Macquarie Bank Limited vs Shilpi Cable Technologies Ltd on 15 December, 2017

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.15135 OF 2017

MACQUARIE BANK LIMITED …APPELLANT

VERSUS

SHILPI CABLE TECHNOLOGIES LTD. …RESPONDENT

WITH

CIVIL APPEAL NO.15481 OF 2017

CIVIL APPEAL NO.15447 OF 2017

JUDGMENT

R.F. Nariman, J.

1. The present appeals raise two important questions which

arise under the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as the “Code”). The first question is

Signature Not Verified
whether, in relation to an operational debt, the provision
Digitally signed by
VISHAL ANAND
Date: 2017.12.15
17:00:32 IST
Reason:

contained in Section 9(3)(c) of the Code is mandatory; and

1
secondly, whether a demand notice of an unpaid operational

debt can be issued by a lawyer on behalf of the operational

creditor.

2. The facts contained in the three appeals are similar. For

the purpose of this judgment, the facts contained in Civil Appeal

No.15481 of 2017 will now be set out. 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. Since

amounts under the said bills of lading were due for payment,

the appellant sent an email dated 3.5.2016 to the contesting

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respondent for payment of the outstanding amounts. Several

such emails by way of reminders were sent, and it is alleged

that the contesting respondent stated that it will sort out

pending matters. 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.

3. After the enactment of the Code, the appellant issued a

demand notice under Section 8 of the Code on 14.2.2017 at the

registered office of the contesting respondent, calling upon it to

pay the outstanding amount of US$6,321,337.11. By a reply

dated 22.2.2017, the contesting respondent stated that nothing

was owed by them to the appellant. They further went on to

question the validity of the purchase agreement dated

27.7.2015 in favour of the appellant. On 7.3.2017, the

appellant initiated the insolvency proceedings by filing a petition

under Section 9 of the Code. On 1.6.2017, the NCLT rejected

the petition holding that Section 9(3)(c) of the Code was not

3
complied with, inasmuch as no certificate, as required by the

said provision, accompanied the application filed under Section

9. It, therefore, held that there being non-compliance of the

mandatory provision of Section 9(3)(c) of the Code, the

application would have to be dismissed at the threshold.

However, the NCLT also went into the question as to whether a

dispute has been raised in relation to the operational debt and

found that such dispute was in fact raised by the reply to the

statutory notice sent under Sections 433 and 434 of the

Companies Act, 1956 and that, therefore, under Section 9(5)(ii)

(d), the application would have to be dismissed.

4. By the impugned judgment dated 17.7.2017, 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 in the following

terms:

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“In the present case, as the notice has been given
by an advocate/lawyer and there is nothing on the
record to suggest that the lawyer was authorized by
the appellant, and as there is nothing on the record
to suggest that the said lawyer/ advocate hold any
position with or in relation to the appellant company,
we hold that the notice issued by the advocate/
lawyer on behalf of the appellant cannot be treated
as notice under
Section 8 of the ‘I B Code’. And
for the said reason also the petition under
Section 9
at the instance of the appellant against the
respondent was not maintainable.”

5. Shri Mukul Rohatgi, learned senior advocate appearing

on behalf of the appellant, referred us to various provisions of

the Code. According to learned senior counsel, on a conjoint

reading of Section 9(3)(c), Rule 6 and Form 5 of the Insolvency

and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 (“Adjudicating Authority Rules”), it is clear that Section

9(3)(c) is not mandatory, but only directory and that, in the said

section, “shall” should be read as “may”. He cited a number of

judgments for the proposition that when serious general

inconvenience is caused to innocent persons or the general

public without really furthering the object of the particular Act,

the said provision should not be read as mandatory, but as

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directory only. Further, according to learned senior counsel,

Section 9(3)(c) is a procedural section, which is not a condition

precedent to the allowing of an application filed under Section

9(1). This is further clear from the fact that under Section 9(5),

if there is no such certificate, the application does not need to

be rejected. He also stressed the fact that at the end of Form

5, what has to be attached to the application, by way of

Annexure III, is a copy of the relevant accounts from

banks/financial institutions maintaining accounts of the

operational creditor confirming that there is no payment of the

operational debt only “if available”. Also, according to learned

counsel, this is only an additional document, which along with

other documents that are mentioned in Item 8 of Part V, would

go to prove the existence of the operational debt. The word

“confirming” in Section 9(3)(c) would also show that this is only

one more document that can be relied upon by the operational

creditor, apart from other documents, which may well prove the

existence of the operational debt. According to learned senior

counsel, on the second ground as well it is clear, on a perusal
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of Form 5, that a “person authorised to act on behalf of the

operational creditor” is a person who can sign Form 5 on behalf

of the operational creditor. Also, the expression “position with or

in relation to the operational creditor” shows that a lawyer, who

is authorized by the operational creditor, is certainly within the

said expression. He also referred us to Section 30 of the

Advocates Act, 1961 and judgments on the effect of the

expression “practise” when it applies to lawyers, vis-a-vis

Tribunals such as the NCLT and NCLAT.

6. Shri Arvind Datar, learned senior advocate, supported the

arguments of Shri Rohatgi and went on to add that the

definition of “person” contained in Section 2(23) of the Code

includes a person resident outside India, and when read with

the definition of “operational creditor” in Section 5(20) of the

Code would make it clear that persons, such as the appellant,

are certainly operational creditors within the meaning of the

Code. He stressed the fact that if a copy of the certificate under

Section 9(3)(c) can only be from a “financial institution” as

7
defined under
Section 3(14) of the Code, and if a non resident

bank or financial institution, such as the appellant, may not be

included either as a scheduled bank under Section 3(14)(a) or

as such other institution as the Central Government may by

notification specify as a financial institution under Section 3(14)

(d), it is clear that Section 9(3)(c) cannot operate to non suit the

appellant, as it would be impossible to get a certificate from a

financial institution as defined. This being the case, he argued

that the Court should add words into the expression “financial

institution”, as it would otherwise lead to absurdity and that if

Section 9(3)(c) is held to be mandatory, then a certificate from a

foreign bank, who is not a “financial institution” as defined under

the Code, should be read into Section 9(3)(c). Otherwise, the

learned senior counsel supported Shri Rohatgi’s argument that

Section 9(3)(c) is a directory provision which need not

mandatorily be complied with. A further argument was made

that the definition in Section 3(14), though exhaustive, is

subject to context to the contrary and that, therefore, it is clear

that a financial institution would include a bank outside the
8
categories mentioned in
Section 3(14) when it comes to an

operational creditor who is a resident outside India.

7. All these arguments were countered by Dr. A.M. Singhvi,

learned senior counsel appearing on behalf of the respondent.

First and foremost, according to learned senior counsel, the

object of the Code is not that persons may use the Code as a

means of recovering debts. The Code is an extremely

draconian piece of legislation and must, therefore, be construed

strictly. If this is kept in mind, it is clear that Section 9(3)(c) is

mandatory and requires to be complied with strictly or else the

application should be dismissed at the threshold. He stated

that in the context of it being recognized by our judgments that

a financial creditor and operational creditor are completely,

differently and separately dealt with in the Code, and that so far

as an operational creditor is concerned, it is important to bear in

mind that a very low threshold is required in order that an

operational creditor’s application be rejected, namely, there

being a pre-existing dispute between the parties. According to

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learned senior counsel
Section 9(3)(c) is a jurisdictional

condition precedent, which is clear from the expression

“initiation” and the expression “shall”, both showing that the

Section is a mandatory condition precedent which has to be

satisfied before the adjudicating authority can proceed further.

According to learned senior counsel, a copy of the certificate

from a financial institution is a very important document which

makes it clear, almost conclusively, that there is an unpaid

operational debt. According to him, the principle contained in

Taylor v. Taylor (1875) 1 Ch. D. 426, has been followed by a

number of judgments and is applicable inasmuch as when a

statute requires a particular thing to be done in a particular

manner, it must be done in that manner or not at all. He also

referred us to various Sections of the Code, the Insolvency and

the Adjudicating Authority Rules, Form 5 in particular, together

with the Viswanathan Committee and report Joint Committee

report of the Parliament. According to the learned senior

counsel, it is clear from the definition of “financial institution”

contained in Section 3(14) that certain foreign banks are
10
included within the expression “scheduled banks” under
Section

3(14)(a) and that, under Section 3(14)(d), the Central

Government may, by notification, specify other foreign banks as

financial institutions. It is only where operational creditors have

dealings with banks which fall within Section 3(14), that they

can avail the opportunity of declaring a corporate debtor as

insolvent under Sections 8 and 9 of the Code. Persons who

may be residents outside India and who bank with entities that

are not contained within the definition of Section 3 (14) would,

therefore, be outside the Code.

8. According to the learned senior counsel, the

consequence of not furnishing a copy of the certificate under

Section 9(3)(c) is that, under Section 9(5)(ii)(a), the application

that is made would be incomplete and, subject to the proviso,

would have to be dismissed on that score. Also, according to

the learned senior counsel, the NCLAT was right in following

the judgment contained in Smart Timing Steel Ltd. v. National

Steel and Agro Industries Ltd decided on 19.5.2017, which,

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according to the learned senior counsel, has merged in an

order of this Court dismissing an appeal from the said

judgment.

9. According to the learned senior counsel, a lawyer’s notice

cannot be given under Section 8, read with the Adjudicating

Authority Rules and Form 5 therein. Either the operational

creditor himself must send the requisite notice, or a duly

authorized agent on his behalf should do so, and such

authorized agent can only be an “insider”, namely, a person

who is authorized by the operational creditor, being an

employee, director or other person from within who alone can

send the notice under Section 8 and sign the application under

Section 9. Dr. Singhvi also stated that it is clear, from Forms 3

and 5, that only a person authorized to act on behalf of the

operational creditor can send the notice and/or sign the

application. He stressed the word “position” with or in relation

to the operational creditor and stated that this would also

indicate that it is only an insider who can be so authorized by

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the operational creditor and not a lawyer. According to learned

senior counsel, the provisions contained in certain statutes

such as Section 434(2) of the Companies Act, 1956 and Rule 4

of the Debts Recovery Tribunal (Procedure) Rules, 1993 under

the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993 (“Debts Recovery Rules”) would also make it clear

that where a lawyer can do things on behalf of a party, it is

expressly so mentioned unlike the present case.

10. Having heard learned counsel for the parties, it is

necessary to set out the relevant Sections of the Code and the

Adjudicating Authority Rules.

“3. In this Code, unless the context otherwise
requires,—
(10) “creditor” means any person to whom a debt is
owed and includes a financial creditor, an
operational creditor, a secured creditor, an
unsecured creditor and a decree-holder;

(14) “financial institution” means—

(a) a scheduled bank;

(b) financial institution as defined in section 45-I of
the Reserve Bank of India Act, 1934;

(c) public financial institution as defined in clause
(72) of
section 2 of the Companies Act, 2013; and

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(d) such other institution as the Central Government
may by notification specify as a financial institution;

(23) “person” includes—

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

(d) a trust;

(e) a partnership;

(f) a limited liability partnership; and

(g) any other entity established under a statute, and
includes a person resident outside India;

(25) “person resident outside India” means a person
other than a person resident in India;

xxx xxx xxx

5. In this Part, unless the context otherwise
requires,—
(20) “operational creditor” means a person to whom
an operational debt is owed and includes any
person to whom such debt has been legally
assigned or transferred;

(21) “operational debt” means a claim in respect of
the provision of goods or services including
employment or a debt in respect of the repayment
of dues arising under any law for the time being in
force and payable to the Central Government, any
State Government or any local authority;

xxx xxx xxx

8. Insolvency resolution by operational creditor-
(1) An operational creditor may, on the occurrence
of a default, deliver a demand notice of unpaid
14
operational debtor copy of an invoice demanding
payment of the amount involved in the default to the
corporate debtor in such form and manner as may
be prescribed.

(2) The corporate debtor shall, within a period of ten
days of the receipt of the demand notice or copy of
the invoice mentioned in sub-section (1) bring to the
notice of the operational creditor—

(a) existence of a dispute, if any, and record of the
pendency of the suit or arbitration proceedings filed
before the receipt of such notice or invoice in
relation to such dispute;

(b) the repayment of unpaid operational debt—

(i) by sending an attested copy of the record of
electronic transfer of the unpaid amount from the
bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the
operational creditor has encashed a cheque issued
by the corporate debtor.

Explanation.—For the purposes of this section, a
“demand notice” means a notice served by an
operational creditor to the corporate debtor
demanding repayment of the operational debt in
respect of which the default has occurred.

xxx xxx xxx

9. Application for initiation of corporate insolvency
resolution process by operational creditor-
(1) After the expiry of the period of ten days from the
date of delivery of the notice or invoice demanding
payment under sub-section (1) of
section 8, if the
operational creditor does not receive payment from
the corporate debtor or notice of the dispute under
sub-section (2) of
section 8, the operational creditor
may file an application before the Adjudicating
15
Authority for initiating a corporate insolvency
resolution process.

(2) The application under sub-section (1) shall be
filed in such form and manner and accompanied
with such fee as may be prescribed.

(3) The operational creditor shall, along with the
application furnish—

(a) a copy of the invoice demanding payment or
demand notice delivered by the operational creditor
to the corporate debtor;

(b) an affidavit to the effect that there is no notice
given by the corporate debtor relating to a dispute of
the unpaid operational debt;

(c) 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 (d) such other information as may be specified.
(4) An operational creditor initiating a corporate
insolvency resolution process under this section,
may propose a resolution professional to act as an
interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen
days of the receipt of the application under
sub-section (2), by an order—

(i) admit the application and communicate such
decision to the operational creditor and the
corporate debtor if,—

(a) the application made under sub-section (2) is
complete;

(b) there is no repayment of the unpaid operational
debt;

(c) the invoice or notice for payment to the
corporate debtor has been delivered by the
operational creditor;

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(d) no notice of dispute has been received by the
operational creditor or there is no record of dispute
in the information utility; and

(e) there is no disciplinary proceeding pending
against any resolution professional proposed under
sub-section (4), if any.

(ii) reject the application and communicate such
decision to the operational creditor and the
corporate debtor, if—

(a) the application made under sub-section (2) is
incomplete;

(b) there has been repayment of the unpaid
operational debt;

(c) the creditor has not delivered the invoice or
notice for payment to the corporate debtor;

(d) notice of dispute has been received by the
operational creditor or there is a record of dispute in
the information utility; or

(e) any disciplinary proceeding is pending against
any proposed resolution professional:
Provided that Adjudicating Authority, shall before
rejecting an application under sub-clause (a) of
clause (ii) give a notice to the applicant to rectify the
defect in his application within seven days of the
date of receipt of such notice from the adjudicating
Authority.

(6) The corporate insolvency resolution process
shall commence from the date of admission of the
application under sub-section (5) of this section.

xxx xxx xxx

The Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016

5. Demand notice by operational creditor.—

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(1) An operational creditor shall deliver to the
corporate debtor, the following documents, namely.-

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in
Form 4.

(2) The demand notice or the copy of the invoice
demanding payment referred to in sub-section (2) of
section 8 of the Code, may be delivered to the
corporate debtor,

(a) at the registered office by hand, registered post
or speed post with acknowledgement due; or

(b) by electronic mail service to a whole time
director or designated partner or key managerial
personnel, if any, of the corporate debtor.
(3) A copy of demand notice or invoice demanding
payment served under this rule by an operational
creditor shall also be filed with an information utility,
if any.

6. Application by operational creditor.—
(1) An operational creditor, shall make an
application for initiating the corporate insolvency
resolution process against a corporate debtor under
section 9 of the Code in Form 5, accompanied with
documents and records required therein and as
specified in the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016.

(2) The applicant under sub-rule (1) shall dispatch
forthwith, a copy of the application filed with the
Adjudicating Authority, by registered post or speed
post to the registered office of the corporate debtor.

FORM 3
(See clause (a) of sub-rule (1) of rule 5)

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FORM OF DEMAND NOTICE / INVOICE
DEMANDING PAYMENT UNDER THE
INSOLVENCY AND BANKRUPTCY CODE, 2016
(Under rule 5 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016)
[Date]

To,
[Name and address of the registered office of the
corporate debtor]

From,
[Name and address of the registered office of the
operational creditor]

Subject: Demand notice/invoice demanding
payment in respect of unpaid operational debt
due from [corporate debtor] under
the Code.

Madam/Sir,

1. This letter is a demand notice/invoice demanding
payment of an unpaid operational debt due from
[name of corporate debtor].

2. Please find particulars of the unpaid operational
debt below:

PARTICULARS OF OPERATIONAL DEBT

1. TOTAL AMOUNT OF DEBT, DETAILS
OF TRANSACTIONS ON ACCOUNT OF
WHICH DEBT FELL DUE, AND THE
DATE FROM WHICH SUCH DEBT
FELL DUE

2. AMOUNT CLAIMED TO BE IN
DEFAULT AND THE DATE ON WHICH
THE DEFAULT OCCURRED (ATTACH
THE WORKINGS FOR COMPUTATION
19
OF DEFAULT IN TABULAR FORM)

3. PARTICULARS OF SECURITY HELD,
IF ANY, THE DATE OF ITS CREATION,
ITS ESTIMATED VALUE AS PER THE
CREDITOR. ATTACH A COPY OF A
CERTIFICATE OF REGISTRATION OF
CHARGE ISSUED BY THE
REGISTRAR OF COMPANIES (IF THE
CORPORATE DEBTOR IS A
COMPANY)

4. DETAILS OF RETENTION OF TITLE
ARRANGEMENTS (IF ANY) IN
RESPECT OF GOODS TO WHICH THE
OPERATIONAL DEBT REFERS

5. RECORD OF DEFAULT WITH THE
INFORMATION UTILITY (IF ANY)

6. PROVISION OF LAW, CONTRACT OR
OTHER DOCUMENT UNDER WHICH
DEBT HAS BECOME DUE

7. LIST OF DOCUMENTS ATTACHED TO
THIS APPLICATION IN ORDER TO
PROVE THE EXISTENCE OF
OPERATIONAL DEBT AND THE
AMOUNT IN DEFAULT

3. If you dispute the existence or amount of unpaid
operational debt (in default) please provide the
undersigned, within ten days of the receipt of this
letter, of the pendency of the suit or arbitration
proceedings in relation to such dispute filed before
the receipt of this letter/notice.

4. If you believe that the debt has been repaid
before the receipt of this letter, please demonstrate
such repayment by sending to us, within ten days of
receipt of this letter, the following:
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(a) an attested copy of the record of electronic
transfer of the unpaid amount from the bank
account of the corporate debtor; or

(b) an attested copy of any record that [name of the
operational creditor] has received the payment.

5. The undersigned, hereby, attaches a certificate
from an information utility confirming that no record
of a dispute raised in relation to the relevant
operational debt has been filed by any person at
any information utility. (if applicable)

6. The undersigned request you to unconditionally
repay the unpaid operational debt (in default) in full
within ten days from the receipt of this letter failing
which we shall initiate a corporate insolvency
resolution process in respect of [name of corporate
debtor].

Yours sincerely,

Signature of person authorised to act on
behalf of the operational creditor
Name in block letters
Position with or in relation to the
operational creditor
Address of person signing

Instructions

1. Please serve a copy of this form on the corporate
debtor, ten days in advance of filing an application
under
section 9 of the Code.

2. Please append a copy of such served notice to
the application made by the operational creditor to
the Adjudicating Authority.

Form 5
21
(See sub-rule (1) of rule 6)

APPLICATION BY OPERATIONAL CREDITOR TO
INITIATE CORPORATE INSOLVENCY
RESOLUTION PROCESS UNDER THE CODE.

(Under rule 6 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016)

[Date]

To,
The National Company Law Tribunal
[Address]

From,
[Name and address for correspondence of the
operational creditor]

In the matter of [name of the corporate debtor]

Subject: Application to initiate corporate
insolvency resolution process in respect of
[name of the corporate debtor] under the
Insolvency and Bankruptcy Code, 2016.

Madam/Sir,

[Name of the operational creditor], hereby submits
this application to initiate a corporate insolvency
resolution process in the case of [name of corporate
debtor]. The details for the purpose of this
application are set out below:

Part – I
PARTICULARS OF APPLICANT

1. NAME OF OPERATIONAL CREDITOR

2. IDENTIFICATION NUMBER OF
22
OPERATIONAL CREDITOR
(IF ANY)

3. ADDRESS FOR CORRESPONDENCE OF
THE OPERATIONAL CREDITOR

Part – II
PARTICULARS OF CORPORATE
DEBTOR

1. NAME OF THE CORPORATE DEBTOR

2. IDENTIFICATION NUMBER OF
CORPORATE DEBTOR

3. DATE OF INCORPORATION OF
CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND THE
PAID-UP SHARE CAPITAL OF THE
CORPORATE DEBTOR AND/OR DETAILS
OF GUARANTEE CLAUSE AS PER
MEMORANDUM OF ASSOCIATION (AS
APPLICABLE)

5. ADDRESS OF THE REGISTERED
OFFICE OF THE CORPORATE DEBTOR

6. NAME, ADDRESS AND AUTHORITY OF
PERSON SUBMITTING APPLICATION ON
BEHALF OF OPERATIONAL CREDITOR
(ENCLOSE AUTHORISATION)

7. NAME AND ADDRESS OF PERSON
RESIDENT IN INDIA AUTHORISED TO
ACCEPT THE SERVICE OF PROCESS
ON ITS BEHALF (ENCLOSE
AUTHORISATION)

Part-III
PARTICULARS OF THE PROPOSED
INTERIM RESOLUTION
PROFESSIONAL [IF PROPOSED]

1. NAME, ADDRESS, EMAIL ADDRESS
AND THE REGISTRATION NUMBER OF
23
THE PROPOSED INSOLVENCY
PROFESSIONAL

Part-IV
PARTICULARS OF OPERATIONAL
DEBT

1. TOTAL AMOUNT OF DEBT,
DETAILS OF TRANSACTIONS ON
ACCOUNT OF WHICH DEBT FELL DUE,
AND THE DATE FROM WHICH SUCH
DEBT FELL DUE

2. AMOUNT CLAIMED TO BE IN DEFAULT
AND THE DATE ON WHICH THE
DEFAULT OCCURRED (ATTACH THE
WORKINGS FOR COMPUTATION OF
AMOUNT AND DATES OF DEFAULT IN
TABULAR FORM)

Part-V
PARTICULARS OF OPERATIONAL DEBT
[DOCUMENTS, RECORDS AND EVIDENCE OF
DEFAULT]

1. PARTICULARS OF SECURITY HELD, IF ANY, THE
DATE OF ITS CREATION, ITS ESTIMATED VALUE AS
PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF
REGISTRATION OF CHARGE ISSUED BY THE
REGISTRAR OF COMPANIES (IF THE CORPORATE
DEBTOR IS A COMPANY)

2. DETAILS OF RESERVATION / RETENTION OF TITLE
ARRANGEMENTS (IF ANY) IN RESPECT OF GOODS
TO WHICH THE OPERATIONAL DEBT REFERS

3. PARTICULARS OF AN ORDER OF A COURT,
TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON
24
THE DEFAULT, IF ANY
(ATTACH A COPY OF THE ORDER)

4. RECORD OF DEFAULT WITH THE INFORMATION
UTILITY, IF ANY
(ATTACH A COPY OF SUCH RECORD)

5. DETAILS OF SUCCESSION CERTIFICATE, OR
PROBATE OF A WILL, OR LETTER OF
ADMINISTRATION, OR COURT DECREE (AS MAY BE
APPLICABLE), UNDER THE INDIAN SUCCESSION
ACT, 1925 (10 OF 1925)
(ATTACH A COPY)

6. PROVISION OF LAW, CONTRACT OR OTHER
DOCUMENT UNDER WHICH OPERATIONAL DEBT
HAS BECOME DUE

7. A STATEMENT OF BANK ACCOUNT WHERE
DEPOSITS ARE MADE OR CREDITS RECEIVED
NORMALLY BY THE OPERATIONAL CREDITOR IN
RESPECT OF THE DEBT OF THE CORPORATE
DEBTOR (ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS
APPLICATION IN ORDER TO PROVE THE EXISTENCE
OF OPERATIONAL DEBT AND THE AMOUNT IN
DEFAULT

I, [Name of the operational creditor / person
authorised to act on behalf of the operational
creditor] hereby certify that, to the best of my
knowledge, [name of proposed insolvency
professional], is fully qualified and permitted to act
as an insolvency professional in accordance with

the Code and the rules and regulations made
thereunder. [WHERE APPLICABLE]

[Name of the operational creditor] has paid the
requisite fee for this application through [state
means of payment] on [date].

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Yours sincerely,

Signature of person authorised to act
on behalf of the operational creditor
Name in block letters
Position with or in relation to the
operational creditor
Address of person signing

Instructions –

Please attach the following to this application:

Annex I Copy of the invoice / demand notice as
in Form 3 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016
served on the corporate debtor.

Annex II Copies of all documents referred to in
this application.

Annex III Copy of the relevant accounts from the
banks/financial institutions maintaining accounts of
the operational creditor confirming that there is no
payment of the relevant unpaid operational debt by
the operational debtor, if available.

Annex IV Affidavit in support of the application in
accordance with the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016.

Annex V Written communication by the proposed
interim resolution professional as set out in Form 2
of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016. [WHERE
APPLICABLE]
26
Annex VI Proof that the specified application fee
has been paid.

Note: Where workmen/employees are operational
creditors, the application may be made either in an
individual capacity or in a joint capacity by one of
them who is duly authorised for the purpose.”

11. The first thing to be noticed on a conjoint reading of

Sections 8 and 9 of the Code, as explained in Mobilox

Innovations Private Limited v. Kirusa Software Private

Limited, Civil Appeal No. 9405 of 2017 decided on 21.9.2017,

at paragraphs 33 to 36, is that Section 9(1) contains the

conditions precedent for triggering the Code insofar as an

operational creditor is concerned. The requisite elements

necessary to trigger the Code are:

i. occurrence of a default;
ii. delivery of a demand notice of an unpaid operational debt or

invoice demanding payment of the amount involved; and
iii. the fact that the operational creditor has not received

payment from the corporate debtor within a period of 10

days of receipt of the demand notice or copy of invoice

demanding payment, or received a reply from the corporate

27
debtor which does not indicate the existence of a

pre-existing dispute or repayment of the unpaid operational

debt.

12. It is only when these conditions are met that an

application may then be filed under Section 9(2) of the Code in

the prescribed manner, accompanied with such fee as has

been prescribed. Under Section 9(3), what is clear is that,

along with the application, certain other information is also to be

furnished. Obviously, under Section 9(3)(a), a copy of the

invoice demanding payment or demand notice delivered by the

operational creditor to the corporate debtor is to be furnished.

We may only indicate that under Rules 5 and 6 of the

Adjudicating Authority Rules, read with Forms 3 and 5, it is

clear that, as Annexure I thereto, the application in any case

must have a copy of the invoice/demand notice attached to the

application. That this is a mandatory condition precedent to the

filing of an application is clear from a conjoint reading of

sections 8 and 9(1) of the Code.

28

13. When we come to Section 9(3)(b), it is obvious that an

affidavit to the effect that there is no notice given by the

corporate debtor relating to a dispute of the unpaid operational

debt can only be in a situation where the corporate debtor has

not, within the period of 10 days, sent the requisite notice by

way of reply to the operational creditor. In a case where such

notice has, in fact, been sent in reply by the corporate debtor,

obviously an affidavit to that effect cannot be given.

14. When we come to sub-clause (c) of Section 9(3), it is

equally clear that a copy of the certificate from the financial

institution maintaining accounts of the operational creditor

confirming that there is no payment of an unpaid operational

debt by the corporate debtor 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. This becomes clearer when we go to

29
sub-clause (d) of
Section 9(3) which requires such other

information as may be specified has also to be furnished along

with the application.

15. When Form 5 under Rule 6 is perused, it becomes clear

that Part V thereof speaks of particulars of the operational debt.

There are 8 entries in Part V dealing with documents, records

and evidence of default. Item 7 of Part V is only one of such

documents and has to be read along with Item 8, which speaks

of other documents in order to prove the existence of an

operational debt and the amount in default. Further, annexure

III in the Form also speaks of copies of relevant accounts kept

by banks/financial institutions maintaining accounts of the

operational creditor, confirming that there is no payment of the

unpaid operational debt, only “if available”. This would show

that such accounts are not a pre-condition to trigger the Code,

and that if such accounts are not available, a certificate based

on such accounts cannot be given, if Section 9 is to be read the

30
Adjudicating Authority Rules and the Forms therein, all of which

set out the statutory conditions necessary to invoke the Code.

16. In State of U.P. v. Babu Ram 1961 2 SCR 679 at

701-702, this Court dealt with the position of rules made under

a statute as follows:

“What then is the effect of the said propositions in
their application to the provisions of the
Police Act
and the rules made thereunder?
The Police Act of
1861 continues to be good law under the
Constitution. Para 477 of the Police Regulations
shows that the rules in Chapter XXXII thereof have
been framed under
Section 7 of the Police Act.
Presumably, they were also made by the
Government in exercise of its power under
Section
46(2) of the Police Act. Under para 479(a) the
Governor’s power of punishment with reference to
all officers is preserved; that is to say, this provision
expressly saves the power of the Governor under
Article 310 of the Constitution. “Rules made under a
statute must be treated for all purposes of
construction or obligation exactly as if they were in
the Act and are to be of the same effect as if
contained in the Act, and are to be judicially noticed
for all purposes of construction or obligation”:
see Maxwell “On the Interpretation of Statutes”,
10th edn., pp. 50-51. The statutory rules cannot be
described as, or equated with, administrative
directions. If so, the
Police Act and the rules made
thereunder constitute a self-contained code
providing for the appointment of police officers and
prescribing the procedure for their removal.

31

Equally, in Desh Bandhu Gupta v. Delhi Stock Exchange

(1979) 4 SCC 565 at 572, this Court laid down the principle of

contemporanea expositio as under:

“The principle of contemporanea
expositio (interpreting a statute or any other
document by reference to the exposition it has
received from contemporary authority) can be
invoked though the same will not always be decisive
of the question of construction (Maxwell 12th ed. p.

268). In Crawford on Statutory Construction (1940
ed.) in para 219 (at pp. 393-395) it has been stated
that administrative construction (i.e.
contemporaneous construction placed by
administrative or executive officers charged with
executing a statute) generally should be clearly
wrong before it is overturned; such a construction,
commonly referred to as practical construction,
although not controlling, is nevertheless entitled to
considerable weight; it is highly persuasive.
In Baleshwar Bagarti v. Bhagirathi Dass [ILR 35 Cal
701 at 713] the principle, which was reiterated
in Mathura Mohan Saha v. Ram Kumar Saha [ILR
43 Cal 790 : AIR 1916 Cal 136] has been stated by
Mukerjee, J., thus:

“It is a well settled principle of
interpretation that courts in construing a
statute will give much weight to the
interpretation put upon it, at the time of
its enactment and since, by those
whose duty it has been to construe,
execute and apply it. I do not suggest
for a moment that such interpretation

32
has by any means a controlling effect
upon the Courts; such interpretation
may, if occasion arises, have to be
disregarded for cogent and persuasive
reasons, and in a clear case of error, a
court would without hesitation refuse to
follow such construction.”

However, Dr. Singhvi referred to the following three judgments

for the proposition that rules cannot override the substantive

provisions of an Act: D.T.U. v. B.B.L. Hajelay (1972) 2 SCC

744 (para 13); ADM (Rev.) Delhi Admn. v. Siri Ram (2000) 5

SCC 451 (para 16); and Ispat Industries Ltd. v.

Commissioner of Customs (2006) 12 SCC 583 (para 21).

The aforesaid judgments only have application when rules are

ultra vires the parent statute. In the present case, the rules

merely flesh out what is already contained in the statute and

must, therefore, be construed along with the statute. Read with

the Code, they form a self-contained code being

contemporanea expositio by the Executive which is charged

with carrying out the provisions of the Code. The true

construction of Section 9(3)(c) is that it is a procedural

33
provision, which is directory in nature, as the Adjudicatory

Authority Rules read with the Code clearly demonstrate.

17. There may be situations of operational creditors who may

have dealings with a financial institution as defined in Section

3(14) of the Code. There may also be situations where an

operational creditor may have as his banker a non-scheduled

bank, for example, in which case, it would be impossible for him

to fulfill the aforesaid condition. A foreign supplier or assignee

of such supplier may have a foreign banker who is not within

Section 3(14) of the Code. The fact that such foreign supplier is

an operational creditor is established from a reading of the

definition of “person” contained in section 3(23), as including

persons resident outside India, together with the definition of

“operational creditor” contained in Section 5(20), which in turn is

defined as “a person to whom an operational debt is owed and

includes any person to whom such debt has been legally

assigned or transferred”. That such person may have a

bank/financial institution with whom it deals and which is not

contained within the definition of Section 3(14) of the Code
34
would show that
Section 9(3)(c) in such a case would, if Dr.

Singhvi is right about the sub-section being a condition

precedent, amount to a threshold bar to proceeding further

under the Code. The Code cannot be construed in a

discriminatory fashion so as to include only those operational

creditors who are residents outside India who happen to bank

with financial institutions which may be included under Section

3(14) of the Code. It is no answer to state that such person can

approach the Central Government to include its foreign banker

under Section 3(14) of the Code, for the Central Government

may never do so. Equally, Dr. Singhvi’s other argument that

such persons ought to be left out of the triggering of the Code

against their corporate debtor, despite being operational

creditors as defined, would not sound well with Article 14 of the

Constitution, which applies to all persons including foreigners.

Therefore, as the facts of these cases show, a so called

condition precedent impossible of compliance cannot be put as

a threshold bar to the processing of an application under

Section 9 of the Code.

35

18. However, it was argued that there are various other

categories of creditors who cannot file insolvency petitions,

such as government authorities who have pending tax dues.

Such authorities have ample powers under taxation statutes to

coercively collect outstanding tax arrears. Besides they form a

class, as a whole, who are kept out of the Code, unlike persons

who are resident outside India who, though being operational

creditors, are artificially divided, if we are to accept Dr. Singhvi’s

argument, into two sub-classes, namely, those who bank with

an institution that is recognized by Section 3(14) of the Code

and those who do not. This argument also does not commend

itself to us.

19. It is true that the expression “initiation” contained in the

marginal note to Section 9 does indicate the drift of the

provision, but from such drift, to build an argument that the

expression “initiation” would lead to the conclusion that Section

9(3) contains mandatory conditions precedent before which the

Code can be triggered is a long shot. Equally, the expression

36
“shall” in
Section 9(3) does not take us much further when it is

clear that Section 9(3)(c) becomes impossible of compliance in

cases like the present. It would amount to a situation wherein

serious general inconvenience would be caused to innocent

persons, such as the appellant, without very much furthering

the object of the Act, as has been held in the State of Haryana

v. Raghubir Dayal (1995) 1 SCC 133 at paragraph 5 and

obviously, therefore, Section 9(3)(c) would have to be construed

as being directory in nature.

20. Even otherwise, the important condition precedent is an

occurrence of a default, which can be proved, as has been

stated hereinabove, by means of other documentary evidence.

Take for example the case of an earlier letter written by the

corporate debtor to the operational creditor confirming that a

particular operational debt is due and payable. This piece of

evidence would be sufficient to demonstrate that such debt is

due and that default has taken place, as may have been

admitted by the corporate debtor. If Dr. Singhvi’s submissions

37
were to be accepted, despite the availability of such

documentary evidence contained in the Section 9 application as

other information as may be specified, such application filed

under Section 9 would yet have to be rejected because there is

no copy of the requisite certificate under Section 9(3)(c).

Obviously, such an absurd result militates against such a

provision being construed as mandatory.

21. It is unnecessary to further refer to arguments made on

the footing that Section 7 qua financial creditors has a process

which is different from that of operational creditors under

Sections 8 and 9 of the Code. The fact that there is no

requirement of a bank certificate under Section 7 of the Code,

as compared to Section 9, does not take us very much further.

The difference between Sections 7 and 9 has already been

noticed by this Court in Innoventive Industries Ltd. v. ICICI

Bank Anr., Civil Appeal Nos. 8337-8338 of 2017 decided on

August 31, 2017, as follows:-

“29. The scheme of Section 7 stands in contrast
with the scheme under
Section 8 where an
38
operational creditor is, on the occurrence of a
default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner
provided in
Section 8(1) of the Code. Under Section
8(2), the corporate debtor can, within a period of 10
days of receipt of the demand notice or copy of the
invoice mentioned in subsection (1), bring to the
notice of the operational creditor the existence of a
dispute or the record of the pendency of a suit or
arbitration proceedings, which is pre-existing – i.e.
before such notice or invoice was received by the
corporate debtor. The moment there is existence of
such a dispute, the operational creditor gets out of
the clutches
of the Code.

30. On the other hand, as we have seen, in the
case of a corporate debtor who commits a default of
a financial debt, the adjudicating authority has
merely to see the records of the information utility or
other evidence produced by the financial creditor to
satisfy itself that a default has occurred. It is of no
matter that the debt is disputed so long as the debt
is “due” i.e. payable unless interdicted by some law
or has not yet become due in the sense that it is
payable at some future date. It is only when this is
proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject
an application and not otherwise.”

The fact that these differences obtain under the Code would

have no direct bearing on whether Section 9(3)(c) ought to be

construed in the manner indicated by Dr. Singhvi.
39

22. It was also submitted that Sections 65 and 76 of the Code

provide for criminal prosecution against banks issuing false

bank certificates and that a foreign bank issuing such a

certificate may not be amenable to the jurisdiction of the Code.

It is unnecessary to answer this submission in view of the fact

that the necessity for such a certificate has itself been held by

this judgment to be directory in nature.

23. Equally, Dr. Singhvi’s argument that the Code leads to

very drastic action being taken once an application for

insolvency is filed and admitted and that, therefore, all

conditions precedent must be strictly construed is also not in

sync with the recent trend of authorities as has been noticed by

a concurring judgment in Ms. Eera through Dr. Manjula

Krippendorf v. State (Govt. of NCT of Delhi) Anr, Criminal

Appeal Nos. 1217-1219 of 2017 decided on July 21, 2017. In

this judgment, the correct interpretation of Section 2(1)(d) of the

Protection of Children from Sexual Offences Act, 2012 arose.

After referring to the celebrated Heydon’s case, 76 E.R. 637

40
[1584] and to the judgments in which the golden rule of

interpretation of statutes was set out, the concurring judgment

of R.F. Nariman, J., after an exhaustive survey of the relevant

case law, came to the conclusion that the modern trend of case

law is that creative interpretation is within the Lakshman Rekha

of the Judiciary. Creative interpretation is when the Court looks

at both the literal language as well as the purpose or object of

the statute, in order to better determine what the words used by

the draftsman of the legislation mean. The concurring judgment

then concluded:

“It is thus clear on a reading of English, U.S.,
Australian and our own Supreme Court judgments
that the ‘Lakshman Rekha’ has in fact been
extended to move away from the strictly literal rule
of interpretation back to the rule of the old English
case of Heydon, where the Court must have
recourse to the purpose, object, text, and context of
a particular provision before arriving at a judicial
result. In fact, the wheel has turned full circle. It
started out by the rule as stated in 1584 in
Heydon’s case, which was then waylaid by the
literal interpretation rule laid down by the Privy
Council and the House of Lords in the mid 1800s,
and has come back to restate the rule somewhat in
terms of what was most felicitously put over 400
years ago in Heydon’s case.”

41
In dealing with penal statutes, the Court was confronted with a

body of case law which stated that as penal consequences

ensue, the provisions of such statutes should be strictly

construed. Here again, the modern trend in construing penal

statutes has moved away from a mechanical incantation of

strict construction. Several judgments were referred to and it

was held that a purposive interpretation of such statutes is not

ruled out. Ultimately, it was held that a fair construction of penal

statutes based on purposive as well as literal interpretation is

the correct modern day approach.

24. However, Dr. Singhvi cited Raghunath Rai Bareja v.

Punjab National Bank, (2007) 2 SCC 230 and relied upon

paragraphs 39 to 47 for the proposition that the literal

construction of a statute is the only mode of interpretation when

the statute is clear and unambiguous. Paragraph 43 of the said

judgment was relied upon strongly by the learned counsel,

which states:

“In other words, once we depart from the literal rule,
then any number of interpretations can be put to a
42
statutory provision, each judge having a free play to
put his own interpretation as he likes. This would be
destructive of judicial discipline, and also the basic
principle in a democracy that it is not for the Judge
to legislate as that is the task of the elected repre-
sentatives of the people. Even if the literal interpre-
tation results in hardship or inconvenience, it has to
be followed (see G.P. Singh’s Principles of Statutory
Interpretations, 9th Edn., pp. 45-49). Hence depar-
ture from the literal rule should only be done in very
rare cases, and ordinarily there should be judicial
restraint in this connection.”

Regard being had to the modern trend of authorities referred to

in the concurring judgment in Ms. Eera through Dr. Manjula

Krippendorf (supra), we need not be afraid of each Judge

having a free play to put forth his own interpretation as he likes.

Any arbitrary interpretation, as opposed to fair interpretation, of

a statute, keeping the object of the legislature in mind, would be

outside the judicial ken. The task of a Judge, when he looks at

the literal language of the statute as well as the object and

purpose of the statute, is not to interpret the provision as he

likes but is to interpret the provision keeping in mind

Parliament’s language and the object that Parliament had in

mind. With this caveat, it is clear that judges are not

43
knight-errants free to roam around in the interpretative world

doing as each Judge likes. They are bound by the text of the

statute, together with the context in which the statute is

enacted; and both text and context are Parliaments’, and not

what the Judge thinks the statute has been enacted for. Also, it

is clear that for the reasons stated by us above, a fair

construction of Section 9(3)(c), in consonance with the object

sought to be achieved by the Code, would lead to the

conclusion that it cannot be construed as a threshold bar or a

condition precedent as has been contended by Dr. Singhvi.

25. Dr. Singhvi then argued that the application of the

principle in Taylor (supra) should be followed when it comes to

the correct interpretation of Section 9(3)(c) of the Code. The

principle of Taylor (supra), namely that where a statute states

that a particular act is to be done in a particular manner; it must

be done in that manner or not at all, was followed by the Privy

Council in Nazir Ahmad v. King Emperor, 63 IA 372 (1936). In

that case, the Privy Council held that Sections 164 and 364 of

44
the Code of Criminal Procedure, 1898 prescribed the mode in

which confessions are to be recorded by Magistrates, when

made during investigation, and a confession before a

Magistrate not recorded in the manner provided was

inadmissible. In Ukha Kolhe v. State of Maharashtra (1964) 1

SCR 926 at 948-949, a Constitution Bench of this Court held

that the principle contained in Taylor (supra) would not apply

when proof of a specified fact could be obtained by means

other than that statutorily specified. The argument in that case

was that Sections 129A and 129B prescribed the mode of

taking blood in the course of investigation of an offence under

the Bombay Prohibition Act, 1949, and that, therefore,

production or examination of a person before a registered

medical practitioner during the course of such investigation is

the only method by which consumption of an intoxicant may be

proved. After setting out Sections 129A and 129B and the

judgment of the Privy Council in Nazir Ahmad (supra), this

Court held:

45
“The rule in Taylor v. Taylor [(1875) I Ch D 426] on
which the Judicial Committee relied has, in our
judgment, no application to this case.
Section 66(2),
as we have already observed, does not prescribe
any particular method of proof of concentration of
alcohol in the blood of a person charged with
consumption or use of an intoxicant.
Section 129-A
is enacted primarily with the object of providing
when the conditions prescribed are fulfilled, that a
person shall submit himself to be produced before a
registered medical practitioner for examination and
for collection of blood. Undoubtedly,
Section
129-A(1) confers power upon a Police or a
Prohibition Officer in the conditions set out to
compel a person suspected by him of having
consumed illicit liquor, to be produced for
examination and for collection of blood before a
registered medical practitioner. But proof of
concentration of alcohol may be obtained in the
manner described in
Section 129-A(1) and (2), or
otherwise; that is expressly provided by sub-section
(8) of
Section 129-A, The power of a Police Officer
to secure examination of a person suspected of
having consumed an intoxicant in the course of
investigation for an offence under the Act is
undoubtedly restricted by
Section 129-A. But in the
present case the Police Officer investigating the
offence had not produced the accused before a
medical officer; it was in the course of his
examination that Dr Kulkarni, before any
investigation was commenced, came to suspect that
the appellant had consumed liquor, and he directed
that specimen of blood of the appellant be collected.
This step may have been taken for deciding upon
the line of treatment, but certainly not for collecting
evidence to be used against the appellant in any
possible trial for a charge of an offence of
46
consuming liquor contrary to the provisions of the
Act. If unlawful consumption of an intoxicant by a
person accused, may be proved otherwise than by
a report obtained in the conditions mentioned in
Section 129-A(1) and (2), there would be no reason
to suppose that other evidence about excessive
concentration of alcohol probative of consumption is
inadmissible. Admissibility of evidence about
concentration of alcohol in blood does not depend
upon the exercise of any power of the Police or
Prohibition Officer. Considerations which were
present in Nazir Ahmad case [(1936) LR 63 IA 372]
regarding the inappropriateness of Magistrates
being placed in the same position as ordinary
citizens and being required to transgress statutory
provisions relating to the method of recording
confessions also do not arise in the present case.”

26. This judgment applies on all fours to the facts of the

present case inasmuch as, like Section 129A(8) of the

aforesaid Act, proof of the existence of a debt and a default in

relation to such debt can be proved by other documentary

evidence, as is specifically contemplated by Section 9(3)(d) of

the Code. Like Section 66(2) of the aforesaid Act in Ukha

Kolhe (supra), Section 8 of the Code does not prescribe any

particular method of proof of occurrence of default.

Consequently, we are of the opinion that the principle contained

in Taylor (supra) does not apply in the present situation.
47

27. Also, in Madan Co. v. Wazir Jaivir Chand (1989) 1

SCC 264 at 268-270, the interpretation of Section 11 of the

Jammu and Kashmir Houses and Shops Rent Control Act, 1966

was under consideration of this Court. As stated in paragraph 4

of the judgment, the controversy in that case turned on the

question whether the notice sent by the Respondent by

registered post can be said to have been served and the

Petitioner can be said to have been in receipt of the said notice.

In the words of the judgment:

“4. On the terms of the above sections, the
controversy in this case turned on the question
whether the notice sent by the respondent by
registered post on 26-11-1976 can be said to have
been served and the petitioner can be said to have
been in receipt of the said notice. If the answer to
this question is in the affirmative, as held by all the
courts concurrently, there is nothing further to be
said. The contention of the appellant tenant
however, is that the statute postulates a factual
service of the notice on, and the actual receipt of it
by, the tenant and that this admittedly not being the
position in the present case, no eviction could have
been decreed.

5. Shri Soli J. Sorabjee, learned counsel appearing
for the tenant submitted that the safeguards in
Sections 11 and 12 of the Act are intended for the
benefit and protection of the tenant and that,
48
therefore, where the Act provides for the service of
the notice, by post, this requirement has to be
strictly complied with. He referred to the decisions
in Hare Krishna Das v. Hahnemann Publishing Co.
Ltd.[(1965-66) 70 Cal WN 262] and
Surajmull
Ghanshyamdas v. Samadarshan Sur [AIR 1969 Cal
109 : ILR (1969) 1 Cal 379] to contend that such
postal service can neither be presumed nor
considered to be good service where the letter is
returned to the sender due to the non-availability of
the addressee. He urges that, in the absence of any
enabling provision such as the one provided for in
Section 106 of the Transfer of Property Act, service
by some other mode, such as affixture, cannot be
treated as sufficient compliance with the statute. In
this context, he referred to the frequently applied
rule in Taylor v. Taylor [(1875) 1 Ch D 426] that
where a power is given to do a certain thing in a
certain way, the thing must be done in that way or
not at all and that other methods of performance are
necessarily forbidden. He urged that even if service
by affixture can be considered to be permissible,
there are stringent prerequisites for service by
affixture, such as those outlined in Order V Rules 17
to 19,
of the Code of Civil Procedure (CPC) and that
these prerequisites were not fulfilled in the present
case. He pointed out that even under the CPC,
service by such affixture can be recognised as valid
only if sincere and vigilant attempts to serve the
notice on the addressee personally are
unsuccessful. In the present case, it is submitted,
the evidence shows that the postman made no
serious efforts to ascertain the whereabouts of the
addressee even though the evidence showed that a
servant of the petitioner firm was known to the
postman and was present in the neighbourhood.
He, therefore, submitted that the High Court should
49
have dismissed the suit for eviction filed by the
landlord on the ground that the requirements of
Sections 11 and 12 of the Act were not satisfied.”
The Court turned down the contention based on Taylor (supra)

in the following terms:

“We are of opinion that the conclusion arrived at by
the courts below is correct and should be upheld. It
is true that the proviso to clause (i) of
Section 11(1)
and the proviso to
Section 12(3) are intended for the
protection of the tenant. Nevertheless it will be easy
to see that too strict and literal a compliance of their
language would be impractical and unworkable.”

xxx xxx xxx

“In this situation, we have to choose the more
reasonable, effective, equitable and practical
interpretation and that would be to read the word
“served” as “sent by post”, correctly and properly
addressed to the tenant, and the word “receipt” as
the tender of the letter by the postal peon at the
address mentioned in the letter. No other
interpretation, we think, will fit the situation as it is
simply not possible for a landlord to ensure that a
registered letter sent by him gets served on, or is
received by, the tenant.”
This judgment is also supportive of the proposition that when

the principle in Taylor (supra) leads to impractical, unworkable

and inequitable results, it cannot be applied out of context in

situations which are predominantly procedural in nature.

50

28. The decision in Smart Timing (supra) by the NCLAT,

which was relied upon by the impugned judgment, was then

pressed into service by Dr Singhvi stating that an appeal from

this judgment has been dismissed by this Court and that,

therefore, following the principle in Kunhayammed v. State of

Kerala (2000) 6 SCC 359, the NCLAT’s judgment has merged

with the Supreme Court’s order dated August 18, 2017, which

reads as follows:

“Heard the learned counsel appearing for the appellant.
We do not find any reason to interfere with the order
dated 19.05.2017 passed by the National Company Law
Appellate Tribunal, New Delhi. In view of this, we find no
merit in the appeal.

Accordingly, the appeal is dismissed.”

Whether or not there is a merger, it is clear that the order dated

August 18, 2017 is not “law declared” within the meaning of

Article 141 of the Constitution and is of no precedential value.

Suffice it to state that the said order was also a threshold

dismissal by the Supreme Court, having heard only the learned

counsel appearing for the appellant.

51

29. Dr. Singhvi then relied upon the Viswanathan Report

dated November 2015, in particular Box 5.2, which reads as

follows:

Box 5.2 – Trigger for IRP

1. The IRP can be triggered by either the debtor
or the creditors by submitting documentation
specified in the Code to the adjudicating authority.

2. For the debtor to trigger the IRP, she must be
able to submit all the documentation that is defined
in the Code, and may be specified by the Regulator
above this.

3. The Code differentiates two categories of
creditors: financial creditors where the liability to the
debtor arises from a solely financial transaction, and
operational creditors where the liability to the debtor
arises in the form of future payments in exchange
for goods or services already delivered. In cases
where a creditor has both a solely financial
transaction as well as an operational transaction
with the entity, the creditor will be considered a
financial creditor to the extent of the financial debt
and an operational creditor to the extent of the
operational debt is more than half the full liability it
has with the debtor.

4. The Code will require different documentation
for a debtor, a financial creditor, and an operational
creditor to trigger the IRP. These are listed Box 5.3
under what the Adjudicator will accept as
requirements to trigger the IRP.

52

30. Item 2 in Box 5.2 does show that for the corporate debtor

to trigger the IRP, it must be able to submit all the

documentation that is defined in the Code and that different

documentation is required insofar as financial creditors and

operational creditors are concerned, as is evident from Item 4 in

Box 5.2. The sentence which is after Box 5.2 is significant. It

reads, “therefore, the Code requires that the creditor can only

trigger the IRP on clear evidence of default.” Nowhere does the

report state that such “clear evidence” can only be in the shape

of the certificate, referred to in Section 9(3)(c), as a condition

precedent to triggering the Code. In fact, in Item 2(c) in Box

5.3, the Committee, by way of drafting instructions for how the

IRP can be triggered, states:

“If an operational creditor has applied, the
application contains:

i. Record of an undisputed bill against the entity,
and where applicable, information of such
undisputed as filed at a registered information
utility.”

53

31. When it comes to the Joint Committee report dated April

2016, the draft Section contained therein, namely the definition

of financial institution contained in Section 3(14) of the Code,

has added into it a sub-clause (c) which is a public financial

institution as defined in Section 2(72) of the Companies Act,

2013. Apart from this, the draft statute that was placed before

the Joint Committee contains Section 9(3)(c) exactly as it is in

the present Code. This report again does not throw much light

on the point at issue before us.

32. Shri Mukul Rohatgi strongly relied upon a recent

judgment delivered by this Court in Surendra Trading

Company v. Juggilal Kamlapat Jute Mills Company Limited

and Others, Civil Appeal No. 8400 of 2017 decided on

September 19, 2017. In this case, the question of law framed

by the NCLAT for its decision was whether the time limit

prescribed for admitting or rejecting a petition for initiation of the

insolvency resolution process is mandatory. The precise

question was whether, under the proviso to Section 9(5), the

54
rectification of defects in an application within 7 days of the date

of receipt of notice from the adjudicating authority was a hard

and fast time limit which could never be altered. The NCLAT

had held that the 7 day period was sacrosanct and could not be

extended, whereas, insofar as the adjudicating authority is

concerned, the decision to either admit or reject the application

within the period of 14 days was held to be directory. This

Court, in disagreeing with the NCLAT on the 7 day period being

mandatory, held:

“We are not able to decipher any valid reason given
while coming to the conclusion that the period
mentioned in proviso is mandatory. The order of the
NCLAT, thereafter, proceeds to take note of the
provisions of Section 12 of the Code and points out
the time limit for completion of insolvency resolution
process is 180 days, which period can be extended
by another 90 days. However, that can hardly
provide any justification to construe the provisions
of proviso to sub-section (5) of
Section 9 in the
manner in which it is done. It is to be borne in mind
that limit of 180 days mentioned in
Section 12 also
starts from the date of admission of the application.

Period prior thereto which is consumed, after the
filing of the application under
Section 9 (or for that
matter under
Section 7 or Section 10), whether by
the Registry of the adjudicating authority in
scrutinising the application or by the applicant in
removing the defects or by the adjudicating
55
authority in admitting the application is not to be
taken into account. In fact, till the objections are
removed it is not to be treated as application validly
filed inasmuch as only after the application is
complete in every respect it is required to be
entertained. In this scenario, making the period of
seven days contained in the proviso as mandatory
does not commend to us. No purpose is going to be
served by treating this period as mandatory. In a
given case there may be weighty, valid and
justifiable reasons for not able to remove the
defects within seven days. Notwithstanding the
same, the effect would be to reject the application.
The court further went on to hold:

“Further, we are of the view that the judgments cited
by the NCLAT and the principle contained therein
applied while deciding that period of fourteen days
within which the adjudicating authority has to pass
the order is not mandatory but directory in nature
would equally apply while interpreting proviso to
sub-section (5) of
Section 7, Section 9 or
sub-section (4) of
Section 10 as well. After all, the
applicant does not gain anything by not removing
the objections inasmuch as till the objections are
removed, such an application would not be
entertained. Therefore, it is in the interest of the
applicant to remove the defects as early as
possible.

Thus, we hold that the aforesaid provision of
removing the defects within seven days is directory
and not mandatory in nature. However, we would
like to enter a caveat.

We are also conscious of the fact that sometimes
applicants or their counsel may show laxity by not
56
removing the objections within the time given and
make take it for granted that they would be given
unlimited time for such a purpose. There may also
be cases where such applications are frivolous in
nature which would be filed for some oblique
motives and the applicants may want those
applications to remain pending and, therefore,
would not remove the defects. In order to take care
of such cases, a balanced approach is needed.
Thus, while interpreting the provisions to be
directory in nature, at the same time, it can be laid
down that if the objections are not removed within
seven days, the applicant while refilling the
application after removing the objections, file an
application in writing showing sufficient case as to
why the applicant could not remove the objections
within seven days. When such an application comes
up for admission/order before the adjudicating
authority, it would be for the adjudicating authority to
decide as to whether sufficient cause is shown in
not removing the defects beyond the period of
seven days. Once the adjudicating authority is
satisfied that such a case is shown, only then it
would entertain the application on merits, otherwise
it will have right to dismiss the application.”
This judgment also lends support to the argument for the

appellant in that it is well settled that procedure is the handmaid

of justice and a procedural provision cannot be stretched and

considered as mandatory, when it causes serious general

inconvenience. As has been held in Mahanth Ram Das v.

Ganga Das (1961) 3 SCR 763 at 767-768, we have traveled far

57
from the days of the laws of the Medes and the Persians

wherein, once a decree was promulgated, it was cast in stone

and could not be varied or extended later:

“Such procedural orders, though peremptory
(conditional decrees apart) are, in essence, in
terrorem, so that dilatory litigants might put
themselves in order and avoid delay. They do not,
however, completely estop a court from taking note
of events and circumstances which happen within
the time fixed. For example, it cannot be said that, if
the appellant had started with the full money
ordered to be paid and came well in time but was
set upon and robbed by thieves the day previous,
he could not ask for extension of time, or that the
Court was powerless to extend it. Such orders are
not like the law of the Medes and the Persians.
Cases are known in which Courts have moulded
their practice to meet a situation such as this and to
have restored a suit or proceeding, even though a
final order had been passed.”

33. Insofar as the second point is concerned, the first thing

that is to be noticed is that Section 8 of the Code speaks of an

operational creditor delivering a demand notice. It is clear that

had the legislature wished to restrict such demand notice being

sent by the operational creditor himself, the expression used

would perhaps have been “issued” and not “delivered”. Delivery,

therefore, would postulate that such notice could be made by

58
an authorized agent. In fact, in Forms 3 and 5 extracted

hereinabove, it is clear that this is the understanding of the

draftsman of the Adjudicatory Authority Rules, because the

signature of the person “authorized to act” on behalf of the

operational creditor must be appended to both the demand

notice as well as the application under Section 9 of the Code.

The position further becomes clear that both forms require such

authorized agent to state his position with or in relation to the

operational creditor. A position with the operational creditor

would perhaps be a position in the company or firm of the

operational creditor, but the expression “in relation to” is

significant. It is a very wide expression, as has been held in

Renusagar Power Co. Ltd. v. General Electric Co., (1984) 4

SCC 679 at 704 and State of Karnataka v. Azad Coach

Builders (P) Ltd. (2010) 9 SCC 524 at 535, which specifically

includes a position which is outside or indirectly related to the

operational creditor. It is clear, therefore, that both the

expression “authorized to act” and “position in relation to the

operational creditor” go to show that an authorized agent or a
59
lawyer acting on behalf of his client is included within the

aforesaid expression.

34. Quite apart from the above, Section 30 of the Advocates

Act states as follows:

“Right of advocates to practise.—Subject to
provisions of this Act, every advocate whose name
is entered in the State roll shall be entitled as of
right to practise throughout the territories to which
this Act extends,—

(i) in all courts including the Supreme Court;

(ii) before any tribunal or person legally authorised
to take evidence; and

(iii) before any other authority or person before
whom such advocate is by or under any law for the
time being in force entitled to practise.”
That the expression “practise” is an expression of extremely

wide import, and would include all preparatory steps leading to

the filing of an application before a Tribunal. This is clear from

a Constitution Bench judgment of this Court in Harish Uppal

(Ex-Capt.) v. Union of India, (2003) 2 SCC 45 at 72, which

states:

“The right of the advocate to practise envelopes a
lot of acts to be performed by him in discharge of
his professional duties. Apart from appearing in the
courts he can be consulted by his clients, he can
give his legal opinion whenever sought for, he can

60
draft instruments, pleadings, affidavits or any other
documents, he can participate in any conference
involving legal discussions, he can work in any
office or firm as a legal officer, he can appear for
clients before an arbitrator or arbitrators etc.”

35. The doctrine of harmonious construction of a statute

extends also to a harmonious construction of all statutes made

by Parliament. In Harshad S. Mehta v. State of Maharashtra

(2001) 8 SCC 257 at 280-81, the Special Court (Trial of

Offences Relating to Transactions in Securities) Act, 1992 was

held, insofar as the criminal jurisdiction of the Special Court

was concerned, to be harmoniously construed with the Code of

Criminal Procedure,1973 in the following terms:

“48. To our mind, the Special Court has all the
powers of a Court of Session and/or Magistrate, as
the case may be, after the prosecution is instituted
or transferred before that Court. The width of the
power of the Special Court will be same whether
trying such cases as are instituted before it or
transferred to it. The use of different words in
Sections 6 and 7 of the Act as already noticed
earlier also shows that the words in
Section 7 that
the prosecution for any offence shall be instituted
only in the Special Court deserve a liberal and wider
construction. They confer on the Special Court all
powers of the Magistrate including the one at the
stage of investigation or inquiry. Here, the institution
of the prosecution means taking any steps in
61
respect thereof before the Special Court. The
scheme of the Act nowhere contemplates that it was
intended that steps at pre-cognizance stage shall be
taken before a court other than a Special Court. We
may note an illustration given by Mr Salve referring
to Section 157 of the Code. Learned counsel
submitted that the report under that section is
required to be sent to a Magistrate empowered to
take cognizance of offence. In relation to offence
under the Act, the Magistrate has no power to take
cognizance. That power is exclusively with the
Special Court and thus report under Section 157 of
the Code will have to be sent to the Special Court
though the section requires it to be sent to the
Magistrate. It is clear that for the expression
“Magistrate” in
Section 157, so far as the Act is
concerned, it is required to be read as “Special
Court” and likewise in respect of other provisions of
the Code. If the expression “Special Court” is read
for the expression “Magistrate”, everything will fall in
line. This harmonious construction of the provisions
of the Act and the Code makes the Act work. That is
what is required by principles of statutory
interpretation.
Section 9(1) of the Act provides that
the Special Court shall in the trial of such cases
follow the procedure prescribed by the Code for the
trial of warrant cases before the Magistrate. The
expression “trial” is not defined in the Act or the
Code. For the purpose of the Act, it has a wider
connotation and also includes in it the pre-trial stage
as well.
Section 9(2) makes the Special Court, a
Court of Session by a fiction by providing that the
Special Court shall be deemed to be a Court of
Session and shall have all the powers of a Court of
Session. In case, the Special Court is held not to
have the dual capacity and powers both of the
Magistrate and the Court of Session, depending
62
upon the stage of the case, there will be a complete
hiatus. It is also to be kept in view that the Special
Court under the Act comprises of a High Court
Judge and it is a court of exclusive jurisdiction in
respect of any offence as provided in
Section 3(2)
which will include offences under
the Indian Penal
Code, the
Prevention of Corruption Act and other
penal laws. It is only in the event of inconsistency
that the provisions of the Act would prevail as
provided in
Section 13 thereof. Any other
interpretation will make the provision of the Act
unworkable which could not be the intention of the
legislature.
Section 9(2) does not exclude Sections
306 to
308 of the Code from the purview of the Act.

This section rather provides that the provisions of
the Code shall apply to the proceedings before the
Special Court. The inconsistency seems to be only
imaginary. There is nothing in the Act to show that
Sections 306 to 308 were intended to be excluded
from the purview of the Act.”

Similarly, in CTO v. Binani Cements Ltd. (2014) 8 SCC 319 at

332, the rule of construction of two Parliamentary statutes being

harmoniously construed was laid down as follows:

“35. Generally, the principle has found vast
application in cases of there being two statutes:

general or specific with the latter treating the
common subject-matter more specifically or
minutely than the former. Corpus Juris Secundum,
82 C.J.S. Statutes § 482 states that when
construing a general and a specific statute
pertaining to the same topic, it is necessary to
consider the statutes as consistent with one another
and such statutes therefore should be harmonised,
63
if possible, with the objective of giving effect to a
consistent legislative policy. On the other hand,
where a general statute and a specific statute
relating to the same subject-matter cannot be
reconciled, the special or specific statute ordinarily
will control. The provision more specifically directed
to the matter at issue prevails as an exception to or
qualification of the provision which is more general
in nature, provided that the specific or special
statute clearly includes the matter in controversy
(Edmond v. United States [137 L Ed 2d 917 : 520
US 651 (1997)] , Warden v. Marrero [41 L Ed 2d
383 : 417 US 653 (1974)] ).”
More recently, in
Binoy Viswam v. Union of India (2017) 7

SCC 59 at 132, this Court construed the Income Tax Act, 1961

and the Aadhaar (Targeted Delivery of Financial and Other

Subsidies, Benefits and Services) Act, 2016 harmoniously in

the following manner:

“98. In view of the above, we are not impressed by
the contention of the petitioners that the two
enactments are contradictory with each other. A
harmonious reading of the two enactments would
clearly suggest that whereas enrolment of Aadhaar
is voluntary when it comes to taking benefits of
various welfare schemes even if it is presumed that
requirement of Section 7 of the Aadhaar Act that it is
necessary to provide Aadhaar number to avail the
benefits of schemes and services, it is up to a
person to avail those benefits or not. On the other
hand, purpose behind enacting
Section 139-AA of
the Act is to check a menace of black money as well
64
as money laundering and also to widen the income
tax net so as to cover those persons who are
evading the payment of tax.”

36. The non-obstante clause contained in Section 238 of the

Code will not override the Advocates Act as there is no

inconsistency between Section 9, read with the Adjudicating

Authority Rules and Forms referred to hereinabove, and the

Advocates Act. In Balchand Jain v. State of M.P. (1976) 4

SCC 572 at 585-86, the anticipatory bail provision contained in

Section 438 of the Code of Criminal Procedure was held not to

be wiped out by the non-obstante clause contained in Rule 184

of the Defence and Internal Security of India Rules, 1971. Fazal

Ali, J. concurring with the main judgment, held:

“16. Having regard to the principles enunciated
above, we feel that there does not appear to be any
direct conflict between the provisions of Rule 184 of
the Rules and
Section 438 of the Code. However,
we hold that the conditions required by Rule 184 of
the Rules must be impliedly imported in
Section 438
of the Code so as to form the main guidelines which
have to be followed while the court exercises its
power under
Section 438 of the Code in offences
contemplated by Rule 184 of the Rules. Such an
interpretation would meet the ends of justice, avoid
all possible anomalies and would at the same time
ensure and protect the liberty of the subject which
65
appears to be the real intention of the legislature in
enshrining
Section 438 as a new provision for the
first time in
the Code. We think that there is no real
inconsistency between
Section 438 of the Code and
Rule 184 of the Rules and, therefore, the non
obstante clause cannot be interpreted in a manner
so as to repeal or override the provisions of
Section
438 of the Code in respect of cases where Rule 184
of the Rules applies.”

Similarly, in R.S. Raghunath v. State of Karnataka (1992) 1

SCC 335 at 348, the non-obstante clause contained in Rule

3(2) of the Karnataka Civil Services (General Recruitment)

Rules, 1977 was held not to override the Karnataka General

Service (Motor Vehicles Branch) (Recruitment) Rules, 1976. It

was held:

“As already noted, there should be a clear
inconsistency between the two enactments before
giving an overriding effect to the non-obstante
clause but when the scope of the provisions of an
earlier enactment is clear the same cannot be cut
down by resort to non-obstante clause. In the
instant case we have noticed that even the General
Rules of which Rule 3(2) forms a part provide for
promotion by selection. As a matter of fact Rules
1(3)(a) and 3(1) and 4 also provide for the
enforceability of the Special Rules. The very Rule 3
of the General Rules which provides for recruitment
also provides for promotion by selection and further
lays down that the methods of recruitment shall be

66
as specified in the Special Rules, if any. In this
background if we examine the General Rules it
becomes clear that the object of these Rules only is
to provide broadly for recruitment to services of all
the departments and they are framed generally to
cover situations that are not covered by the Special
Rules of any particular department. In such a
situation both the Rules including Rules 1(3)(a), 3(1)
and 4 of General Rules should be read together. If
so read it becomes plain that there is no
inconsistency and that amendment by inserting
Rule 3(2) is only an amendment to the General
Rules and it cannot be interpreted as to supersede
the Special Rules. The amendment also must be
read as being subject to Rules 1(3)(a), 3(1) and 4(2)
of the General Rules themselves. The amendment
cannot be read as abrogating all other Special
Rules in respect of all departments. In a given case
where there are no Special Rules then naturally the
General Rules would be applicable. Just because
there is a non-obstante clause, in Rule 3(2) it
cannot be interpreted that the said amendment to
the General Rules though later in point of time
would abrogate the special rule the scope of which
is very clear and which co-exists particularly when
no patent conflict or inconsistency can be spelt out.

As already noted Rules 1(3)(a), 3(1) and 4 of the
General Rules themselves provide for promotion by
selection and for enforceability of the Special Rules
in that regard. Therefore there is no patent conflict
or inconsistency at all between the General and the
Special Rules.”
In Central Bank of India v. State of Kerala (2009) 4 SCC 94

at 141-42, the non-obstante clauses contained in Section 34(1)

67
of Recovery of Debts Due to Banks and Financial Institutions

Act, 1993 and Section 35 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 were held not to override specific provisions

contained in the Bombay Sales Tax Act, 1959 and the Kerala

Sales Tax Act 1963 dealing with a declaration of a first charge in

the following terms:

“130. Undisputedly, the two enactments do not
contain provision similar to the Workmen’s
Compensation Act, etc. In the absence of any
specific provision to that effect, it is not possible to
read any conflict or inconsistency or overlapping
between the provisions of the
DRT Act and the
Securitisation Act on the one hand and Section
38-C of the Bombay Act and Section 26-B of the
Kerala Act on the other and the non obstante
clauses contained in
Section 34(1) of the DRT Act
and Section 35 of the Securitisation Act cannot be
invoked for declaring that the first charge created
under the State legislation will not operate qua or
affect the proceedings initiated by banks, financial
institutions and other secured creditors for recovery
of their dues or enforcement of security interest, as
the case may be.

131. The Court could have given effect to the non
obstante clauses contained in
Section 34(1) of the
DRT Act and Section 35 of the Securitisation Act
vis-à-vis Section 38-C of the Bombay Act and
Section 26-B of the Kerala Act and similar other

68
State legislations only if there was a specific
provision in the two enactments creating first charge
in favour of the banks, financial institutions and
other secured creditors but as Parliament has not
made any such provision in either of the
enactments, the first charge created by the State
legislations on the property of the dealer or any
other person, liable to pay sales tax, etc., cannot be
destroyed by implication or inference,
notwithstanding the fact that banks, etc. fall in the
category of secured creditors.”
Since there is no clear disharmony between the two

Parliamentary statutes in the present case which cannot be

resolved by harmonious interpretation, it is clear that both

statutes must be read together. Also, we must not forget that

Section 30 of the Advocates Act deals with the fundamental

right under Article 19(1)(g) of the Constitution to practice one’s

profession. Therefore, a conjoint reading of Section 30 of the

Advocates Act and Sections 8 and 9 of the Code together with

the Adjudicatory Authority Rules and Forms thereunder would

yield the result that a notice sent on behalf of an operational

creditor by a lawyer would be in order.

69

37. However, Dr. Singhvi referred to Rule 4 of the Debts

Recovery Rules and Section 434(2) of the Companies Act,

1956, which state as follows:

“4. Procedure for filing applications.-
(1) The application under
section 19 or section 31A,
or under
section 30(1) of the Act may be presented
as nearly as possible in Form-I, Form-II and Form-III
respectively annexed to these rules by the applicant
in person or by his agent or by a duly authorised
legal practitioner to the Registrar of the Bench
within whose jurisdiction his case falls or shall be
sent by registered post addressed to the Registrar.
(2) An application sent by post under sub-rule (1)
shall be deemed to have been presented to the
Registrar the day on which it was received in the
office of the Registrar.

(3) The application under sub-rule (1) shall be
presented in two sets, in a paper book along with an
empty file size envelope bearing full address of the
defendant and where the number of defendants is
more than one, then sufficient number of extra
paper-books together with empty file size envelopes
bearing full address of each of the defendant shall
be furnished by the applicant.

xxx xxx xxx

434. COMPANY WHEN DEEMED UNABLE TO
PAY ITS DEBTS-

(2) The demand referred to in clause (a) of
sub-section (1) shall be deemed to have been duly
given under the hand of the creditor if it is signed by
70
any agent or legal adviser duly authorised on his
behalf, or in the case of a firm, if it is signed by any
such agent or legal adviser or by any member of the
firm.”
The argument then made was that when Parliament wishes to

include a lawyer for the purposes of litigation or to a

pre-litigation stage, it expressly so provides, and this not being

so in the Code, it must be inferred that lawyers are excluded

when it comes to issuing notices under Section 8 of the Code.

We are afraid that this argument must be rejected, not only in

view of what has been held by us on a reading of the Code and

on the harmonious construction of Section 30 of the Advocates

Act read with the Code, but also on the basis of a judgment of

this Court in Byram Pestonji Gariwala v. Union Bank of

India, (1992) 1 SCC 31 at 47-48. In this judgment, what fell for

consideration was Order XXIII Rule 3 of the Code of Civil

Procedure, 1908 after its amendment in 1976. It was argued in

that case that a compromise in a suit had, under Order XXIII

Rule 3, to be in writing and “signed by the parties”. It was,

therefore, argued that a compromise effected by counsel on

71
behalf of his client would not be effective in law, unless the

party himself signed the compromise. This was turned down

stating that Courts in India have consistently recognized the

traditional role of lawyers and the extent and nature of the

implied authority to act on behalf of their clients, which included

compromising matters on behalf of their clients. The Court held

there is no reason to assume that the legislature intended to

curtail such implied authority of counsel. It then went on to

hold:

“38. Considering the traditionally recognised role of
counsel in the common law system, and the evil
sought to be remedied by Parliament by the C.P.C.
(Amendment) Act, 1976, namely, attainment of
certainty and expeditious disposal of cases by
reducing the terms of compromise to writing signed
by the parties, and allowing the compromise decree
to comprehend even matters falling outside the
subject matter of the suit, but relating to the parties,
the legislature cannot, in the absence of express
words to such effect, be presumed to have
disallowed the parties to enter into a compromise by
counsel in their cause or by their duly authorised
agents. Any such presumption would be
inconsistent with the legislative object of attaining
quick reduction of arrears in court by elimination of
uncertainties and enlargement of the scope of
compromise.

72

39. To insist upon the party himself personally
signing the agreement or compromise would often
cause undue delay, loss and inconvenience,
especially in the case of non-resident persons. It
has always been universally understood that a party
can always act by his duly authorised
representative. If a power-of-attorney holder can
enter into an agreement or compromise on behalf of
his principal, so can counsel, possessed of the
requisite authorisation by vakalatnama, act on
behalf of his client. Not to recognise such capacity
is not only to cause much inconvenience and loss to
the parties personally, but also to delay the progress
of proceedings in court. If the legislature had
intended to make such a fundamental change, even
at the risk of delay, inconvenience and needless
expenditure, it would have expressly so stated.

40. Accordingly, we are of the view that the words
‘in writing and signed by the parties’, inserted by the
C.P.C. (Amendment) Act, 1976, must necessarily
mean, to borrow the language of Order III Rule 1
CPC:

“any appearance, application or act in or to any
court, required or authorized by law to be made or
done by a party in such court, may except where
otherwise expressly provided by any law for the
time being in force, be made or done by the party in
person, or by his recognized agent, or by a pleader,
appearing, applying or acting as the case may be,
on his behalf:

Provided that any such appearance shall, if the
court so directs, be made by the party in person.”

73

38. Just as has been held in Gariwala (supra), the

expression “an operational creditor may on the occurrence of a

default deliver a demand notice…..” under Section 8 of the

Code must be read as including an operational creditor’s

authorized agent and lawyer, as has been fleshed out in Forms

3 and 5 appended to the Adjudicatory Authority Rules.

39. For all these reasons, we are of the view that the NCLAT

judgment has to be set aside on both counts. Inasmuch as the

two threshold bars to the applications filed under Section 9

have now been removed by us, the NCLAT will proceed further

with these matters under the Code on a remand of these

matters to it. The appeals are allowed in the aforesaid terms.

…………………………..J.

(R.F. Nariman)

…………………………..J.

(Navin Sinha)
New Delhi;

December 15, 2017.

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