2017 (6) TMI 880 - AT - Insolvency and Bankruptcy

Tribunal Upholds Rejection of CIRP Application Due to Non-Compliance with Statutory Requirements

The tribunal upheld the Adjudicating Authority's decision to reject the application for initiation of Corporate Insolvency Resolution Process due to the ... Mandatory compliance of Section 9(3)(c) of the Insolvency and Bankruptcy Code - requirement of certificate from the financial institution maintaining accounts of the operational creditor - mandatory versus directory character of statutory procedural requirements - power to permit rectification of defective applications under the proviso to sub-section (5) of Section 9Mandatory compliance of Section 9(3)(c) of the Insolvency and Bankruptcy Code - requirement of certificate from the financial institution maintaining accounts of the operational creditor - mandatory versus directory character of statutory procedural requirements - power to permit rectification of defective applications under the proviso to sub-section (5) of Section 9 - Filing of a copy of the certificate from the financial institution maintaining accounts of the operational creditor as prescribed by clause (c) of sub-section (3) of Section 9 of the I&B Code is mandatory and non-compliance justifies rejection of the Section 9 application when defects are not cured within the time allowed under the proviso. - HELD THAT: - The Court examined Section 9 read as a whole, the rules framed thereunder and principles distinguishing mandatory from directory provisions. Sub-section (3) of Section 9 expressly requires the operational creditor to furnish, inter alia, a certificate from the financial institution confirming non-payment by the corporate debtor; sub-section (5) prescribes the consequences of an incomplete application and the proviso gives a limited, seven-day opportunity to rectify defects. Applying established principles of statutory interpretation, including that clear, plain and unambiguous statutory words are to be given their ordinary meaning, the Tribunal held that the use of 'shall' in sub-section (3) manifests a mandatory legislative requirement and is not a mere procedural formality. The adjudicating authority therefore correctly required the certificate and, after giving the appellant the statutory opportunity to cure the defect within seven days, legitimately rejected the petition when the document was not furnished. Reliance on decisions holding purely procedural time-limits directory was distinguished as inapplicable, and prior Appellate Tribunal authority upholding the mandatory nature of the proviso to sub-section (5) of Section 9 was followed. [Paras 11, 16, 18, 20, 22]The requirement to file the certificate under clause (c) of sub-section (3) of Section 9 is mandatory; the appellant's failure to furnish it within the time permitted justified dismissal of the Section 9 application, and the appeal is dismissed.Final Conclusion: The Appellate Tribunal dismissed the appeal and upheld the rejection of the Section 9 petition for failure to comply with the mandatory requirement to furnish the certificate from the financial institution, the defect not having been cured within the statutory time; no order as to costs. Issues Involved:1. Whether the filing of a certificate from a Financial Institution maintaining accounts of the Operational Creditor confirming non-payment of unpaid operational debt by the Corporate Debtor, as prescribed under Section 9(3)(c) of the Insolvency and Bankruptcy Code (I&B Code), is mandatory or directory.Issue-wise Detailed Analysis:1. Mandatory Nature of Certificate from Financial Institution:The primary issue for determination was whether the filing of a certificate from the Financial Institution maintaining accounts of the Operational Creditor, confirming non-payment of unpaid operational debt by the Corporate Debtor, as required under Section 9(3)(c) of the I&B Code, is mandatory or directory.The appellant, a foreign company with no office or bank account in India, filed an application under Section 9 of the I&B Code for initiation of Corporate Insolvency Resolution Process but failed to annex the required certificate from a Financial Institution. The Adjudicating Authority rejected the application due to this non-compliance.Upon examining Section 9 of the I&B Code, it was evident that the provision mandates the filing of such a certificate. The relevant definitions and provisions were reviewed, including the definition of 'Financial Institution' under Section 3(14) of the I&B Code, which includes scheduled banks, financial institutions as defined under the RBI Act, public financial institutions as defined under the Companies Act, and other institutions notified by the Central Government.The appellant argued that the requirement should be interpreted as directory, not mandatory, citing the Supreme Court decision in 'Kailash v. Nanhku and Others' [2005] 4 SCC 480. However, the tribunal distinguished this case, noting that the Supreme Court's decision pertained to procedural time limits, whereas Section 9(3)(c) involves a substantive requirement.2. Interpretation of Statutory Provisions:The tribunal emphasized that statutory provisions must be interpreted based on their plain and ordinary meaning unless such interpretation leads to absurdity. The words used by the legislature are presumed to declare legislative intent, and courts must give effect to this intent, particularly when the words are clear and unambiguous.The tribunal referred to the Supreme Court's decision in 'State of Mysore v. V.K. Kangan' [1976] 2 SCC 895, which held that the determination of whether a provision is mandatory or directory depends on the intent of the law-maker, gathered from the provision's phraseology, nature, design, and consequences of different interpretations.3. Compliance with Procedural Requirements:The tribunal noted that the I&B Code and the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 prescribe specific procedural requirements for filing an application for corporate insolvency resolution. Rule 6 of the Adjudicating Authority Rules 2016 mandates that an operational creditor must make an application in Form 5, accompanied by the required documents and records, including the certificate from a Financial Institution.The tribunal held that the provisions of Section 9(3) are mandatory and not merely procedural formalities. The appellant was given an opportunity to rectify the defect by submitting the required certificate within seven days but failed to do so.4. Alternative Remedies for Foreign Creditors:The appellant's argument that foreign companies without an office or bank account in India would suffer in recovering debts from Indian Corporate Debtors was dismissed. The tribunal noted that apart from the I&B Code, other legal provisions, such as filing a suit, are available for debt recovery.Conclusion:The tribunal found no merit in the appeal and dismissed it, upholding the Adjudicating Authority's decision to reject the application due to non-compliance with the mandatory requirement under Section 9(3)(c) of the I&B Code. The tribunal emphasized the importance of adhering to statutory requirements and provided clarity on the mandatory nature of the certificate from a Financial Institution in insolvency proceedings.