2017 (11) TMI 486 - AT - Insolvency and Bankruptcy

Appeal Granted: Improper Notice by Law Firm Renders Insolvency Application Invalid

Smartcity (Kochi) Infrastructure Pvt. Ltd. Versus Synergy Property Development Services Private Limited and Another

The Appellate Tribunal allowed the appeal filed by M/s SmartCity (Kochi) Infrastructure Pvt. Ltd. against the order passed under section 9 of the ... Corporate insolvency procedure - Insolvency Bankruptcy process - validity of notice issued by the Law Firm ‘JUSTLAW’ on behalf of Respondents-‘Operational Creditor’ - existence of 'dispute', within the meaning of Section 8 read with sub-section (5) of Section 5 of I&B Code - Held that:- The notice has been issued by a Law Firm and there is nothing on the record to suggest that the said Law Firm has been authorised by the Board of Directors of the ‘Operational Creditor’- M/s. Synergy Property Development Services Pvt. Ltd. There is nothing on the record to suggest that any Lawyer or Law Firm hold any position with or in relation with the Respondents-‘Operational Creditor’. In view of the aforesaid facts and the decision of this Appellate Tribunal in “ M/s. Uttam Galva Steels Limited v. DF Deutsche Forfait AG & Anr [2017 (8) TMI 1198 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ]” we hold that the notice(s) issued by the Law Firm ‘JUSTLAW’ on behalf of Respondents-‘Operational Creditor’ cannot be treated as a notice under section 8 of the ‘I&B Code’ and for that the petition under section 9 at the instance of the Respondents against the appellant was not maintainable. From bare perusal of the record, it is clear that on 12th November, 2016, one Mr. Govindan Kutty M on behalf of the Appellant- ‘Corporate Debtor’ intimated the Respondent-‘Operational Creditor’ that the Respondent discontinued the service and abandoned the work.. Therefore, it is clear that much prior to the so-called notice under section 8 of the ‘I&B Code’, a dispute was raised by Appellant-‘Corporate Debtor’ regarding non-completion and abandoning of the work. In view of the aforesaid reasons and findings recorded above, we hold that the impugned order dated 9th June, 2017 is illegal and set aside the said order passed by Adjudicating Authority, Chennai Bench in CP/484 (IB)/CB/2017. Issues:Challenge to order under section 9 of the Insolvency and Bankruptcy Code, 2016 based on notice issuance and existence of dispute.Analysis:The appeal was filed by M/s SmartCity (Kochi) Infrastructure Pvt. Ltd. against an order passed by the Adjudicating Authority under section 9 of the Insolvency and Bankruptcy Code, 2016. The challenge was mainly on the grounds that the notice under section 8 was not issued by the Operational Creditor but by a Law Firm, which is not in accordance with the law. Additionally, it was argued that there was a dispute in existence, making the application under section 9 not maintainable.The Adjudicating Authority had entertained the application under section 9, admitted it, appointed an Interim Resolution Professional, and ordered a Moratorium. The appellant contested the validity of the notice issued, highlighting that it was not in the prescribed Form-3 or Form-4 as per the rules. The notice was issued by a Law Firm, not the Operational Creditor, which was deemed improper.The Appellate Tribunal referred to a previous judgment and emphasized that notices under section 8 must be issued by an authorized person in relation to the Operational Creditor and not by a Lawyer or Law Firm without proper authority. In this case, the notice was issued by a Law Firm without authorization from the Operational Creditor, rendering the application under section 9 not maintainable.Regarding the existence of a dispute, the Appellant had raised concerns about non-completion and abandonment of work prior to the notice under section 8. This indicated the presence of a dispute before the insolvency proceedings were initiated. Consequently, the impugned order was deemed illegal, and all related actions were set aside.The Appellate Tribunal directed the closure of the proceedings, released the appellant company from the legal constraints, and allowed it to function independently through its Board of Directors. The fees of the Interim Resolution Professional, if appointed, were to be fixed by the Adjudicating Authority, and the Respondent was directed to pay the fees for the period served. The appeal was allowed with no order as to costs.