MAHARASHTRA NATIONAL LAW UNIVERSITY, AURANGABAD

MOOT COURT COMPETITION - 2019

[INTERNAL SELECTION ROUNDS]

1. AVENGER PVT. LTD., a private limited company, executed an agreement with THANOS
Bank, a foreign bank, on 02.02.2015 by which THANOS Bank purchased the original
supplier’s right, title and interest in a supply agreement in favour of HULK.

2. HULK entered into an agreement with the supplier on 05.05.2015 for supply of goods worth
US$5,00,000 in accordance with terms and conditions contained in the sale contracts. The
supplier issued three invoices dated 12.05.2015, 18.05.2015 and 23.05.2015. The payment
term under the said invoices was 90 days from the date of bills of lading dated 09.05.2015,
14.05.2015 and 21.05.2015.

3. Since the amounts under the said bills of lading were due for payment, THANOS Bank sent an
E-mail dated 27.08.2015 to HULK for payment of the outstanding amount. Thereafter, several
reminders were sent by THANOS Bank. The payments were not made by HULK in spite of
several reminders. Ultimately THANOS Bank issued a statutory notice on 28.01.2016 under
Sections 433 and 434 of the Companies Act, 1956. The reply dated 09.03.2016 was issued by
HULK denying any such liability.

4. After the enactment of the Insolvency and Bankruptcy Code, 2016 (the “Code”), THANOS
Bank issued a demand notice under Section 8 of the Code on 18.07.2016 at the registered
office of HULK calling upon it to pay the outstanding amount.1

5. HULK again denied the outstanding amount by reply dated 01.10.2017. HULK also
questioned the validity of the agreement dated 02.02.2015 in favour of THANOS Bank.

1 Insolvency and Bankruptcy Code, 2016.

Section 8. Insolvency resolution by operational creditor-
(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid
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.
6. THANOS Bank initiated insolvency proceedings under Section 9 of the Code before the
National Company Law Tribunal (the “NCLT”) on 12.10.2017. The NCLT, by its judgment
dated 08.05.2018, rejected the insolvency application holding that there is non-compliance of
the mandatory provision of Section 9(3)(c) of the Code requiring that the certificate specified
therein must accompany the application under Section 9 of the Code and, therefore, the
application must be dismissed at the threshold.2

2 Insolvency and Bankruptcy Code, 2016. Section 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 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;

(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 resolution professional 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.
7. NCLAT, by its judgment and order dated 28.05.2019, dismissed the appeal, agreeing with the
NCLT’s view that the application must be dismissed for non-compliance of the mandatory
provision contained in Section 9(3)(c) of the Code. The NCLAT further held that an Advocate
cannot issue a demand notice under Section 8 on behalf of the operational creditor.

8. Against the judgment of NCLAT, THANOS Bank has moved to file an appeal under Section
62 of the Code before the Supreme Court of India.3

9. THANOS Bank is of the view that Section 9(3)(c) of the Code is procedural in nature like
Section 9(5) and, therefore, is not mandatory. THANOS Bank also believes that a person
resident outside India also falls within the definition of “operational creditor” under Section
5(20) of the Code.4 THANOS Bank is further of the view that the demand notice envisaged
under Section 8 of the Code can be issued by an Advocate on behalf of the operational creditor.

10. HULK is of the view that, at the very outset, proceedings under the Code are invalid and
should be rendered inapplicable. HULK seeks to challenge the constitutional validity of the
scheme of the Code.

3 Section 62. Appeal to Supreme Court

(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an
appeal to the Supreme Court on a question of law arising out of such order under this Code
within forty-five days from the date of receipt of such order.

(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from
filing an appeal within forty-five days, allow the appeal to be filed within a further period not
exceeding fifteen days.
4 Section 5. Definitions —

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.