2022 (7) TMI 1072 - AT - Insolvency and Bankruptcy

NCLAT affirms NCLT decision on Insolvency & Bankruptcy Code application

Jitendra Kumar Singh Versus M/s Vishakarma Tool Works, M/s Mor Mukat Marketing Private Limited

The NCLAT upheld the NCLT's decision to admit an application under Section 9 of the Insolvency and Bankruptcy Code 2016, initiating Corporate Insolvency ... CIRP proceedings - NCLT admitted the application - dispute was existing or not - service of demand notice - It is submitted that firstly, it has not been the case of the corporate debtor before the Tribunal and has been raised for the first time by the suspended Director in this appeal - Whether notice was duly served at the address of the registered office of the corporate debtor situated in the State of Bihar, taken from the company master data and also upon one of the Director R.K. Gupta who had been participating in the whatsapp chat which satisfies the mandate of Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016? HELD THAT:- From the perusal of the provisions i.e. Section 8 and 9 of the Code, it is apparent that a notice of the unpaid amount to the corporate debtor is a sine qua non. The form and manner of the demand notice is provided in Rule 5 of the Rules of 2016 which says that an operational creditor has to deliver to the corporate debtor a demand notice in Form III or a copy of the invoice attached with notice in Form IV. The demand notice, referred to Section 8(2) of the Code has to be delivered to the corporate debtor at the registered office by hand, registered post or speed post with acknowledgement due or by electronic email service to the Whole Time Director or designated partner or key managerial personnel, if any, of the corporate debtor. The legislature has used the word “or” in Rule 5(2)(a&b) which means that the demand notice could be served either at the registered office or upon the Whole Time Director. It means that service upon one of the entities is the sufficient compliance of Section 8(2) of the Code and both are not necessary. In the case of JYOTI STRIPS PRIVATE LIMITED VERSUS JSC ISPAT PRIVATE LIMITED [2021 (2) TMI 204 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI PRINCIPAL BENCH], it has been held that Section 8 of the Code read with Rule 5 of the Rules provides that service of demand notice has to be served upon the corporate debtor at its registered address. But no such issue was involved in it that in case it is not served upon a Whole Time Director then it would be an insufficient compliance. It is not the case of the appellant that notice was not served upon the whole Time Director. As a matter of fact the notice was served upon R.K. Gupta who is the Director of the Company and had been in conversation with the representative of the operational creditor on whatsapp. Thus, there has been sufficient compliance of Section 8(2) of the Code and even if it is presumed, for the sake of arguments, that no notice was served upon at the registered address i.e. East of Kailash though the operational creditor has been continuously insisting that the registered address of the corporate debtor, obtained from the master data, is of the State of Bihar where the notice was sent. There is no quarrel with the law laid down by this Tribunal that the electronic evidence i.e. email or even whatsapp can also be looked into in order to find out the fact about an existing dispute between the parties which can be used as a shield by the corporate debtor to avoid the attack of the operational creditor with the filing of an application under Section 9 of the Code but in the present case, operational creditor has been shown in the books of accounts of the corporate debtor as sundry creditor and had admitted the debt even in the whatsapp chat but has selectively referred to the chat regarding defect in the supplied goods and raised this issue when the application under Section 9 was filed - the findings recorded by the Tribunal does not call for any interference and are hereby upheld. Appeal dismissed. Issues:1. Admission of application under Section 9 of the Insolvency and Bankruptcy Code 2016 by NCLT.2. Dispute over non-payment of outstanding dues by the corporate debtor.3. Compliance with Section 8 notice requirements for initiating CIRP.4. Use of electronic evidence like WhatsApp messages in legal proceedings.Analysis:1. The appeal was filed against the NCLT's order admitting an application under Section 9 of the Insolvency and Bankruptcy Code 2016 by an operational creditor against the corporate debtor, initiating Corporate Insolvency Resolution Process (CIRP) and appointing an Insolvency Resolution Professional (IRP) with a moratorium under Section 14(1).2. The operational creditor alleged non-payment of dues amounting to Rs. 3031780 for goods supplied to the corporate debtor. The corporate debtor claimed the goods were defective, and invoices were raised for the same. The dispute arose when the operational creditor demanded payment after a year and a half, alleging deliberate avoidance by the corporate debtor.3. The issue of compliance with Section 8 notice requirements for initiating CIRP was raised. The appellant argued that the notice was not served at the registered office of the corporate debtor, challenging the legality of the proceedings. However, the respondent contended that the notice was duly served, satisfying the requirements under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.4. The use of electronic evidence, specifically WhatsApp messages, in legal proceedings was a crucial aspect. The appellant relied on WhatsApp chats to show defects in the supplied goods, claiming a pre-existing dispute. However, the respondent argued that selective use of WhatsApp chats by the corporate debtor was an attempt to avoid payment, as the debt was acknowledged in the books of accounts. The Tribunal upheld the findings regarding the selective use of electronic evidence and dismissed the appeal.In conclusion, the NCLAT upheld the NCLT's decision, finding no merit in the appeal. The judgment emphasized the importance of complying with notice requirements under the Insolvency and Bankruptcy Code and scrutinizing the use of electronic evidence in legal disputes.