TaxTMI 
TaxTMI 
2017 (4) TMI 1111
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.... 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, 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 Billets 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 Septe....
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....rmation 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 con....
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....t Uttam filed suit in respect of this claim against the creditors before Honorable 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 cred....
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.... 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/s 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 will 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 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 shall 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 sa....
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....tional 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 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................... 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 will not curtail the inclusi....
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.... 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 will be nothing but throwing this law into dust bin. We all know how much time is taking for logical end to winding up proceedings, by the time company liquidation happens, not even bones remain to creditors. All 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....
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....nding on the context". 30. In another case in between Karnataka Power Transmission Corporation and another v. Ashok Iron Works Pvt. Ltd. (2009) 3 SCC Page No.240in para 17, it has been held as follows: - "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" shall 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 fall under a particular category, then an inclusive definition will be given to include other categories, the same is....
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...."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 all 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 t....
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....stly 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 allowed 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 bulldozed upon fact finding courts, every decision turns on its facts. In Service Tribunals, 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 following 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 fa....
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.... by NCLT Principal Bench, New Delhi in One Coat Plaster and Others v. Ambience Pvt. Ltd. and Mis. Shivam Construction Company and Others v. Ambience Pvt. Ltd. and Philips India Limited v.. Goodwill Hospital & Research Centre Limited to say that if at all notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility the petition shall 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) (ii) (d). 42. With all 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 all these, confirmation of forfaiting in favor 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 ....
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....st 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 falling 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 b....
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.... 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 ....
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....o 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 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 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-at....
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....n the power of attorney that the attorney holders shall 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 shall 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 will take about 1 to 2 months to initiate proceedings under this Code. By navigating through all these documentation, we have not seen an....
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....covenant, the courts will only read what a statute actually 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 labeling reliefs in the Code as harsh remedy. 63. In Haryana Financial Corporation and Another vs. Jagadamba Oil Mills and another (2002) 3 SCC 496, it has been held as follows: "Courts should not place reliance on decisions without discussing as to how the factual situation fits into with the fact si....
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....ment, 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 bill 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 & Another v. Lt. Governor through Chief Secretary Delhi [2000] 1 SCC 644that 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 poin....
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....17 itself that is within 10 days from the date of receipt of notice, as envisaged under section 9(5)(ii)(d), the Company Petition by an order shall be rejected. 70. This argument will 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 no....
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....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 collaterals, 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 wh....
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....oney; second transaction happens in business operations, in both the cases money is involved, as days go by after transaction, the time value of money will 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 all, business always runs keeping in mind the time value of money, transaction will 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 fro....