of Section 7 to suggest that record of default
recorded with the information utility or such other record or evidence of
default as specified by Insolvency & Bankruptcy Board of India (IBBI) has
not been filed.

5. On the other hand, according to Learned Counsel for the respondents,
the appel ant has no locus to file this appeal after appointment of Interim

Resolution Professional, who has already taken over the management of
the ‘Corporate Debtor’. The powers of Board of Directors, since then stands
suspended in terms of Section 17(l)(a) & (b) of the ‘I & B Code’.

6. In so far as notice under Rule 4(3) is concerned, according to Learned

Counsel for the respondent proper notice was issued to the ‘Corporate Debtor’

who had appeared before Learned Adjudicating Authority on 17thApril 2017
and was given ample opportunity to present the case.

7. Relying on the decision of the Appellate Tribunal in Innoventive Industries

Ltd. v. ICICI Bank (Company Appeal (AT)(Ins.) Nos. 1 and 2 of 2017 decided
on 15th May 2017), it was contended that the Adjudicating Authority is
required to issue only a limited notice to the ‘Corporate Debtor’ before
admitting a case for ascertainment of existence of default. It was submitted
that along with application under Section 7 of ‘I & B Code’ preferred before
the Learned Adjudicating Authority, notice was issued to appel ant under

Rule 4(3) of the Adjudicating Authority Rules, intimating that the said
application is likely to be listed. Therefore, according to respondent there is
no violation of Rule 4(3) of the Rules or the principles of natural justice.

8. In so far as statement of account is concerned it was contended that

Learned Adjudicating Authority, before admitting the application under Section

7 of the ‘I & B Code’, is only required to ascertain whether there has been a
default of debt on the part of the ‘Corporate Debtor’. In the present case, the

‘Financial Creditor’, apart from filing the statement of accounts duly certified
by the office of the ‘Financial Creditor’s Company, filed records of default
which is available with CIBIL. In so far as Banker’s Book of Evidence Act,

1891 is concerned, it is submitted that the same is not applicable to the
non-banking financial companies.

PRACTICAL ASPECTS OF INSOLVENCY LAW

617

9. We have heard learned counsel for the parties and perused the record.

10. In “M/s. Innoventive Industries Limited Vs. ICICI Bank & Ann” - Company

Appeal (AT) (Insol.) No. 1 & 2 of 2017, this Appellate Tribunal by judgment
dated 15th May 2017, noticed the exception of the principle of rules of natural
justice, as fol ows: —

“42. From the aforesaid decisions of Hon’ble Supreme Court, the
exception on the Principle of Rules of natural justice can be summarised
as follows: —

(i) Exclusion in case of emergency,

(i ) Express statutory exclusion,

(iii) Where discloser would be prejudicial to public interests,

(iv) Where prompt action is needed,

(v) Where it is impracticable to hold hearing or appeal,

(vi) Exclusion in case of purely administrative matters,

(vi ) Where no right of person is infringed,

(vii ) The procedural defect would have made no difference to the outcome,

(ix) Exclusion on the ground of ‘no fault’ decision maker etc.”

11. In the said case this Appel ate Tribunal, taking into consideration the
facts that though notice was not issued to “M/s. Innoventive Industries

Limited” (Appel ant), but the said appel ant having appeared and heard by

Adjudicating Authority at the time of admission of the application under

Section 9 of the ‘I & B Code’, observe and held as under: —

“65. In the present case though no notice was given to the Appel ant
before admission of the case but we find that the Appel ant intervened
before the admission of the case and al the objections raised by appellant
has been noticed, discussed and considered by the ‘adjudicating authority’

while passing the impugned order dated 17th January 2017. Thereby, merely
on the ground that the Appellant was not given any notice before admission
of the case cannot render the impugned order illegal as the Appellant has
already been heard. If the impugned order is set aside and the case is
remitted back to the adjudicating authority, it would be ‘useless formality’

and would be futile to order its observance as the result would not be
different. Therefore, order to fol ow the principles of natural justice in the
present case does not arise.”

12. In the present case we find that the respondent issued post filing notice

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PRACTICAL ASPECTS OF INSOLVENCY LAW
under Rule 4(3) along with application under Section 7 of ‘I & B Code’. In the
said notice date of hearing was shown as 11th April 2017 but the matter was
listed before the Adjudicating Authority, a day earlier on 10th April 2017. In
the aforesaid background, the Adjudicating Authority adjourned the matter,
and directed to issue notice on respondent. When the application was taken
up for admission on 19th April 2017, the appel ant appeared through their
lawyers, Mr. Ketan Parikh with Mr. Pavan Godiawala. Paragraph 6 of the
impugned order dated 19th April 2017 suggests that both the counsel for the

“Financial Creditor” (Respondent) and “Corporate Debtor” (Appellant) were
heard wherein after the impugned order was passed.

In the aforesaid background, we hold that even if it is presumed that no
separate notice was issued by Adjudicating Authority to the “Corporate

Debtor”, the appel ant having heard before passing the impugned order, the
question of remitting the case for hearing on the ground of non-compliance
of principles of natural justice does not arise as it will be futile. For the
reason aforesaid we are not inclined to interfere with the impugned order
dated 19th April 2017 on the ground that no notice was issued to appel ant
by the Adjudicating Authority.

13. For the same reason, we also reject the plea taken by the appellant that
the notice under Rule 4(3) of the Adjudicating Authority Rules was a pre-
filing notice, wrong date of hearing having shown therein.

14. Whether enclosures of record of default or copies of entries in Banker’s

Book as required in terms of Form - 1, read with Rule 4 of the Adjudicating

Authority Rules and sub-section (3) of Section 7 of the ‘I & B Code’, is
mandatory or not fel for consideration before this Appel ate Tribunal in

Neelkanth Township & Construction (P.) Ltd. v. Urban Infrastructure

Trustees Ltd. - Company Appeal (AT) (Insolvency) No. 44 of 2017 by its
judgment dated 11thAugust 2017. In the said case, this Appellate Tribunal
held:

’18. It is wel settled that rules of procedure are to be construed not to
frustrate or obstruct the process of adjudication under the substantive
provisions of law. A procedural provision cannot override or affect the
substantive obligation of the adjudicating authority to deal with applications
under Section 7 merely on the ground that Board has not stipulated or
framed Regulations with regard to sub-section 3(a) of Section 7. The
language of Section 240, whereby Board have been empowered to frame
regulations is clear that the said regulation should be consistent with the

‘I & B’ Code and the rules made thereunder by the Central Government.

19. In exercise of power conferred by Section 239 read with Sections 7,

PRACTICAL ASPECTS OF INSOLVENCY LAW

619

8, 9 and 10 of the ‘I&B code, the Central Government framed the rules
known as “Insolvency & Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 (hereinafter referred to as ‘Adjudicating Authority Rules, 2016).

As per Rule 41, a ‘Financial Creditor’ required to apply itself or jointly in an
application under Section 7 in terms of Form-1 attached thereto. Part V of

Form-1 deals with particulars of ‘Financial Debt’ (documents, record and
evidence of default), as quoted below: —

“PART V

PARTICULARS OF FINANCIAL 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. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL

PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH A COPY OF

THE ORDER)

3. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY

(ATTACH A COPY OF SUCH RECORD)

4. 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)

5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT

REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH A

COPY)

6. A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT

INFORMATION COMPANY (ATTACH A COPY)

7. COPIES OF ENTIRES IN A BANKERS BOOK IN ACCORDANCE WITH

THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 of 1891)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN

ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT AND

THE AMOUNT IN DEFAULT”

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PRACTICAL ASPECTS OF INSOLVENCY LAW

20. The rules framed by the Central Government under Section 239 having
prescribed the documents, record and evidence of default as noticed
above, we hold that in absence of regulation framed by the Board relating
to record of default recorded with the information utility or other record of
evidence of default specified, “the documents”, ‘record’ and ‘evidence of
default’ prescribed at Part V of Form-1, of the Adjudicatory Rules, 2016
wil hold good to decide the default of debt for the purpose of Section 7 of
the ‘I & B Code’.

21. We further hold that the ‘Regulations framed by the Board’ being subject
to the provisions of ‘I & B Code’ and rules framed by the Central

Government under Section 239, ‘Part V of Form - 1 of Adjudicating

Authority Rules, 2016 framed by Central Government relating to

‘documents’, ‘record’ and ‘evidence of default’, will override the regulations,
if framed by the Board and if inconsistent with the Rule. However, it is
always open to Board to prescribe additional records in support of default
of debt, such as records of default recorded with the information utility or
such other record or evidence of default in addition to the records as
mentioned in Part V of Form-I.

22. At this stage, it is pertinent to note that the Board has also framed

Insolvency Resolution Process for Corporate Persons, Regulations, 2016

(‘Corporate Persons Regulation’ for short). It has come into force since

Notification dated 30th November 2016 was issued. Regulation 8 of

‘Corporate Persons Regulation’, 2016 relate to claims by ‘Financial Creditor’.

Regulation 11(2) relates to existence of debt due to ‘Financial Creditor’,
which is to be proved on the basis documents mentioned therein and
quoted below:—

“8. Claims by financial creditors.

(1) A person claiming to be a financial creditor of the corporate debtor
shal submit proof of claim to the interim resolution professional in
electronic form in Form C of the Schedule:

Provided that such person may submit supplementary documents or
clarifications in support of the claim before the constitution of the
committee.

(2) The existence of debt due to the financial creditor may be proved on
the basis of—

(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

PRACTICAL ASPECTS OF INSOLVENCY LAW

621

(i) a financial contract supported by financial statements as
evidence of the debt;

(i ) a record evidencing that the amounts committed by the financial
creditor to the corporate debtor under a facility has been drawn
by the corporate debtor;

(i i) financial statements showing that the debt has not been repaid; or

(iv) an order of a court or tribunal that has adjudicated upon the
non-payment of a debt, if any.”

23. ‘Form - C’ attached to the Regulation relates to proof of claim of

‘Financial Creditor’ whereunder at Serial No. 10, the ‘Financial Creditor’ is
supposed to refer the list of documents in proof of claim in order to prove
the existence and non-payment of claim dues to the ‘Operational Creditor’.

Therefore, the stand of the appel ant that the Board has not framed any

Regulations, relating to clause (a) of sub-section (3) of Section 7, cannot
be accepted.’

15. The case of the appel ant is covered by the decision in “Neelkanth

Township & Construction (P.) Ltd. (supra)”. For the said reason, the
contention with regard to documents, records and evidence of default as
raised by appel ant is also rejected.

For determination of the issue whether the “Corporate Debtor” can prefer
appeal under Section 61 of the ‘I & B Code’ through the Board of Directors,
which stand suspended after admission of an application it is necessary to
refer to Section 17, which reads as follows:—

“17. Management of affairs of corporate debtor by interim resolution
professional. —

(1) From the date of appointment of the interim resolution professional, —

(a) the management of the affairs of the corporate debtor shal vest in
the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate
debtor, as the case may be, shal stand suspended and be exercised
by the interim resolution professional;

(c) the officers and managers of the corporate debtor shal report to the
interim resolution professional and provide access to such documents
and records of the corporate debtor as may be required by the interim
resolution professional;

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PRACTICAL ASPECTS OF INSOLVENCY LAW

(d) the financial institutions maintaining accounts of the corporate debtor
shal act on the instructions of the interim resolution professional in
relation to such accounts and furnish al information relating to the
corporate debtor available with them to the interim resolution
professional.

(2) The interim resolution professional vested with the management of
the corporate debtor shall—

(a) act and execute in the name and on behalf of the corporate debtor all
deeds, receipts, and other documents, if any;

(b) take such actions, in the manner and subject to such restrictions, as
may be specified by the Board;

(c) have the authority to access the electronic records of corporate debtor
from information utility having financial information of the corporate debtor;

(d) have the authority to access the books of account, records and other
relevant documents of corporate debtor available with government
authorities, statutory auditors, accountants and such other persons
as may be specified”

16. From Clause (a) of sub-section (1) of Section 17 while it is clear that the

Management of affairs of the ‘Corporate Debtor’ stand vested with the ‘Interim

Resolution Professional’, such vesting is limited and restricted to the extent
of power vested under sub-section (2) of Section 17 which empowers the

‘Interim Resolution Professional’ to act and execute in the name of ‘Corporate

Debtor’ all deeds, receipts, and other documents, if any, to take such action
in the manner and subject to such restrictions, as may be specified by the

Board and have access of authority to the electronic records of ‘Corporate

Debtor’, books of account, records etc.

From the aforesaid provision we find that “Interim Resolution Professional’’

has not been vested with any specific power to sue any person on behalf of
the ‘Corporate Debtor’. However, in case of such difficulty, it is always open
to the ‘Interim Resolution Professional’ to bring to the notice of the

Adjudicating Authority for appropriate order.

17. Admittedly, ‘Corporate Debtor’ was a party respondent to the resolution
process when application under Section 7 or 9 is preferred. The ‘Corporate

Debtor’ represented itself, at the initial stage before the Adjudicating Authority
through the Board of Directors or person authorised by the Board of Directors.

It is only after hearing the ‘Corporate Debtor’ the Adjudicating Authority can
pass an order under Section 7 or 9, admitting or rejecting the application.

PRACTICAL ASPECTS OF INSOLVENCY LAW

623

18. Once the application under Section 7 or 9 is admitted, the ‘Corporate

Insolvency Resolution Process’ starts in such case one of the aggrieved
party being the ‘Corporate Debtor’ has a right to prefer an appeal under

Section 61, apart from any other aggrieved person like Director(s) of the
company or members, who do not cease to be Director(s) or member(s), as
they are not suspended but their function as ‘Board of Director(s)’ is suspend.

19. The ‘Corporate Debtor’ if represented before the Adjudicating Authority
through its Board of Directors or any person authorised by Board of Directors
or its officers, for the purpose of preferring an appeal, no objection can be
raised that the ‘Corporate Debtor’ cannot appear through its Board of Directors
or authorised person or officer through whom ‘Corporate Debtor’ represented
before the Adjudicating Authority.

Once a ‘Corporate Debtor’ appeared before the Adjudicating Authority through
its Board of Director(s) or its officers or through authorised person and is
heard before admission of an application under ‘I & B Code’, being aggrieved
such ‘Corporate Debtor’ cannot prefer an appeal under Section 61 on the
ground that the ‘Corporate Debtor’ appeared through another person ‘Interim

Resolution Professional’, though he had not appeared before the Adjudicating

Authority.

20. Though the Board of Directors or partners of ‘Corporate Debtor’, as the
case may be is suspended and their power can be exercised by the ‘Interim

Resolution Professional’, but such exercise of power is limited to the extent
to sub-section (2) of Section 17 of the ‘I & B Code’ and not for any other
purpose. If the matter is looked from another angle, it wil be clear as to why

‘Corporate Debtor’ should not be represented through ‘Interim Resolution

Professional’ for preferring an appeal under Section 61 of the ‘I & B Code’.

The Role of ‘Interim Resolution Professional’ starts after initiation of ‘Corporate

Insolvency Resolution Process’ against the ‘Corporate Debtor’. The ‘Interim

Resolution Professional’ once given consent to function directly or indirectly
he cannot challenge his own appointment, except in case where he has not
given consent. If the ‘Corporate Debtor’ is left in the hands of ‘Interim

Resolution Professional’ to raise his grievance by filing an appeal under

Section 61, it will be futile, as no ‘Interim Resolution Professional’ will
chal enge the initiation of ‘Insolvency Resolution Process’ which ultimately
result into the chal enge of his appointment.

21. For example, if an application under Section 7 or 9 is admitted and at
the stage of admission, the ‘Interim Resolution Professional’ is not appointed
and such appointment is made later on within 14 days of admission under

Section 16, then in case of appointment of an ineligible ‘Interim Resolution

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PRACTICAL ASPECTS OF INSOLVENCY LAW

Professional’ against whom a Departmental proceeding is pending, can the

‘Corporate Debtor’ prefer appeal under Section 61 challenging the appointment
of ‘Interim Resolution Professional’, if the ‘Corporate Debtor’ is asked to be
represented through the same very ‘Interim Resolution Professional’? The
answer wil be in negative means a ‘Corporate Debtor’ in such case cannot
be represented to the ‘Interim Resolution Professional’, whose appointment
is under challenge and for all purpose to be represented through the person
who represented the ‘Corporate Debtor’ at the stage of admission before the

Adjudicating Authority.

22. At this stage, it is desirable to notice that though pursuant to Section

17, the ‘Board of Directors’ of a ‘Corporate Debtor’ stand suspended (for a
limited period of ‘Corporate Resolution Process maximum 180 days or
extended period of 90 days i.e. 270 days), but they continued to remain as

Directors and members of the Board of Directors for all purpose in the records
of Registrar of Companies under the Companies Act, 2013.

23. For the reasons aforesaid, we also reject the plea taken by Learned

Counsel for the appel ant that the “Corporate Debtor” has no locus to prefer
appeal under sub-section (1) of Section 61 through its Board of Directors or
authorise person or its officers except through the “Interim Resolution

Professional”.

24. We find no merit in this appeal. It is accordingly dismissed. However, in
the facts and circumstances of the case the parties shal bear the respective
costs.

(Balvinder Singh)

(Justice S.J. Mukhopadhaya)

Member (Technical)

Chairperson

NEW DELHI

29th August 2017

PRACTICAL ASPECTS OF INSOLVENCY LAW

625

ANNEXURE X.26

IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH

MA 701 in C.P. 1055/I&BP/2017

Under section 33 & 60(5) of the IBC, 2016

In the matter of

Roofit Industries Limited

Jitender Kumar Jain

Resolution Professional

.... Applicant

Order delivered on 22.01.2018

Coram: Hon'ble Mr. B.S.V. Prakash Kumar, Member (Judicial)

Hon'ble Mr. V. Nal asenapathy, Member (Technical)

For the Applicant :

Jitender Kumar Jain

Resolution Professional

Per V. Nallasenapathy, Member (Technical)

ORDER

1. Mr. Jitender Kumar, the Resolution Professional of Roofit Industries Ltd.

filed this Application under sections 33 and under section 60(5) of the

Insolvency & Bankruptcy Code (the Code), praying for the fol owing reliefs :

(a) Pending disposal of this application, the Applicant be al owed to
continue to act as the Resolution Professional of the Corporate Debtor
from 26th December, 2017 til final disposal of this application.

(b) The Corporate Debtor be liquidated in terms of the provisions of the

Chapter - III of the Insolvency Code.

(c) To appoint some other insolvency professional as the liquidator of
the Corporate Debtor (in place of the Resolution Professional because
the Resolution Professional is unwilling to act liquidator of the

Corporate Debtor) as per the provisions of section 34 of the Insolvency

Code.

(d) To allow the payment of remuneration to the Applicant / Resolution

Professional for the period starting from 26th December, 2017 till

626

PRACTICAL ASPECTS OF INSOLVENCY LAW
final disposal of this application for acting as the Resolution

Professional of the Corporate Debtor at a rate equal to the
remuneration paid during the CIRP period as part of Corporate
insolvency resolution process cost or liquidation case, as the case
may be.

(e) Any other relief or reliefs in favour of the Applicant/ Corporate Debtor
as this Hon'ble Tribunal deems fit and proper.

2. The Corporate Debtor M/s. Roofit Industries Ltd. was put on in Insolvency

Resolution process, on its own Petition under section 10 of the Code, by an

Order of this Adjudicating Authority dated 28.06.2017. The Applicant herein
was appointed as Interim Resolution Professional, he has made a public
announcement of insolvency resolution process in two newspapers and on
the website of Insolvency and Bankruptcy Board of India (lBBI).

3. In the first meeting of the Committee of Creditors (CoC) held on 27.7.2017,
the Applicant was confirmed as Resolution Professional as per Section 22
of the Code. The Corporate Insolvency resolution period expired on

26.12.2017 and no extension of the Corporate Insolvency Resolution period
was sought. The Applicant states that no resolution plan has been received
and hence this Application is filed under section 33 of the Code seeking

Liquidation Order.

4. The Petition reveals that the fol owing are the immoveable properties of
the Corporate Debtor:

No.

Particulars

Type of

Property

1.

B-15, MIDC Mirjole, Ratnagiri - 415 639, Cement

Land, Building

Sheet Factory

& Plant &

Machinery

2.

Plot No.379, Village Abitghar, Taluka Wada, Dist.

Land, Building

Thane 421 363 Gat No.379-B (part) &

Plant &

Machinery

3.

B-42, SIPCOT Industrial Complex,

Land, Building

Gummidipoondi - 601 201, Chennai Survey

& Plant &

No.12 part, 13 part, 14 part & 19 part land

Machinery

4.

Survey No.206-207, District- Trivellore, Taluka

Land &

Gummidipoondi, Chennai.

Building

5.

Shop No.l , 5th floor, Topaz Building, Panjagutta,

Shop

Hyderabad.

PRACTICAL ASPECTS OF INSOLVENCY LAW

627

6.

A-91/92, MIDC Daund, Pune-Solapur Road,

Plant &

Kurkhumbh 413801 Plot No.A-91 and A-92

Machinery, Land
and Building

7.

E-25, MIDC, Chikalthana, Aurangabad - 431210

Land &

Plot No.E-25

Building

8.

2nd floor, South Square Building, Near Manorama Office

Junction, Ernakulam

9.

Plot No.39, B-Nanji Industrial Estate, S.

Land &

No.200/1/2, Village Kharadpada, Silvasa -

Building.

396203

5. The Petition further reveals that previously the assets of the Corporate

Debtor were attached under the provisions of Maharashtra Protection of

Interest of Depositors (in Financial Establishment) Act, 1999 by the
competent authority under the said Act and subsequently the said attachment
was released by the MPID Court by its Order dated 18.8.2017 made in an

Application filed by the Resolution Professional, which is inclusive of a sum
of Rs.40,00,000 in cash plus interest accrued. However, the said sum of

Rs. 40,00,000 is not yet received by the Resolution Professional.

6. The Petition also reveals that the valuation of properties was undertaken
by me resolution Professional by appointing two Valuers and the Report is
also enclosed. After the receipt of liquidation value of the Corporate Debtor,
two advertisements inviting expression of interest in terms of Section 25 of
the Code was given. The Petition further reveals that the fol owing expressions
of interest was received by the Applicant:

(a) Robuster Constructware LLP in respect of Kurkumbh property.

(b) PR Developers in respect of al the properties.

(c) Gummidipoondi Roofit Employees' Welfare Foundation for B-42

Gummidipoondi factory.

(d) Phoenix ARC Private Limited as resolution applicant.

(e) Madras Building Products Private Limited for B-42 Gummidipoondi

Factory.

(f) Mr. E. C. John in respect of Wada property.

7. The Applicant further submits that the fol owing two proposals were
received in respect of B-42 Gummidipoondi Factory :

(a) Gummidipoondi Roofit Employees' Welfare Foundation of 17

December, 2017.

628

PRACTICAL ASPECTS OF INSOLVENCY LAW

(b) Madras Building Products Private Limited on 18 December, 2017.

The above proposals were laid before the fourth meeting of the CoC held on

21 December, 2017.

8. The Applicant further states that Resolution Plan from Gummidipoondi

Roofit Employees' Welfare Association, which is only in respect of B-42

Gummidipoondi Factory (excluding other units), was received on the night
of 20th December, 2017 i.e. less than one day prior to the CoC meeting
scheduled at 11 a.m. on 21.12.2017 the said Resolution Plan was not
presented before the CoC because of the reason that the Resolution

Professional did not have enough time to examine the Resolution Plan.

However, the same was informed to the Coc.

9. Since the CIRP period of 180 days ended on 26.12.2017 and no Resolution

Plan for the Corporate Debtor is received by the Resolution Professional,
except for B-42 Gummidipoondi Factory only, submitted by the

Gummidipoondi Roofit Employees' Welfare Association, the Resolution

Professional filed this Application for liquidation under section 33 of the

Code. Considering the fact that the Resolution Plan submitted by the above
said Employees' Association is only in respect of Gummjidipoondi Factory
excluding other units, this Bench is of the view that the Resolution Plan
cannot be considered for a particular unit excluding others and hence, the
same cannot be considered as a Resolution at al under the Code.

10. On hearing the submissions of the Applicant and on reading the

Application and the documents enclosed therein, for the RP has complied
with the procedure laid under the Code r/w Regulations of CIRP, for the
valuation report filed by the valuer has not been disputed by the CoC, on
verification, we are of the view that this case is fit to pass liquidation order
as mentioned under sub-section 2 of section 33 of the Code and accordingly,
the Corporate Debtor is ordered to be liquidated.

11. The Resolution Professional/Applicant herein has stated that he is not
wil ing to act as a Liquidator of the Corporate Debtor. However, section 34(

1) of the Code provides that where the Adjudicating Authority passes an
order for Liquidation of the Corporate Debtor under section 33, the Resolution

Professional appointed for the Corporate Insolvency resolution process under

Chapter - II shall act as a liquidator for the purpose of liquidation unless
replaced by the Adjudicating Authority under sub-section (4). In view of this
provision, this Adjudicating Authority cannot concede the request of the

Applicant. Apart from this, the Resolution Professional having dealt with
the Corporate Debtor during the last six months it is not advisable to make
somebody else as Liquidator because of the mere reason that no funds are

PRACTICAL ASPECTS OF INSOLVENCY LAW

629
available with the Corporate Debtor to pay the remuneration for RP.

12. Consequently, the Applicant Resolution Professional is appointed as
the Liquidator as provided under section 34( 1) of the Code. Al powers of
the board of directors, key managerial personnel and the partners of the
corporate debtor, as the case may be, shal cease to have effect and shall
be vested in the liquidator;

13. This Bench hereby directs the personnel of the corporate debtor to extend
al assistance and cooperation to the liquidator as may be required by him
in managing the affairs of the corporate debtor.

14. Since Liquidation order has been passed no suit or other legal
proceedings shal be instituted by or against the Corporate Debtor, save
and except as mentioned in section 52 of the Code, as to institution of legal
proceedings by the Liquidator, he is at liberty to initiate suit or legal
proceedings with prior approval of this Adjudicating Authority, but this
direction shall not apply to legal proceedings in relation to such transactions
as may be notified by the Central Government in consultation with any
financial sector regulator.

15. This order shal be deemed to be a notice of discharge to the officers,
employees and workmen of the Corporate Debtor except to the extent of
business the Corporate Debtor carrying.

16. We hereby direct that the fee shal be paid to the Liquidator as envisaged
under Regulation 4 of IBBI (Liquidation Process) Regulations, which forms
part of the liquidation cost.

17. The Liquidator appointed herein is directed to issue public announcement
stating that the Corporate Debtor is in liquidation and also required to send
the copy of this Order to the concerned Registrar of Companies as required
under section 33(1) of the Code.

18. Accordingly, this Application is hereby al owed directing the Liquidator
appointed in this case to initiate liquidation process as envisaged under

Chapter-III of Insolvency and Bankruptcy Code 2016 by following the
liquidation process given in IBBI (Liquidation Process) Regulations 2016.

Sd/-

Sd/-

V. NALLASENAPATHY

B. S.V. PRAKASH KUMAR

Member (Technical)

Member (Judicial)

NOTES

Document Outline

- 1-77 Chapter 1 to 6.pdf
- 78-139 Chapter 7.pdf
- 140-209 Chapter 8-10.pdf
- 210-628 Annexure.pdf
- 1-77 Chapter 1 to 6.pdf
- 78-139 Chapter 7.pdf
- 140-209 Chapter 8-10.pdf
- 210-628 Annexure.pdf

Table of Contents

- 1-77 Chapter 1 to 6.pdf
- 78-139 Chapter 7.pdf
- 140-209 Chapter 8-10.pdf
- 210-628 Annexure.pdf
- 1-77 Chapter 1 to 6.pdf
- 78-139 Chapter 7.pdf
- 140-209 Chapter 8-10.pdf
- 210-628 Annexure.pdf