Macquarie Bank Ltd. v. Shilpi Cable Technologies: Supreme Court clearing the air on procedural aspects of Insolvency and Bankruptcy Code, 2016

Facts of the Case

One Company named Uttam Galva Metallics (Corporate Debtor) (Respondent in the current case) did not make the payment to one bank named Macquarie Bank (Operational Creditor) (Appellant in the current case). The amount which was demanded by the bank amounted to 6,321,337 US dollars which is equal to Rs 4,11,15,190. The bank sent emails repeatedly to the respondent demanding the payment of the amount. The Respondent did not make payment even after receiving multiple emails. The bank then sent a statutory notice to the respondent under Section 433 and 434 of the Companies Act, these Sections stipulate for circumstances in which company may be wound up by Court and conditions for when a company is deemed to be unable to pay its debt, respectively. The Appellant made use of Insolvency and Bankruptcy Code (IBC) and gave a ‘Demand Notice’ to the Respondent under Section 8 of the IBC. The respondent in its reply denied the existence of debt and also questioned the Purchase Agreement. Hence, the appellants approached National Company Law Tribunal (NCLT) and started the Corporate Insolvency Resolution Process.

NCLT Ruling

The NCLT rejected the application of Corporate Insolvency Resolution Process on the ground that the application was devoid of the compulsory requirements under Section 9(3)(c) of the IBC. This Section required that 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 be attached with Insolvency Resolution Process Moreover, the bank being foreign it was held that it is not a ‘Financial Institution’ as per Section 3(14) of the IBC and thus it was held that it is not a certificate from a Financial Institution.

The second reason for rejecting the application was that there was already an existence of dispute before the Demand Notice was sent u/S 8(2)(a) of the IBC which was also raised at the time when a reply was made to the Statutory Notice which was furnished under  Section  433 and 434 of the Companies Act.

National Company Law Appellate Tribunal (NCLAT) Ruling

NCLAT upheld the NCLT’s order reason being that an application has to complete the statutory requirements u/S 9(3)(c) of the IBC and that the bank not being a Financial Institution u/S 3(14) of the IBC cannot issue a valid certificate signifying the payment/non-payment of a debt. The certificate being a compulsory requirement and it not being made by a financial institution the application remains incomplete.

Moreover, the tribunal paid heed to the Demand Notice and held that it should be made in compliance with Form 3 under Rule 5 of IBC Rules, 2016. Such Demand Notice was to be sent by the Operational Creditor himself or by a person authorized by him and a lawyer sending such Demand Notice would not suffice the Notice to be a Demand Notice u/S8 of the IBC. The appeal was rejected on these grounds.

Issues Before the Hon’ble Supreme Court

Issue 1: Whether a demand notice of an unpaid operational debt can be issued by a lawyer on behalf of the operational creditor?

Issue 2: Whether, in relation to an operational debt, the provision contained in Section 9(3)(c) of the IBC stipulating for the requirement of a Financial Institution’s certificate with respect to payment of the Debt is mandatory?

Contentions raised

Appellant’s Side:

Learned senior advocate appearing on behalf of the appellant, referred 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”.

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)

It was 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.

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 categories mentioned in Section 3(14) when it comes to an operational creditor who is a resident outside India.

Respondent’s Side:

According to learned senior counsel from the side of the Respondent, 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.

He contended that 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.

It was contended by the it is clear from the definition of “financial institution” contained in Section 3(14) that certain foreign banks are 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 was argued that 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.

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. It was 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 the operational creditor and not a lawyer.

Hon’ble Supreme Court’s Judgement

The Supreme Court held that Section 9(3)(c) of the IBC should be interpreted creatively and not in a restrictive way. As interpreting it in a restrictive sense would cause grave inconvenience to the appellants and other foreign banks which might land in a similar situation as that of present case.

It was observed that the certificate under Section 9(3)(c) of the IBC is a supportive document which proves the existence or non-existence of debt, which could be proved by other documents as well. Serious inconvenience will be caused if documents which are impossible to furnish are demanded from the appellants. If such documents are demanded by the way of strictly interpreting the provisions, it would impair the aims and objectives that the Code aspires to achieve.

While dealing with a second issue of whether a lawyer a can send a Demand Notice u/S 8 of the IBC. It relied on the case of Byram Pestonji Gariwala v. Union Bank of India[1], in this case a signature made by a lawyer on behalf of his client on a compromise document was held to effective in law.

Conclusion

The Hon’ble Supreme Court made great observations and saved the IBC to be wrecked as a piece of law riddled with procedural technicalities. The language was paid heed to and interpreted along with the aims and object that the IBC aims to achieve. Furthermore, by liberally interpreting the procedural aspects the creditors would be at ease putting in motion the proceedings under IBC against a debtor. It would also avoid the debtors from escaping their liability by pulling out the procedural loopholes in law while causing an inconvenience and injustice to an innocent creditor.

[1]  1992 (1) SCC 31


ABOUT THE AUTHOR

Jai Bajpai

IMG_20180129_223225

Jai Bajpai is a student in the third year of the five-year B.B.A. L.L.B (hons.) Course at University of Petroleum and Energy Studies, Dehradun.

Do you know D.K.Basu?

So, do you know D.K.Basu? Do you think he is some freedom fighter? A social activist? Someone who won some award or got some recognition? If your answer is in affirmative to any of them, then you are wrong. Rather than thinking of D.K.Basu as a person look at it from another perspective. When I say another perspective I mean look at it as “D.K.Basu v/s State of West Bengal[1]”. This case is one of the landmark judgments wherein the Supreme Court of India laid down guidelines regarding the arrest of a person.

Now the question is – why should you know the guidelines? To understand why, let’s go back to the time before the aforementioned guidelines were laid down. There’s the Police obligated to protect all the citizens, and have to do so dutifully by following the procedures established by law. However, at many instances that was not the case.

In the past and even today, though minimal, the Police have been under the lens of the media, governments and public. Why? It’s because there have been, and still are, several incidences wherein they have committed gross human rights and fundamental violations. Such violations range from refusal to register F.I.R. to filing of false charges against the accused as well the complainant to being responsible for the custodial deaths. This has led to many innocent as well as guilty persons being subjected to injustice, and they were also stripped of their dignity and personal liberty, hence violating Art.21 of the Constitution of India[2].

Such incidences occurred due to lack of or no supervision over the police. But, that all changed on a large scale when the judgment of the D.K.Basu v/s State of West Bengal[3] case was laid down with respect to arrest, detention and interrogation.

Let’s look into these guidelines to understand how:

  1. The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name tags with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.
  2. That the police officer carrying out the arrest of the arrestee shall prepare a memo of arrest at the time of arrest and such memo shall be attested by at least one witness, who may either be a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. It shall also be countersigned by the arrestee and shall contain the time and date of arrest.
  3. A person who has been arrested or detained and is being held in custody in a police station or interrogation centre or other lock-up, shall be entitled to have one friend or relative or other person known to him or having interest in his welfare being informed, as soon as practicable, that he has been arrested and is being detained at the particular place, unless the attesting witness of the memo of arrest is himself such a friend or a relative of the arrestee.
  4. The time, place of arrest and venue of custody of an arrestee must be notified by the police where the next friend or relative of the arrestee lives outside the district or town through the Legal Aid Organisation in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.
  5. The person arrested must be made aware of his right to have someone informed of his arrest or detention as soon as he is put under arrest or is detained.
  6. An entry must be made in the diary at the place of detention regarding the arrest of the person which shall also disclose the name of the next friend of the person who has been informed of the arrest and the names land particulars of the police officials in whose custody the arrestee is.
  7. The arrestee should, where he so requests, be also examined at the time of his arrest and major and minor injuries, if any present on his/her body, must be recorded at that time. The ‘Inspection Memo’ must be signed both by the arrestee and the police officer effecting the arrest and its copy provided to the arrestee.
  8. The arrestee should be subjected to medical examination by a trained doctor every 48 hours during his detention in custody by a doctor on the panel of approved doctors appointed by Director, Health Services of the State or Union Territory concerned. Director, Health Services should prepare such a panel for all tehsils and districts as well.
  9. Copies of all the documents including the memo of arrest, referred to above, should be sent to the Area (Illaqa) Magistrate for his record.
  10. The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation.
  11. A police control room should be provided at all district and State headquarters, where information regarding the arrest and the place of custody of the arrestee shall be communicated by the officer causing the arrest, within 12 hours of effecting the arrest and at the police control room it should be displayed on a conspicuous notice board.

These requirements are in addition to the following other requirements:

  • The right to be informed at the time of arrest of the offence for which the person is being arrested.
  • The right to be presented before a magistrate within 24 hours of the arrest.
  • The right not to be ill-treated or tortured during arrest or in custody.
  • Confessions made in police custody cannot be used as evidence against the accused.
  • A boy under 15 years of age and women cannot be called to the police station only for questioning.

So, next time if the police comes knocking on your door, ask them, “Do you know D.K.Basu?”

[1] (1997) 1 SCC 216

[2] Right to life and personal liberty

[3] (1997) 1 SCC 216


ABOUT THE AUTHOR

Headshot - Vidhya Kumarswamy

VIDHYA KUMARSWAMY

Vidhya Kumarswamy is a Law student pursuing B.B.A. LL.B. (Hons.), has a craving for knowledge and passionate about writing just as she’s a passionate foodie. Also, she’s a blogger and an Otaku.

5 Interesting Law Case Studies: A takeaway of knowledge for students

For Indians, it is a common phenomenon to undermine the judicial system and mock the professionals by saying they don’t do any work. But is it really true?

In the year 2014, the Delhi high court granted a divorce to an 85-year old man after a waiting period of 32 years. This, in turn, shattered all hopes of resuming his married life.  There are almost 27 million cases that are pending in the Indian courts while they remain short of around 5000 judges.

The story that I mentioned in the beginning is something that the High Court and Supreme Court judges are facing every day. It’s almost like a bubble breaker for a common man. As a child, there have been innumerable instances where I overheard ‘men in my family’ talk about the legal scenarios and judiciary system of India. Most of the times, it started and ended with the same thing ‘the judges in our country don’t do any work’. It’s easy to say so, but how would we know the reality behind the harsh truth?

Judges, lawyers and the entire judiciary system is working extremely hard to ensure they clear the backlog. They are unable to do so, not because they don’t want to, but because there is a shortage of resources.

In fact, there are a number of law case studies which are extremely long and have a lot of knowledge about law. For example, the Nirbhaya judgement sheet is around 429 pages long which explains the reason it takes a particular case so long.

Here are 5 Interesting Law Case Studies which is a great knowledge takeaway for the students of today:

  1. Tarakeswar Case (1874)

The popularity of the case is understandable from the fact that authorities had to sell tickets at the entry. The case revolves around Nobin Chandra and his wife Elokeshi. Nobin slit his wife’s throat for allegedly having an affair with the chief priest of Tarakeshwar Temple. Nobin confessed his crime to the police, but the locals were mostly on his side. Due to this, Nobin was released after two years while serving life imprisonment. However, the priest was put behind the bars for three years. In fact, there were rumours doing rounds that the priest had raped Elokeshi by promising to help her with “fertility issues”. This case was even more important due to the ‘British Raj’ prevalent during that time.

  1. Bhawal Case (1921-1946)

One of the most peculiar identity cases of that time, it revolves around a possible pretender who affirmed to be the prince of Bhawal Estate, largest zamindari estate of Bengal.

Ramendra, a kumar of Bhawal estate died in early 1900, but there was tittle-tattle among people that he was not really dead. In 1921, a religious man who looked like Ramendra was spotted in Dhaka. The former tenants and farmers of Ramendra supported his claim to the title. The entire village trusted him except Ramendra’s widow, Bibhabati. After a long legal procedure of 25 years, the court ruled in his favor after which he passed away due to a stroke.

The interesting thing is that during the case, the look-alike (or whatever) also moved to Calcutta and even collected 1/3rd of the estate revenue.

  1. Kiranjit Ahluwalia’s Case

Kiranjit Ahluwalia’s case came a year after marital rape was declared as ‘rape’ in 1991. She was convicted of murder by burning her husband alive during his sleep. The lady in question had been a victim of domestic violence for over a decade and had been in severe depression when she took the step. The case set a benchmark for improving public awareness on domestic abuse. As a final verdict, she was convicted to life imprisonment. However, she was later freed as her conviction of murder was reduced to manslaughter.

  1. Roe V Wade

If you want to understand the implications of judicial decisions on the political and the social environment, no case is as good as this one. The decision in 1973 supported a woman’s right to abortion and is celebrated by women each year today. The popularity of this decision is such that thousands of people march in the support every year.

  1. Mathura Rape Case (1972)

One of the most prominent cases in the history of India, mainly due to the protests following the final verdict which saw a major overhaul in the rape laws of the country. In the city of Mathura, a tribal woman was raped by two constables within the premises of a police station. During the trial, the judge found the accused not guilty. Can you guess the reason given behind this unfair judgement? As per the judge, a sexual act within the premises of a police station was permitted and consensual. However, this law had to be amended due to the massive protests all over the country, with everyone saying- Submission does not mean consent.

These were some of the cases which are extremely interesting if you go through the entire judgement. Some cases would have surely made you go “Like what! Are you serious this ever happened?” This proves one thing- The lives of lawyers and judges aren’t as easy as it seems and you must be prepared before taking up the L.L.B. course. They may seem right to some and wrong to others. However, as history has it, wherever they have been wrong, they have acknowledged their mistakes, and the judgement has been changed as well. So, let them do their work while we do ours.


ABOUT THE AUTHOR

Author headshot

SANYA SAJJANHAR

Ms Sanya Sajjanhar is the academic writer at Sharda University. She has keen interest in writing articles pertaining to Law Courses.

 

How DU Photocopiers brought a breakthrough in Copyright Infringement?

This article is written by Srishti Gupta. Srishti is a fourth-year law student from Vivekananda Institute of Professional Studies, GGSIPU.

 

 

The Delhi High Court clearly recognised the socio-economic realities of the India in the case of THE CHANCELLOR, MASTERS & SCHOLARS OF THE UNIVERSITY OF OXFORD & ORS. V. RAMESHWARI PHOTOCOPY SERVICES & ANR. and caused a major victory to access to justice.

The suit was filed before the Delhi High Court in 2012. In September 2012, an order directing DU to examine the proposal of the plaintiffs that they obtain a license from Reprographic Rights Organisation such as IRRO for preparing course packs was passed. In October 2012, Rameshwari was restrained by the order of the Court from making or selling course packs until final disposal of the application for interim relief.

The first issue raised was whether the  making of course packs by the defendant amounted to infringement to which the defendant contented that this question shall arise only if the making of course packs is not protected under Section 52.

The Court then noted that making of course-packs would fall under Section 52(1)(i) which states that the reproduction of a work by a “teacher/ pupil in the course of instruction” would not constitute infringement. The question now before the court was whether the interpretation of this section was restricted to an individual teacher and an individual pupil or whether it would extend to an institution and its students.

The Court unequivocally held that it cannot be so restricted especially when considering the societal realities. Education in India has for long been institutionalised and therefore, the law cannot and should not be interpreted in such a fashion that it does not reflect the realities of our education system.

The second main contention was with respect to the interpretation of the term “course of instruction” where the court held that the legislature specifically chose to use the word instruction rather than lecture, and therefore, the interpretation of the term “instruction” cannot be limited to that of lecture.

The Court then attempted to determine when the imparting of instruction begins and ends in a university. To this effect, the Court examined various judicial interpretations of the phrases “instruction” as well as “in the course of” and came to the following conclusion that “in the course of instruction” would include reproduction of any work while the process of imparting instruction by the teacher and receiving instruction by the pupil continues. This process begins from the time when the teacher starts to prepare himself/herself for the purpose of teaching the students to the time when the student prepares notes to reproduce what was taught to him or her. This shall also include clarifying doubts, holding tests and answering questions in the examination. Resultantly, reproduction of any copyrighted work by the teacher for the purpose of imparting instruction to the pupil as prescribed in the syllabus during the academic year would be within the meaning of Section 52 (1)(i) of the Act.” 

The Court approached this issue from a different angle as well and noted that a student issuing a book from the DU library and copying the same, whether by hand or by photocopying for her private or personal use would be protected under fair dealing. Therefore, it was absurd to state that if the DU did the exact same act as a direct result of its resource constraints, then the action of DU would constitute infringement and not be protected under fair dealing.

Hence, the Court stated, “When the effect of the action is the same, the difference in the mode of action cannot make a difference so as to make one an offence.”  The Court held that it was irrelevant whether DU was making the course packs by itself or had licensed it to a contractor as long as the impugned act was protected under Section 52.

Moreover, the Court stated that Rameshwari was not a competitor of the plaintiffs and if Rameshwari was not permitted to do so, the consequence would not be that the students would buy the textbooks. Instead, they would have to resort to sitting in the library and copying out the pages by hand.

The Delhi High Court also clearly explained the nature of copyright thus: “Copyright, specially in literary works, is thus not an inevitable, divine, or natural right that confers on authors the absolute ownership of their creations. It is designed rather to stimulate activity and progress in the arts for the intellectual enrichment of the public. Copyright is intended to increase and not to impede the harvest of knowledge. It is intended to motivate the creative activity of authors and inventors in order to benefit the public.”