2017 (5) TMI 1477 - AT - Insolvency and Bankruptcy

Insolvency resolution by an Operational Creditor - Held that - Admittedly, no notice was issued by Operational Creditor under section 8 of the I & B Code,2016. Demand notice by Operational Creditor stipulated under Rule 5 in Form 3 has not been served. Therefore, in absence of any expiry period of tenure of 10 days there was no question of preferring an application under section 9 of I & B Code,2016. The Adjudicating Authority has failed to notice the aforesaid facts and the mandatory provisions of law as discussed above. Though the application was not complete and there was no other way to cure the defect, the impugned order cannot be upheld. Thus we set aside the order dated 12th April 2014 passed by the Adjudicating Authority. The application preferred by Operational Creditor under section 9 stands dismissed being incomplete. All orders, interim arrangement etc as has been made are vacated, moratorium as declared earlier is quashed, appointment of interim resolution professional also stands quashed.

Summary

Issues:
1. Initiation of insolvency process without proper notice under section 8 of the I & B Code, 2016.
2. Compliance with mandatory provisions of law for initiating insolvency resolution process.
3. Adjudicating Authority's failure to consider lack of notice and incomplete application.

Analysis:

Issue 1:
The Appellant challenged the order initiating Insolvency Resolution Process without serving a notice under section 8 of the I & B Code, 2016. The Operational Creditor argued that a notice for winding up under the Companies Act, 2013, sufficed as notice under section 8. However, the Appellant contended that the application was incomplete as per Form 3 requirements. Rule 5 mandates a demand notice to be served, and the absence of this notice rendered the application premature.

Issue 2:
The Adjudicating Authority admitted the incomplete application without considering the mandatory provisions of section 9 of the I & B Code, 2016. The Operational Creditor failed to comply with the demand notice requirements, as specified in Form 3, leading to a premature initiation of the insolvency resolution process. The Authority's oversight of these crucial legal prerequisites rendered the entire process legally flawed.

Issue 3:
The Adjudicating Authority's failure to acknowledge the absence of a proper notice and incomplete application highlights a significant legal error. The Appellant's argument that the impugned order cannot be upheld due to these deficiencies is legally sound. Consequently, the Tribunal set aside the order, dismissed the incomplete application, vacated all interim arrangements, quashed the moratorium, and declared the actions of the interim resolution professional as illegal.

In conclusion, the Tribunal's decision to allow the appeal was based on the Appellant's valid contentions regarding the lack of proper notice and incomplete application, which rendered the initiation of the insolvency resolution process legally unsustainable. The judgment emphasizes the critical importance of adhering to the prescribed legal procedures and requirements when initiating such significant legal actions under the I & B Code, 2016.