Mandatory Filing of Certificate from Financial Institution in case of Operational Creditor - NCLT - INSOLVENCY CODE
Mandatory Filing of Certificate from Financial Institution in case of Operational Creditor
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NCLT - INSOLVENCY CODE
“IBC is not a
Recovery Law, it is Revival Law”
SHORT SUMMARY
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.
This is article no. 240 of the series of editorials
written by the author on corporate laws {Including Companies Act, 2013, SEBI,
RBI Regulations, IBC, LLP
Act, 2008 etc.}.
Case Law Detail:
Case Name
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Smart Timing Steel Limited V. National Steel and
Agro Industries
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Bench Name
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The National Company Law Appellate Tribunal (NCLAT)
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Link:
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Appeal No.
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Date of Order
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19th May, 2017
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Order Passed by
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Justice Sudhansu Jyoti Mukhopadhaya,
Chairperson
Balvinder Singh, Technical Member |
Section
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9
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Fact of the Case:
I.
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.
II.
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)
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a scheduled bank;
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(b)
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financial
institution as defined in section 45-1 of the Reserve Bank of India Act, 1934
(2 of 1934); and
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(c)
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Public financial
institution as defined in clause (72) of section 2 of the Companies Act, 2013
(18 of 2013); and
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(d)
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such other
institution as the Central Government may by notification specify as a
financial institution;
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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:
v 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.
v 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.
v The provision being
"directory" or "mandatory" has fallen for consideration
before Hon'ble Supreme Court on numerous occasions. In Manilal Shah v. Sardar
Sayed Ahmed [1955] 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
v 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.
Conclusion:
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.
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