Insolvency Code procedure: certificate requirement is directory, and a duly authorized lawyer may issue the demand notice.
Section 9(3)(c) of the Insolvency and Bankruptcy Code was treated as directory rather than mandatory because the financial institution certificate served an evidentiary, procedural function and a mandatory reading would create an impractical and discriminatory threshold inconsistent with the Code's object. The Court also held that a demand notice under Section 8 may be issued by a duly authorized lawyer, since the statutory language and prescribed forms permit action through an authorised person and there was no prohibition excluding legal practitioners. The prior decision was set aside on both issues and the matter was remitted for further proceedings.
Issues: (i) Whether Section 9(3)(c) of the Insolvency and Bankruptcy Code, 2016 was mandatory or directory in an operational creditor's application; (ii) Whether a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 could be issued by a lawyer on behalf of the operational creditor.
Issue (i): Whether Section 9(3)(c) of the Insolvency and Bankruptcy Code, 2016 was mandatory or directory in an operational creditor's application.
Analysis: The statutory scheme of Sections 8 and 9 showed that the triggering conditions are default, delivery of demand notice or invoice, and non-payment or absence of a dispute within ten days. The requirement in Section 9(3)(c) for a certificate from the financial institution was treated as a piece of evidence and not as a condition precedent. Reading the Code with the Adjudicating Authority Rules and Forms, and applying harmonious and purposive construction, the provision was held to be procedural. The Court also noted that a mandatory reading would create an impossible and discriminatory threshold for some operational creditors, contrary to the object of the Code.
Conclusion: Section 9(3)(c) is directory and not mandatory.
Issue (ii): Whether a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 could be issued by a lawyer on behalf of the operational creditor.
Analysis: The expression "deliver a demand notice" in Section 8, read with Forms 3 and 5, contemplated action through an authorized person. The wide language of "authorized to act" and "position with or in relation to the operational creditor" included a lawyer duly authorized by the creditor. Section 30 of the Advocates Act, 1961 supported this construction, and there was no inconsistency requiring exclusion of legal practitioners. The Court rejected a restrictive interpretation and held that counsel's implied authority may extend to pre-litigation notice.
Conclusion: A lawyer duly authorized by the operational creditor can issue the demand notice under Section 8.
Final Conclusion: The impugned decision was set aside on both grounds, and the matters were sent back for further proceedings under the Code.
Ratio Decidendi: A procedural requirement in an insolvency application that serves only evidentiary purposes will be construed as directory where a mandatory reading would defeat the statutory object or create impossible compliance, and a demand notice required by statute may be issued through a duly authorized lawyer unless expressly prohibited.
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