2017 (7) TMI 505 - Tri - Insolvency and Bankruptcy

Petition rejected for non-compliance with mandatory requirements under Insolvency and Bankruptcy Code

The petition was rejected by the tribunal due to the petitioner's non-compliance with the mandatory requirement of Section 9(3)(c) of the Insolvency and ... Corporate Insolvency Resolution Process - Insolvency and Bankruptcy Code, 2016 - Whether the instant petition has been filed on the basis of a valid power of attorney? - Held that:- Under sections 271 and 272 of the Companies Act, 2013 as originally enacted, any creditor or creditors could file a petition for winding up of the company for its inability to pay the debts. These provisions had not been enforced till the time, the Code, became effective. The clause pertaining to the inability of the company to pay the debt entitling the creditor to file a petition for winding up, has been omitted as per the amendment to these sections incorporated in the 11th Schedule of the Code. So, the only remedy to a creditor against a company is to take steps for winding up of the company, for which the appropriate recourse is provided under sections 7 and 9 of the Code exclusively in respect of the financial and operational creditors respectively. So, the authority in favour of Pankaj Sachdeva, which is recent in time, authorising him to file the winding up petition etc. would fully cover the authority to file the insolvency resolution process under the Code. Whether the petitioner is entitled to file this petition as an assignee of the original supplier? - Held that:- In view of the above admitted documents, the petitioner would definitely comes within the definition of the term 'operational creditor', as defined under Section 5(20) of the Code, as meaning a person to whom an operational debt is owed and includes the person to whom such debt has been legally assigned or transferred. The learned senior counsel for the respondent submitted that the documents relied upon by the petitioner would not be the illegal assignment, but perusal of the definition shows that it has wide connotation to include the petitioner without an iota of doubt. The respondent's version is not that it has paid the amount of these supplies to the original supplier or to the petitioner. The issue is accordingly held in favour of the petitioner. Whether there is non-compliance of clause (c) of Section 9 (3) of the Code? If so, Its effect? - Held that:- The contention that the respondent is not prejudiced, having admittedly not made the payment cannot be accepted, there being non- compliance of the mandatory requirement of Section 9(3)(c) of the Code. The intent of the legislature for laying down the mandatory compliances is keeping in view the time line within which an application is required to be decided i.e. 14 days and that too even in the absence of the respondent despite being served or without calling upon the evidence. Therefore, there has to be uniformity. In ensuring the mandatory compliances as aforesaid. In the instant case, there being non-compliance of the mandatory requirement of Section 9(3)(c) of the Code-the Issue is held against the petitioner accordingly. Whether the petitioner had the notice of the existence of the dispute, as defined in the Code? - Held that:- 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.Having given my thoughtful consideration to the rival contentions of the learned counsel for the parties and appraisal of the documents on record, would decline to attach much weight to the fetters Annexures R-9 and R-10 in preference to the exchange of emails and contradictions referred to by learned senior counsel for the petitioner. For the same reason, the institution of civil suit in the Bombay High Court after the receipt of demand notice under Section 8 of the Code, is also not considered as of much help to the respondent. Whether the petitioner does not haw the locus-standi to file the instant petition, having already been reimbursed by the insurer of the goods? - Held that:- We do not think that the right of the petitioner, if otherwise maintainable, could be defeated solely on that ground, as the corporate debtor cannot escape from its liability under the contract, in case it has made a default in payment of debt. The issue is accordingly held against the respondent. Issues Involved:1. Validity of the Power of Attorney.2. Entitlement of the petitioner as an assignee of the original supplier.3. Compliance with clause (c) of Section 9(3) of the Code.4. Notice of the existence of the dispute.5. Locus-standi of the petitioner after being reimbursed by the insurer.Issue-wise Analysis:Issue No.1: Validity of the Power of AttorneyThe tribunal examined whether the petition was filed based on a valid power of attorney. The power of attorney dated 14.12.2016 authorized Mr. Pankaj Sachdeva to demand outstanding amounts, file suits, engage advocates, and undertake legal proceedings. The tribunal noted that the power of attorney was executed after the Insolvency and Bankruptcy Code (IBC) came into force, thus covering the authority to file insolvency resolution processes. The tribunal held that the power of attorney was valid and the issue was decided in favor of the petitioner.Issue No.2: Entitlement of the Petitioner as an AssigneeThe petitioner relied on a non-recourse receivables purchase agreement dated 27.07.2015, which allowed the original supplier to transfer receivables to a financial institution. The tribunal found that the petitioner, being a financial institution, was entitled to file the petition as an assignee. The tribunal dismissed the respondent's contention that the assignment was invalid due to a lack of prior written consent, as the sales contract allowed the transfer of receivables to a financial institution. The issue was decided in favor of the petitioner.Issue No.3: Compliance with Clause (c) of Section 9(3) of the CodeThe tribunal examined whether the petitioner complied with the requirement to furnish a certificate from a financial institution confirming non-payment of the operational debt. The petitioner filed the certificate late, and the tribunal noted that the petitioner, being a foreign bank, did not fall within the definition of a 'financial institution' under the Code. The tribunal referred to the National Company Law Appellate Tribunal (NCLAT) decision in 'Smart Timing Steel Ltd. v. National Steel and Agro Industries Ltd.,' which held that compliance with Section 9(3)(c) is mandatory. The tribunal concluded that the petitioner did not comply with this mandatory requirement, and the issue was decided against the petitioner.Issue No.4: Notice of the Existence of the DisputeThe tribunal considered whether the petitioner had notice of a dispute regarding the debt. The respondent had raised quality issues in a letter dated 11.04.2016 and reiterated these concerns in subsequent communications, including a reply to a statutory notice under Sections 433 and 434 of the Companies Act, 1956. The tribunal found that the dispute was raised before the IBC came into force and was sufficient to attract the provisions of Section 9(5)(ii)(d) of the Code. The tribunal referred to the NCLAT decision in 'MCL Global Steel (P.) Ltd. v. Essar Projects India Ltd.,' which supported the existence of a dispute. The issue was decided against the petitioner.Issue No.5: Locus-standi of the Petitioner after Reimbursement by the InsurerThe respondent contended that the petitioner had been reimbursed by the insurer and thus lacked locus-standi. The tribunal held that the corporate debtor could not escape liability under the contract even if the petitioner had been reimbursed. The issue was decided in favor of the petitioner.Conclusion:The petition was rejected based on the tribunal's findings on Issues No.3 and 4, which involved non-compliance with the mandatory requirement of Section 9(3)(c) of the Code and the existence of a dispute. The tribunal ordered that a copy of the decision be supplied to both parties.