In our previous article we have discussed about two recent cases on Insolvency laws and what are the rights and duties of Operational/Financial Creditor. We have focused on demand notice in our previous article and its mandatory nature as prescribed by the code.
In this article we will discuss about the further actions to be taken by the Operational creditor after serving a demand notice on Operational debtor.
If no reply is received from within ten days from date of delivery of demand notice or copy of invoice, operational creditor can file application before Adjudicating Authority (NCLT) for initiating a corporate insolvency resolution process- section 9(1) of Insolvency Code, 2016.
The application should be in prescribed form, with documents as specified in section 9(3) of Insolvency Code, 2016. The operational creditor shall make application against a corporate debtor in form 5 before NCLT as contained in Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Copy of application shall be sent to corporate debtor.
Application fees of Rs.2,000 are payable.
He(operational creditor) may propose a resolution professional to act as an interim resolution professional- section 9(4) of Insolvency Code, 2016.
Certificate from financial institution that payment not received from operational debtor
Section 9(3)(c) of Insolvency Code requires a certificate from ‘financial institution’ maintaining accounts of Operational Creditor that there is no payment of unpaid operational debt by ‘ Operational Debtor’.
In Macquarie bank Ltd. v. Shilpi Cable Technologies Ltd.(2017) 88 taxmann.com 180 (SC), it has been held that this provision is not mandatory as financial institution is only required to ‘confirm’ that payment has not been received. This is certainly not a condition precedent to triggering the insolvency process under the Code.
The expression ‘confirming’ makes it clear that this is only a piece of evidence, albeit a very important piece of evidence, which only ‘confirms’ that there is no payment of an unpaid operational debt, provision contained in section 9(3)(c) is not mandatory.
Earlier, in Uttam Galva Steels v. DF Deutshe Forfait AG (2017) 143 SCL 318 = 84 taxmann.com 183 (NCLT), it has been held that such certificate is mandatory. If such certificate is not submitted, application cannot be entertained (really, normally, principle is that a condition impossible to be fulfilled is not mandatory. Lex non cogit ad impossibilia – law does not compel a man to do that which he possibly cannot perform. However, it was held that the operational creditor has other remedies also.
*Now all these decisions stand overruled.
Admission of application
The application will be admitted if (a) it is complete, (b) unpaid operational debt has not been paid (c) demand notice was delivered (d) notice of dispute is not received from operational creditor and (e) no disciplinary proceeding is pending against the proposed resolution professional – section 9(5)(i) of Insolvency Code, 2016.
If any of these requirements is not fulfilled, application will be rejected- section 9(5)(ii) of Insolvency Code, 2016. Before rejecting application, notice will be given to operational creditor.
No admission if notice of dispute received
The application will be admitted if notice of dispute is not received from operational debtor and evidence is produced that amount is not received. If notice of dispute has been received, the application will not be admitted.
Withdrawal of application before admission
Application can be withdrawn any time before admission, with permission of Adjudicating Authority (NCLT) – rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Commencement of corporate insolvency resolution process
The corporate insolvency resolution process shall commence from the date of admission of the application under section 9(5) – section 9(6) of Insolvency Code, 2016.
We have briefly covered the steps to take post the demand notice is served. The Corporate creditor required to follow the procedure to recover their debts in a legit manner. The Corporate debtor is bound by law to repay their creditor within specified duration. The IBC is a great step taken towards recovery of bad debts and ease of doing business in India.
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Disclaimer – the above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.