Hemanshu Jamnadas Domadia Vs. Central Bank of India - That to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him.

NCLAT (10.11.2021) In Hemanshu Jamnadas Domadia Vs. Central Bank of India [Company Appeal (AT) (Insolvency) No. 623 of 2020] held that;

• Mere use of word ‘Power of Attorney’ while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an ‘authorisation’ by the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation.

• General authorisation given to an officer of the financial creditor by means of a power of attorney, would not disentitle such officer to act as the authorised representative of the financial creditor while filing an application under Section 7 of the Code, merely because the authorisation was granted through a power of attorney

• That to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him. It is the payment that extends the period of limitation. Still, payment has to be proved in a particular way, and a written or signed acknowledgement is the only proof of payment. Oral testimony is excluded unless there is acknowledgement in the required form

• The Gujarat High Court in Hiralal Chhotalal Shah Vs Central Bank of India & Ors 1980 SCC Online Guj 53 Paras 11 to 18 and 35 have held that even if – a debtor makes part payment to a creditor, it will not extend the limitation for enforcement of creditor’s remedy against surety u/s. 19 Limitation Act since payment is not done by the surety.

Excerpts of the order;

3. Appellants Submission

3.1 The Corporate Debtor resisted the Application primarily on two grounds: 

• (i) the Application filed by the Respondent Bank is barred by limitation, and 

• (ii) the Application is not filed by a duly authorised person of the Respondent Bank hence not maintainable.

3.2 The Appellant/Corporate Debtor had contended that the date of default mentioned in the Application is 01 July 2015, while the Application was filed on 22 October 2018. Thus, the Application was filed after the prescribed limitation period, i.e. three years, under Article 137 of the Limitation Act, 1963. Therefore, the Application was hopelessly time-barred.

3.3 The Appellant contends that the Adjudicating Authority has given the benefit of Section 19 of the Limitation Act based on the last payment made by the Corporate Debtor, i.e. on 30 December 2015. Therefore, the Adjudicating Authority has found that the Application is filed within the prescribed period of limitation.

a. Appellant submits that the credit entry of 30 December 2015 for Rs.5,99,760 is on account of payment by one’ Dynamic Extractor’. It is contended that the said payment is neither made by the Appellant nor the Appellant’s agent.

b. A payment may extend the period of limitation as per Section19 of the Limitation Act. However, for Section 19 Limitation Act to apply, it is necessary to make the payment by the Appellant or the Appellant’s agent. (Pg. 10)

c. However, herein the payment is made by a completely unrelated party. Hence, the limitation period cannot extend u/S. 19 of Limitation Act since the conditions thereof are not fulfilled.

d. Even the said payment by Dynamic Extractor was wrongfully made, and it was returned by the Appellant.

e. It is further contended that the Respondent never set up this case before the Adjudicating Authority. The Ld. Adjudicating Authority made out this incorrect case for the Respondent on its own accord. Moreover, since this issue was neither raised nor argued by the Respondent, the Appellant never had an opportunity to rebut these contentions.

f. The Respondent has raised a new issue that credit entry of 31.12.2015 for Rs. 87,57,769/- will also extend the limitation period. It is pertinent to note that the said entry is not a payment but an INCA (Interest Not Collected Account) reversal. The said term is an accounting method adopted by the banks for NPA accounts, as per the Income Recognition and Assets Classification (IRAC) Norms. As per INCA reversal – the unrealised interest in an NPA account is reversed, and this is done monthly. Hence, it is not a payment by any party but an accounting method of the banks to balance the book of NPA accounts. Therefore, such tallying methods in no manner can attract Section 19 of the Limitation Act.

g. Further, this Hon’ble Tribunal in the case of Jagdish Prasad Sarada Vs Allahabad Bank Company Appeal No. 183 of 2020 Judgment 28 August 2020 (Paras 10-11) has categorically held that the date of default will be the date of declaration of NPA and it would not shift.

h. The Gujarat High Court in Hiralal Chhotalal Shah Vs Central Bank of India & Ors 1980 SCC Online Guj 53 Paras 11 to 18 and 35 have held that even if – a debtor makes part payment to a creditor, it will not extend the limitation for enforcement of creditor’s remedy against surety u/s. 19 Limitation Act since payment is not done by the surety.

i. In the instant case, the limitation will not extend because of the last credit entry of 30 December 2015 since the payment was made by an unrelated party. Even this payment was by mistake, which was returned by the Appellant.

3.4 The Appellant further contends that Acknowledgment in Balance sheets will not extend the limitation period u/s. 18 Limitation Act

a. The Ld. Adjudicating Authority in the Impugned Order has extended the limitation period for a credit entry and not on acknowledgement in balance sheets. However, the Respondent herein has raised a ground that there is an acknowledgement in the balance sheet; hence, the limitation period ought to extend.

b. However, this issue is no longer res Integra, and the Hon’ble Supreme Court and this Hon’ble Tribunal have laid this controversy to rest by deciding that acknowledgement in a balance sheet will not extend the limitation period u/s 18 Limitation Act for IBC proceedings.

c. The Hon’ble Supreme Court in Babulal Vardhari Gurjar versus Gurjar Aluminium Industries Pvt Ltd. 2020 SCC Online SC 547 Para 91-93 has held explicitly that Section 18 Limitation Act will not apply to IBC proceedings.

d. Further, this Hon’ble Tribunal in V Padmakumar versus Stressed Assets Stabilisation Fund 2020 SCC Online NCLAT 417 Para 20-22 and Bishal Jaiswal versus Asset Reconstruction Company (India) Ltd. Company Appeal No. 385 of 2020 Judgment dated 22 December 2020 Para 13-14 has held that acknowledgement in balance sheets will not extend limitation period u/s. 18 of the Limitation Act for IBC proceedings.

3.5 Hence, the instant Appeal ought to be allowed since the Section 7 Application filed by the Respondent was time-barred.

3.6 We have heard the argument of the Learned Counsels for the parties and perused the record. Following issues arise for deciding this Appeal;

• a) Whether the Application/petition is filed by a person having proper authorisation?

• b) Whether the Application/Petition is barred by limitation?

 

4. Analysis

Whether the Application/Petition is filed by an Authorised Person?

4.1 Hon’ble Supreme Court in the case of Rajendra Narottamdas Sheth and Another (supra) has clarified the legal position regarding the issue of Maintainability of the Application when filed by a power of attorney holder under Section 7 of the Code. In this case, Hon’ble Supreme Court has held that;

• 11. The NCLAT, in its judgment in Palogix Infrastructure (supra), held that a ‘power of attorney holder is not competent to file an application under Section 7 on behalf of the financial creditor. However, the NCLAT made certain further observations, as reproduced below:

•      “41. In so far as the present case is concerned, the ‘Financial Creditor’- Bank has pleaded that by Board’s Resolutions dated 30May, 2002 and 30October, 2009, the Bank authorised its officers to do needful in the legal proceedings by and against the Bank. If general authorisation is made by any ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Corporate Applicant’ in favour of its officers to do needful in legal proceedings by and against the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, mere use of word ‘Power of Attorney’ while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an ‘authorisation’ by the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the ‘Authorized Representative’ for the purpose of filing any application under section 7 or Section 9 or Section 10 of ‘I &B Code’.”

• 12. The NCLAT was of the opinion that general authorisation given to an officer of the financial creditor by means of a power of attorney, would not disentitle such officer to act as the authorised representative of the financial creditor while filing an application under Section 7 of the Code, merely because the authorisation was granted through a power of attorney. Moreover, the NCLAT in Palogix Infrastructure (supra) has held that if the officer was authorised to sanction loans and had done so, the Application filed under Section 7 of the Code cannot be rejected on the ground that no separate specific authorisation letter has been issued by the financial creditor in favour of such officer. In such cases, the corporate debtor cannot take the plea that while the officer has power to sanction the loan, such officer has no power to recover the loan amount or to initiate corporate insolvency resolution process, in spite of default in repayment. We approve the view taken by the NCLAT in Palogix Infrastructure (supra).

• 13. In the present case, Mr. Praveen Kumar Gupta has been given general authorisation by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard. Such authorisation, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank’s board of  directors on 06.12.2008, does not impair Mr. Gupta’s authority to file an application under Section 7 of the Code. It is therefore clear that the Application has been filed by an authorised person on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the Application on this ground is untenable.”         (emphasis supplied)

 

4.2 In the instant case, the Application under section 7 of the Code was filed by the Assistant General Manager, who happens to be the principal officer of Respondent number 1 Bank. Accordingly, the said officer is duly authorised through a General Power of Attorney in his favour on 27 September 2011, which is still valid and effective.

4.3 Under the said Power of Attorney, the said officer of the bank is authorised to grant the loan, execute documents for and on behalf of the bank, recover loans, if necessary and further, entitled to initiate proceedings under the Insolvency and Bankruptcy Code. Additionally, Respondent number 1 Bank has also filed a copy of the permission letter dated 11 June 2018, which categorically allows the bank to file the present Application under section 7 of the Code. The signatory to the Application is well authorised to sign the Application given the law laid down by the Hon’ble Supreme Court in the case, Rajendra Narottamdas Sheth and Another (supra).

 

5. Whether the Application/Petition filed u/s 7 of the I& B Code is barred by limitation?

5.1 The Appellants claims that the account of the Corporate Debtor was classified as Non-Performing Assets on 01 July 2015. Therefore, the date of default, as mentioned in Section 7 petition, is 01 July 2015. Therefore, the limitation period for filing the Petition ended on 30 June 2018. However, the Application was filed on 22 October 2018. Thus, the Application/petition is filed much after the expiry of the limitation period.

5.2 The Appellants contention is mainly based on the premise that the Adjudicating Authority has wrongly considered the credit entry of 30 December 2015 for Rs.5,99,760/- from the Corporate Debtor. They are considering this entry as the last payment received from the Corporate Debtor. The Appellant submits that the said payment was made by a completely unrelated party, ‘Dynamic Extractor’. The said payment is neither made by the Appellant nor its agent. Therefore, based on the credit entry dated 30 December 2015 limitation period cannot be extended under Section 19 of the Limitation Act, 1963. Appellant returned even the said payment made by ‘Dynamic Extractor’.

5.4 The Learned Counsel for the Appellant submits that to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him. It is the payment that extends the period of limitation. Still, payment has to be proved in a particular way, and a written or signed acknowledgement is the only proof of payment. Oral testimony is excluded unless there is acknowledgement in the required form (Sant Lal Mahton v. Kamala Prasad A.I.R. 1951 S.C. 477).

 

5.6 Further, the balance sheets as of 31 March 2017, 31 March 2018 and 31 March 2019, the amount due and payable to the Respondent No.1 Bank is recorded under long term borrowings (in respect of term loan) and short term borrowing in respect of cash credit) (Ref page no. 72, 74, 102 and 104 of the Reply). Further, in both the balance sheets, there is a note stating, “loan from Central Bank of India towards packing credit is secured against hypothecation of stocks related to export and cash credit is secured against hypothecation of stocks and book debts and equitable mortgage of personal residential property of the director and factory land and building, belonging to MOCIL”. Hence, on both the counts above, there is a clear admission/acknowledgement that the amount is due and payable to Respondent No.1, i.e. Central Bank of India,

5.7 These balance sheets are also signed by the Appellant. Hence, the Application under Section 7, which was filed on 22 October 2018, is well within limitation. Further, through various demand promissory notes, the Corporate Debtor has acknowledged the loan disbursed by Respondent No.1 and has promised to pay on demand (Ref pg:155 to 133). Acknowledgement is also evident from the board resolution passed by the Corporate Debtor from time to time (Ref Pg-171-176).

5.9 Further,In the case Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain and Another 2021 SCC OnLine SC 843 Hon’ble Supreme Court has held that;

“22. In the instant case, there is no dispute that the date of default is 30.09.2014 and the Application under Section 7 of the Code was filed on 25.04.2019. According to the Financial Creditor, Section 18 of the Limitation Act is applicable in view of the Corporate Debtor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of onetime settlement proposal. Sub-section (1) of Section 18 of the Limitation Act reads as under:

18. Effect of acknowledgement in writing. – (1) Where, before the expiration of the prescribed period for a suit or Application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.

23. It is no more res integra that Section 18 of the Limitation Act is applicable to applications filed under Section 7 of the Code. In case the Application under Section 7 is filed beyond the period of three years from the date of default and the financial creditor furnishes the required information relating to the acknowledgement of debt, in writing by the corporate debtor, before the Adjudicating Authority, with such acknowledgement having taken place within the initial period of three years from the date of default, a fresh period of limitation commences and the Application can be entertained, if filed within this extended period.

24. There is no dispute that the date of default in this case is 30.09.2014, as mentioned by the financial creditor in its Application under Section 7. A copy of the debit balance confirmation letter dated 07.04.2016 was filed along with the Application. As the Application was filed only on 25.04.2019, which is beyond a period of three years even after taking into account the debit balance confirmation letter dated 07.04.2016, the Application was barred by limitation. However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of this letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the NCLT was of the opinion that the Application was filed within the period of limitation. The said view was upheld by the NCLAT.

25. We have already held that the burden of prima facie proving occurrence of the default and that the Application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such Application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the Application under Section 7 of the Code. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the Application filed under Section 7 cannot come to the rescue of the Appellants in the facts of this case. It is clarified that the onus on the financial creditor, at the time of filing an application under Section 7, to prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. In the present case, if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the Application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and Application of Section 18 of the Limitation Act.”

(emphasis supplied)

5.10 In the instant case undisputedly, the account of the Corporate Debtor was classified Non-Performing Asset on 01 July 2015. The date of default, as mentioned in Section 7 petition, is 01 July 2015. On perusal of the statement of the account of Corporate Debtor, it appears that the amount of Rs.5,99,760/- was credited in the account of Corporate Debtor on 30 December 2015. The Appellant claims that this payment was made by a completely unrelated party, i.e. ‘Dynamic Extractors’. It is further stated that the said payment by ‘Dynamic Extractors’ was wrongfully made, and the Appellant returned it. The contention of the Appellant is unsupported by any evidence. However, it is unbelievable that an unrelated party will transfer such a vast amount of Rs.5,99,760/- in the loan account of Corporate Debtor. Moreover, there is no such document to show that  Appellant ever returned the said amount to the ‘Dynamic Extractors’.

5.11 Apart from the above, the Respondent Bank has filed the balance sheet as of 31March 2017, 31 March 2018 and 31 March 2019 showing the amount due and payable to the Respondent No.1 Bank, which is recorded under the heading long term borrowings (in respect of term loan) and short term borrowing (in respect of cash credit), which proves that on 31 March 2016. Term loan of Central Bank of India secured against hypothecation of the windmill is shown as Rs.83,61,600/- as of 31 March 2016, and short term borrowing (secured) from Central Bank of India is shown as Rs.20,47,65,214/-. In this statement, a note is also mentioned:

“Loan from Central Bank of India towards Packing Credit is secured against hypothecation of stock related to export and Cash Credit is secured against hypothecation of stock and book debts and equitable mortgage of personal residential property of director and factory land & building belonging to MOCIL.”

5.12 Based on the above discussion, we believe that the learned Adjudicating Authority has rightly admitted the Application filed under section 7 of the Insolvency and Bankruptcy Code 2016. The Appeal filed by the Appellant sans merit and deserves to be dismissed.

In fine, the company appeal (AT) (Insolvency) No. 623 of 2020 fails. No order as to costs.

 

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Tek Travels Private Limited Vs. Altius Travels Private Limited - Time provided for rectifying the defects in application under Section 9 (5) of the Code is directory in nature

NCLAT (19.04.2021) in Tek Travels Private Limited Vs. Altius Travels Private Limited  [Company Appeal (AT) (Insolvency) No. 172 of 2020] held that;

• It is pertinent to mention that this Appellate Tribunal has already taken the view that if the Adjudicating Authority finds any defect in the Application filed under Section 7 or 9 of the Code, then instead of rejecting the Application, the Applicant should be granted seven days' time to remove the defect.

• "we do not find any substance in the argument that as such general power of attorney was executed before coming into force of insolvency and bankruptcy code hence, the said chief manager did not have Authority. In our view, it is general power of attorney and not confined to any particular Act or Acts. We do not find any defect on this account with the application under section 7 of IBC."

• In case of Surendra Trading Co. v. Juggilal Kamlapat Jute Mills Co. Ltd., (2017) 16 SCC 143 : 2017 SCC OnLine SC 1208 : (2018) 2 SCC (Civ) 730 at page 149 Hon'ble Supreme Court of India has held that the time provided for rectifying the defection application under Section 9 (5) of the Code is directory in nature and in the given circumstances the tribunal can provide time more than 7 days to rectify the defect.

Excerpts of the Order;

This appeal emanates from the Order dated 13 December 2019 passed by the Adjudicating Authority in Company Petition (IB) No. 252/NCLT/AHM/2019, whereby the Application filed by Appellant under Section 9 of the I&B Code 2016 was rejected on the ground of maintainability for want of proper Authorisation, which is of the year 2013 when I&B Code 2016 was not in existence. The parties are represented by their original status in the Company Petition for the sake of convenience.

# 4. The Appellant contends that the Adjudicating Authority should have granted the liberty to rectify the defects if any. However, the Learned Adjudicating Authority failed to provide an opportunity of being heard to the Appellant either on account of principles of natural justice or account of non-compliance of the proviso to Section 9(5) (ii)(a) of the Code.

Respondent's Contention

# 5. The Respondent/Corporate Debtor contends that the Application filed by the Operational Creditor under Section 9 of the Code is based on a Board Resolution passed by the Appellant Company in the year 2013, which limits itself to recovery proceedings on behalf of the Appellant. The Authorisation contemplated under the Insolvency and Bankruptcy Code could only be of the post-enactment of the Code.

# 6. It is stated that the Appellant was not at all entitled to be granted seven days under the proviso to Section 9(5) (ii) (a) of the Code to rectify the defects in the Application concerning the issue of Authorisation. The proper and specific Authorisation forms the basis of entire proceedings under the Code. Since Authorisation goes to the root of the matter, the same cannot be treated as a 'curable defect' that can be rectified within seven days. An incomplete or improper authorisation vitiates the entire proceedings at the inception itself. The period provided under the proviso to Section 9(5) (ii) for curing a defect is only concerning the sufficient details of the Company and about mistakes in the Application filed under Section 9 of the Code. An invalid authorisation vitiates the very foundation of Application and cannot be cured in Section 9 (5) (ii) of the Code.

Discussions and Finding:

# 8. The Adjudicating Authority has rejected the Application only on maintainability ground without deciding the Application on merit. The question that arises for our consideration is as follows;

• 1. Whether Authorisation for filing a petition under Section 9 of the Code before the commencement of the Code can be treated as a valid authorisation?

• 2. Whether Adjudicating Authority instead of dismissal of the Petition should have given the opportunity to rectify the defects as per proviso to Section 9 (5) (ii)(a) of the Code?

Issue No's 1 and 2;

# 10. The Learned Counsel for the Appellant has placed reliance on the decision of this Tribunal in the case of Ramesh Murji Patel v Aramex India Pvt Ltd. Company Appeal (AT) (Ins)No 1447 of 2019 wherein it is held that; 'authorisation letter, even if, issued prior to the enactment of I&B Code can be looked into for the purpose of entertaining an Application under Section 7 or 9 of the Code".

# 11. The Learned Counsel for the Appellant also placed reliance on the judgement of this Tribunal in case of Palogics Infrastructure Private Limited v ICICI Bank, Company Appeal (AT) (Ins) No 30 of 2017 wherein it is held that;

• "36. In so far as, the present case is concerned, the 'Financial Creditor'-Bank has pleaded that by Board's Resolutions dated 30th May, 2002 and 30th October, 2009, the Bank authorised its officers to do needful in the legal proceedings by and against the Bank. If general Authorisation is made by any 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant' in favour of its officers to do needful in legal proceedings by and against the 'Financial Creditor' / 'Operational Creditor'! 'Corporate Applicant', mere use of word 'Power of. Attorney' while delegating such power will not take away the Authority of such officer and 'for all purposes it is to be treated as an 'authorisation' by the 'Financial Creditor'! 'Operational Creditor'! 'Corporate Applicant' in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the 'Authorized Representative' for the purpose of filing any application under section 7 or Section 9 or Section 10 of 'I&B Code'.

• 37. As per Entry 5 & 6 (Part I) of Form No. 1, 'Authorized Representative' is required to write his name and address and position in relation to the 'Financial Creditor'/Bank. If there is any defect, in such case, an application under section 7 cannot be rejected and the applicant is to be granted seven days' time to produce the Board Resolution and remove the defect."                 

 (verbatim copy)

# 12. It is pertinent to mention that this Appellate Tribunal has already taken the view that if the Adjudicating Authority finds any defect in the Application filed under Section 7 or 9 of the Code, then instead of rejecting the Application, the Applicant should be granted seven days' time to remove the defect.

# 13. Further, in case of Rajendra Narottamdas Sheth v Smt Heenaben Rajendra Kumar Sheth Company Appeal (AT) (insolvency) No 621 of 2020 this Appellate Tribunal has held that;

• "we do not find any substance in the argument that as such general power of attorney was executed before coming into force of insolvency and bankruptcy code hence, the said chief manager did not have Authority. In our view, it is general power of attorney and not confined to any particular Act or Acts. We do not find any defect on this account with the application under section 7 of IBC."

(Emphasis supplied, verbatim copy)

# 14. In the case of Ramesh Murji Patel(supra) and Rajendra Narottamdas Sheth (supra), this Appellate Tribunal has already taken the view that if Authorisation is prior to the enactment of the Code, then it can not be treated as a defect in the Application and 'authorisation letter, even if, issued prior to the enactment of I&B Code can be looked into for the purpose of entertaining an Application under Section 7 or 9 of the Code.

# 15. In order to ascertain the mandatory conditions of Section 9(5)(ii)(a) of the Code, it is necessary to go through the statutory provision of the Code.

# 16. Thus it is clear that if Applications filed under Section 9 of the Code is found incomplete, then Adjudicating Authority in compliance of proviso to Section 9 (5) (ii)(a) of the Code is obliged to issue notice on the applicant and provide an opportunity to rectify that the defects within seven days, failing which petition can be rejected.

# 17. In the instant case, the Adjudicating Authority noticed that the Authorisation was much before the commencement of the I&B Code, and only on this basis, the Application under Section 9 of the Code was rejected without allowing the applicant to rectify the mistakes, is against the statutory provision of the Code.

# 20. It is pertinent to mention that the Insolvency and Bankruptcy Code is a self-contained Code. It has made provision for providing an opportunity to rectify the defects of application, and in any position, it can not be denied.

# 21. In case of Surendra Trading Co. v. Juggilal Kamlapat Jute Mills Co. Ltd., (2017) 16 SCC 143 : 2017 SCC OnLine SC 1208 : (2018) 2 SCC (Civ) 730 at page 149 Hon'ble Supreme Court of India has held that the time provided for rectifying the defection application under Section 9 (5) of the Code is directory in nature and in the given circumstances the tribunal can provide time more than 7 days to rectify the defect. Hon'ble Supreme Court has held that; 

• 6. Sub-section (5) of Section 9, thus, stipulates two time periods. Insofar as the adjudicating Authority is concerned, it has to take a decision to either admit or reject the application within the period of fourteen days. Insofar as defects in the application are concerned, the adjudicating Authority has to give a notice to the applicant to rectify the defects before rejecting the application on that ground and seven days' period is given to the applicant to remove the defects. 

• 22. Let us examine the question from another lens. The moot question would be as to whether such a rejection would be treated as rejecting the application on merits thereby debarring the applicant from filing fresh application or it is to be treated as an administrative order since the rejection was because of the reason that defects were not removed and application was not examined on merits. In the former case it would be travesty of justice that even if the case of the applicant on merits is very strong, the applicant is shown the door without adjudication of his application on merits. If the latter alternative is accepted, then rejection of the application in the first instance is not going to serve any purpose as the applicant would be permitted to file fresh application, complete in all aspects, which would have to be entertained. Thus, in either case, no purpose is served by treating the aforesaid provision as mandatory.

• 23.2. When the application is listed before the adjudicating Authority, it has to take a decision to either admit or reject the application. For this purpose, fourteen days' time is granted to the adjudicating Authority. If the application is rejected, the matter is given a quietus at that level itself. However, if it is admitted, we enter the third stage.

• 24. Further, we are of the view that the judgments cited by 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 the 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. 

• 25. 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. 

• 28. In fine, these appeals are allowed and that part of the impugned judgment of NCLAT which holds the proviso to sub-section (5) of Section 7 or the proviso to sub-section (5) of Section 9 or the proviso to sub-section (4) of Section 10 to remove the defects within seven days as mandatory and on failure, applications to be rejected, is set aside. No costs.”

# 22. In the instant case, we find that the Adjudicating Authority has dismissed the Petition for want of proper Authorisation. However, the Adjudicating Authority has not considered providing an opportunity to the Applicant to rectify the defects. In contrast, proviso to Section 9(5)(ii)(a) of the Code makes it mandatory to provide an opportunity to the applicant for rectifying the defects of the application. In the circumstances stated above, we are of the considered opinion that the Adjudicating Authority has erred in dismissing the Application for want of Authorisation, without even providing an opportunity to rectify the defects in compliance with Section 9(5)(ii)(a) of the Code.

# 23. In fine, the Appeal is allowed, and impugned Order is set aside. No Order as to Costs. The Adjudicating Authority is directed to decide the application afresh at the earliest in the light of the directions above.

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Palogix Infrastructure Private Limited Appellant Vs. ICICI Bank Limited - 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.

NCLAT (20.09.2017) in Palogix Infrastructure Private Limited Appellant Vs. ICICI Bank Limited  [CP (Company Appeal) (AT) (InsoL) No. 30, 37 & 54 of 2017] held that;

• that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf (Enclose Authorisation)".

• This apart, we accept the stand taken by the 'Financial Creditor' that for the purpose of counting the period of seven days, apart from the date of receipt of the order for removal of defects, the holidays such as Saturdays, Sundays and other holidays of the Tribunal to be excluded.

• Therefore, we hold that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.

• if an officer, such as senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a  proceeding for 'Corporate Insolvency Resolution Process' against the  person who have taken loan, in such case the 'Corporate Debtor' cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate 'Corporate Insolvency Resolution Process', in spite of default of debt.

• If a plea is taken by the authorised officer that he was authorised to sanction loan and had done so, the application under section 7 cannot be rejected on the ground that no separate specific authorization letter has been issued by the 'Financial Creditor' in favour of such officer designate.

Excerpts of the Order;

ICICI Bank Limited (Financial Creditor) filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") for initiation of 'Corporate Insolvency Resolution Process' against 'Palogix Infrastructure Private Limited'- (Corporate Debtor). 

# 2. The case was heard by a Division Bench of the Adjudicating Authority which having noticed that the 'Financial Creditor' preferred the application under section 7 through Power of Attorney Holder, passed two separate orders, one holding the application through Power of Attorney is not maintainable (Member Judicial) and the other (Member Technical) held that the application was maintainable as the Power of Attorney was given in favour of the Legal Manager to initiate proceedings before the National Company Law Tribunal which is the Adjudicating Authority under 'I&B Code'.

# 3. The case was referred to the Hon'ble President, National Company Law Tribunal exercising power under sub Section (5) of Section 419 of the Companies Act, 2013 for constituting a larger Bench for decision on the following questions: -

• "Whether The Constituted Attorney authorised on 20/10/2014 to file suits and/or proceedings against the company for recovery of the amount and also to affirms plaints cum affidavits and other pleadings in any court of India including NCLT can file application for initiation of corporate insolvency process under Section 7 of the Insolvency and Bankruptcy Code 2016 without having specifically authorized to lodge Application/Petitionunder IBC 2016 ?"

# 4. By majority judgment, the Adjudicating Authority held that for initiation of 'Corporate Insolvency Resolution Process', there should be specific authorization to the Power of Attorney Holder to initiate the 'Corporate Insolvency Resolution Process'. The 'Financial Creditor'- ICICI Bank having not filed specific authorization to initiate 'Corporate Insolvency Resolution Process', was directed by the order dated 12th April, 2017 to rectify the defects. The said order has been challenged by the 'Corporate Debtor' in Company Appeal (AT) (Insolvency) No. 30 of 2017.

# 5. The 'Financial Creditor' has also challenged the said order dated 12th April, 2017 in Company Appeal (AT) (Insolvency) No. 37 of 2017 on the ground that no specific authorisation required for initiation of 'Corporate Insolvency Resolution Process'.

# 6. By subsequent order dated 16th May, 2017, the Adjudicating Authority admitted the application on removal of defects; ordered Moratorium and appointed 'Interim Resolution Professional' who has been directed to convene a meeting of the Committee of Creditors in accordance with 'I&B Code'. The said order has been challenged by 'Corporate Debtor'- Palogix Infrastructure Private Limited in Company Appeal (AT) (Insolvency) No.54 of 2017.

The stand of the 'Financial Creditor'- ICICI Bank

# 7. According to 'Financial Creditor', the 'Corporate Debtor' has not disputed the existence of the debt and default on their part. They are opposing the matter on technical ground, which is incorrect and in any case if there was a defect it has been removed.

# 8. Learned Counsel appearing on behalf of the 'Financial Creditor'- ICICI Bank referred to Section 7 of the 'I&B Code' and Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as "Adjudicating Authority Rules") and submitted that the 'form and manner' in which an application under section 7 of the 'I&B Code' is to be filed by a 'Financial Creditor' is provided in 'Form-1' of 'Adjudicating Authority Rules'.

# 9. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the 'I&B Code' and the 'Adjudicating Authority Rules' recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf (Enclose Authorisation)".

# 10. The signature block of the aforementioned Form-1 also provides for the authorised person's detail is to be inserted and also includes inter alia the position of the authorised person in relation to the 'Financial Creditor'. Thus, it is clear that an authorised person of the 'Financial Creditor' can make an application under Section 7 of the 'I&B Code'.

# 14. Learned Counsel for the appellant relied on Order III of the Code of Civil Procedure, 1908 which provides for recognized agents and pleaders, but such submission cannot be accepted as the Code of Civil Procedure is not applicable for filing application under 'I&B Code'.

# 15. Section 179 of Companies Act, 2013 empowers the Board of Directors to do all such acts that a company is authorised to do. A company being a juristic person is capable of initiating and defending legal proceedings and, therefore, the Board of Directors is empowered to exercise such rights on behalf of the Company or may duly empower 'Authorised Representative' to do so on its behalf.

# 16. Thereby the person authorised by the Board of Directors is duly empowered to initiate or defend any legal proceedings by or against the 'Financial Creditor'! Corporate Debtor' in any Court of law including the matters relating to Insolvency and Bankruptcy proceedings. Thereby, the Board of Directors of a Bank are empowered to delegate powers to any of its officer.

# 17. The question arises whether the 'Power of Attorney Holder' given power of attorney prior to enactment of 'I&B Code', is entitled to file an application under Section 7 or 9 or 10 of the 'I&B Code'?

# 19. Reliance has been placed on Hon'ble Supreme Court's decision in "A. C. Narayanan vs. State of Maharashtra (2014) 11 SCC 790" wherein the Hon'ble Supreme Court held:

• "28. The power:of attorney holder is the agent of the grantor. When the grantor ,authorises the attorney holder to initiate legal proceedings and the attorney holder accordingly initiates such legal proceedings, he does so as the agent of the grantor and the initiation is by the grantor represented by his attorney holder in his personal capacity..."

# 20. According to Learned Counsel for the 'Corporate Debtor', the application under Section 7 of the 'I&B Code' if signed and filed by a 'General Power of Attorney Holder' without specific authorization is not maintainable. According to him, the procedure prescribed requires specific authorization such as:

• (i) The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Rules 4 & 10) incorporate by reference procedure prescribed under Rule 23 and 26 of the National Company Law Tribunal Rules 2016.

• (ii) Rule 23 read with Rule 26 of the National Company LawTribunal Rules, 2016 requires petition/ application to be signed and verified by 'Authorized Representative' of the petitioner.

# 21. According to the 'Corporate Debtor' the 'Authorization' in the case of a company would mean a specific authorization by the Board of Directors of the company by passing a resolution. The reliance has been placed on the Hon'ble Supreme Court's decision in "State Bank of Travancore vs. Kingston Computers India Fyi. Ltd. (2011) 11 SCC 524".

# 22. Therefore, according to the 'Corporate Debtor', an application under section 7 of the 'I&B Code' in absence of any supporting affidavit verifying the petition is not maintainable. It was also contended that  prerequisites under the 'I&B Code' are mandatory and it should be strictly construed and barring specific Power of Attorney, no application can be entertained.

# 23. Learned counsel for the 'Corporate Debtor' submitted that a Power of Attorney is an authorization by a 'principal' to its 'agent' to do an act. A fortiori, such authorisation can only be of acts which are in the contemplation and knowledge of the 'principal' as on the date when such authorisation is given. If the 'principal' itself is unaware of an eventuality, it cannot authorize its agent for such eventuality. This is more so when 'I&B Code' sets in motion a very serious and irreversible process, therefore, according to the 'Corporate Debtor', the procedural prerequisites under the 'I&B Code' must be strictly construed.

# 27. The seven days for rectification of defects is to be counted not from the date of the order passed by the Adjudicating Authority but from the date of "receipt of such notice from the Adjudicating Authority to rectify the defects in the application." The 'Corporate Debtor', though raised objection that the defects were not removed within seven days, but not given the date on which the notice for correction of defect was served by the Adjudicating Authority on the 'Financial Creditor'-ICICI Bank. In absence of such specific pleadings stand taken by the 'Corporate Debtor' that objection that defect was not removed within seven days cannot be accepted. This apart, we accept the stand taken by the 'Financial Creditor' that for the purpose of counting the period of seven days, apart from the date of receipt of the order for removal of defects, the holidays such as Saturdays, Sundays and other holidays of the Tribunal to be excluded.

# 31. As per Section 7 of the 'I&B Code' an application for initiation of 'Corporate Insolvency Resolution Process' requires to be filed by 'Financial Creditor' itself. The form and manner in which an application under section 7 of the 'I&B Code' is to be filed by a 'Financial Creditor' is provided in 'Form-1' of the Adjudicating Authority Rules. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the 'I&B Code' and the Adjudicating Authority Rules recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf. The authorization letter is to be enclosed. The signature block of the aforementioned Form 1 also provides for the authorised person's detail is to be inserted and also includes inter alia the position of the authorised person in relation to the 'Financial Creditor'. Thus, it is clear that only an "authorised person" as distinct from "Power of Attorney Holder" can make an application under section 7 and required to state his position in relation to "Financial Creditor".

# 33. Therefore, we hold that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.

# 38. This apart, if an officer, such as senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a  proceeding for 'Corporate Insolvency Resolution Process' against the  person who have taken loan, in such case the 'Corporate Debtor' cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate 'Corporate Insolvency Resolution Process', in spite of default of debt.

# 39. If a plea is taken by the authorised officer that he was authorised to sanction loan and had done so, the application under section 7 cannot be rejected on the ground that no separate specific authorization letter has been issued by the 'Financial Creditor' in favour of such officer designate.

# 40. In view of reasons as recorded above, while we hold that a 'Power of Attorney Holder' is not empowered to file application under section 7 of the 'I&B Code', we further hold that an authorised person has power to do so.

# 41. For the reasons aforesaid, we find no ground to interfere with the impugned order(s). All the appeals are dismissed, the order of admission of application under section 7 is affirmed.

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