TMI Blog2021 (1) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledgement due or by electronic mail service to a whole time Director or designated partner or key managerial personnel, if any, of the Corporate Debtor . Besides these, a copy of Demand Notice of invoice demanding payment shall also be filed with an information utility. Be it noted, that only if a Demand Notice / Invoice demanding payment under the code is issued, the Corporate Debtor will appreciate in right earnest the consequences flowing on account of failure to pay the operational debt . Also, that, after transfer of the case from Hon ble High Court to the Tribunal (in respect of the winding up petition) an Operational Creditor is required to submit all information including the details of the proposed Insolvency professional - An application filed u/s 9 of the I B Code, 2016 without serving notice u/s 8 of the code is not maintainable. Indeed, a mere failure to serve the Demand Notice is not a curable defect. A Bankruptcy notice sets in motion the entire process leading to Bankruptcy and it is to be rigidly and narrowly construed. Thus, serving of Demand Notice together with the Rejoinder filed by the First Respondent/ Operational Creditor before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived the cheque for the discharge either in whole or in part of any debt or other liability will not in any way heighten or improve the case of Appellant any further. Thus in the instant case Section 8 notice under I B Code was not served upon the Second Respondent / Corporate Debtor and admittedly the same got returned as mentioned Supra, this Tribunal comes to a consequent conclusion that the impugned order dated 01.01.2020 passed by the Adjudicating Authority in admitting the petition is not legally tenable and the same is accordingly set aside by this Tribunal to secure the ends of justice. As a logical corollary, this Tribunal declares illegal the order passed by the Adjudicating Authority in appointing the Interim Resolution Professional , declaring moratorium and all other orders passed by the Adjudicating Authority pursuant to the impugned order and action, if any, taken by the Interim Resolution Professional (including the advertisement, if any, published in the newspaper calling for applications and all such orders) and that the petition/application filed by the First Respondent is dismissed as abated. The Adjudicating Authority is required to close the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Debtor. 16. Therefore, the petition made by the operational creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of one lakh rupees stipulated u/s 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the petition. and admitted the petition and ordered the initiation of Corporate Insolvency Resolution Process against the Corporate Debtor . Appellant s Contentions 3. The Learned Counsel for the Appellant submits that in the instant case no Demand Notice was ever served on the Corporate Debtor / Second Respondent as per section 8 of the I B Code. 4. The Learned Counsel for the Appellant comes out with a plea that on perusal of the purported Demand Notice dated 25.09.2007, it can be seen that the said notice was sent to the address C-2098, Oberoi Gardens Estate, Off Saki Vihar Road, Chandivali, Andheri East, Mumbai 4000072 which is not the registered address of the Corporate Debtor as per master data of the Corporate Debtor on MCA website. 5. The emph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mandatory provision of Section 8 of I B Code in regard to the serving of Demand Notice was not followed. In effect, in the present case no Demand Notice u/s 8 of the I B Code was served on the Corporate Debtor before filing of the petition before the Adjudicating Authority and on this ground alone, the impugned order dated 01.01.2020 is liable to be set aside. 9. It is the stand of the Appellant that there was a pre-existing dispute as per Section 8(2)(a) of the I B Code and the same is apparent from the fact that the Goods supplied by the First Respondent were defective in nature, as they were not of standard quality and in fact, the inferior quality of the goods was also accepted by the First Respondent s e.mail dated 19.01.2014. 10. The Learned Counsel for the Appellant contends that in order to carry on the cordial business relations with the First Respondent and considering the fact that the dispute in regard to the inferior goods was not resolved, the second Respondent issued a security cheque of ₹ 69,76,937/- as per the request of the First Respondent and on the First Respondent s representation that the said dispute will be resolved as soon as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following person (s) are authorised to act on behalf of operational creditor, as apparent from the last portion of Form-3 and 4 which reads as follows:- 6. The undersigned request you to unconditionally repay the unpaid operational debt (in default) in full within ten days from the receipt of this letter failing which we shall initiate a corporate insolvency resolution process in respect of [name of corporate debtor]. Yours sincerely, Signature of person authorised to act on behalf of the operational credtior Position with or in relation to the operational creditor Address of person signing 17. Admittedly, no notice was issued under sub-section (1) of Section 8 of the I B Code . In terms with Rule 5, other informations were also not placed before the Adjudicating Authority. 18. The Respondent having failed to provide all the details as required under Form-5 as noticed above, the application under sections 433 and 434 of the Companies Act, 1956 cannot be treated to be an application under section 9 of the I B Code in terms of Rule 5 of Transfer Rules, 2016. In such circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IB Code is required to be issued in Form 3 or Form 4. Through the said formats, the Corporate Debtor is to be informed of particulars of Operational Debt , with a demand of payment, with clear understanding that the operational debt (in default) required to pay the debt, as claimed, unconditionally within ten days from the date of receipt of letter failing which the operational creditor will initiate a Corporate Insolvency Process in respect of Corporate Debtor as apparent from last paragraph no. 6 of notice contained in Form-3, and quoted above. Only if such notice in Form-3 is served, the Corporate Debtor will understand the serious consequences of non-payment of Operational Debt , Otherwise like any normal pleader notice / Advocate notice, like notice under section 80 of CPC or for proceeding under section 433 of the Companies Act, 1956, the Corporate Debtor may decide to contest the suit/case if filed, distinct Corporate Resolution Process, where such claim otherwise cannot be contested, accept where there is an existence of dispute, prior to issue of notice under Section 8 14. The Learned Counsel for the Appellant refers to the judgement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the operational creditor (Section 9(5)(i)(e), it shall admit the application within 14 days of the receipt of the application, after which the corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such application if the application is incomplete and has not been completed within the period of 7 days granted by the proviso (Section 9(5)(ii)(a). It may also reject the application where there has been repayment of the operational debt (Section 9(5)(ii)(b), or the creditor has not delivered the invoice or notice for payment to the corporate debtor (Section 9(5)(ii)(c). It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility (Section 9(5)(ii)(d). Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected (Section 9(5)(ii)(e). 34. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties. 51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the court does not need to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dishonoured on 05.03.2015 for the reason exceeds arrangement . 20. The Learned Counsel for the First Respondent comes out with a plea that the First Respondent issued a legal notice dated 14.03.2015 u/s 138 of the Negotiable Instrument Act, 1881 requesting the Second Respondent to pay the amount of the cheque within 15 days from the date of receipt of the legal notice. First Respondent s Citation 21. Advancing his arguments, the Learned Counsel for the First Respondent refers to the decision of this Tribunal in the matter of Sudhi Sachdev V. APPL Industries Ltd. , 2018 SCC online NCLAT, 775 in Comp. Appl. (AT)(Ins.) 623/2018 dtd. 13.11.2018 wherein it is observed that as soon as the proceedings are initiated u/s 138/141 of the N.I. Act, 1881, it would make the debt admissible. 22. The Learned Counsel for the First Respondent forcefully submits that post filing of the petition in the year 2015 before the Hon ble High Court of Mumbai and after transfer of the said petition to the National Company Law Tribunal , Mumbai on 01.02.2017, the second Respondent issued a letter to the first Respondent on 21.02.2017, wrongly mentioning the details of articles being del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings) Rules, 2016 which reads as under: - Provided that the petitioner shall submit all information, other than information forming part of the record transferred in accordance with rule 7, required for admission of the petition under section 7,8 or 9 of the code . and contends that there was no requirement of sending a demand notice afresh, nor filing of the petition in Form-5, when the petition was transferred from the Hon ble High Court of Mumbai, had this on record of the petition transferred. 26. The Learned Counsel for the First Respondent submits that when the Company had appeared before the Adjudicating Authority and contested the matter on merits , based on the principles of Estoppel/Waiver, it cannot be allowed to raise these aspects in Appeal. 27. The Learned Counsel for the First Respondent cites an extract from Maxwell on the Interpretation Of Statute (11th Edition) pgs. 377-378 which runs to the following effect:- A defendant in an action in a county court which has jurisdiction over the case subject to leave being given, may waive want of leave; and the defendant, even in a criminal case before justices, if the subject matter be within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-requisite for filing of an application under 9 of the I B Code. In short, the submission made on behalf of the Appellant is that no Demand Notice u/s 8 of the I B Code was served on the Second Respondent / Corporate Debtor before filing of the petition. 31. The contra stand of the First Respondent is that in compliance with Rule 5 of the Companies (transfer of pending proceedings, Rules, 2016) though a fresh Demand Notice was not essentially required to be served in Form 3/Form 4 because of the fact that in the records transferred from the Hon ble Bombay High Court to the National Company Law Tribunal , statutory notice u/s 433 of the Companies Act was part of the record so transferred, yet a Demand Notice dated 25.09.2017 as per Section 8(1)of the I B Code was sent to the Corporate Debtor /second Respondent at its registered address but the same got returned as unserved on account of the debtor s company changing its registered address without complying the procedure mandated under the Companies Act, 2013. Apart from this, the First Respondent has come out with the plea that the Demand Notice was appended with the rejoinder and was duly served upon the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y paid ₹ 10 lakhs. As such the total amount of default claimed was ₹ 69,76,937/- plus interest @ 18% p.a. from the date of filing of the petition, till payment of realisation. 37. At S.No. 7 of the Form no. 3 the First Respondent / petitioner had relied upon 11 documents to prove the existence of Operational Debt and the amount in default (inclusive of the copy of payment schedule dated 08.07.2014 to creditor company, the copy of cheque of Union Bank of India dated 03.03.2015 for ₹ 69,76,937/-, legal notice issued by the First Respondent s Advocate to the debtor Company dated 23.07.2015). In short, in the aforesaid Demand Notice dated 25.09.2017 of the First Respondent s Advocate issued to the Second Respondent / Company ten days time was specified from the date of receipt of the said notice to dispute the existence or amount of unpaid operational debt (in default) and also it was mentioned that if the debt was repaid before the receipt of the said notice, for such repayment the Company was required to demonstrate the same. Therefore, the Appellant cannot take a plea that no Demand Notice as per Form 3 of I B Code was issued to the Second Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (No.21/1950)ex.p; the Debtor V. Bowmaker 1950(2) ALLER 1129DC:1951 1Ch p. 313. 43. In fact, a change in address of the registered office of the Corporate Debtor cannot be a ruse for failure of the concerned party to send/issue a Demand Notice as per section 8 of the code. As a matter of fact, the service of Demand Notice to the Corporate Debtor as per section 8 is a mandatory one. 44. In the decision of Hon ble Supreme Court Macquaire V. Shilpi Cable Technologies Ltd. reported in 2018 1 Comp. LJ. at p. 270 it is held that the requirement of Section 9(3) of the Code in producing a copy of the certificate from the financial institution accounts of the Operational Creditor affirming the nonpayment of debt is not a condition precedent for triggering the insolvency process under the Code. Suffice it to point out that the requirement u/s 9(3) of the Code is only Directory . 45. It is to be pointed out that an Operational Creditor shall deliver to the Corporate Debtor a Demand Notice in Form-3 or a copy of an invoice attached with a notice in Form-4 as per Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of change of activation and this aspect is similar to the rule of Constructive Res Judicata as per Explanation IV of Section 11 of Civil Procedure Code. A person cannot be permitted to approbate and reprobate by firstly agreeing to abide by the terms and conditions of a given case / issue(s) and later seeking to deny the liability as per the agreed terms. 53. As far as the present case is concerned, although a plea is taken on behalf of the first Respondent / Petitioner that though a fresh Demand Notice was not essentially required to be served in Form-3/Form-4 because of the fact in the records transferred from the Hon ble Bombay High Court in respect of the winding up petition, to the National Company Law Tribunal , statutory notice u/s 433 of the Companies Act was part of the record so transferred, yet a demand notice dated 25.09.2017 u/s 8(1) of the I B Code was sent to the second Respondent s regd. address but the same was returned unserved on account of debtor s company changing its registered address, without complying the mandate procedure as per Companies Act, 2013 and that apart, the Demand Notice was appended with the rejoinder and was duly served upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not placed before the Adjudicating Authority. 16. The Respondent having failed to provide all the details as required under Form 5 as noticed above, the application u/s 433 and 434 of the Companies Act, 1956 cannot be treated to be an application u/s 9 of the I B Code in terms of Rule 5 of Transfer Rules, 2016. In such circumstances in view of proviso to Rule 5 of the Transfer Rules, the application u/s 433 and 434 of the Companies Act, 1956 stands abated . 57. Also, this Tribunal points out the judgement dated 25.10.2017 in Company Appeal (AT)(Ins.) No. 207 of 2017 in the matter of Transparent Technologies P. Ltd. V. Multi Trade wherein it is at paragraph 4 it is among other things observed as follows:- 4 . Though with regard to paragraph 8(f), the Respondent has denied the averments relating to serving a copy of form 5, but there is nothing on record to suggest that any notice under sub-section (1) of section 8 was issued and served or the application under Form-5 was filed. The respondent has also taken a plea that there is no requirement of furnishing the copy of the application on the appellant, however, such submission cannot be accepted . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the CIRP proceeding. The Second Respondent/Company is released from all the rigour of Law and is allowed to function independently through its Board of Directors with immediate effect. The Adjudicating Authority will fix the fee of Interim Resolution Professional and the Expenses incurred and that the Appellant will pay the fees of the said Resolution Professional for the period functioned. 61. In fine, the instant Appeal is allowed with aforesaid observations and directions. No costs. IA 389/20(Stay Application) is closed. Before parting with the case, this Tribunal grants liberty to the First Respondent/Operational Creditor to issue fresh notice to the Second Respondent/Corporate Debtor as per Section 8(1) of the I B Code and on receipt of service of such notice if there is Debt and Default , to file a fresh application u/s 9 of the Code before the Adjudicating Authority and to seek redressal of grievances in accordance with law. It is made quite clear that when such fresh application is projected by the First Respondent/Operational Creditor the same is to be determined by the Adjudicating authority on merits, of course in a fair, just and dispassionate man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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