2021 (2) TMI 15 - AT - Insolvency and Bankruptcy

Appellate Tribunal Upholds Order on Insolvency Application

The Appellate Tribunal upheld the impugned order admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016. It ruled that ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - service of demand - Demand Notice u/s 8 of the Code was not served on the Corporate Debtor - deemed delivery or not - Claim of the Applicant Operational Creditor was seriously disputed - HELD THAT:- Admittedly, the Demand Notices sent u/s 8 of the Code to the registered address, and functional address of the Corporate Debtor met with the remarks' addressee moved' and 'unclaimed' respectively. Unclaimed, will also have to be treated as Service of Notice. Again one set of Demand Notice was duly served upon one of the Directors of the Corporate Debtor. The legislative intent of issuance of Demand Notice under Section 8(1) is not a mere formality but a mandatory provision. Only after service of notice under Section 8(1) and on completion of 10 days, if payment towards the demand is not made, an Operational Creditor gets right to apply under Section 9 and not before such date. Upon perusal of the record, it is apparent that the Demand Notice was duly served on the functional address as well as Director of the Corporate Debtor. Under Section 2(59) of the Companies Act, 2013 Director is included in to definition of Officer. Under Section 20 of the Act a document served on a Company or on Officer thereof is service recognized. Going from Principles of Natural Justice, in terms of Section 424 of Companies Act read with above provision of Service of Notice on Director must be held to be good service. Therefore, in our opinion, the mandate u/s 8 of the Code was fulfilled, and the Adjudicating Authority has rightly admitted the application u/s 9 filed by the Operational Creditor for initiating Corporate Insolvency Resolution Process against the Corporate Debtor. Despite service of Demand Notice u/s 8 of the Code and service of the application u/s 9 of the Code, the Corporate Debtor did not appear before the Adjudicating Authority - the Adjudicating authority had not erred in proceeding exparte in the matter. The Appellant has failed to demonstrate that the impugned order suffers from any legal infirmity - Appeal dismissed. Issues:Challenge to impugned order admitting application under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on service of Demand Notice and disputed claim.Analysis:1. The Appellant contested the admission order on two primary grounds: non-service of Demand Notice under Section 8 of the Code to the Corporate Debtor and the serious dispute regarding the Operational Creditor's claim. The Appellant argued that the Code does not imply deemed delivery for Demand Notice under Section 8, emphasizing that serving the notice on the Director does not constitute valid service under the law, and the claim dispute was not adequately addressed during the notice or reply stages.2. The central issue in the Appeal was whether serving a Demand Notice under Section 8 on a Director of the Corporate Debtor could be considered as deemed delivery for initiating the Corporate Insolvency Resolution Process under Section 9 of the Code. The Adjudicating Authority observed that the notice was served correctly, and the Corporate Debtor failed to respond or pay the debt, leading to the initiation of the CIRP.3. Referring to a previous case, the Appellate Tribunal highlighted that serving the Demand Notice to the Director, even if the registered office notice was unclaimed, was sufficient for initiating CIRP. The Tribunal emphasized that serving the notice to the Director was in line with the legislative intent of Section 8(1) and fulfilled the mandate of the Code, allowing the Adjudicating Authority to rightly admit the application under Section 9.4. Despite the Appellant's claim of a serious dispute regarding the Operational Creditor's claim, the Appellate Tribunal noted the lack of evidence supporting the dispute before them. Without proper evidence or documentation demonstrating a pre-existing dispute before the Demand Notice, the Tribunal could not rule in favor of the alleged dispute, ultimately leading to the dismissal of the Appeal.5. In conclusion, the Appellate Tribunal found no legal flaws in the impugned order and dismissed the Appeal, emphasizing the importance of serving the Demand Notice correctly and the necessity for evidence to substantiate any claim disputes. No costs were awarded in the judgment.