2020 (3) TMI 1395 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - service of demand notice - 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 and that has been decided by the Hon ble Apex Court in Innoventive Industries Ltd. v. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT . 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. This Adjudicating Authority 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 no such person found , so, Rule 5(2)(a) has not been complied with. The applicant has not complied the provision contained under Rule 5 of the Insolvency Bankruptcy (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 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 - Petition dismissed.

Summary

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

Analysis:
The judgment involves a petition filed by an operational creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 against a Corporate Debtor for non-payment of dues. The Applicant, a supplier of Printing and Packaging material, sought initiation of Corporate Insolvency Resolution Process against the Respondent, a private limited company. The Applicant claimed that the Respondent failed to make payments amounting to ?1,31,471/- for materials supplied between 28.09.2018 to 30.12.2018. The Respondent, in response, raised objections regarding the quality of goods supplied and alleged losses of approximately ?10,00,000/- due to poor quality. The Applicant sent a demand notice as required under Section 8 of the IBC, but faced challenges in the delivery process.

The Tribunal analyzed the provisions under Rule 5 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which outline the requirements for delivering a demand notice to the Corporate Debtor. It differentiated between the procedures for Financial Creditors under Section 7 and Operational Creditors under Section 9 of the IBC. The judgment highlighted the necessity for Operational Creditors to serve a demand notice before initiating the Corporate Insolvency Resolution Process. The purpose of this notice is to prevent premature insolvency proceedings and encourage informal negotiations between the parties.

The Tribunal emphasized the importance of complying with the provisions of Rule 5, which mandate specific modes of delivering the demand notice. It noted that the Applicant failed to fulfill the requirements under Rule 5(2)(a) and Rule 5(2)(b) regarding the delivery of the notice through registered post and electronic mail. Consequently, the Tribunal concluded that the Applicant did not deliver the demand notice as required under Section 8 of the IBC, rendering the petition incomplete and not maintainable. As a result, the Tribunal dismissed the present petition but granted the Applicant the liberty to file a fresh case after ensuring proper delivery of the demand notice in accordance with the rules.

In conclusion, the judgment underscores the significance of adhering to procedural requirements when initiating insolvency proceedings, particularly in the context of serving demand notices to Corporate Debtors. Failure to comply with these statutory provisions can lead to the dismissal of the petition, emphasizing the need for strict adherence to the prescribed rules in insolvency cases.