TaxTMI 
TaxTMI 
2017 (8) TMI 1198
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....h while rejected the objection as were raised by the Appellant, admitted the application and directed to refer the matter to the Insolvency Bankruptcy Board of India to recommend name of Interim Resolution Professional for his appointment. 2. Ld. Counsel for the Appellant - Corporate Debtor challenged the impugned order on different count. It was submitted that there is a pre-existing bona fide dispute between the parties and therefore, the insolvency application under Section 9 of the I&B Code is not maintainable. In support of aforesaid submission, it was contended that:- (i) there is no privity of contract with the Respondents; (ii) Respondents violated the contractual terms; (iii) Appellant disputed execution of contract; (iv) There is dispute about quantum of default; (v) There is a dispute as to who is the defaulter (whether the default can at all be attributed to Uttam Steels in view of actual liability being that of a 3rd party); (vi) There is a dispute as to whether the Respondents are Operational Creditors of the Appellant etc. 3. It was pointed out that the Respondents had issued a winding up notice on 8th December 2016 much prior to the issuance of s....
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....Counsel for the Respondents a joint petition by 'Operational Creditors' is maintainable. Joint petition per say would indicate or suggest the joinder of more than one cause of action to enable the parties/litigants to institute a proceeding jointly in the court of law by pleading inter alia a commonality of interest of reliefs. He further submitted that 'AIC Handles GmbH' (supplier) who entered into sales contract with the Appellant (Uttam Galva Steels Limited) for sale of steel billets for a value of US$ 10,800,000 and raised an invoice for US$ 10,787,040. According to Respondents, no disputes were raised by the Appellant with regard to delivery of the goods, either in terms of the quality or quantity. The debt, which was secured by a collateral security in the form of a Bill of Exchange for US$ 5,387,040 and US$ 5,400,000 was thereafter, assigned to 1st Respondent by forfeiting agreement by supplier. 7. He also highlighted facts relating to sale of goods through sale contracts. It was submitted that transaction was single and the same has not been split in two cause of actions as is erroneously contended by the Appellant. It is only the right to receive payment u....
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...., the substantive rights of the party. Therefore, the format of demand notice cannot be stated to be mandatory and that it does not suggest or mandate that it is to be issued by an 'Operational Creditor' personally. 11. Insofar as certificate by 'Financial Institutions' is concerned, it was contended that in the case of "Smart Timing Steel Ltd. v. National Steel & Agro Industries Ltd", the Appellate Tribunal while held the requirement of Certificate is mandatory, but in that case no such Certificate was filed by the party. In the said case the creditor had no office in India and no certificate of an 'financial institution' was filed. On the other hand, in the present case, the Respondents along with their application to the Adjudicating Authority has filed a certificate by a banking company which maintains its operations to prove that no payment has been received in response to the notice for demand issued under Section 8 of the I&B Code. Since the requirement of certificate by a financial institution which has been held to be mandatory is only for the purpose of confirming or ascertaining through, a trustworthy source like any financial institution to find....
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....a default in , respect of any financial debt has occurred. Sub-section (2) of Section 7 of the I&B Code provides that a Financial Creditor to make an application on the prescribed form and manner and with documents as prescribed in sub-section (3) of Section 7 of the I&B Code. The relevant provision of Section 7 of the I&B Code reads as follows:- "7. Initiation of corporate insolvency resolution process by financial creditor - (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor^ of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility ....
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....ction 9 of the Code, the right to file an application accrues after expiry of ten days from the delivery of Demand Notice or copy of invoice, as the case may be. If the Operational Creditor does not receive payment from the Corporate Debtor or notice of dispute under sub-section (2) of Section 8, the Operational Creditor only thereafter may file an application before the Adjudicating Authority for the initiation of corporate insolvency resolution process. 18. An application under Section 9 of I&B Code is required to be filed in such format and manner and accompanied by such fee, as may be prescribed. The Operational Creditor along with the application is required to furnish documents as mentioned in clause (a), (b), (c) and (d) of sub-Section (3) of Section 9 of I&B Code, and quoted below:- "9. Application for initiation of corporate insolvency resolution process by operational creditor - (1) After the expiry of the period of ten 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 secti....
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....ong with an application under Section 9 of the I&B Code ? 23. The aforesaid issue was considered by this Appellate Tribunal in "Smart Timing Steel Ltd. case (supra). By judgment dated 19th May 2017 in Smart Timing Steel Ltd. case (supra), Appellate Tribunal while held that filing of 'certificate of recognised financial institution' maintaining account of the 'Operational Creditor' confirming that there is no payment of unpaid operational debt made by the Corporate Debtor is mandatory, observed as follows:- "11. On perusal of entire Section (3) along with sub-sections and clauses, inclusive of proviso, it would be crystal clear that, the entire provision of sub-clause (3) of Section 9 required to be mandatorily followed and it is not empty statutory formality. 12. Sub-section (2) stipulates filing of an application under Section (1) only in the form and manner and accompanied with such fees as may be prescribed. The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 (hereinafter referred to as Adjudicating Authority Rules 2016' for short) are also enacted in exercise of the power conferred by Clauses (c), (d), (e), (f), of sub-secti....
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....ch case, effort must be to give a meaning to each and every word used by the legislature and it is not sound principle of construction to brush aside words in statute as being redundant or surplus, and particularly when such 10 words can have proper application in circumstances conceivable within the contemplation of the statute. 16. For determination of the issue whether a provision is mandatory or not, it will be desirable to refer to decision of Hon'ble Supreme Court in State of Mysore v. V.K. Kangan (1976) 2 SCC 895. In the said case, the Hon'ble Supreme Court specifically held: "10. In determining the question whether a provision is mandatory or directory, one must look into the subject matter and consider the importance of the provision disregarded and the relation of that provision to the general object intended to be secured. No doubt, all laws are mandatory in the sense they impose the duty to obey on those who come within its purview. But it does not follow that every departure from it shall taint the proceedings with a fatal blemish. The determination of the question whether a provision is mandatory or directory would, in the ultimate analysis, depend upon the ....
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....of the operational 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; (b) the repayment of unpaid operational debt- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.-For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred." 27. From a plain reading of sub-section (1) of Section 8, it is clear that on occurrence of default, the Operational Creditor is required to deliver the demand notice of unpaid Operational Debt and copy of the invoice demanding payment of the amount involved in the default to the Corporate Debtor in such form and manner as is prescribed. 28. Sub-rule (1) of Rule 5 of the 'Adjudicating Authority Rules' mandates the 'Operational ....
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....f 'Corporate Debtor', as apparent from last paragraph No. 6 of notice contained in Form - 3, and quoted above. Only if such notice in Form-3 is served, the 'Corporate Debtor' will understand the serious consequences of non-payment of 'Operational Debt', otherwise like any normal pleader notice /Advocate notice, like notice under Section 80 of C.P.C. or for proceeding under Section 433 of the Companies Act 1956, the 'Corporate Debtor' may decide to contest the suit/case if filed, distinct Corporate Resolution Process, where such claim otherwise cannot be contested, except where there is an existence of dispute, prior to issue of notice under Section 8. 32. In view of provisions of I&B Code, read with Rules, as referred to above, we hold that an 'Advocate/Lawyer' or 'Chartered Accountant' or 'Company Secretary' in absence of any authority of the Board of Directors, and holding no position with or in relation to the Operational Creditor cannot issue any notice under Section 8 of the I&B Code, which otherwise is a lawyer's notice' as distinct from notice to be given by operational creditor in terms of section 8 of the I&....
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.... whole, the width of "dispute" should cover all disputes on debt, default etc. and not be limited to only two ways of disputing a demand made by the operational creditor, i.e. either by showing a record of pending suit or by showing a record of a pending arbitration. The intent of the Legislature, as evident from the definition of the term "dispute", is that it wanted the same to be illustrative (and not exhaustive). If the intent of the Legislature was that a demand by an operational creditor can be disputed only by showing a record of a suit or arbitration proceeding, the definition of dispute would have simply said dispute means a dispute pending in Arbitration or a suit. 21. Admittedly in sub-section (6) of Section 5 of the 'I&B Code', the Legislature used the words 'dispute includes a suit or arbitration proceedings'. If this is harmoniously read with Section (2) of Section 8 of the 'I & B Code', where words used are 'existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings, 'the result is disputes, if any, applies to all 14 kinds of disputes, in relation to debt and default. The expression used in sub-....
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....n (6) of Section 5 of the I & B Code' and that such disputes are within the ambit of the expression, 'dispute, if any'. The record of suit or arbitration proceeding is required to demonstrate the same, being pending prior to the notice of demand under sub-section 8 of the 'I&B Code'. 26. It is a fundamental principle of law that multiplicity of proceedings is required to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the I&B Code' are confined to a dispute in a pending suit and arbitration in relation to the three classes under sub-section (6) of Section 5 of the 'I & B Code', it would violate the definition of operational debt under sub- section (21) of Section 3 of the I & B Code' and would become inconsistent thereto, and would bar Operational Creditor from invoking Sections 8 and 9 of the Code. 27. Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also cannot be confined to pending arbitration or a civil suit. It must include disputes pending before every judicial authority including mediation, conciliation etc. as long there are disputes as to existe....
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....tiation of liquidation proceedings against the corporate debtor and dispute is pending. Similarly, with regard to quality of foods, if the 'corporate debtor' has raised a dispute, and brought to the notice of the 'operational creditor' to take appropriate step, prior to receipt of notice under sub-section (1) of Section 8 of the 'I&B Code', one can say that a dispute is pending about the debt. Mere raising a dispute for the sake of dispute, unrelated or related to clause (a) or (b) or (c) of Sub-section (6) of Section 5, if not raised prior to application and not pending before any competent court of law or authority cannot be relied upon to hold that there is a 'dispute' raised by the corporate debtor. The scope of existence of 'dispute', if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of Section 5. It must be raised in a court of law or authority and proposed to be moved before the court of law or authority and not any got up or ma....