India: Joint Application By Operational Creditors Under Section 9

Last Updated: 22 October 2018
Article by AMLEGALS  

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT)

Suresh Narayan Singh v. Tayo Rolls Limited

Company Appeal (AT) (Insolvency) No. 112 of 2018

[DECIDED ON 26.09.2018]

FACTS

Tayo Rolls, which is a Tata Steel subsidiary, has been a subject of controversy for over a decade now. The company has been facing losses from 2008 and even before the advent of Insolvency and Bankruptcy Code (IBC); it had filed under provisions of the now repealed Sick Industrial Companies Act (SICA). Tayo Rolls is also involved in judicial proceedings over non-payment of wages to its workers.

Recently, 284 workers in a representative capacity sought to enforce insolvency proceedings against Tayo Rolls under section 9 of IBC for unpaid wages.

Interestingly, Tayo rolls itself has also sought Insolvency proceedings against itself under provisions of section 10 of IBC. However both the applications were rejected by NCLT.

NCLT, while rejecting the contention of the workers held that a strict reading of section 9 of IBC suggests that filings under section 9 cannot be of representative or joint nature, and while rejecting application of Company under section 10, NCLT held that since application was not filed within the 180- day time period allowed for abatement applications I cannot be entertained.

Appeals were filed in NCLAT against both orders of the NCLT.

ISSUES BEFORE NCLAT

Whether an application under Section 9 of IBC can be filed by the 'Operational Creditor' in a joint and representative capacity.

OBSERVATION

Reference had been made by the appellate tribunal in the case of "Innoventive Industries Ltd. v. ICICI Bank and Anr where the Supreme Court has explained the scheme of law as enunciated under section 8 and Section 9 of IBC:

"29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an 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 sub-section (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"

CONCLUDING VIEW

The Appellate Tribunal according to the factual position observed that:

"4. Section 5(20) read with Section 5(21) of the 'I&B Code' makes it clear that the workmen of a Company come within the meaning of 'Operational Creditor'. If Sections 8 & 9 are read with Form-5, it will be clear that the person authorized to act on behalf of the 'Operational Creditor' is entitled to file an application under Section 9. Therefore, where workmen/employees are 'Operational Creditors', the application may be made either by an 'Operational Creditor' in an individual capacity or as a joint capacity by one of them who is duly authorized for such purpose."

Consequently, the Appellate Tribunal set aside the original impugned order of NCLT that had denied institution of application in a joint and representative manner, and remitted the matter back to NCLT.

NCLT was also directed to admit the application, and pass orders regarding appointment of 'Insolvency Resolution Professional' and 'Moratorium' keeping in view the provisions of IBC.

RELIED UPON DECISIONS

The Appellate Tribunal has put reliance upon the following decision in forming the view:

  • Innoventive Industries Ltd. v. ICICI Bank and Anr. (AIR 2017 SC 4084)

REASON OF JURISPRUDENCE

The Appellate Tribunal observed that

The adjudicating authority i.e. NCLT instead of raising technical grounds on maintainability of application under Section 9, should have taken into consideration the fact that there indeed is a 'debt' and there is a 'default', the existence of which is not even being denied by 'Tayo Rolls Limited'- ('Corporate Debtor'), and since each workman's dues were individually greater than 1 lakh, the application could be admitted. Thus, all the required parameters of an application under Section 9 are present.

AMLEGALS REMARKS

This judgment has come at a time when Tayo Rolls' application for 'closure of business units' is currently pending before the Jharkhand High Court. Since, Tayo Rolls' itself wanted to move an application under Section 10, the pending proceedings should not create any complications in this issue.

However, this decision is also appreciable for the fact that the NCLAT has taken a more holistic view and has not confined itself to technicalities. This has led to saving time and resources for the Applicants as well as the NCLAT.

From the above case one thing that can be conclusively determined is that NCLAT seeks a fluidic interpretation of IBC that is not confined within the straitjacket of the written word of the statute.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

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