M/S Shilpi Cable Technologies Ltd. vs.  Macquarie Bank Ltd. (Supreme court) Civil Appeal No. [15135 of 2017]

Introduction

The court in M/S Shilpi Cable Technologies Ltd. vs.  Macquarie Bank Ltd. interpreted various provisions constituted under section 8 of the Insolvency and Bankruptcy Code 2016.  Further section 9 of the code deals with the application of the initiation of the insolvency process against corporate debtor being filled by the Operational creditor as prescribed by the Act.

Facts of M/S Shilpi Cable Technologies Ltd. vs.  Macquarie Bank Ltd.

Hamera International Private limited executed an agreement with Macquarie Bank Limited, Singapore hereinafter after called ‘Appellant’, where the appellant purchased the original supplier’s right, title, and interest in a supply agreement in favour of Shilpi cable Technologies ltd. Hereinafter called ‘Respondent’.

The Appellant has issued two invoices against the respondent for payment of the amount due, wherein the term of payment was started as 150 days from the date of the bills of lading. Upon the amounts becoming due for payment the appellant sent an email demanding payment of such amounts. On receiving a denial from any such default in payment the appellant issued a statutory notice under sections 433 and 434 of the Companies Act 1956 to the respondent to retrieve the outstanding amount.

Further, the Appellant also issued a demand notice under the Insolvency and Bankruptcy Code 2016 under section 8 of the code at the registered office of the respondent, calling upon it to pay the outstanding amount. Through reply, the contesting respondent stated that nothing was owed by them to the appellant and further went on to question the validity of the purchase agreement in favour of the appellant. Thus, the Appellant initiated insolvency proceedings by filing a petition under section 9 of the Code.

Issues in M/S Shilpi Cable Technologies Ltd. vs.  Macquarie Bank Ltd.

The appeal filed before the supreme court raised the following two issues:

1. Whether in relation to an operational debt, the provision contained under section 9(3) c of the Insolvency and Bankruptcy Code 2016 is mandatory?
2. Whether the lawyer is eligible to issue a demand notice of unpaid operational debt on behalf of the Operational creditor.

Arguments of the appellant

1. The first argument raised by the appellant was the co-joint reading of section 9(3) c with rule 6 and form 5 of the Insolvency and Bankruptcy Code, 2016. It can be constructed that section 9(3) c of the code is not mandatory but directory in nature.
2. The counsel further stated that the section is procedural in nature and hence there is no condition to be fulfilled before the filing of the application under section 9(1). In such case, the ground does not make the application to be rejected.
3. It was further contended by the counsel that section 30 of the Advocate Act empowers the advocate enrolled to practice in NCLT as well as NCLAT.
4. The counsel further contended that section 5 of the code laid down the definition of the term ‘person’ which includes the person resident outside India, if read in relation to the operational debtor the same gives the impression that the operational creditor who is resident outside India is so eligible to file an application against the corporate debtor for the initiation of the insolvency proceedings under Provision code.

Arguments of the respondent

1. The first counter-arguments raised by the respondent counsel against the contention of the appellant counsel was that the object of the code does not give rise to one to use it as one of the means of recovering the debt, they further stated that the provision laid down under section 9(3)c it was mandatory for the person who is filing an application for the initiation of the corporate debtor to comply with the provision strictly. The document prescribed under the section should be attached in order to make a valid application.
2. They further contended that in order to reject the application filed by the operational debtor the only thing needed is the preexisting dispute between the operational creditor and corporate debtor. Hence the provision under section 9 is considered as judicial precedent the expression ‘initial’ and ‘shall’ makes the section mandatory.
3. They further stated that the consequences of not furnishing the application as per the requirement under section 9(3)c, section 9(5) stated that the application which is incomplete in nature should be rejected.

Judgment in M/S Shilpi Cable Technologies Ltd. vs.  Macquarie Bank Ltd.

After hearing both sides the decision laid down by the court in the present case was that section 9(3) is not mandatory in nature and will not be constructed as a condition precedent and that the operational creditor can appoint a lawyer as an authorized agent under section 8 of the code in order to deliver the demand notice.

Thus, the order passed by the NCLAT was set aside by the Supreme Court of India.

Conclusion

The court in the present case rightfully protected the right of the Operational Creditor as in this case. If those Operational creditors who are residents outside India get cheated or affected by the act of the corporate debtor to whom the provision of IBC 2016 would apply then in such case, the judges have to apply the modern approach towards the strict provisions of the code in such manner that the innocent person will not get affected and get the justice.

From the present case, it can be concluded that the operational creditor can appoint a lawyer in order to issue a demand notice to the corporate debtor before initiating the insolvency proceeding against him.

This article has been submitted by Suvam Pradhan, a student at the Law College, Cuttack.