2021 (1) TMI 447 - AT - Insolvency and Bankruptcy

Tribunal overturns order, allows fresh action under IBC Sections 8(1) and 9.

The Tribunal allowed the appeal, setting aside the impugned order and declaring all subsequent actions taken by the Adjudicating Authority as illegal. The ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt ad dispute or not - service of demand notice - Appellant submits that in the instant case no Demand Notice was ever served on the ‘Corporate Debtor’ / Second Respondent as per section 8 of the ‘I&B’ Code - allegation that the said Demand Notice was knowingly addressed to the wrong address of the ‘Corporate Debtor’ by the First Respondent - HELD THAT:- An ‘Operational Creditor’ shall deliver to the ‘Corporate Debtor’ a Demand Notice in Form-3 or a copy of an invoice attached with a notice in Form-4 as per Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Demand Notice or the copy of the invoice demanding payment referred to in sub-section 2 of section 8 of the code may be delivered to the ‘Corporate Debtor’ at the registered office by hand, registered post or speed post with acknowledgement due or by electronic mail service to a whole time Director or designated partner or key managerial personnel, if any, of the ‘Corporate Debtor’. Besides these, a copy of Demand Notice of invoice demanding payment shall also be filed with an information utility. Be it noted, that only if a ‘Demand Notice’ / Invoice demanding payment under the code is issued, the ‘Corporate Debtor’ will appreciate in right earnest the consequences flowing on account of failure to pay the ‘operational debt’. Also, that, after transfer of the case from Hon’ble High Court to the Tribunal (in respect of the winding up petition) an ‘Operational Creditor’ is required to submit all information including the details of the proposed Insolvency professional - An application filed u/s 9 of the ‘I&B’ Code, 2016 without serving notice u/s 8 of the code is not maintainable. Indeed, a mere failure to serve the ‘Demand Notice’ is not a curable defect. A ‘Bankruptcy’ notice sets in motion the entire process leading to ‘Bankruptcy’ and it is to be rigidly and narrowly construed. Thus, serving of ‘Demand Notice’ together with the ‘Rejoinder’ filed by the First Respondent/’Operational Creditor’ before the ‘Adjudicating Authority’ is not the requirement of ‘Law’ - It cannot be lost sight off that the amount shown in ‘Bank Certificate’ is proof of the ‘Dues’. Waiver / Approbation and Reprobation - HELD THAT:- In the instant case the Adjudicating Authority while passing the impugned order had admitted the application without there being service of demand notice to the Second Respondent / ‘Corporate Debtor’ which is admitted by the First Respondent/Operational Creditor in its ‘Reply’ filed before this Tribunal and a plea of the registered address of the Second Respondent / Corporate Debtor being changed by the debtor Company will not hold water for the failure of the First Respondent / Operational Creditor to send a notice u/s 8 of the Code. In this regard, even the Adjudicating Authority in the impugned order at paragraph 5(i) had mentioned that the ‘Operational Creditor’ had stated in para 8 of its ‘Rejoinder’ that the ‘Demand Notice’ was returned unserved and that the said Authority had not adverted to about the aspect of sufficiency of service of ‘Demand Notice’ to the Second Respondent / Corporate Debtor which is mandatory as per Section 8 of the code and as such it is held by this Tribunal that the impugned order is not a valid one in the eye of Law - It cannot be forgotten that the proceedings under section 138 of NI Act, 1881 pertain to criminal liability for dishonour of cheques issued and do not bar an application u/s 9 of the code as opined by this Tribunal. Likewise, the pendency of proceedings under Or.37 of the Civil Procedure Code will not prohibit an application under Section 9 of the Code. Even though on behalf of the First Respondent it is contended that the Second Respondent/Corporate Debtor had mentioned that they will be making payment all outstanding amount of ₹ 79,76,937/- as per letter of the Second Respondent dated 08.07.2014 against the purchase and the same being an admission of the debt, this Tribunal is of the considered view that since the ‘Service of notice’ at the registered address of the ‘Corporate Debtor’ was not established to the subjective satisfaction of this Tribunal and the admitted fact being that the notice sent to the Second Respondent at its registered office got returned, the said admission of debt and the reference made to the NI Act, 1881 in regard to the presumption that a ‘Holder of Cheque’ received the cheque for the discharge either in whole or in part of any debt or other liability will not in any way heighten or improve the case of Appellant any further. Thus in the instant case Section 8 notice under ‘I&B’ Code was not served upon the Second Respondent / Corporate Debtor and admittedly the same got returned as mentioned Supra, this Tribunal comes to a consequent conclusion that the impugned order dated 01.01.2020 passed by the Adjudicating Authority in admitting the petition is not legally tenable and the same is accordingly set aside by this Tribunal to secure the ends of justice. As a logical corollary, this Tribunal declares illegal the order passed by the ‘Adjudicating Authority’ in appointing the ‘Interim Resolution Professional’, declaring moratorium and all other orders passed by the ‘Adjudicating Authority’ pursuant to the impugned order and action, if any, taken by the ‘’Interim Resolution Professional’ (including the advertisement, if any, published in the newspaper calling for applications and all such orders) and that the petition/application filed by the First Respondent is dismissed as abated. The Adjudicating Authority is required to close the CIRP proceeding. Appeal allowed. Issues Involved:1. Demand Notice Service Compliance2. Pre-existing Dispute3. Transfer of Winding Up Petition4. Admission of Corporate Insolvency Resolution Process (CIRP)Detailed Analysis:1. Demand Notice Service Compliance:The primary contention of the Appellant was that no Demand Notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) was served on the Corporate Debtor before filing the petition. The notice was sent to an incorrect address, not the registered office as per the Ministry of Corporate Affairs (MCA) website. The Tribunal noted that the Demand Notice dated 25.09.2017 was indeed sent to an incorrect address and returned unserved. The Tribunal emphasized the mandatory nature of serving a Demand Notice under Section 8 of the IBC and concluded that the failure to serve a Demand Notice rendered the petition incomplete and non-maintainable.2. Pre-existing Dispute:The Appellant argued that there was a pre-existing dispute concerning the quality of goods supplied, which was acknowledged by the First Respondent in an email dated 19.01.2014. The Tribunal observed that the existence of a dispute must be prior to the receipt of the Demand Notice and must be genuine. However, since the Demand Notice was not properly served, this issue was secondary to the primary issue of notice compliance.3. Transfer of Winding Up Petition:The Appellant contended that the First Respondent did not comply with Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, which required submission of all necessary information for admission under Sections 7, 8, or 9 of the IBC. The Tribunal noted that the First Respondent claimed that a fresh Demand Notice was not required as the statutory notice under Section 433 of the Companies Act was part of the transferred records. However, the Tribunal held that compliance with Section 8 of the IBC was mandatory, and the failure to serve a proper Demand Notice could not be overlooked.4. Admission of Corporate Insolvency Resolution Process (CIRP):The Tribunal found that the Adjudicating Authority admitted the application without ensuring that a Demand Notice was served on the Corporate Debtor, which was a mandatory requirement under Section 8 of the IBC. The Tribunal concluded that the impugned order dated 01.01.2020 was not legally tenable and set it aside. The Tribunal declared all subsequent actions, including the appointment of the Interim Resolution Professional (IRP) and the moratorium, as illegal and directed the closure of the CIRP proceedings.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order and declaring all subsequent actions taken by the Adjudicating Authority as illegal. The Tribunal granted liberty to the First Respondent to issue a fresh Demand Notice under Section 8(1) of the IBC and, if there is debt and default, to file a fresh application under Section 9 of the IBC before the Adjudicating Authority. The Tribunal directed the Adjudicating Authority to determine any fresh application on merits, uninfluenced by the observations made in this appeal.