Case Law Details
Persons Authorised to file Applications under Insolvency & Bankruptcy Code [IBC] in National Company Law Tribunal [NCLT]
The National Company Law Appellate Tribunal [NCLAT] Judgment dated Sept. 20, 2017 wherein it has been held that a Power of Attorney [POA] Holder is not authorised to file proceedings under IBC and only an ‘Authorised Representative’ by the Board of Directors can file the same.
Background:
ICICI Bank had initiated CIRP against M/s Palogix, the Corporate Debtor for default in honouring its debt obligations. NCLT vide order dated May 16, 2017 accepted the application and appointed an IRP. The Corporate Debtor, M/s Palogix had not raised any dispute with respect to the existence of debt and default on their part.
The issue which was raised by the M/s Palogix that person initiating the Corporate Insolvency Resolution Process [CIRP] was authorised by a Board Resolution of 2002 and 2009, which was much before the IBC was enacted.
When application was taken by the division bench of NCLT, Kolkata, the Member (Judicial) and Member (Technical) had divergent views and hence the matter was referred to the larger bench. By a majority judgment, NCLT held that that for initiating CIRP, there should be a specific authorization to the POA holder.
The Corporate Debtor, M/s Palogix Infrastructure preferred an appeal before NCLAT the order of NCLT dt. April 12, 2017 (vide which ICICI Bank, the
Financial Creditor was allowed to rectify the defects in Form.1) and also against order dated May 16, 2017 ordered appointment of IPR.
Issues:
- Whether the Constituted Attorney authorised on 20/10/2014 to file suits and/or proceedings against the company for recovery of the amount and also to affirms plaints cum affidavits and other pleadings in any court of India including NCLT can file application for initiation of corporate insolvency process under Sec.7 of IBC without having specifically authorized to lodge Application/Petition under IBC?
- The question arises whether the ‘Power of Attorney Holder’ given power of attorney prior to enactment of ‘I&B Code’, is entitled to file an application under Section 7 or 9 or 10 of the ‘I&B Code’?
The Judgment of NCLAT
- As per Sec.179 of the Companies Act, 2013, empowers the Board of Directors to do all such acts that a company is authorised to do. A company being a juristic person is capable of initiating and defending legal proceedings and, therefore, the Board of Directors is empowered to exercise such rights on behalf of the Company or may duly empower ‘Authorised Representative’ to do so on its behalf. (para -15)
- The person authorised by the Board of Directors is duly empowered to initiate or defend any legal proceedings by or against the ‘Financial Creditor‘/ Corporate Debtor’ in any Court of law including the matters relating to Insolvency and Bankruptcy proceedings. (para -16).
- NCLAT held that a ‘Power of Attorney Holder’ is not competent to file an application on behalf of a ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Corporate Applicant’.
- If a general authorisation is made by any ‘Financial Creditor’ or ‘Operational Creditor‘ or ‘Corporate Applicant’ in favour of its officers to do needful in legal proceedings by and against the ‘Financial Creditor’ / ‘Operational Creditor’/ ‘Corporate Applicant’, mere use of word ‘Power of. Attorney’ while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an ‘authorization’ by the ‘Financial Creditor’/ ‘Operational Creditor’/ ‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the ‘Authorized Representative’ for the purpose of filing any application under section 7 or Section 9 or Section 10 of ‘I&B Code’.
- NCLAT rejected the arguments of the Appellants with respect to the applicability of Order-III of Civil Procedure Code [CPC], which deals with appearance through Recognized Agents and Pleaders on the ground that the procedure prescribed under CPC is not applicable to IBC, being a special law.
Views of the Author
IBC being a special law, the initiation of the CIRP shall be done as prescribed under the IBC. Under Sec.239 of the IBC, the Central Government may, by notification, make rules for carrying out the provisions of this Code. The Ministry of Corporate Affairs, acting on behalf of the Central Government has formed the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [IBAAA Rules] . Rule-4 of the IBAAA prescribes the method of moving an `Application by Financial Creditor’. The application shall be in Form-1 for a Financial Creditor and Form-3 in Operational Creditor. Both the forms have used the term ‘Person Authorised’. Authorization by a Corporate Debtor [be it a Company /any other Body Corporate/LLP], shall be done by means of an authorization by the Board of Directors/Governing Body etc. The Board may authorise the MD/Whole-Time Director/CEO/KMP to initiate legal proceedings on behalf of the Corporate Debtor, which may include CIRP under the IBC. Initiating Corporate Insolvency Resolution Process [CIRP], it is advisable that such power should be granted by the Board only to Senior Officials [MD/CEO/KMP/General Counsel/ Head Legal] of the Company as proceedings under IBC is a serious process and it is not one of the routine legal proceedings (when compared to filing / defending a suit/arbitration etc.) This is also because under sec.65 of IBC “if, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees” This has been also observed by NCLAT in its above judgment.
Such matters are procedural matters but should be minutely observed as many times lot of time and cost is incurred in defending procedural lapses.
Rajiv Choubey
LLB, ACS,
General Counsel
HCL Infosystems Limited
NB: These above are personal views and does not reflect any organisation views.
