2017 Supreme(SC) 1207

SUPREME COURT OF INDIA
R.F. Nariman, Navin Sinha, JJ.
Macquarie Bank Limited – Appellant
Versus
Shilpi Cable Technologies Ltd. – Respondent
Civil Appeal Nod. 15135, 15481 & 15447 of 2017
Decided On : 15-12-2017

IMPORTANT POINTS
Filing a copy of invoice/demand notice along with the application u/s 9(2) is mandatory.
Certificate from financial institution maintaining accounts of operational creditor confirming non-payment of unpaid operational debt by the corporate debtor u/s 9(3)(c) is not a condition precedent to triggering the insolvency process.
Rules made under a statute must be treated as if they were contained in the Act.
Creative interpretation means determining legislative intent looking at both the literal language as well as the purpose or object of the statute.
Purposive interpretation of penal statutes not ruled out.
An Order of Supreme Court dismissing an appeal at the threshold after hearing only the appellant is not a law declared and is of no precedential value.
Certificate referred to in Section 9(3)(c) is not a condition precedent.
Section 9(3)(c) is procedural and directory.
Notice sent on behalf of an operational creditor by a lawyer would be in order.
‘Practise’ in section 30, advocates Act, 1961 includes all preparatory steps leading to the filing of an application before a Tribunal.
If there is no inconsistency, two or more statutes should be read harmoniously.

Headnote:(a) Insolvency and Bankruptcy Code, 2016 – Sections 8, 9(1) and 9(3)(a) r/w Rule 5 and 6, Forms 3 and 5, Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – Mandatory condition precedent for filing application u/s 9(2) – Filing a copy of invoice/demand notice along with the application. (Para 11, 12)

       Civil Appeal No. 9405 of 2017 – Relied upon

       (b) Insolvency and Bankruptcy Code, 2016 – Section 9(3)(b) and 9(3)(c) – Affidavit u/s 9(3)(b) – Not applicable if Corporate debtor replying to Corporate creditor’s notice within 10 days – Certificate from financial institution maintaining accounts of operational creditor confirming non-payment of unpaid operational debt by the corporate debtor u/s 9(3)(c) – Not a condition precedent to triggering the insolvency process – ‘Conforming’ – Such certificate only a piece of evidence conforming non-payment. (Para 13)

       (c) Insolvency and Bankruptcy Code, 2016 – Section 9 r/w Form 5 under Rule 6 – Copies of relevant accounts of operational creditor – “If available” – Not a pre-condition to trigger the Code. (Para 15)

       (d) Interpretation of Statute and Rules – Rules made under a statute – Must be treated as if they were contained in the Act – However, in case of rules ultra vires the statute, they cannot override the statute – Instantly, rules merely fleshing out what is contained in the Code, must be construed along with the Code – Thus section 9(3)(c) is procedural and directory – Read with the Code, the Rules form a self-contained code being contemporanea expositio by the Executive. (Para 16)

       (1961) 2 SCR 679 – Relied upon

       (1972) 2 SCC 744; (2000) 5 SCC 451; (2006) 12 SCC 583 – Referred

       (e) Insolvency and Bankruptcy Code, 2016 – Sections 3(23), 3(14) and 9(3)(c) – A foreign supplier – A corporate creditor u/s 3(23) – Having bank/financial institution not covered u/s 3(14) – Cannot furnish certificate u/s 9(3)(c) – Cannot be discriminated under the Code – Article 14, Constitution of India – Such requirement cannot be condition precedent – Held, section 9(3)(c) is directory. (Para 17, 19)

       (1995) 1 SCC 133 – Relied upon

       (f) Insolvency and Bankruptcy Code, 2016 – Section 7 and 9 – Section 7 qua financial creditors and section 9 is qua operational creditors – Absence of requirement of bank certificate u/s 7 as against u/s 9 – Irrelevant. (Para 21)

       Civil Appeal Nos. 8337-8338 of 2017 – Relied upon

       (g) Interpretation of statute – Penal statutes – Modern trend of creative construction, purposive interpretation instead of strict construction – Departure from old traditional trend – Creative interpretation means determining legislative intent looking at both the literal language as well as the purpose or object of the statute – Purposive interpretation of penal statutes not ruled out. (Para 23)

       Criminal Appeal Nos. 1217-1219 of 2017 – Relied upon

       (2007) 2 SCC 230 – Referred

       (h) Insolvency and Bankruptcy Code, 2016 – Section 8, 9(3)(c) and (d) – Section 8 not prescribing any particular method of proof of occurrence of default – Section 9(3)(d) providing that debt can be proved by other documentary evidence – Taylor does not apply. (Para 25, 26)

       (1964) 1 SCR 926; (1989) 1 SCC 264 – Relied upon

       (1875) 1 Ch. D. 426; 63 IA 372 (1936) – Distinguished

       (i) Constitution of India – Article 141 – An Order dismissing an appeal at the threshold after hearing only the appellant – Not a law declared – Of no precedential value. (Para 28)

       (2000) 6 SCC 359 – Referred

       (j) Insolvency and Bankruptcy Code, 2016 – Section 9(3)(c) – Code requiring ‘clear evidence of default’ – Certificate referred to in Section 9(3)(c) not the only ‘clear evidence’ – Not a condition precedent – A procedural provision cannot be stretched and considered as mandatory, when it causes serious general inconvenience. (Para 30, 32)

       Civil Appeal No. 8400 of 2017; (1961) 3 SCR 763 – Relied upon

       (k) Insolvency and Bankruptcy Code, 2016 – Section 8 r/w Forms 3 and 5, Rules 5 and 6, Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – Word ‘delivered’ in section 8 and not ‘issued’ – Signifies delivery by authorized agent – Expressions “authorized to act” and “in relation to” in Forms 3 and 5 – Include an authorized agent or a lawyer acting on behalf of his client – Notice sent on behalf of an operational creditor by a lawyer would be in order. (Para 33, 36)

       (1984) 4 SCC 679; (2010) 9 SCC 524 – Relied upon

       (l) Advocates Act, 1961 – Section 30 – Practise – Includes all preparatory steps leading to the filing of an application before a Tribunal. (Para 34)

       (2003) 2 SCC 45; (2014) 8 SCC 319; (2017) 7 SCC 59 – Relied upon

       (m) Interpretation of statutes – Harmonious interpretation of different statutes – No inconsistency between section 9 of Insolvency and Bankruptcy Code, 2016, r/w Rules and Forms of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and section 30 Advocates Act, 1961 – Therefore, both the statutes must be read harmoniously – Thus, section 238 of the Code containing non-obstante clause will not override Advocates Act. (Para 36)

       (1976) 4 SCC 572; (1992) 1 SCC 335; (2009) 4 SCC 94 – Relied upon

       (n) Insolvency and Bankruptcy Code, 2016 – Section 8 – Not expressly including lawyers for purposes of issuing notice like in Rule 4, Debts Recovery Rules and Section 434(2), Companies Act, 1956 – Held, does not exclude them – Harmonious reading of the Code and section 30, Advocates Act, 1961. (Para 38)

       (1992) 1 SCC 31 – Relied upon

       Facts of the case:

       The questions arising in this case are whether, in relation to an operational debt, the provision contained in Section 9(3)(c) of the Insolvency and Bankruptcy Code, 2016 is mandatory; and secondly, whether a demand notice of an unpaid operational debt can be issued by a lawyer on behalf of the operational creditor.

       Hamera International Private Limited executed an agreement with the appellant, Macquarie Bank Limited, Singapore, on 27.7.2015, by which the appellant purchased the original supplier’s right, title and interest in a supply agreement in favour of the respondent. The respondent entered into an agreement dated 2.12.2015 for supply of goods worth US$6,321,337.11 in accordance with the terms and conditions contained in the said sales contract. The supplier issued two invoices dated 21.12.2015 and 31.12.2015. Payment terms under the said invoices were 150 days from the date of bill of ladings dated 17.12.2015/19.12.2015.

       The appellant sent an email dated 3.5.2016 to the contesting respondent for payment of the outstanding amounts. Several such emails by way of reminders were sent. Ultimately, the appellant issued a statutory notice under Sections 433 and 434 of the Companies Act, 1956. A reply dated 5.10.2016 denied the fact that there was any outstanding amount.

       After the enactment of the Code, the appellant issued a demand notice under Section 8 of the Code on 14.2.2017 calling upon the contesting respondent to pay the outstanding amount of US$6,321,337.11. The contesting respondent stated that nothing was owed by them to the appellant.

       On 7.3.2017, the appellant initiated the insolvency proceedings by filing a petition under Section 9 of the Code.

       The NCLT rejected the petition holding that Section 9(3)(c) of the Code was not complied with.

       The NCLAT agreed with the NCLT holding that the application would have to be dismissed for non compliance of the mandatory provision contained in Section 9(3)(c) of the Code. It further went on to hold that an advocate/lawyer cannot issue a notice under Section 8 on behalf of the operational creditor.

       Finding of the Court:

       Section 9(3)(c) cannot be construed as a threshold bar or a condition precedent.

       Result: Appeals allowed