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Understanding Section 9 of IBC, 2016

In Smart Timing Steel Limited V/s National Steel and Agro Industries Limited, it was questioned that whether filing of a 'copy of certificate from the "financial institution" maintaining accounts of the operational creditor confirming that there is no payment of unpaid operational debt by the 'Corporate Debtor' as prescribed under clause Section 9(c)(3) of the IBC, 2016 is mandatory or directory.
Written by:
Shivi Gupta
Published on
13-Sep-19

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Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC)  spells out that after 10 days have passed from the date of delivery of notice or invoice that demands payment under section 8 of IBC, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under Section 8(2), the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

The section 9 of ibc read with section 8 also lays down the procedure and formalities of filing the application. It states that the application must contain the relevant information and must be accompanied by the prescribed fee. There are certain documents that must be attached to the application, namely:

  • A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor.

  • An affidavit that there is no notice given by the corporate debtor relating to a dispute over the unpaid operational debt.

  • 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.

An operational creditor initiating a corporate insolvency resolution process under section 9 of insolvency and bankruptcy code may propose a resolution professional to act as an interim resolution professional.

The section 9 of IBC code 2016 mandates that within 14 days of the receipt of the application, the Adjudicating Authority shall:

Admit the application and communicate such decision to the operational creditor and the corporate debtor if-

  • The application is complete

  • There is no repayment of the unpaid operational debt

  • The invoice or notice for payment to the corporate debtor has been delivered by the operational creditor

  • No notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility

  • There is no disciplinary proceeding pending against any resolution professional

Reject the application and communicate such decision to the operational creditor and the corporate debtor if-

  • The application is incomplete.

  • There has been repayment of the unpaid operational debt.

  • The creditor has not delivered the invoice or notice for payment to the corporate debtor.

  • Notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility.

  • Any disciplinary proceeding is pending against any proposed resolution professional

  • Before rejecting an application, the Adjudicating Authority has to give notice to the applicant, directing him to rectify their mistakes within 7 days of receiving the notice.

 

In Smart Timing Steel Limited V/s National Steel and Agro Industries Limited, it was questioned that whether filing of a "copy of certificate from the "financial institution" maintaining accounts of the operational creditor confirming that there is no payment of unpaid operational debt by the "Corporate Debtor" as prescribed under clause Section 9(c)(3) of the IBC, 2016 is mandatory or directory.

NCLT, Mumbai held that "on perusal of Section 9 of Insolvency and Bankruptcy Code, it is evident, that it is mandatory to file copy of Certificate from the Financial Institutions reflecting non-payment of the operational debt impugned, for the operational Creditor has failed to annex copy of the said Certificate as required under Section 9(3) of the Code, this petition is liable to be rejected."

Banks have been made obliged to issue the certificate reflecting the payment or non-payment of the operational debt which is the subject matter of dispute under Section 9 IBC. 

Supreme Court also has given some essential elements of Section 9 of IBC to proceed with the case and those elements are as follows: 

  • The occurrence of a default; 

  • Delivery of a demand notice of unpaid operational debt or 

  • Invoice demanding payment of the amount involved; and 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 debtor which does not indicate the existence of a pre-existing dispute or repayment of the unpaid operational debt.

Supreme Court while hearing appeals against the orders of National Company Appellate Law Tribunal has clarified that Section 9(3)(c) of insolvency and bankruptcy code is a directory in nature and not mandatory.

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