In the case of Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. [Civil Appeal No.15135 of 2017 with C.A. Nos. 15481 & 15447 of 2017], the Hon’ble Supreme Court dealt with and settled the position in respect of the following issues:
- Whether Section 9(3)(c) of the Insolvency and Bankruptcy Code, 2016 (“Code”) is directory or mandatory in nature?
- Whether the demand notice to be issued by an Operational Creditor to the Corporate Debtor under Section 8 of the Code could be issued by a legal practitioner, or an authorized representative, on behalf of the Operational Creditor?
This matter came before the Hon’ble Supreme Court after the NCLAT and the NCLT had dismissed the application of the Appellant to initiate Corporate Insolvency Resolution Process (“CIRP”). The reason for such dismissal was the holding of the NCLAT and the NCLT that the provisions of Sections 8 and 9(3) of the Code were mandatory in nature. Thus, non-compliance with requirements such as non-presentation of certificate providing for no dues being owed by the Corporate Debtor to the Operational Creditor and the demand notice to be issued only and specifically by the Operational Creditor, were stated as grounds for dismissal of the CIRP application.
The Hon’ble Supreme Court differed with the opinions of the NCLAT and the NCLT and held that Sections 8 and 9(3) of the Code are relevant to the operational creditors, who were unable to initiate the CIRP proceedings owing to the fact that they either unable to produce the required certificates in the form as is provided under the Code or due to the Operational Creditor not having issued the demand notice himself/herself. This specific concern here was for the foreign creditors who were specifically unable to comply with the said requirements.
The Hon’ble Supreme Court held that 9(3)(c) which reads “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”, is not a condition precedent for bringing the insolvency machinery in motion under the Code. It was of the view that the certificate required to be presented was only to be used as evidence in order to confirm the existence of the debt. Thus, it is not a precondition. The Hon’ble Court held that Section 9(3)(c) is merely directory in nature and hence, cannot be applied mandatorily. It was of the view that there was no need to impose procedural hurdles in the way of the operational creditors, especially the foreign creditors.
In the context of the second issue, the Hon’ble Supreme Court looked into the language of Section 8 of the Code, specifically emphasising on the term “delivery” of the demand notice. The Apex Court observed that the intent behind the above provision is not i mandatory enforcement, and instead, a wider interpretation needs to be given to both the provisions of Section 8 and 9 of the Code. The Hon’ble Supreme Court was also of the view that insisting upon the Operational Creditors to himself/ herself signing the demand notices would often result in undue delay and inconvenience, especially in cases of foreign creditors.
The Hon’ble Supreme Court further looked into the Advocates Act, 1961 and held that term “practice” has a wider scope and is inclusive of all the steps that are part of the preparation for filing of an application before a Tribunal. Herein, the NCLAT and the NCLT are Tribunals. Thus, a demand notice can be served by a lawyer to the Corporate Debtor on behalf of the Operational Creditor. Thus, the Apex Court allowed the appeal filed by the Bank and set aside the orders of the NCLAT.