2021 (1) TMI 185 - AT - Insolvency and Bankruptcy

Tribunal overturns rejection of insolvency process application, emphasizing debtor's notice awareness. Reassessment directed under Section 9.

The Tribunal allowed the appeal, setting aside the rejection of the application seeking initiation of Corporate Insolvency Resolution Process against the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - delivery of demand notice - impugned order assailed primarily on the ground that the delivery of demand notice sent by the Appellant to Respondent-Corporate Debtor was refused by the Corporate Debtor - Appellant submits that refusal to accept demand notice would not amount to non-delivery of notice - HELD THAT:- An application under Section 9 of the ‘I&B Code’ can be filed by the Operational Creditor for initiation of CIRP only after expiry of period of 10 days from the date of delivery of notice contemplated under Section 8(1) of the ‘I&B Code’ which obligates upon the Operational Creditor to deliver a demand notice of unpaid operational dues upon the Corporate Debtor, once default occurs. The delivery of demand notice is intended to put the Corporate Debtor on notice so that in the event of there being a pre-existing dispute like in the form of a Civil Suit or arbitration proceedings pending in regard to the amount in respect whereof default is alleged to have been committed, the Corporate Debtor can bring such pre-existing dispute to the notice of the Operational Creditor. It is also aimed at providing the Corporate Debtor with an opportunity of clearing the liability in case he does not dispute the claim. It is by now well settled that delivery of demand notice in terms of Section 8(1) of the ‘I&B Code’ is a sine-quanon for initiation of CIRP at the instance of Operational Creditor who is entitled to file the application under Section 9 of the ‘I&B Code’ only after complying with the statutory requirements. In the instant case, the Appellant has been able to demonstrate that the Appellant issued the demand notice but the postal article was returned undelivered as the Corporate Debtor refused to accept delivery. In view of the material relied upon by the Appellant, which does not appear to have been projected before the Adjudicating Authority to demonstrate that it was not a case of non-issuance/non-delivery of mandatory statutory notice under Section 8(1) of the ‘I&B Code’ on the part of the Appellant- Operational Creditor but a case of refusal on the part of the Corporate Debtor to acknowledge the notice, the learned Adjudicating Authority has erred in arriving at a finding that the demand notice was not served on the Corporate Debtor as the same was returned unserved. Had the notice been returned unserved on account of the addressee being not available on the given address or the venue of addressee being non-existent or the delivery of notice being frustrated because of some reason other than that attributed to the Corporate Debtor, the fact of notice having been returned unserved would amount to non-delivery of notice but in a case like the present one where it is the Corporate Debtor who refused to accept delivery of notice, the Adjudicating Authority would not be justified in coming to conclusion that notice has not been served on the Corporate Debtor. The finding recorded by the Adjudicating Authority in regard to delivery of demand notice cannot be supported. The finding is erroneous, to say the least. The impugned order suffers from grave legal infirmity and is required to be set aside - matter remanded back to the Adjudicating Authority who may, after providing the Corporate Debtor an opportunity of settling the claim, pass an order of admission or otherwise of the application under Section 9 of the ‘I&B Code’ filed by the Appellant- Operational Creditor upon recording of satisfaction in regard to its completion and other legal requirements. Appeal allowed by way of remand. Issues Involved:Application of Section 9 of the Insolvency and Bankruptcy Code, 2016 - Rejection of Corporate Insolvency Resolution Process initiation - Refusal of demand notice delivery by Corporate Debtor - Legal implications and procedural errors in the Adjudicating Authority's decision.Analysis:The judgment involves an appeal against the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor. The Adjudicating Authority rejected the application on the grounds that the demand notice required under Section 8(1) of the Code was not served as it was returned unserved. The Appellant contended that the Corporate Debtor had refused to accept the delivery of the demand notice, which should not amount to non-delivery. The Appellant argued that the refusal indicated the Corporate Debtor's awareness of the notice's contents and an attempt to avoid legal consequences.The Tribunal examined the statutory requirements for initiating CIRP under the Code, emphasizing the importance of delivering the demand notice to the Corporate Debtor. The delivery of the notice serves the purpose of informing the Corporate Debtor about the default and provides an opportunity to address any pre-existing disputes. The Tribunal noted that the Appellant had indeed issued the demand notice, but it was returned undelivered due to the Corporate Debtor's refusal to accept it. The Tribunal reviewed the evidence presented, including the copies of the demand notice, speed post receipt, and the postal article bearing the endorsement of refusal.The Tribunal found that the Adjudicating Authority erred in concluding that the demand notice was not served based on it being returned unserved. In cases where the Corporate Debtor refuses to accept the notice, the Tribunal held that the notice should be considered served, as the Corporate Debtor's deliberate refusal indicates awareness of the notice's contents. The Tribunal emphasized that the fault lay with the Corporate Debtor for the refusal and not the Appellant, who had fulfilled the necessary steps for service. Consequently, the Tribunal set aside the impugned order and remanded the matter back to the Adjudicating Authority for further consideration.In conclusion, the Tribunal allowed the appeal, directing the Adjudicating Authority to reassess the application under Section 9 of the Code, providing the Corporate Debtor with an opportunity to settle the claim before making a decision on admission. The judgment highlighted the importance of proper service of statutory notices and clarified the legal implications of refusal by the Corporate Debtor in such cases.