BANKS’ CERTIFICATES NOT MUST FOR TRIGGERING INSOLVENCY

Supreme Court order offers relief to foreign operational creditors who do not have bank account in the country

In a major relief to foreign operational creditors seeking to

invoke the IBC, has held that a certificate from a financial institution confirming non-payment of debt was not mandatory for triggering the insolvency process. It further allowed lawyers to issue demand notice on unpaid operational debt on behalf of such creditors. SUDIPTO DEY writes

In a major relief to foreign operational creditors seeking to invoke the Insolvency and Bankruptcy Code, the Supreme Court has held a certificate from a financial institution confirming nonpayment of debt was not mandatory for triggering the insolvency process.

It further allowed lawyers to issue demand notices on unpaid operational debt on behalf of such creditors.

Legal experts said many foreign operational creditors who did not have a bank account in the country faced challenges in procuring a certificate from the financial institutions concerned.

“This judgment now allows such foreign entities to take recourse under the Code even in the absence of a certificate from a financial institution,” said Mustafa Motiwala, partner and head of the litigation and disputes practice at Clasis Law, a firm that represented Macquarie Bank, in the case against Shilpi Cable Technologies.

Senior advocates Mukul Rohatgi and Arvind Datar appeared on behalf of Macquarie Bank.

In July, the National Company Law Appellate Tribunal (NCLAT) had turned down an National Company Law Tribunal (NCLT) order in another case, admitting initiation of insolvency process by Macquarie against Uttam Galva Metallics on technical grounds. The NCLAT had noted that Macquarie Bank had no office in the country or any that such persons ought to be left bank account with a financial institution. out of the process of triggering the IBC Absence of a certificate from a financial against their corporate debtor, said institution made the application for initiation Economic Laws Practice in a note to of the insolvency process incomplete, its clients. the NCLAT had said. The Supreme Court also ruled in the

Legal experts said the SC order in same case that a notice by a lawyer on Macquarie Bank Vs Shilpi Cable behalf of the operational creditor would Technologies case, issued by judges R F be in order according to the provisions of Nariman and Navin Sinha, would help the Insolvency and Bankruptcy Code. to do away with discrimination against Earlier, the NCLAT had questioned the foreign operational creditors that did practice of lawyers representing operational not have a bank account in the country. creditors issuing demand notices The apex court order rejected the argument for unpaid debts.