2021 (4) TMI 728 - Tri - Insolvency and Bankruptcy

Tribunal dismisses incomplete application under Insolvency and Bankruptcy Code due to invalid demand notice

The tribunal determined that the operational creditor did not provide a valid demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC). ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - demand notice received within time or not - HELD THAT:- The demand notice was sent on 20.08.2019 and the reply of the demand notice is also on record. The only contention of the Operational Creditor is that it was received after 10 days of the delivery of the demand notice and hence, cannot be taken into consideration and it is presumed that no dispute was raised. It is an admitted fact that the reply to the demand notice was received on 05.09.2019, whereas Ld. Counsel for the Corporate Debtor contended that it was sent on 02.09.2019 after receiving the demand notice on 22.08.2019. Since, this reply dt. 22.05.2017 to the demand notice 12.05.2017 is prior to receiving of the demand notice under Section 8 of the IBC and the amount has already been disputed, therefore, in view of the decision referred Supra even if the reply of the demand notice is not sent within ten days of the delivery of demand notice under section 8(2) of IBC 2016. If the documents available on the record establish the pre-existing dispute, then that shall be taken into consideration and the reply cannot be rejected merely on technical grounds - the Corporate Debtor, by referring to the correspondence made between the parties, have succeeded to establish that there is a pre-existing dispute between the parties prior to the issuance of Demand Notice. In this case, the claim of the applicant is based upon the invoices but it appears from the demand notice that the applicant has not enclosed the invoices rather in column VII of Form 3, the petitioner has mentioned that 'true copy of dishonoured cheques along with the corresponding bank memos are annexed herewith collectively as Annexure-A' and no other document is enclosed. This means that in terms of Section 8(1) of the IBC, the Petitioner has neither enclosed the invoices nor sent the notice in Form-4. Rather it sent the demand notice in Form-3 - the demand notice delivered in the present case is not a valid one in terms of Section 8(1) of IBC,2016 read with Rule 5(1)(b) of the the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Corporate Debtor had raised the dispute regarding the existence of debt and the Operational Creditor has also failed to deliver the proper demand notice u/s 8(1) IBC 2016 before filing the petition u/s 9 of IBC, 2016 - the Operational Creditor has falsely sworn in an affidavit under Section 9 (3) (b) stating that no notice was given by the Corporate Debtor relating to the payment of the unpaid operational debt. In terms of Section 9 (5) (ii) (a) and (d), the Application being incomplete and the fact that notice of existence of dispute has been raised by the Corporate Debtor, this Adjudicating Authority has no option but to reject the Application of the Operational Creditor - Petition dismissed as not maintainable. Issues Involved:1. Whether the operational creditor delivered a valid demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016.2. Whether there was a pre-existing dispute between the operational creditor and the corporate debtor before the issuance of the demand notice.3. Whether the operational creditor's application under Section 9 of the IBC is maintainable.Issue-wise Detailed Analysis:1. Validity of Demand Notice:The tribunal examined whether the operational creditor, 'Dayal Industries Private Limited,' delivered a valid demand notice under Section 8 of the IBC. The operational creditor sent the demand notice in Form-3 but did not enclose the invoices. Instead, the notice included dishonoured cheques and corresponding bank memos. The tribunal referred to Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which requires the demand notice to be either in Form-3 or Form-4, depending on whether invoices were generated. The tribunal concluded that since the claim was based on invoices, the operational creditor should have enclosed the invoices or sent the notice in Form-4. Therefore, the demand notice was deemed invalid, rendering the application under Section 9 incomplete.2. Pre-existing Dispute:The tribunal evaluated if there was a pre-existing dispute between the parties before the issuance of the demand notice. The corporate debtor contended that the goods received were worth Rs. 24.50 lakhs, which was fully paid, and any additional claim was disputed. The corporate debtor had also requested the return of blank security cheques and raised objections to their use. The tribunal referred to the Supreme Court's decision in 'Mobilox Innovations Private Limited vs. Kirusa Software Private Limited,' which mandates that any dispute must predate the demand notice. The tribunal found that the corporate debtor had indeed raised disputes regarding the amount owed and the use of cheques before the demand notice was issued. Therefore, there was a pre-existing dispute.3. Maintainability of Application under Section 9:Given the invalid demand notice and the pre-existing dispute, the tribunal assessed the maintainability of the operational creditor's application under Section 9 of the IBC. The tribunal reiterated that the Code is intended to resolve insolvency and not merely recover debts. The operational creditor's failure to deliver a valid demand notice and the existence of a pre-existing dispute meant that the application did not meet the requirements under Section 9. Consequently, the tribunal found the application incomplete and not maintainable.Conclusion:The tribunal concluded that the operational creditor failed to deliver a valid demand notice under Section 8(1) of the IBC. Additionally, the corporate debtor successfully established the existence of a pre-existing dispute before the issuance of the demand notice. As a result, the application under Section 9 of the IBC was deemed incomplete and dismissed. The tribunal highlighted that the Code is a beneficial legislation aimed at resolving insolvency and not merely a tool for debt recovery.