Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674, is a landmark Supreme Court judgment that clarified the rights of operational creditors under the Insolvency and Bankruptcy Code, 2016. Decided on 15 December 2017 by Justice R.F. Nariman and Justice Navin Sinha, the Court held that a demand notice under Section 8 can be validly issued by a lawyer on behalf of the operational creditor, and that the certificate from a financial institution under Section 9(3)(c) is not mandatory. This case is essential for SEBI Grade A and RBI Grade B examinations.
Case snapshot
| Field | Details |
|---|---|
| Case name | Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. |
| Citation | (2018) 2 SCC 674 |
| Court | Supreme Court of India |
| Bench | Justice R.F. Nariman, Justice Navin Sinha |
| Date of judgment | 15 December 2017 |
| Subject | IBC — Operational creditor's right to initiate CIRP |
| Key principle | Demand notice by lawyer is valid; Section 9(3)(c) certificate is not mandatory |
Facts of the case
Hamera International Pvt. Ltd. entered into a supply agreement with Shilpi Cable Technologies Ltd. for the supply of goods worth US $6,321,337.11. Hamera subsequently assigned its rights under the supply agreement to Macquarie Bank Ltd., Singapore, by an assignment agreement dated 27 July 2015. When Shilpi Cable failed to make payment within the agreed 150-day period despite several reminders, Macquarie Bank's lawyers issued a demand notice under Section 8 of the IBC. Shilpi Cable raised two objections: first, that the demand notice issued by a lawyer (not by the operational creditor itself) was invalid; and second, that the application under Section 9 was defective because it did not contain a certificate from a financial institution confirming the debt as required under Section 9(3)(c).
Issues before the court
- Whether a demand notice of an unpaid operational debt under Section 8 of the IBC can be validly issued by a lawyer on behalf of the operational creditor?
- Whether the certificate from a financial institution under Section 9(3)(c) of the IBC is mandatory for an operational creditor's application?
- Whether an assignee of the original supplier qualifies as an operational creditor?
What the court held
Demand notice by a lawyer is valid — The Court held that reading Section 30 of the Advocates Act, 1961 together with Sections 8 and 9 of the IBC, a demand notice issued by a lawyer on behalf of the operational creditor is valid and proper. The Advocates Act empowers lawyers to act on behalf of their clients in all legal proceedings and matters. There is nothing in the IBC that requires the demand notice to be issued only by the operational creditor in person.
Section 9(3)(c) certificate is not mandatory — The Court held that while the certificate from a financial institution is an important piece of evidence regarding the existence of the operational debt, it is not mandatory. The certificate is one among several modes of proving the debt. The operational creditor can prove the debt through other documentary evidence such as invoices, contracts, and correspondence.
Assignee qualifies as operational creditor — The Court accepted that Macquarie Bank, as the assignee of the original supplier's rights under the supply agreement, stood in the shoes of the operational creditor and could validly initiate CIRP proceedings under Section 9.
"A notice sent on behalf of an operational creditor by a lawyer would be in order." — Justice R.F. Nariman
Key legal principles
Operational creditor's right under Section 9
An operational creditor is defined under Section 5(20) of the IBC as a person to whom an operational debt is owed. Section 5(21) defines operational debt as a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law. The judgment affirmed that operational creditors have full standing to initiate CIRP proceedings under Section 9, and that procedural requirements should be interpreted liberally to facilitate access to the insolvency framework.
Harmonious construction of IBC and Advocates Act
The Court applied the principle of harmonious construction to read Section 30 of the Advocates Act (which empowers advocates to practice in all courts and tribunals) together with Sections 8 and 9 of the IBC. A demand notice is an essential precondition to filing a Section 9 application, and restricting it to personal issuance by the creditor would be an unnecessary impediment to the insolvency process.
Evidentiary flexibility in proving operational debt
By holding that the Section 9(3)(c) certificate is directory rather than mandatory, the Court introduced evidentiary flexibility. An operational creditor can prove the existence of the operational debt through purchase orders, invoices, supply contracts, delivery receipts, acknowledgments of debt, and correspondence. This is particularly important for foreign operational creditors who may not have a relationship with Indian financial institutions.
Significance
This judgment is significant because it removed two procedural hurdles that could have been used by corporate debtors to defeat operational creditors' CIRP applications on technical grounds. Before this judgment, there was uncertainty about whether a lawyer's notice would suffice and whether the bank certificate was mandatory. By resolving both questions in favour of the operational creditor, the Court ensured that the IBC's objective of providing a level playing field between financial and operational creditors (at the admission stage) was not undermined by procedural technicalities. The judgment also facilitated participation by foreign operational creditors in Indian insolvency proceedings.
Exam angle
This case is essential for SEBI Grade A / RBI Grade B and important for Judiciary Mains.
- MCQ format: "Under Section 5(20) of the IBC, an operational creditor is a person to whom (a) a financial debt is owed (b) an operational debt is owed (c) a secured debt is owed (d) an unsecured debt is owed" — Answer: (b) an operational debt is owed
- Descriptive format: "Discuss the rights of operational creditors under the IBC with reference to Macquarie Bank v. Shilpi Cable Technologies. Is the Section 9(3)(c) certificate mandatory?" (Judiciary Mains / SEBI Grade A)
- Key facts to memorize: Two-judge bench (Nariman and Sinha JJ.), 15 December 2017, foreign operational creditor (Singapore), supply of goods worth US $6.3 million, demand notice by lawyer held valid
- Related provisions: Section 8 (demand notice), Section 9 (application by operational creditor), Section 5(20) (definition of operational creditor), Section 5(21) (definition of operational debt)
- Follow-up cases: Mobilox Innovations v. Kirusa Software (2018) — pre-existing dispute as defence to Section 9 application
Frequently asked questions
What is the difference between a financial creditor and an operational creditor under the IBC?
A financial creditor under Section 5(7) of the IBC is a person to whom a financial debt is owed — this includes banks, financial institutions, and debenture holders who have advanced money with a commercial effect of borrowing. An operational creditor under Section 5(20) is a person to whom an operational debt is owed — this includes suppliers of goods or services, employees, and government authorities to whom statutory dues are payable.
Can a demand notice under Section 8 be sent by email?
Yes. The IBC and the IBBI Rules contemplate service of demand notice by electronic means. The demand notice must be in the prescribed form (Form 3 or Form 4) and must be delivered at the registered office or to the authorized person. After Macquarie Bank v. Shilpi Cable, a lawyer can issue this notice on behalf of the operational creditor.
What happens if the corporate debtor disputes the operational debt?
If the corporate debtor raises a genuine pre-existing dispute regarding the operational debt, the NCLT must reject the Section 9 application. The Supreme Court in Mobilox Innovations v. Kirusa Software (2018) 1 SCC 353 held that the dispute must be genuine and not spurious, hypothetical, or illusory. The existence of a pre-existing dispute is the primary defence available to corporate debtors against Section 9 applications.
Can a foreign company be an operational creditor?
Yes. The Supreme Court in Macquarie Bank accepted that a Singapore-based bank, as the assignee of an Indian supplier's rights, could qualify as an operational creditor. There is no nationality restriction on operational creditors under the IBC, provided the operational debt (supply of goods or services) has an Indian nexus.