Petition Dismissed: Failure to Serve Demand Notice under Insolvency Code Section 8

The Adjudicating Authority dismissed the petition filed by the operational creditor against the Corporate Debtor for non-payment of invoices due to failure in delivering the mandatory demand notice as required under Section 8 of the Insolvency and Bankruptcy Code, 2016. The Applicant was directed to ensure proper delivery of the notice before initiating a fresh case, emphasizing strict adherence to procedural requirements for initiating insolvency proceedings to safeguard the interests of all parties involved.

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Issues:
Initiation of Corporate Insolvency Resolution Process under Section 9 of Insolvency and Bankruptcy Code, 2016 based on non-payment of invoices by the Corporate Debtor.

Analysis:
The Applicant, an operational creditor, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor for non-payment of invoices totaling Rs. 39,69,803/- since 30.05.2018, with accrued interest, making the total amount due Rs. 43,54,878/- as of 31.12.2018. The Applicant sent a notice on 31.01.2019, but the Corporate Debtor only made a partial payment of Rs. 4 lakhs on 08.04.2019. The key issue before the Adjudicating Authority was the compliance of the notice sent by the operational creditor as per Section 8 of the IBC, 2016 and Rule 5 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Adjudicating Authority found that the notice sent by the operational creditor was not delivered to the Corporate Debtor as required under Section 8 of IBC, 2016. The Applicant claimed to have sent the notice via email, but the tracking report showed it was not delivered due to an insufficient address. The Authority highlighted the mandatory requirement of delivering the demand notice under Rule 5 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Adjudicating Authority differentiated between the procedures for Financial Creditors under Section 7 and Operational Creditors under Section 9 of the IBC. It emphasized the importance of delivering a demand notice to the Corporate Debtor before initiating Corporate Insolvency Resolution Process, as prescribed under Section 8 of the IBC. The Authority clarified the intention behind the provision was to allow the Corporate Debtor an opportunity to raise a dispute or negotiate with the operational creditor.

Ultimately, the Adjudicating Authority dismissed the current petition as the Applicant failed to comply with the provisions of Section 8 read with Rule 5 of the Adjudicating Authority Rules. The Applicant was given the liberty to file a fresh case after ensuring proper delivery of the demand notice to the Corporate Debtor in accordance with the law. The judgment highlighted the significance of strict adherence to the procedural requirements for initiating insolvency proceedings under the IBC to protect the interests of all parties involved.

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