REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.15135 OF 2017

MACQUARIE BANK LIMITED          …APPELLANT

VERSUS

SHILPI CABLE TECHNOLOGIES LTD. ...RESPONDENT

WITH

CIVIL APPEAL NO.15481 OF 2017

CIVIL APPEAL NO.15447 OF 2017

J U D G M E N T  

R.F. Nariman, J.

1. The present appeals raise two important questions which

arise  under  the  Insolvency  and  Bankruptcy  Code,  2016

(hereinafter  referred to as the “Code”).   The first  question is

whether,  in  relation  to  an  operational  debt,  the  provision

contained  in  Section  9(3)(c)  of  the  Code  is  mandatory;  and

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secondly, whether a demand notice of  an unpaid operational

debt can be issued by a lawyer  on behalf  of  the operational

creditor.  

2. The facts contained in the three appeals are similar.  For

the purpose of this judgment, the facts contained in Civil Appeal

No.15481 of 2017 will  now be set out.  Hamera International

Private  Limited  executed  an  agreement  with  the  appellant,

Macquarie  Bank Limited,  Singapore,  on 27.7.2015,  by  which

the appellant  purchased the original  supplier’s right,  title and

interest in a supply agreement in favour of the respondent.  The

respondent  entered  into  an  agreement  dated  2.12.2015  for

supply of goods worth US$6,321,337.11 in accordance with the

terms and conditions contained in the said sales contract.  The

supplier issued two invoices dated 21.12.2015 and 31.12.2015.

Payment terms under the said invoices were 150 days from the

date  of  bill  of  ladings  dated  17.12.2015/19.12.2015.   Since

amounts under the said bills of lading were due for payment,

the appellant  sent an email  dated 3.5.2016 to the contesting

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respondent for  payment  of  the outstanding amounts.  Several

such emails by way of reminders were sent, and it is alleged

that  the  contesting  respondent  stated  that  it  will  sort  out

pending matters.  Ultimately, the appellant issued a statutory

notice  under  Sections  433  and  434  of  the  Companies  Act,

1956. A reply dated 5.10.2016 denied the fact that there was

any outstanding amount.   

3. After the enactment of the Code, the appellant issued a

demand notice under Section 8 of the Code on 14.2.2017 at the

registered office of the contesting respondent, calling upon it to

pay the outstanding amount of US$6,321,337.11.  By a reply

dated 22.2.2017, the contesting respondent stated that nothing

was owed by them to the appellant.  They further went on to

question  the  validity  of  the  purchase  agreement  dated

27.7.2015  in  favour  of  the  appellant.   On  7.3.2017,  the

appellant initiated the insolvency proceedings by filing a petition

under Section 9 of the Code.  On 1.6.2017, the NCLT rejected

the petition holding that Section 9(3)(c) of  the Code was not

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complied with, inasmuch as no certificate, as required by the

said provision, accompanied the application filed under Section

9.  It,  therefore,  held that  there being non-compliance of  the

mandatory  provision  of  Section  9(3)(c)  of  the  Code,  the

application  would  have  to  be  dismissed  at  the  threshold.

However, the NCLT also went into the question as to whether a

dispute has been raised in relation to the operational debt and

found that such dispute was in fact raised by the reply to the

statutory  notice  sent  under  Sections  433  and  434  of  the

Companies Act, 1956 and that, therefore, under Section 9(5)(ii)

(d), the application would have to be dismissed.  

4. By the impugned judgment dated 17.7.2017, the NCLAT

agreed with the NCLT holding that the application would have to

be dismissed for  non compliance of  the mandatory provision

contained in Section 9(3)(c) of the Code.  It further went on to

hold  that  an  advocate/lawyer  cannot  issue  a  notice  under

Section 8 on behalf of the operational creditor in the following

terms:

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“In the present case, as the notice has been given by an advocate/lawyer and there is nothing on the record to suggest that the lawyer was authorized by the appellant, and as there is nothing on the record to suggest that the said lawyer/ advocate hold any position with or in relation to the appellant company, we  hold  that  the  notice  issued  by  the  advocate/ lawyer on behalf of the appellant cannot be treated as notice under Section 8 of the ‘I & B Code’. And for the said reason also the petition under Section 9 at  the  instance  of  the  appellant  against  the respondent was not maintainable.”

5. Shri  Mukul  Rohatgi,  learned senior  advocate appearing

on behalf of the appellant, referred us 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”.  He cited a number of

judgments  for  the  proposition  that  when  serious  general

inconvenience  is  caused to  innocent  persons  or  the  general

public without really furthering the object of the particular Act,

the said  provision should  not  be  read as  mandatory, but  as

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directory only.  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).  This is further clear from the fact that under Section 9(5),

if there is no such certificate, the application does not need to

be rejected.  He 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.  The word

“confirming” in Section 9(3)(c) would also show that this is only

one more document that can be relied upon by the operational

creditor, apart from other documents, which may well prove the

existence of the operational debt.  According to learned senior

counsel, on the second ground as well it is clear, on a perusal 6

of Form 5,  that  a “person authorised to act  on behalf  of  the

operational creditor” is a person who can sign Form 5 on behalf

of the operational creditor. Also, the expression “position with or

in relation to the operational creditor” shows that a lawyer, who

is authorized by the operational creditor, is certainly within the

said  expression.  He  also  referred  us  to  Section  30  of  the

Advocates  Act,  1961  and  judgments  on  the  effect  of  the

expression  “practise”  when  it  applies  to  lawyers,  vis-a-vis

Tribunals such as the NCLT and NCLAT.   

6. Shri Arvind Datar, learned senior advocate, supported the

arguments  of  Shri  Rohatgi  and  went  on  to  add  that  the

definition of  “person” contained in Section 2(23) of  the Code

includes a person resident outside India, and when read with

the definition of  “operational  creditor”  in  Section 5(20)  of  the

Code would make it clear that persons, such as the appellant,

are  certainly  operational  creditors  within  the  meaning  of  the

Code.  He stressed the fact that if a copy of the certificate under

Section  9(3)(c)  can  only  be  from  a  “financial  institution”  as

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defined under Section 3(14) of the Code, and if a non resident

bank or financial institution, such as the appellant, may not be

included either as a scheduled bank under Section 3(14)(a) or

as such other  institution as the Central  Government  may by

notification specify as a financial institution under Section 3(14)

(d), it is clear that Section 9(3)(c) cannot operate to non suit the

appellant, as it would be impossible to get a certificate from a

financial institution as defined.  This being the case, he argued

that the Court should add words into the expression “financial

institution”, as it would otherwise lead to absurdity and that if

Section 9(3)(c) is held to be mandatory, then a certificate from a

foreign bank, who is not a “financial institution” as defined under

the Code, should be read into Section 9(3)(c). Otherwise, the

learned senior counsel supported Shri Rohatgi’s argument that

Section  9(3)(c)  is  a  directory  provision  which  need  not

mandatorily be complied with.  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 8

categories  mentioned in  Section  3(14)  when  it  comes  to  an

operational creditor who is a resident outside India.  

7. All these arguments were countered by Dr. A.M. Singhvi,

learned senior counsel appearing on behalf of the respondent.

First  and  foremost,  according  to  learned senior  counsel,  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. According to

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learned  senior  counsel  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.  According to him, the principle contained in

Taylor v. Taylor  (1875) 1 Ch. D. 426, has been followed by a

number of  judgments and is applicable inasmuch as when a

statute  requires  a  particular  thing  to  be  done in  a  particular

manner, it must be done in that manner or not at all.  He also

referred us to various Sections of the Code, the Insolvency and

the Adjudicating Authority Rules, Form 5 in particular, together

with the Viswanathan Committee and report  Joint  Committee

report  of  the  Parliament.   According  to  the  learned  senior

counsel,  it  is  clear from the definition of  “financial  institution”

contained  in  Section  3(14)  that  certain  foreign  banks  are 10

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 is only where operational creditors have

dealings with banks which fall  within Section 3(14), that they

can avail  the  opportunity  of  declaring  a  corporate  debtor  as

insolvent under Sections 8 and 9 of  the Code. Persons who

may be residents outside India and who bank with entities that

are not contained within the definition of Section 3 (14) would,

therefore, be outside the Code.   

8. According  to  the  learned  senior  counsel,  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. Also, according to

the learned senior counsel,  the NCLAT was right in following

the judgment contained in Smart Timing Steel Ltd. v. National

Steel and Agro Industries Ltd decided on 19.5.2017, which,

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according  to  the  learned  senior  counsel,  has  merged  in  an

order  of  this  Court  dismissing  an  appeal  from  the  said

judgment.  

9. 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.  Dr. Singhvi 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

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the operational creditor and not a lawyer. According to learned

senior  counsel,  the  provisions  contained  in  certain  statutes

such as Section 434(2) of the Companies Act, 1956 and Rule 4

of the Debts Recovery Tribunal (Procedure) Rules, 1993 under

the Recovery of Debts Due to Banks and Financial Institutions

Act,  1993 (“Debts Recovery Rules”) would also make it clear

that where a lawyer  can do things on behalf  of  a party, it  is

expressly so mentioned unlike the present case.  

10. Having  heard  learned  counsel  for  the  parties,  it  is

necessary to set out the relevant Sections of the Code and the

Adjudicating Authority Rules.  

“3.  In  this  Code,  unless  the  context  otherwise requires,— (10) “creditor” means any person to whom a debt is owed  and  includes  a  financial  creditor,  an operational  creditor,  a  secured  creditor,  an unsecured creditor and a decree-holder;

(14) “financial institution” means—  (a) a scheduled bank;  (b) financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934;  (c)  public  financial  institution as defined in  clause (72) of section 2 of the Companies Act, 2013; and  

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(d) such other institution as the Central Government may by notification specify as a financial institution;

(23) “person” includes—  (a) an individual;  (b) a Hindu Undivided Family;  (c) a company;  (d) a trust;  (e) a partnership;  (f) a limited liability partnership; and  (g) any other entity established under a statute, and includes a person resident outside India;

(25) “person resident outside India” means a person other than a person resident in India;

xxx xxx xxx

5.  In  this  Part,  unless  the  context  otherwise requires,— (20) “operational creditor” means a person to whom an  operational  debt  is  owed  and  includes  any person  to  whom  such  debt  has  been  legally assigned or transferred;  

(21) “operational debt” means a claim in respect of the  provision  of  goods  or  services  including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

xxx xxx xxx

8. Insolvency resolution by operational creditor- (1) An operational creditor may, on the occurrence of  a  default,  deliver  a  demand  notice  of  unpaid

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operational  debtor  copy  of  an  invoice  demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.  (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—  (a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before  the  receipt  of  such  notice  or  invoice  in relation to such dispute;  (b) the repayment of unpaid operational debt—  (i)  by  sending  an  attested  copy  of  the  record  of electronic  transfer  of  the unpaid  amount  from the bank account of the corporate debtor; or  (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.  

Explanation.—For  the  purposes  of  this  section,  a “demand  notice”  means  a  notice  served  by  an operational  creditor  to  the  corporate  debtor demanding  repayment  of  the  operational  debt  in respect of which the default has occurred.  

xxx xxx xxx

9.  Application for  initiation of  corporate insolvency resolution process by operational creditor- (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if  the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may  file  an  application  before  the  Adjudicating

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Authority  for  initiating  a  corporate  insolvency resolution process.  (2)  The application under sub-section (1)  shall  be filed  in  such  form and  manner  and  accompanied with such fee as may be prescribed.  (3)  The  operational  creditor  shall,  along  with  the application furnish—  (a)  a  copy  of  the  invoice  demanding  payment  or demand notice delivered by the operational creditor to the corporate debtor;  (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;  (c)  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; and (d) such other information as may be specified.  (4)  An  operational  creditor  initiating  a  corporate insolvency  resolution  process  under  this  section, may propose a resolution professional to act as an interim resolution professional.  (5) The Adjudicating Authority shall, within fourteen days  of  the  receipt  of  the  application  under sub-section (2), by an order—  (i)  admit  the  application  and  communicate  such decision  to  the  operational  creditor  and  the corporate debtor if,—  (a)  the  application made under  sub-section  (2)  is complete;  (b) there is no repayment of the unpaid operational debt;  (c)  the  invoice  or  notice  for  payment  to  the corporate  debtor  has  been  delivered  by  the operational creditor;  

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(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and  (e)  there  is  no  disciplinary  proceeding  pending against any resolution professional proposed under sub-section (4), if any.  (ii)  reject  the  application  and  communicate  such decision  to  the  operational  creditor  and  the corporate debtor, if—  (a)  the  application made under  sub-section  (2)  is incomplete;  (b)  there  has  been  repayment  of  the  unpaid operational debt;  (c)  the  creditor  has  not  delivered  the  invoice  or notice for payment to the corporate debtor;  (d)  notice  of  dispute  has  been  received  by  the operational creditor or there is a record of dispute in the information utility; or  (e)  any disciplinary proceeding is  pending against any proposed resolution professional:  Provided  that  Adjudicating  Authority,  shall  before rejecting  an  application  under  sub-clause  (a)  of clause (ii) give a notice to the applicant to rectify the defect  in  his  application within  seven days  of  the date of receipt of such notice from the adjudicating Authority.  (6)  The  corporate  insolvency  resolution  process shall commence from the date of admission of the application under sub-section (5) of this section.

xxx xxx xxx

The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

5. Demand notice by operational creditor.—

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(1)  An  operational  creditor  shall  deliver  to  the corporate debtor, the following documents, namely.- (a) a demand notice in Form 3; or  (b) a copy of an invoice attached with a notice in Form 4.  (2) The demand notice or the copy of the invoice demanding payment referred to in sub-section (2) of section  8  of  the  Code,  may  be  delivered  to  the corporate debtor,  (a) at the registered office by hand, registered post or speed post with acknowledgement due; or  (b)  by  electronic  mail  service  to  a  whole  time director  or  designated  partner  or  key  managerial personnel, if any, of the corporate debtor.  (3) A copy of demand notice or invoice demanding payment  served under  this rule by an operational creditor shall also be filed with an information utility, if any.  

6. Application by operational creditor.— (1)  An  operational  creditor,  shall  make  an application  for  initiating  the  corporate  insolvency resolution process against a corporate debtor under section 9 of the Code in Form 5, accompanied with documents  and  records  required  therein  and  as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) The applicant under sub-rule (1) shall dispatch forthwith,  a  copy  of  the  application  filed  with  the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.

FORM 3 (See clause (a) of sub-rule (1) of rule 5)

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FORM  OF  DEMAND  NOTICE  /  INVOICE DEMANDING  PAYMENT  UNDER  THE INSOLVENCY AND BANKRUPTCY CODE, 2016  (Under  rule  5  of  the  Insolvency  and  Bankruptcy (Application to Adjudicating Authority) Rules, 2016) [Date]  

To,  [Name and address of the registered office of the corporate debtor]  

From,  [Name and address of the registered office of the operational creditor]  

Subject:  Demand  notice/invoice  demanding payment in respect of unpaid operational debt due from [corporate debtor] under the Code.  

Madam/Sir,  1. This letter is a demand notice/invoice demanding payment  of  an  unpaid  operational  debt  due  from [name of corporate debtor].  

2. Please find particulars of the unpaid operational debt below:

PARTICULARS OF OPERATIONAL DEBT 1. TOTAL  AMOUNT  OF  DEBT,  DETAILS

OF TRANSACTIONS ON ACCOUNT OF WHICH  DEBT  FELL  DUE,  AND  THE DATE  FROM  WHICH  SUCH  DEBT FELL DUE

2. AMOUNT  CLAIMED  TO  BE  IN DEFAULT AND THE DATE ON WHICH THE  DEFAULT OCCURRED  (ATTACH THE WORKINGS FOR COMPUTATION

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OF DEFAULT IN TABULAR FORM) 3. PARTICULARS  OF  SECURITY  HELD,

IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR.  ATTACH  A  COPY  OF  A CERTIFICATE OF REGISTRATION OF CHARGE  ISSUED  BY  THE REGISTRAR OF COMPANIES (IF THE CORPORATE  DEBTOR  IS  A COMPANY)

4. DETAILS  OF  RETENTION  OF  TITLE ARRANGEMENTS  (IF  ANY)  IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS

5. RECORD  OF  DEFAULT  WITH  THE INFORMATION UTILITY (IF ANY)

6. PROVISION OF LAW, CONTRACT OR OTHER  DOCUMENT  UNDER  WHICH DEBT HAS BECOME DUE

7. LIST OF DOCUMENTS ATTACHED TO THIS  APPLICATION  IN  ORDER  TO PROVE  THE  EXISTENCE  OF OPERATIONAL  DEBT  AND  THE AMOUNT IN DEFAULT

3. If you dispute the existence or amount of unpaid operational  debt  (in  default)  please  provide  the undersigned, within ten days of the receipt of this letter,  of  the  pendency  of  the  suit  or  arbitration proceedings in relation to such dispute filed before the receipt of this letter/notice.  

4.  If  you  believe  that  the  debt  has  been  repaid before the receipt of this letter, please demonstrate such repayment by sending to us, within ten days of receipt of this letter, the following:  

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(a)  an  attested  copy  of  the  record  of  electronic transfer  of  the  unpaid  amount  from  the  bank account of the corporate debtor; or  (b) an attested copy of any record that [name of the operational creditor] has received the payment.  

5.  The undersigned,  hereby, attaches a certificate from an information utility confirming that no record of  a  dispute  raised  in  relation  to  the  relevant operational  debt  has been filed by any person at any information utility. (if applicable)  

6. The undersigned request you to unconditionally repay the unpaid operational debt (in default) in full within ten days from the receipt of this letter failing which  we  shall  initiate  a  corporate  insolvency resolution process in respect of [name of corporate debtor].  

Yours sincerely,

Signature  of  person  authorised  to  act  on behalf of the operational creditor  Name in block letters Position  with  or  in  relation  to  the operational creditor Address of person signing

Instructions  1. Please serve a copy of this form on the corporate debtor, ten days in advance of filing an application under section 9 of the Code.  2. Please append a copy of such served notice to the application made by the operational creditor to the Adjudicating Authority.

Form 5 21

(See sub-rule (1) of rule 6)

APPLICATION BY OPERATIONAL CREDITOR TO INITIATE CORPORATE INSOLVENCY

RESOLUTION PROCESS UNDER THE CODE. (Under rule 6 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016)  

[Date]

To,  The National Company Law Tribunal  [Address]  

From,  [Name and address for correspondence of the  operational creditor]  

In the matter of [name of the corporate debtor]  

Subject:  Application  to  initiate  corporate insolvency  resolution  process  in  respect  of [name  of  the  corporate debtor]  under  the Insolvency and Bankruptcy Code, 2016.  

Madam/Sir,  

[Name of the operational creditor], hereby submits this  application  to  initiate  a  corporate  insolvency resolution process in the case of [name of corporate debtor].  The  details  for  the  purpose  of  this application are set out below:

Part – I PARTICULARS OF APPLICANT

1. NAME OF OPERATIONAL CREDITOR 2. IDENTIFICATION NUMBER OF  

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OPERATIONAL CREDITOR  (IF ANY)  

3. ADDRESS FOR CORRESPONDENCE OF THE OPERATIONAL CREDITOR

Part - II PARTICULARS OF CORPORATE  DEBTOR

1. NAME OF THE CORPORATE DEBTOR 2. IDENTIFICATION NUMBER OF  

CORPORATE DEBTOR 3. DATE OF INCORPORATION OF  

CORPORATE DEBTOR 4. NOMINAL SHARE CAPITAL AND THE  

PAID-UP SHARE CAPITAL OF THE  CORPORATE DEBTOR AND/OR DETAILS OF GUARANTEE CLAUSE AS PER  MEMORANDUM OF ASSOCIATION (AS  APPLICABLE)

5. ADDRESS OF THE REGISTERED  OFFICE OF THE CORPORATE DEBTOR

6. NAME, ADDRESS AND AUTHORITY OF  PERSON SUBMITTING APPLICATION ON BEHALF OF OPERATIONAL CREDITOR  (ENCLOSE AUTHORISATION)

7. NAME AND ADDRESS OF PERSON  RESIDENT IN INDIA AUTHORISED TO  ACCEPT THE SERVICE OF PROCESS  ON ITS BEHALF (ENCLOSE  AUTHORISATION)

Part-III PARTICULARS OF THE PROPOSED  INTERIM RESOLUTION  PROFESSIONAL [IF PROPOSED]

1. NAME, ADDRESS, EMAIL ADDRESS  AND THE REGISTRATION NUMBER OF

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THE PROPOSED INSOLVENCY  PROFESSIONAL

Part-IV PARTICULARS OF OPERATIONAL  DEBT

1. TOTAL AMOUNT OF DEBT,  DETAILS OF TRANSACTIONS ON  ACCOUNT OF WHICH DEBT FELL DUE, AND THE DATE FROM WHICH SUCH  DEBT FELL DUE

2. AMOUNT CLAIMED TO BE IN DEFAULT  AND THE DATE ON WHICH THE  DEFAULT OCCURRED (ATTACH THE  WORKINGS FOR COMPUTATION OF  AMOUNT AND DATES OF DEFAULT IN  TABULAR FORM)

Part-V PARTICULARS OF OPERATIONAL DEBT [DOCUMENTS,  RECORDS  AND  EVIDENCE  OF DEFAULT]

1. PARTICULARS  OF  SECURITY  HELD,  IF  ANY,  THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR.  ATTACH  A  COPY  OF  A  CERTIFICATE  OF REGISTRATION  OF  CHARGE  ISSUED  BY  THE REGISTRAR  OF  COMPANIES  (IF  THE  CORPORATE DEBTOR IS A COMPANY)

2. DETAILS OF RESERVATION /  RETENTION OF TITLE ARRANGEMENTS (IF ANY)  IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS

3. PARTICULARS  OF  AN  ORDER  OF  A  COURT, TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON

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THE DEFAULT, IF ANY  (ATTACH A COPY OF THE ORDER)

4. RECORD  OF  DEFAULT  WITH  THE  INFORMATION UTILITY, IF ANY  (ATTACH A COPY OF SUCH RECORD)

5. DETAILS  OF  SUCCESSION  CERTIFICATE,  OR PROBATE  OF  A  WILL,  OR  LETTER  OF ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE),  UNDER  THE  INDIAN  SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

6. PROVISION  OF  LAW,  CONTRACT  OR  OTHER DOCUMENT  UNDER  WHICH  OPERATIONAL  DEBT HAS BECOME DUE

7. A  STATEMENT  OF  BANK  ACCOUNT  WHERE DEPOSITS  ARE  MADE  OR  CREDITS  RECEIVED NORMALLY  BY  THE  OPERATIONAL  CREDITOR  IN RESPECT  OF  THE  DEBT  OF  THE  CORPORATE DEBTOR (ATTACH A COPY)

8. LIST  OF  OTHER  DOCUMENTS  ATTACHED  TO  THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF  OPERATIONAL  DEBT  AND  THE  AMOUNT  IN DEFAULT

I,  [Name  of  the  operational  creditor  /  person authorised  to  act  on  behalf  of  the  operational creditor]  hereby  certify  that,  to  the  best  of  my knowledge,  [name  of  proposed  insolvency professional], is fully qualified and permitted to act as  an  insolvency  professional  in  accordance with the  Code  and  the  rules  and  regulations  made thereunder. [WHERE APPLICABLE]  

[Name  of  the  operational  creditor]  has  paid  the requisite  fee  for  this  application  through  [state means of payment] on [date].  

25

Yours sincerely,

Signature of person authorised to act on behalf of the operational creditor Name in block letters Position  with  or  in  relation  to  the operational creditor Address of person signing

Instructions -

Please attach the following to this application:  

Annex I Copy of the invoice / demand notice as in  Form  3  of  the  Insolvency  and  Bankruptcy (Application to Adjudicating Authority)  Rules,  2016 served on the corporate debtor.  

Annex II Copies of  all  documents  referred to  in this application.  

Annex III Copy of the relevant accounts from the banks/financial institutions maintaining accounts of the operational creditor confirming that there is no payment of the relevant unpaid operational debt by the operational debtor, if available.  

Annex IV Affidavit in support of the application in accordance  with  the  Insolvency  and  Bankruptcy (Application to Adjudicating Authority) Rules, 2016.  

Annex V Written communication by the proposed interim resolution professional as set out in Form 2 of  the  Insolvency  and  Bankruptcy  (Application  to Adjudicating  Authority)  Rules,  2016.  [WHERE APPLICABLE]  

26

Annex VI Proof that  the specified application fee has been paid.  

Note:  Where  workmen/employees  are  operational creditors, the application may be made either in an individual capacity or in a joint capacity by one of them who is duly authorised for the purpose.”

11. The  first  thing  to  be  noticed  on  a  conjoint  reading  of

Sections  8  and  9  of  the  Code,  as  explained  in  Mobilox

Innovations  Private  Limited  v.  Kirusa  Software  Private

Limited, Civil Appeal No. 9405 of 2017 decided on 21.9.2017,

at  paragraphs  33  to  36,  is  that  Section  9(1)  contains  the

conditions  precedent  for  triggering  the  Code  insofar  as  an

operational  creditor  is  concerned.  The  requisite  elements

necessary to trigger the Code are:

i. occurrence of a default;  ii. delivery of a demand notice of an unpaid operational debt or

invoice demanding payment of the amount involved; and iii. 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

27

debtor  which  does  not  indicate  the  existence  of  a

pre-existing dispute or repayment of the unpaid operational

debt.  

12. It  is  only  when  these  conditions  are  met  that  an

application may then be filed under Section 9(2) of the Code in

the  prescribed  manner,  accompanied  with  such  fee  as  has

been prescribed.   Under  Section  9(3),  what  is  clear  is  that,

along with the application, certain other information is also to be

furnished.   Obviously,  under  Section  9(3)(a),  a  copy  of  the

invoice demanding payment or demand notice delivered by the

operational creditor to the corporate debtor is to be furnished.

We  may  only  indicate  that  under  Rules  5  and  6  of  the

Adjudicating  Authority  Rules,  read  with  Forms 3  and  5,  it  is

clear that, as Annexure I thereto, the application in any case

must have a copy of the invoice/demand notice attached to the

application.  That this is a mandatory condition precedent to the

filing  of  an  application  is  clear  from  a  conjoint  reading  of

sections 8 and 9(1) of the Code.  

28

13. When we come to Section 9(3)(b), it  is obvious that an

affidavit  to  the  effect  that  there  is  no  notice  given  by  the

corporate debtor relating to a dispute of the unpaid operational

debt can only be in a situation where the corporate debtor has

not, within the period of 10 days, sent the requisite notice by

way of reply to the operational creditor.  In a case where such

notice has, in fact, been sent in reply by the corporate debtor,

obviously an affidavit to that effect cannot be given.  

14. When we come to  sub-clause (c)  of  Section 9(3),  it  is

equally  clear  that  a copy of  the certificate  from the financial

institution  maintaining  accounts  of  the  operational  creditor

confirming that there is no payment of an unpaid operational

debt  by  the  corporate  debtor  is  certainly  not  a  condition

precedent to triggering the insolvency process under the Code.

The expression “confirming” makes it  clear that this is only a

piece of  evidence, albeit  a very important piece of evidence,

which only “confirms”  that  there is no payment  of  an unpaid

operational  debt.   This  becomes  clearer  when  we  go  to

29

sub-clause  (d)  of  Section  9(3)  which  requires  such  other

information as may be specified has also to be furnished along

with the application.  

15. When Form 5 under Rule 6 is perused, it becomes clear

that Part V thereof speaks of particulars of the operational debt.

There are 8 entries in Part V dealing with documents, records

and evidence of default. Item 7 of Part V is only one of such

documents and has to be read along with Item 8, which speaks

of  other  documents  in  order  to  prove  the  existence  of  an

operational debt and the amount in default.  Further, annexure

III in the Form also speaks of copies of relevant accounts kept

by  banks/financial  institutions  maintaining  accounts  of  the

operational creditor, confirming that there is no payment of the

unpaid operational debt, only “if  available”.  This would show

that such accounts are not a pre-condition to trigger the Code,

and that if such accounts are not available, a certificate based

on such accounts cannot be given, if Section 9 is to be read the

30

Adjudicating Authority Rules and the Forms therein, all of which

set out the statutory conditions necessary to invoke the Code.

16. In  State  of  U.P.  v.  Babu  Ram 1961  2  SCR  679  at

701-702, this Court dealt with the position of rules made under

a statute as follows:

“What then is the effect of the said propositions in their application to the provisions of the Police Act and the rules made thereunder? The Police Act of 1861  continues  to  be  good  law  under  the Constitution.  Para  477  of  the  Police  Regulations shows that the rules in Chapter XXXII thereof have been  framed  under  Section  7  of  the  Police  Act. Presumably,  they  were  also  made  by  the Government in exercise of its power under Section 46(2)  of  the  Police  Act.  Under  para  479(a)  the Governor's power of punishment with reference to all officers is preserved; that is to say, this provision expressly saves the power of the Governor under Article 310 of the Constitution. “Rules made under a statute  must  be  treated  for  all  purposes  of construction or obligation exactly as if they were in the  Act  and  are  to  be  of  the  same  effect  as  if contained in the Act, and are to be judicially noticed for  all  purposes  of  construction  or  obligation”: see Maxwell “On  the  Interpretation  of  Statutes”, 10th edn., pp. 50-51. The statutory rules cannot be described  as,  or  equated  with,  administrative directions. If so, the Police Act and the rules made thereunder  constitute  a  self-contained  code providing for the appointment of police officers and prescribing the procedure for their removal.  

31

Equally,  in  Desh Bandhu Gupta  v.  Delhi  Stock  Exchange

(1979) 4 SCC 565 at 572, this Court laid down the principle of

contemporanea expositio as under:

“The  principle  of contemporanea expositio (interpreting  a  statute  or  any  other document  by  reference  to  the  exposition  it  has received  from  contemporary  authority)  can  be invoked though the same will not always be decisive of the question of construction (Maxwell 12th ed. p. 268). In Crawford on Statutory Construction (1940 ed.) in para 219 (at pp. 393-395) it has been stated that  administrative  construction  (i.e. contemporaneous  construction  placed  by administrative  or  executive  officers  charged  with executing  a  statute)  generally  should  be  clearly wrong before it is overturned; such a construction, commonly  referred  to  as  practical  construction, although not controlling, is nevertheless entitled to considerable  weight;  it  is  highly  persuasive. In Baleshwar Bagarti v. Bhagirathi Dass [ILR 35 Cal 701  at  713]  the  principle,  which  was  reiterated in Mathura  Mohan  Saha v. Ram Kumar  Saha [ILR 43 Cal 790 : AIR 1916 Cal 136] has been stated by Mukerjee, J., thus:

“It  is  a  well  settled  principle  of interpretation that courts in construing a statute  will  give  much  weight  to  the interpretation put upon it, at the time of its  enactment  and  since,  by  those whose  duty  it  has  been  to  construe, execute and apply it.  I  do not  suggest for  a  moment  that  such  interpretation

32

has by  any  means  a  controlling  effect upon  the  Courts;  such  interpretation may,  if  occasion  arises,  have  to  be disregarded for  cogent  and  persuasive reasons, and in a clear case of error, a court would without hesitation refuse to follow such construction.”

However, Dr. Singhvi referred to the following three judgments

for  the proposition that  rules cannot  override the substantive

provisions of an Act:  D.T.U. v. B.B.L. Hajelay  (1972) 2 SCC

744 (para 13); ADM (Rev.) Delhi Admn. v. Siri Ram (2000) 5

SCC  451  (para  16);  and  Ispat Industries  Ltd.  v.

Commissioner  of  Customs (2006)  12  SCC 583  (para  21).

The aforesaid judgments only have application when rules are

ultra vires the parent statute.   In the present case, the rules

merely flesh out what is already contained in the statute and

must, therefore, be construed along with the statute.  Read with

the  Code,  they  form  a  self-contained  code  being

contemporanea  expositio by  the  Executive  which  is  charged

with  carrying  out  the  provisions  of  the  Code.   The  true

construction  of  Section  9(3)(c)  is  that  it  is  a  procedural

33

provision,  which  is  directory  in  nature,  as  the  Adjudicatory

Authority Rules read with the Code clearly demonstrate.  

17. There may be situations of operational creditors who may

have dealings with a financial institution as defined in Section

3(14)  of  the Code.   There may also be situations where an

operational creditor may have as his banker a non-scheduled

bank, for example, in which case, it would be impossible for him

to fulfill the aforesaid condition.  A foreign supplier or assignee

of such supplier may have a foreign banker who is not within

Section 3(14) of the Code. The fact that such foreign supplier is

an  operational  creditor  is  established  from a  reading  of  the

definition of  “person” contained in section 3(23),  as including

persons resident outside India,  together with the definition of

“operational creditor” contained in Section 5(20), which in turn is

defined as “a person to whom an operational debt is owed and

includes  any  person  to  whom  such  debt  has  been  legally

assigned  or  transferred”.   That  such  person  may  have  a

bank/financial  institution with whom it  deals and which is not

contained  within  the  definition  of  Section  3(14)  of  the  Code 34

would show that Section 9(3)(c) in such a case would,  if  Dr.

Singhvi  is  right  about  the  sub-section  being  a  condition

precedent,  amount  to  a  threshold  bar  to  proceeding  further

under  the  Code.   The  Code  cannot  be  construed  in  a

discriminatory fashion so as to include only those operational

creditors who are residents outside India who happen to bank

with financial institutions which may be included under Section

3(14) of the Code.  It is no answer to state that such person can

approach the Central Government to include its foreign banker

under Section 3(14) of the Code, for the Central Government

may never  do so.  Equally, Dr. Singhvi’s  other  argument  that

such persons ought to be left out of the triggering of the Code

against  their  corporate  debtor,  despite  being  operational

creditors as defined, would not sound well with Article 14 of the

Constitution, which applies to all persons including foreigners.

Therefore,  as  the  facts  of  these  cases  show,  a  so  called

condition precedent impossible of compliance cannot be put as

a  threshold  bar  to  the  processing  of  an  application  under

Section 9 of the Code.  35

18. However,  it  was  argued  that  there  are  various  other

categories  of  creditors  who  cannot  file  insolvency  petitions,

such as government authorities who have pending tax dues.

Such authorities have ample powers under taxation statutes to

coercively collect outstanding tax arrears.  Besides they form a

class, as a whole, who are kept out of the Code, unlike persons

who are resident outside India who, though being operational

creditors, are artificially divided, if we are to accept Dr. Singhvi’s

argument, into two sub-classes, namely, those who bank with

an institution that is recognized by Section 3(14) of the Code

and those who do not.  This argument also does not commend

itself to us.  

19. It is true that the expression “initiation” contained in the

marginal  note  to  Section  9  does  indicate  the  drift  of  the

provision,  but  from such  drift,  to  build  an  argument  that  the

expression “initiation” would lead to the conclusion that Section

9(3) contains mandatory conditions precedent before which the

Code can be triggered is a long shot.  Equally, the expression

36

“shall” in Section 9(3) does not take us much further when it is

clear that Section 9(3)(c) becomes impossible of compliance in

cases like the present.  It would amount to a situation wherein

serious  general  inconvenience  would  be  caused  to  innocent

persons, such as the appellant,  without  very much furthering

the object of the Act, as has been held in the State of Haryana

v.  Raghubir  Dayal (1995)  1  SCC  133  at  paragraph  5  and

obviously, therefore, Section 9(3)(c) would have to be construed

as being directory in nature.  

20. Even otherwise, the important condition precedent is an

occurrence of  a  default,  which  can  be proved,  as  has  been

stated hereinabove, by means of other documentary evidence.

Take for  example the case of  an earlier  letter  written by the

corporate debtor  to the operational  creditor  confirming that  a

particular  operational  debt is due and payable.  This piece of

evidence would be sufficient to demonstrate that such debt is

due  and  that  default  has  taken  place,  as  may  have  been

admitted by the corporate debtor.  If Dr. Singhvi’s submissions

37

were  to  be  accepted,  despite  the  availability  of  such

documentary evidence contained in the Section 9 application as

other  information  as may be specified,  such application filed

under Section 9 would yet have to be rejected because there is

no  copy  of  the  requisite  certificate  under  Section  9(3)(c).

Obviously,  such  an  absurd  result  militates  against  such  a

provision being construed as mandatory.  

21. It is unnecessary to further refer to arguments made on

the footing that Section 7 qua financial creditors has a process

which  is  different  from  that  of  operational  creditors  under

Sections  8  and  9  of  the  Code.   The  fact  that  there  is  no

requirement of a bank certificate under Section 7 of the Code,

as compared to Section 9, does not take us very much further.

The difference  between Sections 7  and  9  has  already been

noticed by this Court in  Innoventive Industries Ltd. v. ICICI

Bank & Anr., Civil Appeal Nos. 8337-8338 of 2017 decided on

August 31, 2017, as follows:-

“29.  The  scheme of  Section  7  stands  in  contrast with  the  scheme  under  Section  8  where  an

38

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  subsection  (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.  

30.  On the  other  hand,  as  we  have  seen,  in  the case of a corporate debtor who commits a default of a  financial  debt,  the  adjudicating  authority  has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it  is payable at some future date. It is only when this is proved  to  the  satisfaction  of  the  adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

The fact that  these differences obtain under the Code would

have no direct bearing on whether Section 9(3)(c) ought to be

construed in the manner indicated by Dr. Singhvi.  39

22. It was also submitted that Sections 65 and 76 of the Code

provide  for  criminal  prosecution  against  banks  issuing  false

bank  certificates  and  that  a  foreign  bank  issuing  such  a

certificate may not be amenable to the jurisdiction of the Code.

It is unnecessary to answer this submission in view of the fact

that the necessity for such a certificate has itself been held by

this judgment to be directory in nature.

23. Equally,  Dr. Singhvi’s  argument  that  the Code leads to

very  drastic  action  being  taken  once  an  application  for

insolvency  is  filed  and  admitted  and  that,  therefore,  all

conditions precedent must be strictly construed is also not in

sync with the recent trend of authorities as has been noticed by

a  concurring  judgment  in  Ms.  Eera  through  Dr.  Manjula

Krippendorf v. State (Govt. of NCT of Delhi) & Anr, Criminal

Appeal Nos. 1217-1219 of 2017 decided on July 21, 2017. In

this judgment, the correct interpretation of Section 2(1)(d) of the

Protection of Children from Sexual Offences Act, 2012 arose.

After referring to the celebrated  Heydon’s case, 76 E.R. 637

40

[1584]  and  to  the  judgments  in  which  the  golden  rule  of

interpretation of statutes was set out, the concurring judgment

of R.F. Nariman, J., after an exhaustive survey of the relevant

case law, came to the conclusion that the modern trend of case

law is that creative interpretation is within the Lakshman Rekha

of the Judiciary.  Creative interpretation is when the Court looks

at both the literal language as well as the purpose or object of

the statute, in order to better determine what the words used by

the draftsman of the legislation mean. The concurring judgment

then concluded:

“It  is  thus  clear  on  a  reading  of  English,  U.S., Australian and our own Supreme Court judgments that  the  ‘Lakshman  Rekha’  has  in  fact  been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case  of  Heydon,  where  the  Court  must  have recourse to the purpose, object, text, and context of a  particular  provision  before  arriving  at  a  judicial result.  In  fact,  the  wheel  has  turned  full  circle.  It started  out  by  the  rule  as  stated  in  1584  in Heydon’s  case,  which  was  then  waylaid  by  the literal  interpretation  rule  laid  down  by  the  Privy Council and the House of Lords in the mid 1800s, and has come back to restate the rule somewhat in terms of  what  was  most  felicitously  put  over  400 years ago in Heydon’s case.”

41

In dealing with penal statutes, the Court was confronted with a

body  of  case  law which  stated  that  as  penal  consequences

ensue,  the  provisions  of  such  statutes  should  be  strictly

construed.  Here again, the modern trend in construing penal

statutes  has  moved  away  from  a  mechanical  incantation  of

strict  construction.  Several  judgments were referred to and it

was held that a purposive interpretation of such statutes is not

ruled out.  Ultimately, it was held that a fair construction of penal

statutes based on purposive as well as literal interpretation is

the correct modern day approach.

24. However,  Dr.  Singhvi  cited  Raghunath  Rai  Bareja  v.

Punjab  National  Bank,  (2007)  2  SCC  230 and  relied  upon

paragraphs  39  to  47  for  the  proposition  that  the  literal

construction of a statute is the only mode of interpretation when

the statute is clear and unambiguous.  Paragraph 43 of the said

judgment  was  relied  upon  strongly  by  the  learned  counsel,

which states:

“In other words, once we depart from the literal rule, then any number of interpretations can be put to a

42

statutory provision, each judge having a free play to put his own interpretation as he likes. This would be destructive of judicial discipline, and also the basic principle in a democracy that it is not for the Judge to legislate as that is the task of the elected repre- sentatives of the people. Even if the literal interpre- tation results in hardship or inconvenience, it has to be followed (see G.P. Singh's Principles of Statutory Interpretations, 9th Edn., pp. 45-49). Hence depar- ture from the literal rule should only be done in very rare cases,  and ordinarily there should be judicial restraint in this connection.”

Regard being had to the modern trend of authorities referred to

in the concurring judgment in  Ms. Eera through Dr. Manjula

Krippendorf  (supra),  we  need  not  be  afraid  of  each  Judge

having a free play to put forth his own interpretation as he likes.

Any arbitrary interpretation, as opposed to fair interpretation, of

a statute, keeping the object of the legislature in mind, would be

outside the judicial ken. The task of a Judge, when he looks at

the literal  language of  the statute  as well  as  the object  and

purpose of the statute, is not to interpret the provision as he

likes  but  is  to  interpret  the  provision  keeping  in  mind

Parliament’s  language and the object  that  Parliament  had in

mind.  With  this  caveat,  it  is  clear  that  judges  are  not

43

knight-errants free to roam around in the interpretative world

doing as each Judge likes.  They are bound by the text of the

statute,  together  with  the  context  in  which  the  statute  is

enacted; and both text and context are Parliaments’, and not

what the Judge thinks the statute has been enacted for. Also, it

is  clear  that  for  the  reasons  stated  by  us  above,  a  fair

construction of Section 9(3)(c), in consonance with the object

sought  to  be  achieved  by  the  Code,  would  lead  to  the

conclusion that it cannot be construed as a threshold bar or a

condition precedent as has been contended by Dr. Singhvi.

25. Dr.  Singhvi  then  argued  that  the  application  of  the

principle in Taylor (supra) should be followed when it comes to

the correct interpretation of Section 9(3)(c) of the Code.  The

principle of  Taylor  (supra), namely that where a statute states

that a particular act is to be done in a particular manner; it must

be done in that manner or not at all, was followed by the Privy

Council in Nazir Ahmad v. King Emperor, 63 IA 372 (1936).  In

that case, the Privy Council held that Sections 164 and 364 of

44

the Code of Criminal Procedure, 1898 prescribed the mode in

which  confessions  are  to  be  recorded by  Magistrates,  when

made  during  investigation,  and  a  confession  before  a

Magistrate  not  recorded  in  the  manner  provided  was

inadmissible.  In Ukha Kolhe v. State of Maharashtra (1964) 1

SCR 926 at 948-949, a Constitution Bench of this Court held

that the principle contained in  Taylor  (supra) would not apply

when  proof  of  a  specified  fact  could  be  obtained  by  means

other than that statutorily specified. The argument in that case

was  that  Sections  129A and  129B  prescribed  the  mode  of

taking blood in the course of investigation of an offence under

the  Bombay  Prohibition  Act,  1949,  and  that,  therefore,

production  or  examination  of  a  person  before  a  registered

medical practitioner during the course of such investigation is

the only method by which consumption of an intoxicant may be

proved.   After  setting  out  Sections  129A and  129B  and  the

judgment  of  the  Privy  Council  in  Nazir  Ahmad  (supra),  this

Court held:

45

“The rule in Taylor v. Taylor [(1875) I Ch D 426] on which  the  Judicial  Committee  relied  has,  in  our judgment, no application to this case. Section 66(2), as we have already observed, does not prescribe any particular  method of  proof of concentration of alcohol  in  the  blood  of  a  person  charged  with consumption or use of an intoxicant. Section 129-A is  enacted  primarily  with  the  object  of  providing when the conditions prescribed are fulfilled, that a person shall submit himself to be produced before a registered medical practitioner for examination and for  collection  of  blood.  Undoubtedly,  Section 129-A(1)  confers  power  upon  a  Police  or  a Prohibition  Officer  in  the  conditions  set  out  to compel  a  person  suspected  by  him  of  having consumed  illicit  liquor,  to  be  produced  for examination  and  for  collection  of  blood  before  a registered  medical  practitioner.  But  proof  of concentration  of  alcohol  may  be  obtained  in  the manner described in Section 129-A(1) and (2),  or otherwise; that is expressly provided by sub-section (8) of Section 129-A, The power of a Police Officer to  secure  examination  of  a  person  suspected  of having  consumed  an  intoxicant  in  the  course  of investigation  for  an  offence  under  the  Act  is undoubtedly restricted by Section 129-A. But in the present  case  the  Police  Officer  investigating  the offence  had  not  produced  the  accused  before  a medical  officer;  it  was  in  the  course  of  his examination  that  Dr  Kulkarni,  before  any investigation was commenced, came to suspect that the appellant had consumed liquor, and he directed that specimen of blood of the appellant be collected. This step may have been taken for deciding upon the line of treatment, but certainly not for collecting evidence to be used against  the appellant  in  any possible  trial  for  a  charge  of  an  offence  of

46

consuming liquor contrary to the provisions of the Act.  If  unlawful  consumption of an intoxicant by a person accused, may be proved otherwise than by a  report  obtained  in  the  conditions  mentioned  in Section 129-A(1) and (2), there would be no reason to  suppose  that  other  evidence  about  excessive concentration of alcohol probative of consumption is inadmissible.  Admissibility  of  evidence  about concentration of alcohol in blood does not depend upon the  exercise  of  any  power  of  the  Police  or Prohibition  Officer.  Considerations  which  were present in Nazir Ahmad case [(1936) LR 63 IA 372] regarding  the  inappropriateness  of  Magistrates being  placed  in  the  same  position  as  ordinary citizens and being required to transgress statutory provisions  relating  to  the  method  of  recording confessions also do not arise in the present case.”

26. This  judgment  applies  on  all  fours  to  the  facts  of  the

present  case  inasmuch  as,  like  Section  129A(8)  of  the

aforesaid Act, proof of the existence of a debt and a default in

relation  to  such  debt  can  be  proved  by  other  documentary

evidence, as is specifically contemplated by Section 9(3)(d) of

the Code.   Like Section 66(2) of  the aforesaid Act  in  Ukha

Kolhe  (supra), Section 8 of the Code does not prescribe any

particular  method  of  proof  of  occurrence  of  default.

Consequently, we are of the opinion that the principle contained

in Taylor (supra) does not apply in the present situation. 47

27. Also,  in  Madan & Co. v. Wazir Jaivir  Chand  (1989) 1

SCC 264 at  268-270,  the interpretation of  Section 11 of  the

Jammu and Kashmir Houses and Shops Rent Control Act, 1966

was under consideration of this Court.  As stated in paragraph 4

of  the  judgment,  the  controversy in  that  case  turned  on  the

question  whether  the  notice  sent  by  the  Respondent  by

registered  post  can  be  said  to  have  been  served  and  the

Petitioner can be said to have been in receipt of the said notice.

In the words of the judgment:

“4. On  the  terms  of  the  above  sections,  the controversy  in  this  case  turned  on  the  question whether  the  notice  sent  by  the  respondent  by registered post on 26-11-1976 can be said to have been served and the petitioner can be said to have been in receipt of the said notice. If the answer to this question is in the affirmative, as held by all the courts  concurrently,  there  is  nothing  further  to  be said.  The  contention  of  the  appellant  tenant however,  is  that  the  statute  postulates  a  factual service of the notice on, and the actual receipt of it by, the tenant and that this admittedly not being the position in the present case, no eviction could have been decreed.

5. Shri Soli J. Sorabjee, learned counsel appearing for  the  tenant  submitted  that  the  safeguards  in Sections 11 and 12 of the Act are intended for the benefit  and  protection  of  the  tenant  and  that,

48

therefore, where the Act provides for the service of the  notice,  by  post,  this  requirement  has  to  be strictly complied with. He referred to the decisions in Hare Krishna Das v. Hahnemann Publishing Co. Ltd.[(1965-66)  70  Cal  WN  262]  and Surajmull Ghanshyamdas v. Samadarshan Sur [AIR 1969 Cal 109 : ILR (1969) 1 Cal 379] to contend that such postal  service  can  neither  be  presumed  nor considered to be good service where the letter  is returned to the sender due to the non-availability of the addressee. He urges that, in the absence of any enabling provision such as the one provided for in Section 106 of the Transfer of Property Act, service by some other mode, such as affixture, cannot be treated as sufficient compliance with the statute. In this  context,  he referred  to  the  frequently  applied rule  in Taylor v. Taylor [(1875)  1  Ch  D  426]  that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all and that other methods of performance are necessarily forbidden. He urged that even if service by affixture  can  be  considered  to  be  permissible, there  are  stringent  prerequisites  for  service  by affixture, such as those outlined in Order V Rules 17 to 19, of the Code of Civil Procedure (CPC) and that these prerequisites were not fulfilled in the present case.  He  pointed  out  that  even  under  the  CPC, service by such affixture can be recognised as valid only  if  sincere  and  vigilant  attempts  to  serve  the notice  on  the  addressee  personally  are unsuccessful.  In the present case, it  is submitted, the  evidence  shows  that  the  postman  made  no serious efforts to ascertain the whereabouts of the addressee even though the evidence showed that a servant  of  the  petitioner  firm  was  known  to  the postman  and  was  present  in  the  neighbourhood. He, therefore, submitted that the High Court should

49

have  dismissed  the  suit  for  eviction  filed  by  the landlord  on  the  ground  that  the  requirements  of Sections 11 and 12 of the Act were not satisfied.”

The Court turned down the contention based on Taylor (supra)

in the following terms:

“We are of opinion that the conclusion arrived at by the courts below is correct and should be upheld. It is true that the proviso to clause (i) of Section 11(1) and the proviso to Section 12(3) are intended for the protection of the tenant. Nevertheless it will be easy to see that too strict and literal a compliance of their language would be impractical and unworkable.”

xxx xxx xxx    “In  this  situation,  we  have  to  choose  the  more reasonable,  effective,  equitable  and  practical interpretation and that  would be to read the word “served”  as “sent  by  post”,  correctly  and properly addressed to the tenant, and the word “receipt” as the tender  of  the letter  by the postal  peon at  the address  mentioned  in  the  letter.  No  other interpretation, we think, will  fit the situation as it is simply not possible for a landlord to ensure that a registered letter sent by him gets served on, or is received by, the tenant.”

This judgment is also supportive of the proposition that when

the principle in Taylor (supra) leads to impractical, unworkable

and inequitable results, it  cannot be applied out of context in

situations which are predominantly procedural in nature.

50

28. The  decision  in  Smart  Timing (supra)  by  the  NCLAT,

which was relied upon by the impugned judgment,  was then

pressed into service by Dr Singhvi stating that an appeal from

this  judgment  has  been  dismissed  by  this  Court  and  that,

therefore, following the principle in Kunhayammed v. State of

Kerala (2000) 6 SCC 359, the NCLAT’s judgment has merged

with the Supreme Court’s order dated August 18, 2017, which

reads as follows:

“Heard the learned counsel appearing for the appellant.  We do  not  find  any  reason  to  interfere  with  the  order dated 19.05.2017 passed by the National Company Law Appellate Tribunal, New Delhi. In view of this, we find no merit in the appeal.  

Accordingly, the appeal is dismissed.”

Whether or not there is a merger, it is clear that the order dated

August 18,  2017 is not  “law declared” within the meaning of

Article 141 of the Constitution and is of no precedential value.

Suffice  it  to  state  that  the  said  order  was  also  a  threshold

dismissal by the Supreme Court, having heard only the learned

counsel appearing for the appellant.  

51

29. Dr.  Singhvi  then  relied  upon  the  Viswanathan  Report

dated November 2015, in particular Box 5.2,  which reads as

follows:

Box 5.2 – Trigger for IRP

1. The IRP can be triggered by either the debtor or  the  creditors  by  submitting  documentation specified in the Code to the adjudicating authority. 2. For the debtor to trigger the IRP, she must be able to submit all the documentation that is defined in the Code, and may be specified by the Regulator above this. 3. The  Code  differentiates  two  categories  of creditors: financial creditors where the liability to the debtor arises from a solely financial transaction, and operational creditors where the liability to the debtor arises in the form of future payments in exchange for  goods  or  services already delivered.  In  cases where  a  creditor  has  both  a  solely  financial transaction  as  well  as  an  operational  transaction with  the  entity,  the  creditor  will  be  considered  a financial creditor to the extent of the financial debt and  an  operational  creditor  to  the  extent  of  the operational debt is more than half the full liability it has with the debtor. 4. The Code will require different documentation for a debtor, a financial creditor, and an operational creditor to trigger the IRP. These are listed Box 5.3 under  what  the  Adjudicator  will  accept  as requirements to trigger the IRP.

52

30. Item 2 in Box 5.2 does show that for the corporate debtor

to  trigger  the  IRP,  it  must  be  able  to  submit  all  the

documentation that  is  defined in  the Code and that  different

documentation  is  required  insofar  as  financial  creditors  and

operational creditors are concerned, as is evident from Item 4 in

Box 5.2. The sentence which is after Box 5.2 is significant. It

reads, “therefore, the Code requires that the creditor can only

trigger the IRP on clear evidence of default.”  Nowhere does the

report state that such “clear evidence” can only be in the shape

of the certificate, referred to in Section 9(3)(c), as a condition

precedent to triggering the Code.  In fact, in Item 2(c) in Box

5.3, the Committee, by way of drafting instructions for how the

IRP can be triggered, states:

“If  an  operational  creditor  has  applied,  the application contains: i.  Record of  an  undisputed  bill  against  the entity, and  where  applicable,  information  of  such undisputed  as  filed  at  a  registered  information utility.”

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31. When it comes to the Joint Committee report dated April

2016, the draft Section contained therein, namely the definition

of financial institution contained in Section 3(14) of the Code,

has added into it  a sub-clause (c) which is a public financial

institution as defined in Section 2(72) of  the Companies Act,

2013. Apart from this, the draft statute that was placed before

the Joint Committee contains Section 9(3)(c) exactly as it is in

the present Code.  This report again does not throw much light

on the point at issue before us.  

32. Shri  Mukul  Rohatgi  strongly  relied  upon  a  recent

judgment  delivered  by  this  Court  in  Surendra  Trading

Company v. Juggilal Kamlapat Jute Mills Company Limited

and  Others,  Civil  Appeal  No.  8400  of  2017  decided  on

September 19, 2017.  In this case, the question of law framed

by  the  NCLAT for  its  decision  was  whether  the  time  limit

prescribed for admitting or rejecting a petition for initiation of the

insolvency  resolution  process  is  mandatory.  The  precise

question was whether, under the proviso to Section 9(5), the

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rectification of defects in an application within 7 days of the date

of receipt of notice from the adjudicating authority was a hard

and fast time limit  which could never be altered. The NCLAT

had held that the 7 day period was sacrosanct and could not be

extended,  whereas,  insofar  as  the  adjudicating  authority  is

concerned, the decision to either admit or reject the application

within  the period of  14 days  was held to be directory.  This

Court,  in disagreeing with the NCLAT on the 7 day period being

mandatory, held:

“We are not able to decipher any valid reason given while  coming  to  the  conclusion  that  the  period mentioned in proviso is mandatory. The order of the NCLAT,  thereafter,  proceeds  to  take  note  of  the provisions of Section 12 of the Code and points out the time limit for completion of insolvency resolution process is 180 days, which period can be extended by  another  90  days.  However,  that  can  hardly provide any justification to construe the provisions of  proviso  to  sub-section  (5)  of  Section  9  in  the manner in which it is done. It is to be borne in mind that limit of 180 days mentioned in Section 12 also starts from the date of admission of the application. Period prior  thereto  which  is  consumed,  after  the filing of the application under Section 9 (or for that matter under Section 7 or Section 10), whether by the  Registry  of  the  adjudicating  authority  in scrutinising  the  application  or  by  the  applicant  in removing  the  defects  or  by  the  adjudicating

55

authority  in  admitting  the  application  is  not  to  be taken  into  account.  In  fact,  till  the  objections  are removed it is not to be treated as application validly filed  inasmuch  as  only  after  the  application  is complete  in  every  respect  it  is  required  to  be entertained. In this scenario, making the period of seven days contained in the proviso as mandatory does not commend to us. No purpose is going to be served by treating this  period as mandatory. In  a given  case  there  may  be  weighty,  valid  and justifiable  reasons  for  not  able  to  remove  the defects  within  seven  days.  Notwithstanding  the same, the effect would be to reject the application.  

The court further went on to hold:

“Further, we are of the view that the judgments cited by the NCLAT and the principle contained therein applied while deciding that period of fourteen days within which the adjudicating authority has to pass the order is not mandatory but directory in nature would  equally  apply  while  interpreting  proviso  to sub-section  (5)  of  Section  7,  Section  9  or sub-section (4) of Section 10 as well. After all, the applicant does not gain anything by not  removing the objections  inasmuch as  till  the  objections  are removed,  such  an  application  would  not  be entertained.  Therefore,  it  is  in  the  interest  of  the applicant  to  remove  the  defects  as  early  as possible.  

Thus,  we  hold  that  the  aforesaid  provision  of removing the defects within seven days is directory and not  mandatory in  nature.  However, we would like to enter a caveat.  

We are also conscious of the fact that sometimes applicants or their counsel may show laxity by not

56

removing the objections within the time given and make take it  for granted that they would be given unlimited time for such a purpose. There may also be cases where such applications are frivolous in nature  which  would  be  filed  for  some  oblique motives  and  the  applicants  may  want  those applications  to  remain  pending  and,  therefore, would not remove the defects. In order to take care of  such  cases,  a  balanced  approach  is  needed. Thus,  while  interpreting  the  provisions  to  be directory in nature, at the same time, it can be laid down that if the objections are not removed within seven  days,  the  applicant  while  refilling  the application  after  removing  the  objections,  file  an application in writing showing sufficient case as to why the applicant could not remove the objections within seven days. When such an application comes up  for  admission/order  before  the  adjudicating authority, it would be for the adjudicating authority to decide as to whether sufficient  cause is shown in not  removing  the  defects  beyond  the  period  of seven  days.  Once  the  adjudicating  authority  is satisfied  that  such  a  case  is  shown,  only  then  it would entertain the application on merits, otherwise it will have right to dismiss the application.”

This  judgment  also  lends  support  to  the  argument  for  the

appellant in that it is well settled that procedure is the handmaid

of justice and a procedural provision cannot be stretched and

considered  as  mandatory,  when  it  causes  serious  general

inconvenience.   As has been held  in  Mahanth Ram Das v.

Ganga Das (1961) 3 SCR 763 at 767-768, we have traveled far

57

from  the  days  of  the  laws  of  the  Medes  and  the  Persians

wherein, once a decree was promulgated, it was cast in stone

and could not be varied or extended later:  

“Such  procedural  orders,  though  peremptory (conditional  decrees  apart)  are,  in  essence,  in terrorem,  so  that  dilatory  litigants  might  put themselves in order and avoid delay. They do not, however, completely estop a court from taking note of events and circumstances which happen within the time fixed. For example, it cannot be said that, if the  appellant  had  started  with  the  full  money ordered to be paid and came well in time but was set upon and robbed by thieves the day previous, he could not ask for extension of time, or that the Court was powerless to extend it. Such orders are not  like  the  law of  the  Medes  and  the  Persians. Cases  are  known  in  which  Courts  have  moulded their practice to meet a situation such as this and to have restored a suit or proceeding, even though a final order had been passed.”

33. Insofar as the second point is concerned, the first thing

that is to be noticed is that Section 8 of the Code speaks of an

operational creditor delivering a demand notice.  It is clear that

had the legislature wished to restrict such demand notice being

sent by the operational  creditor  himself,  the expression used

would perhaps have been “issued” and not “delivered”. Delivery,

therefore, would postulate that such notice could be made by

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an  authorized  agent.   In  fact,  in  Forms  3  and  5  extracted

hereinabove,  it  is  clear  that  this  is  the  understanding  of  the

draftsman  of  the  Adjudicatory  Authority  Rules,  because  the

signature  of  the  person  “authorized  to  act”  on  behalf  of  the

operational  creditor  must  be  appended  to  both  the  demand

notice as well as the application under Section 9 of the Code.

The position further becomes clear that both forms require such

authorized agent to state his position with or in relation to the

operational  creditor.  A  position  with  the  operational  creditor

would  perhaps  be  a  position  in  the  company  or  firm  of  the

operational  creditor,  but  the  expression  “in  relation  to”  is

significant.  It is a very wide expression, as has been held in

Renusagar Power Co. Ltd. v. General Electric Co., (1984) 4

SCC  679  at  704  and  State  of  Karnataka  v.  Azad  Coach

Builders (P) Ltd. (2010) 9 SCC 524 at 535,  which specifically

includes a position which is outside or indirectly related to the

operational  creditor.  It  is  clear,  therefore,  that  both  the

expression “authorized to act”  and “position in relation to the

operational creditor” go to show that an authorized agent or a 59

lawyer  acting  on  behalf  of  his  client  is  included  within  the

aforesaid expression.   

34. Quite apart from the above, Section 30 of the Advocates

Act states as follows:

“Right  of  advocates  to  practise.—Subject  to provisions of this Act, every advocate whose name is entered in the State roll  shall  be entitled as of right to practise throughout the territories to which this Act extends,—  (i) in all courts including the Supreme Court; (ii) before any tribunal or person legally authorised to take evidence; and  (iii)  before  any  other  authority  or  person  before whom such advocate is by or under any law for the time being in force entitled to practise.”

That  the expression “practise”  is  an expression of  extremely

wide import, and would include all preparatory steps leading to

the filing of an application before a Tribunal.  This is clear from

a Constitution Bench judgment of this Court in  Harish Uppal

(Ex-Capt.)  v. Union of India,  (2003) 2 SCC 45 at 72, which

states:

“The right of the advocate to practise envelopes a lot of acts to be performed by him in discharge of his professional duties. Apart from appearing in the courts he can be consulted by his clients, he can give his legal opinion whenever sought for, he can

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draft instruments, pleadings, affidavits or any other documents,  he  can  participate  in  any  conference involving  legal  discussions,  he  can  work  in  any office or firm as a legal officer, he can appear for clients before an arbitrator or arbitrators etc.”

35. The  doctrine  of  harmonious  construction  of  a  statute

extends also to a harmonious construction of all statutes made

by Parliament.  In Harshad S. Mehta v. State of Maharashtra

(2001)  8  SCC  257  at  280-81,  the  Special  Court  (Trial  of

Offences Relating to Transactions in Securities) Act, 1992 was

held,  insofar  as  the criminal  jurisdiction of  the Special  Court

was concerned, to be harmoniously construed with the Code of

Criminal Procedure,1973 in the following terms:

“48. To  our  mind,  the  Special  Court  has  all  the powers of a Court of Session and/or Magistrate, as the case may be, after the prosecution is instituted or  transferred before that  Court.  The width  of  the power  of  the Special  Court  will  be same whether trying  such  cases  as  are  instituted  before  it  or transferred  to  it.  The  use  of  different  words  in Sections  6  and  7  of  the  Act  as  already  noticed earlier also shows that the words in Section 7 that the prosecution for  any offence shall  be instituted only in the Special Court deserve a liberal and wider construction. They confer on the Special Court all powers of the Magistrate including the one at  the stage of investigation or inquiry. Here, the institution of  the  prosecution  means  taking  any  steps  in

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respect  thereof  before  the  Special  Court.  The scheme of the Act nowhere contemplates that it was intended that steps at pre-cognizance stage shall be taken before a court other than a Special Court. We may note an illustration given by Mr Salve referring to  Section  157  of  the  Code.  Learned  counsel submitted  that  the  report  under  that  section  is required to be sent to a Magistrate empowered to take cognizance of  offence.  In  relation to  offence under the Act, the Magistrate has no power to take cognizance.  That  power  is  exclusively  with  the Special Court and thus report under Section 157 of the Code will have to be sent to the Special Court though  the  section  requires  it  to  be  sent  to  the Magistrate.  It  is  clear  that  for  the  expression “Magistrate”  in  Section  157,  so  far  as  the  Act  is concerned,  it  is  required  to  be  read  as  “Special Court” and likewise in respect of other provisions of the Code. If the expression “Special Court” is read for the expression “Magistrate”, everything will fall in line. This harmonious construction of the provisions of the Act and the Code makes the Act work. That is what  is  required  by  principles  of  statutory interpretation. Section 9(1) of the Act provides that the Special  Court  shall  in  the  trial  of  such cases follow the procedure prescribed by the Code for the trial  of  warrant  cases  before  the  Magistrate.  The expression  “trial”  is  not  defined  in  the  Act  or  the Code.  For  the purpose of  the Act,  it  has a  wider connotation and also includes in it the pre-trial stage as well.  Section 9(2)  makes  the Special  Court,  a Court of Session by a fiction by providing that the Special  Court  shall  be  deemed  to  be  a  Court  of Session and shall have all the powers of a Court of Session. In case, the Special Court is held not to have  the  dual  capacity  and  powers  both  of  the Magistrate  and  the  Court  of  Session,  depending

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upon the stage of the case, there will be a complete hiatus. It is also to be kept in view that the Special Court  under  the  Act  comprises  of  a  High  Court Judge and it  is  a court  of  exclusive jurisdiction in respect of any offence as provided in Section 3(2) which will  include offences under the Indian Penal Code,  the Prevention of  Corruption Act  and other penal laws. It is only in the event of inconsistency that  the  provisions  of  the  Act  would  prevail  as provided  in  Section  13  thereof.  Any  other interpretation  will  make  the  provision  of  the  Act unworkable which could not be the intention of the legislature. Section 9(2) does not exclude Sections 306 to 308 of the Code from the purview of the Act. This section rather provides that the provisions of the Code shall apply to the proceedings before the Special Court. The inconsistency seems to be only imaginary. There is nothing in the Act to show that Sections 306 to 308 were intended to be excluded from the purview of the Act.”

Similarly, in CTO v. Binani Cements Ltd. (2014) 8 SCC 319 at

332, the rule of construction of two Parliamentary statutes being

harmoniously construed was laid down as follows:

“35. Generally,  the  principle  has  found  vast application  in  cases  of  there  being  two  statutes: general  or  specific  with  the  latter  treating  the common  subject-matter  more  specifically  or minutely than the former. Corpus Juris Secundum, 82  C.J.S.  Statutes  §  482  states  that  when construing  a  general  and  a  specific  statute pertaining  to  the  same  topic,  it  is  necessary  to consider the statutes as consistent with one another and such statutes therefore should be harmonised,

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if  possible,  with the objective of  giving effect  to a consistent  legislative  policy.  On  the  other  hand, where  a  general  statute  and  a  specific  statute relating  to  the  same  subject-matter  cannot  be reconciled, the special or specific statute ordinarily will control. The provision more specifically directed to the matter at issue prevails as an exception to or qualification of the provision which is more general in  nature,  provided  that  the  specific  or  special statute  clearly  includes  the  matter  in  controversy (Edmond v. United States [137 L Ed 2d 917 :  520 US  651  (1997)]  , Warden v. Marrero [41  L  Ed  2d 383 : 417 US 653 (1974)] ).”

More recently, in  Binoy Viswam v. Union of India (2017) 7

SCC 59 at 132, this Court construed the Income Tax Act, 1961

and  the  Aadhaar  (Targeted  Delivery  of  Financial  and  Other

Subsidies,  Benefits  and  Services)  Act,  2016 harmoniously  in

the following manner:

“98. In view of the above, we are not impressed by the  contention  of  the  petitioners  that  the  two enactments  are  contradictory  with  each  other.  A harmonious reading of  the two enactments  would clearly suggest that whereas enrolment of Aadhaar is  voluntary  when  it  comes  to  taking  benefits  of various welfare schemes even if it is presumed that requirement of Section 7 of the Aadhaar Act that it is necessary to provide Aadhaar number to avail the benefits  of  schemes  and  services,  it  is  up  to  a person to avail those benefits or not. On the other hand, purpose behind enacting Section 139-AA of the Act is to check a menace of black money as well

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as money laundering and also to widen the income tax  net  so  as  to  cover  those  persons  who  are evading the payment of tax.”

36. The non-obstante clause contained in Section 238 of the

Code  will  not  override  the  Advocates  Act  as  there  is  no

inconsistency  between  Section  9,  read  with  the  Adjudicating

Authority  Rules  and Forms referred  to  hereinabove,  and the

Advocates Act.   In  Balchand Jain v. State of M.P.  (1976) 4

SCC 572 at 585-86, the anticipatory bail provision contained in

Section 438 of the Code of Criminal Procedure was held not to

be wiped out by the non-obstante clause contained in Rule 184

of the Defence and Internal Security of India Rules, 1971. Fazal

Ali, J. concurring with the main judgment, held:

“16. Having  regard  to  the  principles  enunciated above, we feel that there does not appear to be any direct conflict between the provisions of Rule 184 of the Rules and Section 438 of the Code. However, we hold that the conditions required by Rule 184 of the Rules must be impliedly imported in Section 438 of the Code so as to form the main guidelines which have to  be  followed  while  the  court  exercises  its power under Section 438 of the Code in offences contemplated by Rule 184 of  the Rules.  Such an interpretation would meet the ends of justice, avoid all possible anomalies and would at the same time ensure and protect the liberty of the subject which

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appears to be the real intention of the legislature in enshrining Section 438 as a new provision for the first time in the Code. We think that there is no real inconsistency between Section 438 of the Code and Rule  184  of  the  Rules  and,  therefore,  the  non obstante clause cannot be interpreted in a manner so as to repeal or override the provisions of Section 438 of the Code in respect of cases where Rule 184 of the Rules applies.”

Similarly, in  R.S. Raghunath v. State of Karnataka (1992) 1

SCC 335 at  348,  the non-obstante clause contained in  Rule

3(2)  of  the  Karnataka  Civil  Services  (General  Recruitment)

Rules, 1977 was held not to override the Karnataka General

Service (Motor Vehicles Branch) (Recruitment) Rules, 1976.  It

was held:

“As  already  noted,  there  should  be  a  clear inconsistency between the two enactments before giving  an  overriding  effect  to  the  non-obstante clause but when the scope of the provisions of an earlier enactment is clear the same cannot be cut down  by  resort  to  non-obstante  clause.  In  the instant case we have noticed that even the General Rules of which Rule 3(2) forms a part provide for promotion by selection.  As a matter  of  fact  Rules 1(3)(a)  and  3(1)  and  4  also  provide  for  the enforceability of the Special Rules. The very Rule 3 of the General Rules which provides for recruitment also provides for promotion by selection and further lays down that the methods of recruitment shall be

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as  specified  in  the  Special  Rules,  if  any.  In  this background  if  we  examine  the  General  Rules  it becomes clear that the object of these Rules only is to provide broadly for recruitment to services of all the departments and they are framed generally to cover situations that are not covered by the Special Rules  of  any  particular  department.  In  such  a situation both the Rules including Rules 1(3)(a), 3(1) and 4 of General Rules should be read together. If so  read  it  becomes  plain  that  there  is  no inconsistency  and  that  amendment  by  inserting Rule  3(2)  is  only  an  amendment  to  the  General Rules and it cannot be interpreted as to supersede the Special  Rules.  The amendment  also must  be read as being subject to Rules 1(3)(a), 3(1) and 4(2) of the General Rules themselves. The amendment cannot  be  read  as  abrogating  all  other  Special Rules in respect of all departments. In a given case where there are no Special Rules then naturally the General  Rules would  be applicable.  Just  because there  is  a  non-obstante  clause,  in  Rule  3(2)  it cannot be interpreted that the said amendment to the  General  Rules  though  later  in  point  of  time would abrogate the special rule the scope of which is very clear and which co-exists particularly when no patent conflict or inconsistency can be spelt out. As already noted Rules 1(3)(a),  3(1) and 4 of the General Rules themselves provide for promotion by selection and for enforceability of the Special Rules in that regard. Therefore there is no patent conflict or inconsistency at all between the General and the Special Rules.”

In Central Bank of India v. State of Kerala (2009) 4 SCC 94

at 141-42, the non-obstante clauses contained in Section 34(1)

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of Recovery of Debts Due to Banks and Financial Institutions

Act,  1993  and  Section  35  of  the  Securitisation  and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 were held not to override specific provisions

contained in the Bombay Sales Tax Act, 1959 and the Kerala

Sales Tax Act 1963 dealing with a declaration of a first charge in

the following terms:

“130. Undisputedly,  the  two  enactments  do  not contain  provision  similar  to  the  Workmen's Compensation  Act,  etc.  In  the  absence  of  any specific provision to that effect, it is not possible to read  any  conflict  or  inconsistency  or  overlapping between  the  provisions  of  the  DRT  Act  and  the Securitisation  Act  on  the  one  hand  and  Section 38-C of  the Bombay Act  and Section 26-B of  the Kerala  Act  on  the  other  and  the  non  obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for  declaring that  the first  charge created under the State legislation will  not operate qua or affect  the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be.

131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act  and Section 35 of  the Securitisation Act vis-à-vis  Section  38-C  of  the  Bombay  Act  and Section  26-B  of  the  Kerala  Act  and  similar  other

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State  legislations  only  if  there  was  a  specific provision in the two enactments creating first charge in  favour  of  the  banks,  financial  institutions  and other secured creditors but as Parliament has not made  any  such  provision  in  either  of  the enactments,  the first  charge created by the State legislations  on  the  property  of  the  dealer  or  any other person, liable to pay sales tax, etc., cannot be destroyed  by  implication  or  inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors.”

Since  there  is  no  clear  disharmony  between  the  two

Parliamentary  statutes  in  the  present  case  which  cannot  be

resolved  by  harmonious  interpretation,  it  is  clear  that  both

statutes must be read together.  Also, we must not forget that

Section 30 of  the Advocates Act  deals with  the fundamental

right under Article 19(1)(g) of the Constitution to practice one’s

profession.  Therefore, a conjoint reading of Section 30 of the

Advocates Act and Sections 8 and 9 of the Code together with

the Adjudicatory Authority Rules and Forms thereunder would

yield the result that a notice sent on behalf of an operational

creditor by a lawyer would be in order.  

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37. However,  Dr.  Singhvi  referred  to  Rule  4  of  the  Debts

Recovery  Rules  and  Section  434(2)  of  the  Companies  Act,

1956, which state as follows:

“4. Procedure for filing applications.-  

(1) The application under section 19 or section 31A, or under section 30(1) of the Act may be presented as nearly as possible in Form-I, Form-II and Form-III respectively annexed to these rules by the applicant in person or by his agent or by a duly authorised legal  practitioner  to  the  Registrar  of  the  Bench within whose jurisdiction his case falls or shall  be sent by registered post addressed to the Registrar.

(2) An application sent by post under sub-rule (1) shall  be  deemed  to  have  been  presented  to  the Registrar the day on which it  was received in the office of the Registrar.  

(3)  The  application  under  sub-rule  (1)  shall  be presented in two sets, in a paper book along with an empty file size envelope bearing full address of the defendant and where the number of defendants is more  than  one,  then  sufficient  number  of  extra paper-books together with empty file size envelopes bearing full address of each of the defendant shall be furnished by the applicant.

xxx xxx xxx  

434.  COMPANY  WHEN  DEEMED  UNABLE  TO PAY ITS DEBTS-  

(2)  The  demand  referred  to  in  clause  (a)  of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by

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any agent or  legal  adviser  duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.”

The argument then made was that when Parliament wishes to

include  a  lawyer  for  the  purposes  of  litigation  or  to  a

pre-litigation stage, it expressly so provides, and this not being

so in the Code, it must be inferred that lawyers are excluded

when it comes to issuing notices under Section 8 of the Code.

We are afraid that this argument must be rejected, not only in

view of what has been held by us on a reading of the Code and

on the harmonious construction of Section 30 of the Advocates

Act read with the Code, but also on the basis of a judgment of

this  Court  in  Byram  Pestonji  Gariwala  v.  Union  Bank  of

India, (1992) 1 SCC 31 at 47-48.  In this judgment, what fell for

consideration  was  Order  XXIII  Rule  3  of  the  Code  of  Civil

Procedure, 1908 after its amendment in 1976.  It was argued in

that case that a compromise in a suit had, under Order XXIII

Rule 3,  to be in writing and “signed by the parties”.   It  was,

therefore,  argued that  a  compromise  effected by counsel  on

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behalf  of  his  client  would  not  be effective  in  law, unless the

party himself  signed the compromise.  This  was turned down

stating that  Courts  in  India  have consistently  recognized the

traditional  role  of  lawyers  and  the  extent  and  nature  of  the

implied authority to act on behalf of their clients, which included

compromising matters on behalf of their clients. The Court held

there is no reason to assume that the legislature intended to

curtail  such implied authority of  counsel.   It  then went  on to

hold:

“38. Considering the traditionally recognised role of counsel  in  the  common law system,  and  the  evil sought to be remedied by Parliament by the C.P.C. (Amendment)  Act,  1976,  namely,  attainment  of certainty  and  expeditious  disposal  of  cases  by reducing the terms of compromise to writing signed by the parties, and allowing the compromise decree to  comprehend  even  matters  falling  outside  the subject matter of the suit, but relating to the parties, the legislature  cannot,  in  the  absence of  express words  to  such  effect,  be  presumed  to  have disallowed the parties to enter into a compromise by counsel in  their  cause or by their  duly authorised agents.  Any  such  presumption  would  be inconsistent  with  the legislative object  of  attaining quick reduction of arrears in court by elimination of uncertainties  and  enlargement  of  the  scope  of compromise.

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39. To  insist  upon  the  party  himself  personally signing the agreement or compromise would often cause  undue  delay,  loss  and  inconvenience, especially  in  the  case  of  non-resident  persons.  It has always been universally understood that a party can  always  act  by  his  duly  authorised representative.  If  a  power-of-attorney  holder  can enter into an agreement or compromise on behalf of his  principal,  so  can  counsel,  possessed  of  the requisite  authorisation  by  vakalatnama,  act  on behalf of his client. Not to recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of  proceedings  in  court.  If  the  legislature  had intended to make such a fundamental change, even at  the  risk  of  delay,  inconvenience  and  needless expenditure, it would have expressly so stated.

40. Accordingly, we are of the view that the words ‘in writing and signed by the parties’, inserted by the C.P.C.  (Amendment)  Act,  1976,  must  necessarily mean, to borrow the language of Order III  Rule 1 CPC:

“any  appearance,  application  or  act  in  or  to  any court, required or authorized by law to be made or done by a party in such court, may except where otherwise  expressly  provided  by  any  law  for  the time being in force, be made or done by the party in person, or by his recognized agent, or by a pleader, appearing, applying or acting as the case may be, on his behalf:

Provided  that  any  such  appearance  shall,  if  the court so directs, be made by the party in person.”

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38. Just  as  has  been  held  in  Gariwala  (supra),  the

expression “an operational creditor may on the occurrence of a

default  deliver  a  demand  notice…..”  under  Section  8  of  the

Code  must  be  read  as  including  an  operational  creditor’s

authorized agent and lawyer, as has been fleshed out in Forms

3 and 5 appended to the Adjudicatory Authority Rules.  

39. For all these reasons, we are of the view that the NCLAT

judgment has to be set aside on both counts.  Inasmuch as the

two  threshold  bars  to  the  applications  filed  under  Section  9

have now been removed by us, the NCLAT will proceed further

with  these  matters  under  the  Code  on  a  remand  of  these

matters to it. The appeals are allowed in the aforesaid terms.  

…………………………..J. (R.F. Nariman)

…………………………..J. (Navin Sinha)

New Delhi; December 15, 2017.

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