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ONE PAGE #14 – In the matter of Mohit Minerals Ltd V Nidhi Impotrade Pvt Ltd

ONE PAGE #14 – In the matter of Mohit Minerals Ltd V Nidhi Impotrade Pvt Ltd
Demand Notice Issued by the Advocate without Authorization/Board Resolution Is Valid
Court:  NCLT Ahmedabad & NCLAT Chairman Bench AT# 905/2020 Dt 08.01.2021

1. Facts of the Case:

a. Appellant is Sec 9 Applicant and the Respondent is CD. No appearance was there on behalf of Respondent despite awaiting appearance, hence proceeded to hear ex-parte.

b. Application was rejected by NCLT on the ground that the demand notice was sent by the advocate who is not authorised; backed by a board resolution.

2. Analysis by NCLAT:

a. Delivery of demand notice is sine-qua-non (essential) for filing Sec 9 application u/s 8 of the code, in the format prescribed ie Form 3 which must emanate from the Operational Creditor or any authorised person on its behalf.

b. In the opinion of NCLT, the demand notice in prescribed form was issued by the Advocate of the Operational creditor and delivered upon the Corporate Debtor; but that advocate had no authorization backed by board resolution of the Operational Creditor.

c. This finding is unsustainable as in case of a person other than an Advocate, the Board Resolution would be required but in the event of a demand notice being issued by an Advocate duly instructed by his client, there is no need of requirement of authority backed by the Board Resolution.

3. Case Laws:

a. Macquaire Bank Ltd v Shilpi Cable Technologies Ltd (SC-2018)held that the demand notice delivered by an advocate duly instructed by the Operational Creditor would be a valid demand notice for the purpose of initiation of CIRP.

b. SVG Fashion Ltd V Arpita Filaments Pvt Ltd (NCLT-AHM) held that the issue of demand notice being issued by an advocate is not valid, is not sustainable as it is already settled by Hon’ble SC that the advocate can issue demand notice on behalf of his client ie Operational Creditor”.

4. Judgment:

a. Judicial consistency would demand that same view which was based on Hon’ble SC (refer Case laws above) should have been taken in this later case as well.

b. Once an advocate is instructed to issue demand notice, there was no room for holding that the notice delivered by Advocate was not a notice delivered by an authorised person.

c. Hence, impugned order is set aside and matter is remanded back to NCLT with a direction that in the event of the application being complete in all respects, it may, having regard to the key ingredients of debt and default, pass an order of admission or otherwise; after providing the CD an opportunity of settling the claim.

MS Mano Ranjani

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All about Indian Insolvency Laws.

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