In a major relief to foreign operational creditors seeking to invoke the Insolvency and Bankruptcy Code, the Supreme Court has held a certificate from a financial institution confirming non-payment of debt was not mandatory for triggering the insolvency process. It further allowed lawyers to issue demand notices on unpaid operational debt on behalf of such creditors. Legal experts said many foreign operational creditors who did not have a bank account in the country faced challenges in procuring a certificate from the financial institutions concerned. “This judgment now allows such foreign entities to take recourse under the Code even in the absence of a certificate from a financial institution,” said Mustafa Motiwala, partner and head of the litigation and disputes practice at Clasis Law, a firm that represented Macquarie Bank, in the case against Shilpi Cable Technologies. Senior advocates Mukul Rohatgi and Arvind Datar appeared on behalf of Macquarie Bank. In July, the National Company Law Appellate Tribunal (NCLAT) had turned down an National Company Law Tribunal (NCLT) order in another case, admitting initiation of insolvency process by Macquarie against Uttam Galva Metallics on technical grounds. The NCLAT had noted that Macquarie Bank had no office in the country or any bank account with a financial institution.
Absence of a certificate from a financial institution made the application for initiation of the insolvency process incomplete, the NCLAT had said.Legal experts said the SC order in Macquarie Bank Vs Shilpi Cable Technologies case, issued by judges R F Nariman and Navin Sinha, would help to do away with discrimination against foreign operational creditors that did not have a bank account in the country. The apex court order rejected the argument that such persons ought to be left out of the process of triggering the IBC against their corporate debtor, said Economic Laws Practice in a note to its clients. The Supreme Court also ruled in the same case that a notice by a lawyer on behalf of the operational creditor would be in order according to the provisions of the Insolvency and Bankruptcy Code. Earlier, the NCLAT had questioned the practice of lawyers representing operational creditors issuing demand notices for unpaid debts.