2019 (10) TMI 1354 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor - validity of demand notice sent by the Operational Creditor - HELD THAT - It is a settled principle of law that there is a difference between the procedure for initiation of CIRP by the Financial Creditors U/s 7 of the IBC and the Operational Creditors U/s 9 of the IBC. So far as the Financial Creditor is concerned, as per Section 7 of the IBC, there is no need to deliver the notice before the initiation of CIRP. For the initiation of CIRP U/s 9 of the IBC by the Operational Creditor, the Operational Creditor is required to deliver the demand notice upon the Corporate Debtor U/s 8 of the IBC. The main object of the inception of provision of Section 8 is, This ensures that operational creditors, whose debt claims are usually smaller, are not able to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It may also facilitate informal negotiations between such creditors and the corporate debtor, 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 operational creditor' is mentioned instead of 'sending a demand notice of unpaid operational creditor'. The purpose to deliver the notice is to give an opportunity to the Corporate Debtor to raise a dispute or negotiate with the operational creditor and that was the intention of the legislatures, that is the reason the word 'delivery' has been given in place of 'sending or giving the notice upon the person concern'. This Tribunal is of the considered view that under Rule 5 of the Insolvency 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 corporate debtor, and on the basis of the facts stated in the application, it is found that, the applicant had sent the demand notice through the registered post, which was returned as insufficient address and through email of the Company as given in MCA portal but he has neither delivered it personally nor send the demand notice through electronic mail service to a whole time director or designated partner or key managerial personnel of the corporate debtor. The applicant has not complied the provision contained under Rule 5 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016, therefore, this Tribunal is of the considered view that the applicant has not delivered the demand notice as required U/s 8 of the IBC, which is the mandatory provision of law and so on this ground in the absence of delivery of demand notice as required U/s 8 of IBC, the present petition filed by the applicant/operational creditor is not complete and not maintainable and liable to be dismissed. Petition dismissed.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process under Section 9 of Insolvency and Bankruptcy Code, 2016 based on non-payment of invoices by the Corporate Debtor.

Analysis:
The Applicant, an operational creditor, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor for non-payment of invoices totaling ?39,69,803/- since 30.05.2018, with accrued interest, making the total amount due ?43,54,878/- as of 31.12.2018. The Applicant sent a notice on 31.01.2019, but the Corporate Debtor only made a partial payment of ?4 lakhs on 08.04.2019. The key issue before the Adjudicating Authority was the compliance of the notice sent by the operational creditor as per Section 8 of the IBC, 2016 and Rule 5 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Adjudicating Authority found that the notice sent by the operational creditor was not delivered to the Corporate Debtor as required under Section 8 of IBC, 2016. The Applicant claimed to have sent the notice via email, but the tracking report showed it was not delivered due to an insufficient address. The Authority highlighted the mandatory requirement of delivering the demand notice under Rule 5 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Adjudicating Authority differentiated between the procedures for Financial Creditors under Section 7 and Operational Creditors under Section 9 of the IBC. It emphasized the importance of delivering a demand notice to the Corporate Debtor before initiating Corporate Insolvency Resolution Process, as prescribed under Section 8 of the IBC. The Authority clarified the intention behind the provision was to allow the Corporate Debtor an opportunity to raise a dispute or negotiate with the operational creditor.

Ultimately, the Adjudicating Authority dismissed the current petition as the Applicant failed to comply with the provisions of Section 8 read with Rule 5 of the Adjudicating Authority Rules. The Applicant was given the liberty to file a fresh case after ensuring proper delivery of the demand notice to the Corporate Debtor in accordance with the law. The judgment highlighted the significance of strict adherence to the procedural requirements for initiating insolvency proceedings under the IBC to protect the interests of all parties involved.