Summary
The Court removed two threshold objections to operational creditors’ insolvency applications: absence of a financial-institution certificate of nonpayment and delivery of the demand notice by a lawyer. It held the certificate requirement directory and permitted an authorized agent or lawyer to deliver the notice, remanding the matters to the NCLAT for further proceedings.
Issues
- Whether section9(3)(c) makes a financial-institution certificate an indispensable condition for an operational creditor’s application.
- Whether an authorized lawyer may deliver a demand notice under section8.
Provisions considered
- Sections8 and9, particularly9(3)(c), Insolvency and Bankruptcy Code, 2016The certificate is confirmatory evidence, not a mandatory threshold condition; default may be proved by other documentary evidence. Authorized agents and lawyers may deliver the demand notice. (¶¶ 10–20, 26, 33, 38)
- Rules5 and6; Forms3 and5, Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016Forms allow signature by a person authorized to act in relation to the operational creditor; Form5 treats the relevant bank records as attachments if available. (¶¶ 10, 12–16, 33)
- Section30, Advocates Act, 1961The right to practise extends to preparatory steps, including the demand notice; the Code and the Act are harmoniously construed. (¶ 34–36)
Held
- Section9(3)(c) is a directory procedural provision. Its certificate confirms nonpayment; it is not the sole admissible proof of default. Treating it as mandatory would unjustifiably bar foreign or other operational creditors whose bankers fall outside section3(14), even where compliance is impossible and other evidence exists. (¶¶ 14–20, 24–27)
- Section8’s delivery requirement includes an operational creditor’s authorized agent or lawyer. The forms’ reference to a position in relation to the creditor does not confine authorization to an internal officer. Section30 of the Advocates Act supports this reading, and there is no inconsistency activating section238’s overriding effect. (¶ 33–38)
- The earlier threshold dismissal of the Smart Timing appeal did not declare law under Article141 and had no precedential value for these questions. (¶ 28)
- Removal of the two threshold bars called for further proceedings before the NCLAT, rather than automatic admission of the insolvency applications. (¶ 39)
Result
Appeals allowed; NCLAT judgment set aside on both threshold grounds. Matters remanded to the NCLAT to proceed further under the Code.