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Judgment
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
The appeal has been filed by the ‘Appellant' – Nitin Singh ‘Proprietor of Shri Shyam Printers, New Delhi’ under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 12.03.2020 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal), New Delhi Bench-V in CP(IB) No. 2827/ND/2020.
Brief facts of the case are enumerated hereunder:
a. The ‘Operational Creditor’ (OC)/Appellant has an outstanding amount of Rs. 1,31,471/- since 30.12.2018.
b. The Appellant was providing ‘printing and packaging material’ to the ‘Corporate Debtor’ (CD)/Respondent. The OC/Appellant issued a ‘notice’ dated 08.06.2019 under Section 8 of the Code. Email served as per the ‘master data’ of the CD and the same was not bounced.
c. The CD raised a notice of dispute on 25.06.2019. The ‘dispute’ is with respect to ‘quality of material’.
d. The CD has further raised the issue of loss of Rs.10 lakh approx. due to ‘poor quality of goods’ supplied by the OC. The ‘Adjudicating Authority’ on 12.03.2020 has dismissed the petition of Appellant/OC on the ground of ‘none delivery of demand notice’ etc.
A look at the ‘impugned order’ dated 12.03.2020 (appearing at page 30-37 of the Appeal paper book) it appears that the Adjudicating Authority with a detailed order has dismissed the petition. For a brevity and clarity, para 9, 10, 11 &12 is depicted below:-
“Para 9. It is settled principal of law that there is a difference between the procedure for initiation of CIRP by the FCs U/s 7 of the Code and the OC u/s 9 of the Code. So far as the FC is concerned, as per Section 7 of the Code, there is no need to deliver the notice before the initiation of CIRP and that has been decided by the Hon’ble Apex Court in Innoventive Industries Ltd. Vs. ICICI bank, (2017) Comp Cas 57 (SC) held : “ The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing – i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.
10.Therefore, for the initiation of CIRP u/s 9 of the IBC by the OC, the OC is required to deliver the demand notice upon the CD u/s 8 of the Code. The main object of the inception of provisions of Section 8 is , “this ensures that OC, whose debt claims are usually smaller, are not able to put the Cd into the insolvency resolution process prematurely or initiated the process for extraneous considerations. It may also facilitate informal negotiations between such creditors and the CD, which may result in a restructuring of the debt outside the formal proceedings”, and that is the reason in Section 8 of the IBC, the word , ‘deliver a demand notice of unpaid OC’ is mentioned.
11.in the light of the aforesaid provision and the submissions made by the ld. Counsel, when we shall consider the case of the e Applicant, then this AA is of the considered view that under Rule 5 of the Insolvency and bankruptcy (Application to Adjudicating Authority) Rules 2016, there are two modes for sending demand notice, one is either at the registered office by hand, registered post or speed post with acknowledgement due, or second one, by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the CD, and on the basis of the facts stated in the application, we find, the applicant had sent the demand notice through the registered post which was returned as “no such person found”, so Rules 5 (2) (a) has not been complied with. As far as Rule 5(2)(b) is concerned, the applicant has sent the demand notice through electronic mail but the CD has nowhere mention in the application, whether it is sent on the email id of the whole time director, designated partner or key managerial personnel of the CD. Therefore, it can be said that the Applicant has not delivered notice under Section 8 of the Code, in accordance with the provisions of the Rule 5(2)(b) of the Insolvency and bankruptcy (Application to Adjudicating Authority )Rules 2016.
12.So, Under such circumstances, in our opinion, the applicant has not complied the provision contained under Rule 5 (Application to Adjudicating Authority) Rules 2016., therefore, this Adjudicating Authority is of the considered view that the Applicant has not delivered the demand notice as required u/s 8 of the Code, which is the mandatory provisions of law and so on this ground in the absence of delivery of demand notice as required u/s 8 of the code, the present CP No. (IB) 2827/ND/2019 filed by the Applicant/OC is not complete and not maintainable and liable to be dismissed. Accordingly, it is therefore.
The case of the Appellant is that it has sent the ‘demand notice’ at the registered office of the CD as per the ‘Master Data’ available on ‘MCA Website’ but the demand notice dated 08.06.2019 sent through speed post on 10.06.2019 could not be delivered to the CD /the Respondent and returned back with the remarks “No such person found”. Then the OC/Appellant also sent email on 15.06.2019 at the email id mentioned in the Master data of the Company and the email was not bounced back. So, he is raising the issue that he has delivered the demand notice. He has also stated that CD has issued notice of dispute vide their letter dated 25.06.2019 (appearing at page 136-138 of the Appeal paper book) and the same is depicted below:
The OC has also stated that there was neither any ‘Whole Time Director’, ‘Managing Director’ or any ‘Key Managerial Personnel’ with the CD / Respondent. Therefore, no notice could have been even possible to be sent at their email id and the email ids of these ‘Directors’ were not available on the public domain. He has also attached the Ledger copy of the CD as appearing in the appeal paper book at page 71 alongwith the copy of invoices).
With all the details the Appellant/OC is seeking the relief of setting aside the impugned order dated 12.03.2020 passed by the Adjudicating Authority as stated above etc.
The Ld. counsel for the Respondent has submitted the followings:
a. The CD/Respondent has not received the mandatory ‘demand notice’ under Section 8 of the Code. They have also not received the email and have also confirmed the email given in the ‘Company Master Data’ is not of the ‘Directors’ of the OC/Respondent Company. They have disowned the receipt of such email. They have also leveled the allegations that the Appellant/OC being a supplier of the Respondent and the Respondent was in regular contact with the OC/its Director on all of the updated email ids and contact numbers yet the Appellant choses to skip the actual and updated communication details and issued notice to the wrong email ids due to vested interest and is bluntly misleading this Tribunal deliberately and intentionally to fulfil its ulterior motives.
b. It is the settled law that anyone who approaches the Court must approach with clean hands and the OC has failed to reflect the same and hence the present appeal is liable to be dismissed on the same ground.
c. The CD/Respondent has submitted that the order passed by the Adjudicating Authority is a reasoned order. It has emphatically stated that the Appellant/OC has the updated and correct correspondence information of the Respondent with them yet the same has not been used due to ulterior motives and the Appellant is creating a ‘concocted story’ to ignore the prescribed provisions of law by misrepresentation and wrong information
We have gone through the submissions made by the Ld. counsel for the parties, pleadings available on record and our finding are as under:
a. The submissions made by the Appellant and the Respondent reflects one thing categorically that the ‘Demand Notice’ has not been received by the Respondent/CD.
b. It also seems very clear that the Appellant/OC has not used regular email and address in the ‘Demand Notice’. Although, it was regular supplier in 2018.
c. There is an issue of poor quality complain in respect of packing materials supplied by the Appellant/OC and the Appellant has not disputed the same only they have mentioned that this letter has been issued after issue of Demand Notice.
d. However, (at page 156 of the Appeal Paper book) in ‘Annual Return’ of CD/Respondent, the names of three ‘Directors’ with their DIN Number available
e. In this context, let us see the requirement of Section 8 & 9 of the Code and provisions of Rule 5 of the Insolvency and Bankruptcy (Application to Authority Authority) Rules, 2016.
Section 8: Insolvency resolution by operational creditor.
(1)An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
(2)The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
(a)existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b)the [payment] of unpaid operational debt—
(i)by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii)by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.
Explanation.—For the purposes of this section, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding [payment] of the operational debt in respect of which the default has occurred.
Section 9 - Application for initiation of corporate insolvency resolution process by operational creditor.
(1)After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under subsection (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2)The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3)The operational creditor shall, along with the application furnish—
(a)a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;
(b)an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
(c)a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt [by the corporate debtor, if available;]
(d)a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and
(e)any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.]
(4)An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—
(i)admit the application and communicate such decision to the operational creditor and the corporate debtor if,—
(a)the application made under sub-section (2) is complete;
(b)there is no [payment] of the unpaid operational debt;
(c)the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;
(d)no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and
(e)there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.
(ii)reject the application and communicate such decision to the operational creditor and the corporate debtor, if—
(a)the application made under sub-section (2) is incomplete;
(b)there has been [payment] of the unpaid operational debt;
(c)the creditor has not delivered the invoice or notice for payment to the corporate debtor;
(d)notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or
(e)any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.
(6)The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section.”
Rule 5 - Demand notice by operational creditor.—
(1)An operational creditor shall deliver to the corporate debtor, the following documents, namely.-
(a)a demand notice in Form 3; or
(b)a copy of an invoice attached with a notice in Form 4.
(2)The demand notice or the copy of the invoice demanding payment referred to in sub- section (2) of section 8 of the Code, may be delivered to the corporate debtor, (a) at the registered office by hand, registered post or speed post with acknowledgement due; or (b) by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor.
(3)A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any.”
f. From the above, it is very much clear that receipt of demand notice by the CD is a must. In the present case, the demand notice has not received by the CD.
g. There also exists some disputes with respect to poor quality of packing materials supplied by the OC to the CD and the CD has visited the godown for inspection and observed the discrepancies in the inner packing carton and outer packing carton supplied by the OC. CD has even requested to replace the material which has not been done by OC.
h. The Hon’ble Supreme Court has also held in Mobilox Innovations Private Limited Versus Kirusa Software Private Limited in Civil Appeal No. 9405 of 2017 at para 29 as under:
“It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form.”
In view of the aforesaid facts and circumstances the case, there seems that the OC/Appellant wants to build up a pressure for releasing the payment. However, the provisions of the Code cannot be applied from chasing of payment as held by the Hon’ble Supreme Court in Civil Appeal No.9597 of 2018, “Transmission Corporation of Andhra Pradesh limited Vs. Equipment Conductors and Cables Limited” vide para 15 has already held that IBC is not intended to be a substitute to a recovery forum and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked.
j. All these reflect that the delivery of demand notice is a must for any further action under Section 9 of the Code.
k. Hence, we are of the view , in the aforesaid facts and circumstances, that we do not find any infirmity in the impugned order of the Adjudicating authority and we uphold the order of the Adjudicating Authority. Accordingly, the Appeal is dismissed. Pending Application, if any, stands disposed off. No order as to costs.