IN THE NATIONAL COMPANY LAW
Alloysmin Industries. vs. Raman Casting Pvt. Ltd.
(Company Appeal (AT) (Insolvency) No. 684 of 2018)
FACTS OF THE CASE
This appeal has been preferred by Alloysmin Industries (herein after referred to as 'the Appellant') against the order passed by the National Company Law Tribunal, New Delhi, Bench III (hereinafter referred to as 'NCLT') on 17.09.2018.
Raman Casting Pvt. Ltd. (hereinafter referred to as 'the Respondent') is a private limited company and had showed interest in the goods sold by the Appellant. Initially, the Respondent had placed several small orders with the Appellant and cleared the dues immediately. However, thereafter the Respondent started delaying the payments and as per the ledger accounts maintained by the Appellant, a total sum of Rs. 7,67,675/- was outstanding from the Respondent.
After repeated and failed requests to the Respondent by the Appellant to clear its dues, the Appellant sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'the Code') and filed an Application under Section 9 of the Code against the Respondent for initiation of Corporate Insolvency Resolution Process (CIRP).
The demand notice under Section 8 of the Code was sent to the registered office of the Respondent through courier but was returned to the Appellant with the remark "S/A RTO". Further, the demand notice was also sent to the Corporate Office of the Respondent where it was duly served upon the Respondent.
The NCLT by its impugned order dated 17.09.2018 rejected the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 while relying upon its judgment in Eastern Travels Pvt. Ltd. vs. Swash Convergence Technologies Limited and on the ground that the demand notice issued under Section 8 of the Code was not issued to the Respondent at its Registered office and was returned with the remark "S/A RTO".
Hence, the Appellant through this Appeal has challenged the rejection of the Application under Section 9 while stating that even though the notice sent at the registered office of the Respondent was returned, the notice sent at the Corporate Office of the Respondent was duly served.
ISSUES BEFORE NCLAT
The issue for consideration before the Appellate Tribunal was as follows:
Whether the Demand notice under sub-section (1) served on the corporate debtor either in its registered office or its corporate office could be treated as a valid notice?
The National Company Law Appellate Tribunal observed that the NCLT, in its impugned order dated 17.09.2018 had noticed that the demand notice was sent by the Appellant to the Corporate Office of the Respondent where it was duly received as well. Further, the Appellant had also furnished valid dispatch proof and tracking report of the said demand notice.
Inspite of the service of notice on both the Registered Office and the Corporate Office addresses, nobody appeared on behalf of the Respondent.
The Hon'ble NCLAT also observed that the Respondent had not disputed the claim of the Appellant that an amount of Rs. 7,67,675/- was outstanding from the Respondent and no plea of an existing dispute has been taken by the Respondent either. Hence, it is a matter of fact that the Appellant had filed a complete application under Section 9 of the Code along with Forms 5 and 6.
NCLAT concluded that:
- Adjudicating Authority erred in rejecting the application under Section 9 on wrong presumption that demand notice is to be served on the Registered Office of the Corporate Debtor and not on Corporate Office
- The Hon'ble NCLAT further held that if the demand notice under Section 8 (1) of the Code is served on a Corporate Debtor, either in its Registered Office or its Corporate Office, it should be treated to be valid service of notice under Section 8 of the Code and an application under Section 9 of the Code, on failure of payment, is maintainable if it is filed after 10 days of sending the demand notice.
- Hence, the impugned order dated 17.09.2018 passed by the Hon'ble NCLT, New Delhi Bench III was set aside and the case was remitted back to the same bench to admit the Application under Section 9 without going into other issues in the matter, in view of deemed service on the Respondent.
Therefore NCLAT dismissed the appeal and directed the he Hon'ble NCLT New Delhi Bench III to issue a fresh notice to the Respondent on both its Registered Office and Corporate Office addresses, to give the Respondent an opportunity to settle the claim with the Appellant. However, if no settlement is reached between the parties then the Application under Section 9 must be admitted by the Hon'ble NCLT and an order of moratorium and appointment of Interim Insolvency Professional must be passed.
In this case, the NCLAT has held that the following are the three essential ingredients to initiate proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016:
- There must be an outstanding debt in favor of the Applicant, from the Respondent.
- The demand notice under Section 8 of the Code must be duly served upon the Corporate Debtor, either on its Registered office OR its Corporate Office., and
- The debt is undisputed.
The Hon'ble National Company Law Appellate Tribunal has explained that the essential requirement of service of demand notice upon the Corporate Debtor essentially means that the Corporate Debtor should be made aware of the Demand notice by duly serving it upon them. It is not necessary that the service must be made on the Registered office only for it to be considered as a valid service.
The Hon'ble Appellate Tribunal has interpreted the provisions related to service of the Demand Notice upon the Corporate Debtor under Section 8 of the Insolvency and Bankruptcy Code, 2016 in a liberal manner, so as to uphold and fulfill the object of the section.
It must be noted that as long as the demand notice is served upon the Corporate Debtor, either in its Registered office or Corporate Office, or both, it shall be considered as a valid proof of service under Section 8 of the Code for acceptance of an application under Section 9 of the Code for initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor.
NCLAT's judgment in this case will help avoid confusion in adjudicating similar disputes in the future.
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