2023 (2) TMI 951 - AT - Insolvency and Bankruptcy

Tribunal directs NCLT to proceed with insolvency petition, follow High Court's order

M/s. Indra Marshal Power Private Ltd. Versus M/s. Akshaya Irrigation Products Private Ltd.

The Tribunal set aside the NCLT's order dismissing the petition due to non-compliance with Section 8 of the Code. It directed the NCLT to treat the ... Initiation of CIRP - Operational Creditors - non-service of demand notice - Transfer of Winding up Petition - HELD THAT:- It is crystalline clear that the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench), ought to have treated the proceedings transferred under Section 434 of the Companies Act, i.e. CP No. 311 of 2016, as an Insolvency Petition, under Section 9 of the I & B Code, 2016, and should have assigned an appropriate number. The Petition under Sections 433 and 434 of the Companies Act, 1956, as instituted before the Hon’ble High Court, cannot be treated to be an application under Section 9 of the Code, 2016 in terms of Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, and the said observation is an incorrect one, especially in the teeth of the Order of the Hon’ble High Court for the State of Telangana in IA No. 1 of 2019 in CP No. 311 of 2016 dated 29.11.2019, which the Adjudicating Authority (Tribunal), is to adhere to in true letter and spirit, without any deviation whatsoever, as opined by this Tribunal. Likewise, the observations of the Adjudicating Authority (Tribunal), in the impugned order dated 30.06.2022, at Paragraph 10, Hence the earlier proceedings, before the Hon’ble High Court, may not be of much significance in the matter before this Tribunal. In any case, even if the matter were considered as transferred from the Hon’ble High Court, it would stand abated, etc., are an incorrect, invalid, and legally untenable one. It is to be remembered that the proceedings to be transferred in Law, are required to be dealt with an Application / Petition, for the Corporate Insolvency Resolution Process, under the I & B Code, 2016, with a mandate that the Adjudicating Authority (NCLT), will provide from the stage, at which, the Proceedings are transferred, as it is from the Hon’ble High Court. Viewed in that perspective, this Tribunal, is of the cocksure opinion that the Adjudicating Authority (Tribunal), has misdirected itself by making observations at Paragraph 9, while passing the impugned order dated 30.06.2022, which are clearly unsustainable, in the eye of Law. Appeal disposed off. Issues Involved:1. Non-issuance of statutory demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.2. Pre-existing disputes between the parties.3. Transfer of winding-up proceedings from the High Court to the National Company Law Tribunal (NCLT).4. Adjudicating Authority's adherence to the High Court's order.Issue-wise Detailed Analysis:1. Non-issuance of Statutory Demand Notice:The Adjudicating Authority observed that the mandatory statutory requirement of issuing a demand notice to the Corporate Debtor under Section 8 of the Insolvency and Bankruptcy Code, 2016, was not executed by the Operational Creditor. This non-compliance rendered the entire proceedings perilous, leading to the dismissal of the application on this ground.2. Pre-existing Disputes:The Corporate Debtor argued that there were pre-existing disputes between the parties, making the application not maintainable under Section 9(5)(ii)(d) of the Code. The Adjudicating Authority noted several correspondences and complaints regarding the malfunctioning of the pump sets supplied by the Operational Creditor, indicating the existence of disputes. The Supreme Court's decision in Mobilox Innovative Pvt. Ltd. v. Kirusa Software Pvt. Ltd. was cited, emphasizing that the existence of a dispute, even if not yet subject to suit or arbitration, is sufficient to reject an application under Section 9 of the Code.3. Transfer of Winding-up Proceedings:The Appellant contended that the winding-up petition filed before the High Court was transferred to the NCLT as per the directions of the High Court. The High Court, in its order dated 29.11.2019, directed the transfer of the winding-up petition to the NCLT for further proceedings under the Insolvency and Bankruptcy Code, 2016. The NCLT was required to treat the transferred proceedings as an insolvency petition under Section 9 of the Code and proceed from the stage at which they were transferred.4. Adjudicating Authority's Adherence to High Court's Order:The NCLT erroneously treated the transferred proceedings as a fresh application and dismissed it for non-compliance with Section 8 of the Code. The Tribunal highlighted that the NCLT should have adhered to the High Court's order and treated the transferred proceedings as an insolvency petition under Section 9 of the Code. The NCLT's failure to follow the High Court's direction was deemed a significant legal error.Appellant's Submissions:The Appellant argued that the NCLT erred in dismissing the petition based on the non-service of notice under Section 8 of the Code. The Appellant contended that the proceedings were transferred from the High Court, where the notice requirement was not applicable. The Appellant also pointed out that the High Court had directed the transfer of the winding-up petition to the NCLT, and the NCLT should have proceeded from the stage at which the proceedings were transferred.Appraisal:The Tribunal noted that the NCLT should have treated the transferred proceedings as an insolvency petition under Section 9 of the Code and assigned an appropriate number. The NCLT's observation that the earlier proceedings before the High Court were not significant was incorrect. The Tribunal emphasized that the NCLT must follow the High Court's order in true letter and spirit.Disposition:The Tribunal set aside the NCLT's order dated 30.06.2022 and directed the NCLT to number the transferred proceedings appropriately and proceed further in accordance with the law. The Tribunal also directed the NCLT to issue notices to the parties and take the proceedings to their logical end by passing a reasoned order. The appeal was disposed of with no costs, and the connected IAs were closed.