2017 (5) TMI 373 - Tri - Insolvency and Bankruptcy

Attorney's Lack of Authority in Insolvency Case

The Tribunal held that the attorney holder lacked the authority to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, as ... Qualification of attorney holder to initiate proceeding under Section 7 of the Code of 2016 - corporate insolvency resolution proceeding under the Code of 2016 - Held that:- One may note here that under the power of attorney in question, the author thereof had bestowed various power on the attorney appointed thereunder which included the power to initiate winding proceeding as well. But then, in view of our foregoing discussion, its needs to be concluded conclusively that the power, so given to the attorney under the instrument above, can never be stretched to embrace the power to initiate a corporate insolvency resolution proceeding under section 7 of the Code of 2016. Code of 2016 itself constituted two totally new classes of Adjudicating Authorities for purpose of adjudication of the matters, covered by the Code, aforesaid and such Authorities were even not in existence when the power of Attorney was executed on 20.10.2014. All these speak loud and clear that under no circumstances, the power of attorney in question can be said to have authorised the attorney, appointed there-under, to initiate a corporate insolvency resolution proceeding under section 7 of the Code. I have no doubt, whatsoever, in my mind that when the financial creditor executed the power of attorney in question on 20.10.2014, he could not have visualized even remotely that the donee would be required, one day, to initiate a corporate insolvency resolution proceeding under the Code of 2016 which, as stated above, was not even in existence in 2014. Thus no hesitation in holding that Shri Srinjoy Bhattacharjee did not have requisite authority to initiate the proceeding under section 7 Code, 2016 against the corporate debtor. A perusal of the orders rendered by the learned Members of the NCLT, Kolkata Bench makes it clear. Therefore, this Bench has no occasion or the authority to embark upon the question which is sought to be presented before this court by the learned counsel for the corporate debtor.In view of the foregoing discussions, have found reason to concur with the finding arrived at by the learned Member (J) while differing respectfully from the conclusion, reached by the learned Member (T), NCLT, Kolkata Bench.Resultantly, the reference is answered as stated above. Issues Involved:1. Competence of the attorney holder to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Interpretation of the power of attorney executed in favor of the attorney holder.3. Requirement of specific authorization to initiate Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016.4. Whether the corporate debtor must be given an opportunity to object to the initiation of proceedings under Section 7 of the Code.Issue-wise Detailed Analysis:1. Competence of the Attorney Holder to Initiate Proceedings Under Section 7 of the Insolvency and Bankruptcy Code, 2016:The primary issue was whether the attorney holder, Mr. Srinjoy Bhattacharjee, had the requisite power to initiate a corporate insolvency resolution process under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code of 2016). The financial creditor argued that the power of attorney explicitly empowered the attorney holder to initiate various legal proceedings, including insolvency proceedings before the NCLT. However, the corporate debtor contended that the power of attorney, executed in 2014, could not have anticipated the specific provisions and requirements of the Code of 2016, which came into existence later. The Tribunal concluded that the power of attorney did not explicitly authorize the initiation of proceedings under the Code of 2016, as such authority could not have been contemplated at the time of its execution.2. Interpretation of the Power of Attorney Executed in Favor of the Attorney Holder:The Tribunal examined the relevant clauses of the power of attorney to determine whether it conferred the necessary authority to initiate proceedings under the Code of 2016. The financial creditor relied on clauses that broadly authorized the attorney to initiate various legal proceedings. However, the Tribunal emphasized that powers of attorney must be strictly construed, and general words must be limited to the specific purposes for which the authority was given. The Tribunal referred to precedents, including the decision in P.M. Desappa Nayanim Varu v. Ramabhaktula Ramiah, which underscored the principle that powers of attorney must be interpreted narrowly and in light of the specific context in which they were executed.3. Requirement of Specific Authorization to Initiate Corporate Insolvency Resolution Process Under the Insolvency and Bankruptcy Code, 2016:The Tribunal held that initiating a corporate insolvency resolution process under the Code of 2016 required specific authorization, which was not present in the power of attorney executed in 2014. The Tribunal noted that the Code of 2016 introduced a new regime with detailed procedures for insolvency and bankruptcy, which were fundamentally different from the procedures under previous laws. Therefore, the general authorization to initiate legal proceedings could not be stretched to include the specific authority required under the Code of 2016.4. Whether the Corporate Debtor Must Be Given an Opportunity to Object to the Initiation of Proceedings Under Section 7 of the Code:The corporate debtor argued that it should be given an opportunity to object to the initiation of proceedings under Section 7 of the Code, as it would suffer significant consequences if the proceedings were admitted. The financial creditor countered that the Tribunal's mandate was limited to determining the competence of the attorney holder and not to address the broader procedural fairness issues. The Tribunal agreed with the financial creditor, stating that its role was confined to resolving the specific question of the attorney holder's authority under the power of attorney and not to address procedural fairness concerns.Conclusion:The Tribunal concluded that the attorney holder did not have the requisite authority under the power of attorney to initiate proceedings under Section 7 of the Code of 2016. The Tribunal concurred with the opinion of the learned Member (Judicial) and differed from the conclusion reached by the learned Member (Technical) of the NCLT, Kolkata Bench. The reference was answered accordingly, and the matter was directed to be sent back to the NCLT, Kolkata Bench for further proceedings.