2017 (8) TMI 1647 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - arrears of salaries due have not been paid - Operational Creditors - service of demand notice - existence of debt and dispute or not - HELD THAT - Admittedly, no demand notice under Section 8 was given by any of the individual respondent-'Operational Creditor', either in Form-3 or Form-4 of the Adjudicating Authority Rules. All the notices, which are same and similar and all dated 27th February, 2017, were issued by the same advocate, on behalf each of the respondents. Only the amount of default shown therein are varying. Learned counsel for the respondents accepts that apart from advocate notice, no separate notice under Section 8 were individually given by any of the respondents. Service of demand notice - HELD THAT - It is true that no authorisation on behalf of any Company, or firm is required to be given, but the individual(s) are also required to give notice under Section 8 in Form-3 or Form-4 under their signatures with clear understanding and request to repay the unpaid 'Operational Debt' (in default) unconditionally, in full, within ten days from the receipt of the letter, with further intimation that on failure, the said employee(s)/ workmen shall initiate a Corporate Insolvency Process in respect of the 'Corporate Debtor'. If such notice in Form-3 or Form-4 with the aforesaid stipulation is served on the 'Corporate Debtor', the 'Corporate Debtor' will understand the serious consequences of non-payment of 'Operational Debt', otherwise like any normal pleader notice/advocate notice or like notice under Section 80 of the Code of Civil Procedure, 1908 or notice for initiation of proceeding under the Industrial Disputes Act, 1947, the 'Corporate Debtor' may not take it seriously and may decide to contest the suit/case, if filed, before the appropriate forum - where the claim is made under Section 8 of I B Code, in such case, the 'Corporate Debtor' will understand the seriousness that it cannot contest the claim, except in a case where a dispute has already been raised, prior to the issuance of notice under Section 8. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Validity of demand notices issued under Section 8 of the I&B Code.
3. Compliance with procedural requirements of the I&B Code and Adjudicating Authority Rules.
4. Timeliness and limitation of claims by ex-employees.
5. Appointment and actions of the Interim Resolution Professional (IRP).

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the I&B Code:
The respondents, ex-employees of the appellant, filed applications under Section 9 of the I&B Code for initiating CIRP against the appellant, alleging non-payment of arrears of salaries. The National Company Law Tribunal (NCLT) admitted the application of one respondent, Mr. D. Ramjee, and directed the other two respondents to approach the Interim Insolvency Professional (IRP) appointed in Mr. Ramjee's case to make their claims.

2. Validity of demand notices issued under Section 8 of the I&B Code:
The appellant contended that no proper notice under Section 8, read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, in Form-3/Form-4, was served on them. Instead, advocate notices were issued, which do not fulfill the requirements of the I&B Code. The Tribunal found that the notices issued by the respondents' advocate did not comply with the prescribed forms and procedures under Section 8.

3. Compliance with procedural requirements of the I&B Code and Adjudicating Authority Rules:
The Tribunal referred to a similar case, "Macquarie Bank Limited Vs. Uttam Galva Metallics Limited," where it was held that an advocate or lawyer, without proper authorization, cannot issue a notice under Section 8 of the I&B Code. The operational creditor must deliver the demand notice in Form-3 or Form-4, signed by a person authorized to act on behalf of the operational creditor. The Tribunal reiterated that the failure to comply with these procedural requirements invalidates the notices issued by the respondents.

4. Timeliness and limitation of claims by ex-employees:
The Tribunal noted that the claims of the respondents were barred by limitation, as they were made several years after the respondents retired. Despite this, the appellant expressed willingness to pay arrears of three years' salary and post-retirement benefits if due. The Tribunal did not delve into the limitation issue further, given the procedural non-compliance with Section 8 notices.

5. Appointment and actions of the Interim Resolution Professional (IRP):
The Tribunal set aside the NCLT's order appointing the IRP and declaring a moratorium, freezing accounts, and other related actions. It declared all actions taken by the IRP, including advertisements calling for applications, as illegal. The applications under Section 9 of the I&B Code were dismissed, and the appellant was allowed to resume normal operations through its Board of Directors.

Conclusion:
The Tribunal concluded that the notices issued by the respondents did not comply with the procedural requirements of the I&B Code, rendering the initiation of CIRP invalid. It set aside the NCLT's orders and dismissed the applications under Section 9. The Tribunal also clarified that the appellant should pay the respondents three years' arrears of salary and post-retirement benefits if due, as assured. The appeals were disposed of with no order as to costs.