India: Arranging A Certificate From Financial Institution Is Dilemma For Foreign Operational Creditor

Though, initially it was thought that Insolvency and Bankruptcy Code 2016 (I&B Code 2016) came as boon for all those Creditors who otherwise have to wait for years to settle their dues. It is true that Insolvency and Bankruptcy Code 2016 is not a recovery code wherein the debt can be recovered but is a mechanism to revive the Corporate Debtor by resorting to Corporate Insolvency Resolution Process (CIRP) but still the maximum time to wait by any Creditor to know when and how they will get their dues was 180 days or wherever there was an extension 270 days. But, as the filing are been done under the I&B Code 2016 before the Hon'ble Adjudicating Authorities across the country the interpretation of the various provisions of the Code 2016 makes it clear that it is not easy for Creditor to initiate the CIRP.

Recently, the Hon'ble National Company law Appellate Tribunal (NCLAT/Appellate Tribunal) in Macquaire Bank Limited V/s Uttam Galva Metallics Limited4, while rejecting the appeal filed by the Appellant under Section 61 of I&B Code 2016 against the order of Hon'ble Adjudicating Authority, National Company Law Tribunal (NCLT), Chandigarh, have upheld the order of the Hon'ble NCLT Chandigarh wherein the Hon'ble Tribunal had held that the "Certificate from a foreign Bank cannot be considered as Certificate from financial institution as contemplated under Section 9 (3) (c) of the I&B Code 2016."

In the case in hand the Appellant was a Foreign Company but not constituted under the relevant provisions of Companies Act, 1956/Companies Act, 2013. The Appellant was not having any office in India or any account with any of the Bank or 'Financial Institution' in India. The Appellant had enclosed along with the Application filed under Section 9 of the I&B Code 2016 in Form 5 as provided under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 (Adjudicating Authority Rules, 2016), a certificate from Macquaire Bank, Australia as proof of non-receipt of payment from the Corporate Debtor and accordingly default of debt.

It is to be noted that as per Section 3(14) of I&B Code 2016, a financial institution means a scheduled bank, financial institution as defined in section 45 (I) of the Reserve Bank of India Act, 1934, public financial institution as defined in clause (72) of Section 2 of the Companies Act, 2013 and such other institution as the Central Government may by notification specify as financial institution.

It was the observation of the Hon'ble Appellate Tribunal, that the Macquaire Bank i.e. the Bank whose certificate was attached by the Operational Creditor does not fall under any of the category of the financial institution as provided under Section 3(14) of I&B Code 2016 including that there is no notification from the Central Government specifying "Macquaire Bank" for the purpose of sub-section (14) of Section 3 read with Section 9 of I&B Code 2016, accordingly the Application filed by the Appellant before the Hon'ble Adjudicating Authority was rightly rejected.

Among various contentions of the Appellant, one of the contention of the Appellant was that enclosing the Certificate from Financial Institution is not mandatory and is only directory for the reason that if one refer to Form 5, it enlist in Part V of the said Form-5, the particulars of Operational Debt (documents, records and evidence of default) and in the said list there is no reference to the Certificate of Financial Institution. The Hon'ble Appellant Tribunal, while rejecting the above contention of the Appellant have explained that Certificate of Financial Institution is mandatory is nature has already been decided in the matter of Smart timing Steel Limited Vs National Steel and Agro Industries Limited 5. Further, the extended contention of the Appellant that in the Form 5 (format of Application to be filed before the Hon'ble Adjudicating Authority) there is no reference to Certificate of Financial Institution is also not acceptable for the reason that "Form 5 cannot override the substantive provision of clause (c) of sub-section (3) of Section 9 of I&B Code 2016 which mandates enclosure of Certificate from Financial Institution maintaining accounts of operational creditor confirming that there is no payment of unpaid operational debt by the Corporate Debtor".

This order will cause great difficulty for the Creditors who fall under the category of Operational Creditor but is not maintaining any account in any category of financial institution defined under Section 3(14) of I&B Code 2016. We need to wait till there is either an amendment in the category of financial institution as defined under I&B Code 2016 or a notification is issued by the Central Government in this regard. Till that time the foreign operational creditor cannot resort to Section 9 of I&B Code 2016 with respect to their debt.


4 Company Appeals (AT) (Insol) No. 96 of 2017

5 Company Appeal (AT) (Insol) No. 28 of 2017

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