Power of NCLT to accept or reject joint application filed by operational creditor

UTTAM GALVA STEELS LTD. V. DF DEUTSCHE FORFAIT AG.

SHORT SUMMARY:

In this flash tabloid, the writer initiates by speak of the provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as “IBC”) in relation to power of NCLT to accept the Joint Application in case of Operational Creditor.

As IBC code has prescribed the Corporate Debtor. The main shove of the article, is upon the question “WHETHER JOIN APPLICATION FILED BY OPERATIONAL CREDITOR CAN BE ACCEPTED BY HON’BLE NCLT”.

In this editorial author discuss the provisions relating to power of NCLT to accept or reject joint application filed by operational creditor. The same has been decided in landmark judgement delivered by NCLT, New Delhi Bench in case of UTTAM GALVA STEELS LTD. (Here after referred as “OC”) V/S. DF DEUTSCHE FORFAIT AG. (Here after referred as “respondent”)

INTRODUCTION:

Power is given to Operational Creditor’s u/s 8 and 9 to file application against the corporate debtor in case of default in payment. As per language of Section 8 “An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed”.

After reading the language of section 8 question hoist in the mind “Whether joint application can be filed by the Operational Creditors or not”.

CASE ELEMENT:

A. Provisions Under the Act:

Section 8: An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

Section 9:  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 section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

B. SITUATION:

• Operational creditors filed a joint application under section 9 for the initiation of corporate insolvency resolution process against appellant-corporate debtor.
• Counsel for the Respondents submitted that in terms of Rule 10 of the ‘Adjudicating Authority Rules, 2016′, Rule 20, 21, 22, 23, 24 and 25 of the’ NCLT Rules 2016′ stands adopted. Reliance was also placed on notification dated 20.12.2016 whereby NCLT Rules, 2016 was amended and Rule 23A was inserted, which is as follows:—

“23A. Presentation of joint petition. – (1) The Bench may permit more than one person to join together and present a single petition if it is satisfied, having regard to the cause of action and the nature of relief prayed for, that they have a common interest in the matter.

(2) Such permission shall be granted where the joining of the petitioners by a single petition is specifically permitted by the Act. “

In view of Rule 23A it was contended that a joint petition is maintainable.

• Under sub-section (1) of Section 8 of the I&B Code, an ‘Operational Creditor’ on occurrence of a default, is required to deliver the notice of payment of unpaid debt or get copy of the invoice payment of the defaulted amount served on the Corporate Debtor. This is the condition, precedent under Sections 8 & 9 of the I&B Code, unlike Section 7 before making an application to the adjudicating authority under Section 9 of the I&B Code. Under sub-Section (1) of Section 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.

C. Findings of the NCLT Bench: 

From the perusal of provisions of sections 8 and 9, it is clear that, a notice under section 8 is to be issued by AN ‘Operational Creditor’ individually and the petition under section 9 has to be filed by Operational Creditor individually and not jointly.

Nowhere in the section mentioned that join application can be filed by the OC. Even the work AN is used by the legislature which shows that only an individual can file application as operational Creditor.

As per para 20 of the Judgement: Otherwise also it is not practical for more than one ‘operational creditor’ to file a joint petition.

• Individual Operational Creditors will have to issue their individual claim notice under section 8.
• The claim will vary.
• Date of notice under section 8 in different cases will be different.
• Petition under section 9 in the format would contain, separate individual data.

For the reasons aforesaid, it is to be held that a joint application under section 9 by one or more ‘operational creditor’ is not maintainable.

The Respondents have relied on Rule 23A on the NCLT Rules, 2016 but as the said Rule has not been adopted by Section 10 of the I&B Code, 2016, the Rule 23A is not applicable to the application under Section 9 of the I&B Code,2016. For the reasons aforesaid, we hold that a joint application under Section 9 by one or more ‘operational creditor’ is not maintainable.

Conclusion:  However, Initiation of insolvency resolution process by ‘Financial Creditor‘ either by itself or jointly with other Financial Creditors is provided in Section 7 of the I&B Code. As per sub-section (1) of Section 7 of the I&B Code, the trigger of filing of an application by a Financial Creditor by himself or jointly with other Financial Creditors before the Adjudicating Authority is when a default in , respect of any financial debt has occurred.

But in the case of the Operational Creditor due to follow the process of issue of demand notice u/s 8 and other above mentioned reasons joint application can’t be filed by the operational creditors.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at [email protected])

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