2025 (12) TMI 114 - AT - IBC

Service of Section 8 IBC Demand Notice Must Be Proved, But Petitions Cannot Be Summarily Rejected for Doubt

The NCLAT held that service of a demand notice under Section 8 IBC is a condition precedent for initiating CIRP under Section 9, but found that the NCLT ... Dismissal of application moved by the appellant under Section 9 of the Insolvency and Bankruptcy Code 2016 - dismissed for want of proper service of notice under Section 8 of the code - whether service of demand notice u/s 8 of the Code sent by the operational creditor to the Corporate Debtor, is sufficient or not for initiation of Corporate Insolvency Resolution Process under Section 9 of the Code? - HELD THAT:- A petition u/s 9 can only be filed against the corporate debtor after giving prior notice under section 8 of the IBC to the corporate debtor and the main requirements of the same are that the demand notice under section 8 of the IBC must be served on the corporate debtor and even if after 10 days of its service the payment is not made or if there is no valid prior dispute emerges, the application for commencement of the CIRP may be filed in Form 5 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and supporting evidence such as invoices, bank statements, or written contracts must be attached therewith. Thus serving of demand notice under section 8 of the Code is a condition precedent of filing an application under section 9 of the Code. Section 8(1) requires the operational creditor to deliver the notice of demand of unpaid operational debt or a copy of the invoice demanding payment to the corporate debtor at their registered office and the demand notice is required to be in the form and manner as prescribed. Perusal of the impugned order will reveal that learned tribunal did not find the service of notice sent by the operational creditor to the CD through registered post/speed post, sufficient, on the score that the demand notice dated 18th March 2024 which was addressed to the registered office of the corporate debtor as per MCA record was undelivered as admittedly registered office is not in possession of the respondent corporate debtor and is occupied by another company which is reflected from the previous service report of previous demand notice dated 30th December 2023 - It is to be recalled that no doubt the burden to prove a fact is on the party who is alleging in the existence of the same, but a party may not be compelled to bring on record even those evidences and facts which in the normal course it could not produce. If learned Tribunal was having any suspicion or vacuum with regard to the service through email it can very well provide an opportunity to the appellant to bring on record the desired proof or document which may be necessary for proving the service of the notice through email on such officer. The impugned order passed by Ld. NCLT rejecting the Section 9 petition filed by the Appellant on the issue of non-service of notice dated 18th March 2024 sent by the appellant under Section 8 of the Code, deserves to be interfered with - the matter is remanded back to the NCLT, Ahmedabad for decision afresh on merits, after providing reasonable opportunity to the parties of letting in evidence, on which they intend to rely, strictly in accordance with law. Appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, issued by the operational creditor and relied upon for initiation of proceedings under Section 9, was validly and sufficiently served on the corporate debtor in terms of Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. 1.2 Whether the Adjudicating Authority erred in law in rejecting the Section 9 application solely on the ground of alleged non-service/insufficient service of the Section 8 demand notice, without properly appreciating the material on record and without affording adequate opportunity to the operational creditor to substantiate service. 1.3 Whether the impugned order rejecting the Section 9 application on the ground of non-service warranted interference and remand for fresh consideration on merits. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity and sufficiency of service of demand notice under Section 8 IBC Legal framework 2.1 The Court considered Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 and Rules 5 and 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. 2.2 The Court noted that: (i) service of a demand notice under Section 8 is a condition precedent to filing an application under Section 9; (ii) Section 8(1) requires delivery of the demand notice of unpaid operational debt in the prescribed form and manner; and (iii) Rule 5(2) permits service of the demand notice at the registered office by hand, registered post or speed post with acknowledgement due, or by electronic mail to specified officers of the corporate debtor. Interpretation and reasoning 2.3 The Court recorded that, as per Form 5 (Part III) filed before the Adjudicating Authority, the operational creditor categorically asserted that a fresh demand notice dated 18.03.2024 was issued under Section 8, claiming an operational debt of Rs. 1,21,27,895/-, and that: (a) the notice was sent by email to the corporate debtor at the email address available in the records of the Ministry of Corporate Affairs and another email address reflected in the Form-D record of default; (b) the notice was sent by speed/registered post to the registered office of the corporate debtor as per the MCA records; and (c) the notice was sent to the head office of the corporate debtor as displayed on the corporate debtor's website. 2.4 It was further recorded that, in Form 5, the operational creditor specifically stated: (i) the demand notice dated 18.03.2024 was successfully delivered at the corporate debtor's head office address as displayed on its website; and (ii) the notice sent to the registered office address was returned with the postal endorsement that the company 'refused to accept the same'. Copies of emails, tracking reports and postal proof were stated to have been annexed. 2.5 The Adjudicating Authority nevertheless held service to be insufficient on multiple grounds, inter alia: (i) the registered office address was allegedly not in the possession of the corporate debtor as per an earlier postal endorsement regarding an earlier notice dated 30.12.2023; (ii) the operational creditor, having been aware that the company allegedly did not exist at the earlier address, ought to have used alternative modes under Rule 5; (iii) the emails were not proved to be connected to the corporate debtor or to a specified officer; and (iv) the head office address was not proved by any website printout or supporting material. 2.6 The Court held that the Adjudicating Authority's approach in treating the 18.03.2024 notice as undelivered, by relying on the postal endorsement relating to a previous notice dated 30.12.2023, was erroneous. The focus should have been on whether the notice dated 18.03.2024, sent to the registered address as per MCA records, was in fact returned with a 'refused' endorsement and what legal effect such refusal would have. 2.7 The Court observed that the Adjudicating Authority failed to return any clear finding on the specific plea that the 18.03.2024 notice sent to the registered office, as per MCA records, was returned with the endorsement 'company has refused to accept service'. The Adjudicating Authority instead relied on an earlier endorsement pertaining to a different notice and an earlier, withdrawn application. 2.8 The Court held that, under Rule 5, service at the registered office of the corporate debtor by registered/speed post with acknowledgement due is one of the statutory modes. If the notice is sent to the registered office as per MCA records and is returned with an endorsement of 'refused', the Adjudicating Authority was required to give a 'crystal clear' finding on why such refusal would not amount to sufficient service; this was not done. 2.9 The Court further noted that, in its reply before the Appellate Tribunal, the corporate debtor expressly admitted that the registered office address as recorded in the MCA data is accurate and that it continues to operate from that address. The addresses mentioned in the affidavit of the partner of the corporate debtor matched the addresses to which the 18.03.2024 notice had been sent. This admission was considered to enhance the significance of the alleged 'refusal' endorsement. 2.10 Regarding email service, the Court noted that the Adjudicating Authority had discarded email service on the basis that the designation of the addressee was not mentioned and that no material connected the relevant email address (including the 'dipak' email address) with the corporate debtor. The Court held that although the burden of proof lies on the party asserting service, the party cannot be expected to produce evidence that it had no opportunity to place on record. If there was any doubt regarding email service, the Adjudicating Authority ought to have afforded an opportunity to the operational creditor to produce supporting material. 2.11 The Court refrained from itself deciding the factual sufficiency of email service, especially in view of additional correspondence placed on record before the Appellate Tribunal, and held that this factual inquiry should be undertaken by the Adjudicating Authority upon remand. Conclusions 2.12 Service of a Section 8 demand notice is a condition precedent for initiation of CIRP under Section 9 and can be effected under Rule 5 at the registered office by registered/speed post or by email in the manner prescribed. 2.13 The Adjudicating Authority erred in law in treating the 18.03.2024 notice as not duly served by: (i) relying on a postal endorsement pertaining to an earlier, withdrawn notice instead of examining the endorsement on the 18.03.2024 notice itself; and (ii) failing to record a clear finding on the effect of an alleged 'refusal' endorsement at the registered address which the corporate debtor admits is correct. 2.14 The Adjudicating Authority further erred in discarding email and head office service without affording the operational creditor an opportunity to place supporting material on record. 2.15 The question of whether service of the 18.03.2024 notice was in fact valid and sufficient in law remains to be finally determined by the Adjudicating Authority upon remand, after allowing the parties to adduce evidence. Issue 2: Propriety of rejection of Section 9 application and necessity of remand Interpretation and reasoning 2.16 The Court held that, in light of the statutory scheme of Sections 8 and 9 read with Rules 5 and 6, the Adjudicating Authority was required to: (i) properly examine whether the requirements of service under Section 8 and Rule 5 were satisfied; and (ii) before rejecting on the ground of any defect, afford a reasonable opportunity to the applicant to cure such defect or to place necessary material on record. 2.17 The Court found that the Adjudicating Authority had rejected the Section 9 application solely on the alleged non-service of the Section 8 demand notice, without a proper examination of the postal endorsement on the 18.03.2024 notice and without providing the operational creditor an opportunity to demonstrate the correctness of the addresses, the connection of email IDs with the corporate debtor, or the authenticity of the head office address as per the website. 2.18 In view of these deficiencies, the Court concluded that the impugned order suffered from errors apparent on the face of the record and from failure to afford adequate opportunity, warranting interference. Conclusions 2.19 The impugned order rejecting the Section 9 application solely on the ground of alleged non-service of the 18.03.2024 demand notice under Section 8 was unsustainable in law. 2.20 The appeal was allowed; the impugned order dated 28.06.2024 was set aside; CP/IB/219/AHM/2024 was restored to the file of the Adjudicating Authority for fresh decision on merits. 2.21 The matter was remanded to the Adjudicating Authority, which has been directed to decide afresh, after providing reasonable opportunity to both parties to lead evidence on which they intend to rely, including on the issue of service of the demand notice, strictly in accordance with law and uninfluenced by any observations in the appellate order. 2.22 The Court expressly clarified that it had not adjudicated upon, and left open for consideration by the Adjudicating Authority on remand, the issues relating to: (i) whether the minimum threshold under Section 4 of the Code is met if interest is included with principal; and (ii) whether there was any pre-existing dispute between the parties.