NCLAT remands insolvency case for fresh consideration due to improper service of Section 8 demand notice

The NCLAT Principal Bench allowed the appeal and remanded the matter to the Adjudicating Authority for fresh consideration. The case involved initiation of CIRP by an operational creditor without proper service of mandatory demand notice under Section 8 of IBC. The Adjudicating Authority failed to make specific findings on actual delivery of the demand notice to the corporate debtor, despite the debtor's contestation of service. The NCLAT held that valid proof of delivery is mandatory under Section 8 read with Rule 5 of IBC Rules 2016, and directed fresh examination of the Section 9 application with particular reference to actual and proper delivery of the demand notice.

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Issues Involved:
1. Whether the Section 9 application was erroneously admitted by the Adjudicating Authority.
2. Whether the statutory demand notice under Section 8 of the IBC was served on the Corporate Debtor.
3. Whether the address to which the demand notice was sent was correct.
4. Whether the Section 9 application is maintainable without proof of service of the demand notice.

Summary:

Issue 1: Erroneous Admission of Section 9 Application
The Appellant argued that the Adjudicating Authority erroneously allowed the Section 9 application filed by the Operational Creditor, asserting that the existence of debt and default by the Corporate Debtor was established without proper examination. The Appellant contended that the demand notice required under Section 8 of the IBC was not complied with, making the Section 9 application questionable.

Issue 2: Service of Statutory Demand Notice
The Appellant claimed that no demand notice was received from the Operational Creditor and that there was no proof of delivery to the Corporate Debtor. The postal receipt and tracking report only showed that the notice was served by the Advocate of the Operational Creditor on the Operational Creditor itself. The Appellant cited a precedent where non-service of the demand notice was deemed a non-curable defect.

Issue 3: Correct Address for Demand Notice
The Appellant further argued that the demand notice was sent to the corporate office instead of the registered office of the Corporate Debtor, which is contrary to the scheme of the IBC. The Operational Creditor failed to provide proof of correct service, and the reasons given for the failure were deemed flimsy.

Issue 4: Maintainability of Section 9 Application
The Respondent countered that the demand notice was served as per the due process of law and that the issue of non-service should have been raised earlier. They explained that the proof of delivery was a clerical error and that the notice was indeed addressed to the Corporate Debtor. The Respondent also argued that numerous communications had been exchanged between the corporate office of the Corporate Debtor and the Operational Creditor, making the service at the corporate office valid.

Judgment:
The Tribunal noted that the prerequisites for triggering CIRP under Section 9 of the IBC include the existence of debt, default by the Corporate Debtor, and proper delivery of the demand notice. The Tribunal found merit in the Appellant's contention that the demand notice was not properly served, as the proof of service was flawed and the notice was sent to the wrong address. The Tribunal emphasized that compliance with Section 8 of the IBC is mandatory.

The Tribunal concluded that the Adjudicating Authority's order was silent on the actual delivery of the Section 8 notice, which is a key contention. The matter was remanded back to the Adjudicating Authority to reconsider the Section 9 application with particular reference to the proper delivery of the demand notice. The appeal was allowed, and the impugned order dated 13.05.2023 was set aside. The orders initiating CIRP and appointing an interim Resolution Professional were declared illegal and set aside. The interim Resolution Professional was to be paid actual expenses and nominal fees by the Operational Creditor. No order as to costs.

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