“IBC is not a Recovery Law, it is Revival Law”
In this Flash editorial, the author begins by referring the provisions of Section 9(3) (c) of IBC, 2016 in relation to Certificate from Financial Institution. Since the code come into effect from December 2016 all the applicants/ creditors have begun to file applications under the Code. As per provision of the Code in case of filing of application by Operational Creditor, one of the condition creditor shall submit a ‘Certificate from the Financial Institution”. In some situations Financial Institutions Deny or operational creditor file the application with Bank Statement only. The main thrust of the article, however, is upon the “Filing of certificate from the Financial institution is mandatory or Directory.”
In this editorial author discuss the decisions of Hon’ble National Company Law Appellate Tribunal (NCLAT), in case of Smart Timing Steel Ltd. v/s National Steel and Agro Industries. This article contains provisions of Certificate from financial institution, key findings of the case.
This appeal under Section 61 of Insolvency & Bankruptcy Code has been preferred by appellant against Order dated 31st January 2017 passed by ‘Adjudicating Authority’ in Mumbai Bench in C. P. No. 06/1 & BP/NCLT/MAH/2017.
Case Law Detail:
|Case Name||Smart Timing Steel Limited V. National Steel and Agro Industries|
|Bench Name||The National Company Law Appellate Tribunal (NCLAT)|
|Date of Order||19th May, 2017|
|Order Passed by||Justice Sudhansu Jyoti Mukhopadhaya, Chairperson
Balvinder Singh, Technical Member
FACT OF THE CASE:
1. The appellant who claimed to be ‘Operational Creditor’ filed an application under section 9 for initiation of corporate insolvency resolution process, enclosing some of the relevant documents. However, no copy of the certificate from the Financial Institution maintaining account of the ‘Operational Creditor’ as prescribed under clause (c) of sub-section (3) of section 9 was enclosed. For the said reason the adjudicating authority rejected the appellant’s application.
2. The appellant is a foreign company of Hong-Kong having no office or bank account in India. As the appellant has no account in any scheduled bank or ‘Financial Institution’ as defined in section 45-I of the RBI Act 1934 nor having such account with ‘Public Financial Institution’ as defined in clause (72) of section 2 of the Companies Act 2013 or with any other institution notified by Central Government as ‘Financial Institution’, it failed to enclose any certificate from ‘Financial Institution’ maintaining account of the ‘Operational Creditor’
III. Learned counsel appearing on behalf of the appellant submitted that the foreign companies and multi-national companies having no office or having no account in India with any of the ‘Financial Institution’ will suffer to recover the debt as due from ‘Corporate Debtors’ of India. Therefore, the word ‘shall’ used in sub-section (3) of section 9 for furnishing documents etc. should be read as ‘may’, and hold that sub-section (3) of section 9 is directory.
PROVISIONS RELATING TO CERTIFICATE FROM FINANCIAL INSTITUTION UNDER THE IBC, 2016:
AS PER SECTION 9(3) (c) “the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. The application shall be filed in form – 5. The operational creditor shall, along with the application furnish— a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor;”
AS PER SUB-SECTION (14) of Section 3 defines ‘Financial Institution’ means–
|(a)||a scheduled bank;|
|(b)||financial institution as defined in section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934); and|
|(c)||Public financial institution as defined in clause (72) of section 2 of the Companies Act, 2013 (18 of 2013); and|
|(d)||such other institution as the Central Government may by notification specify as a financial institution;|
The provisions of sub-section (3) mandate the operational creditor to furnish copy of invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor, an affidavit to the effect that, there is no notice given by the corporate debtor relating to dispute of unpaid operational debt, a copy of the certificate from the ‘Financial Institutions’ maintaining accounts of the operational creditor confirming that, there is no payment of an unpaid operational debt by the corporate debtor and such other information as may be stipulated. Sub-section (5) of section 9 is procedure required to be followed by Adjudicating Authority.
FINDINGS OF THE NCLAT BENCH:
Based on the above factual background, the NCLAT dismissed the application, and held as follows:
* One of the cardinal principles of interpretation of statute is that, the words of statute must prima facie be given their ordinary meaning, unless of course, such construction leads to absurdity or unless there is something in the context or in the object of the statute to the contrary. When the words of statute are clear, plain and unambiguous, then, the courts are bound to give effect to that meaning, irrespective of the consequences involved.
* 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.
* The provision being “directory” or “mandatory” has fallen for consideration before Hon’ble Supreme Court on numerous occasions. In Manilal Shah Sardar Sayed Ahmed 1 SCR 108, the Hon’ble Apex Court held that where statute itself provide consequences of breach or non-compliance, normally the provision has to be regarded as having mandatory in nature
* The argument that the foreign companies having no office in India or no account in India with any ‘Financial Institution’ will suffer in recovering the debt from corporate debtor cannot be accepted as apart from the Code, there are other provisions of recovery like suit which can be preferred by any person.
Based on the above judgment NCLAT has cleared that the entire provision of sub- clause (3) of Section 9 required to be mandatorily followed and it is not empty statutory formality. Even the time is given to the petitioner for submission of certificate from the financial institution. Therefore, Certificate from the financial institution is mandatory in case of filing of application by operational creditor.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at email@example.com)