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2018 (7) TMI 2317 - AT - Insolvency and BankruptcyApplication admitted u/s 9 of IBC - non-services of notices - it is alleged that notice under Section 8(1) of the I B Code 2016 was never served on the Corporate Debtor - also alleged that Adjudicating Authority has not served any notice on the Corporate Debtor before admitting the application under Section 9 - HELD THAT - The notice under Rule 5 (1) of the 'I B Code' 2016 (Application to Adjudicating Authority) Rules 2016 i.e. Demand Notice under Section 8(1) was issued by the Operational Creditor on 29th August 2017. It was not served on the Corporate Debtor and returned with the note insufficient address . The Adjudicating Authority at paragraph 4 of the impugned order though noticed that notice sent to the Corporate Debtor returned unserved with insufficient address, in spite of the same the application under Section 9 was entertained on the ground that the address of the Corporate Debtor as appearing on the website was mentioned by the Operational Creditor. The legislative intent of issuance of Demand Notice under Section 8(1) is not a mere formality but a mandatory provision. Only after service of notice under Section 8(1) and on completion of 10 days, if payment towards the demand is not made, an Operational Creditor accrues right to file application under Section 9 and not before such date - in absence of service of Demand Notice, the application under Section 9 of 'I B Code' 2016 was not maintainable. This apart, it is found that the Adjudicating Authority had not issued any Notice on the Corporate Debtor before admission of the application under Section 9 which was required to be issued in the light of the decision of this Appellate Tribunal in Innoventive Industries Ltd. Vs. ICICI Bank and Ors. 2017 (6) TMI 959 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, MUMBAI - the direction given to Operational Creditor to serve notice of date of hearing on the Corporate Debtor is not in accordance with the NCLT Rules, 2016 and cannot be treated to be a notice issued and served by the Adjudicating Authority. It is also against sub-Section (2) of Section 424 of the Companies Act, which is applicable to I B Code 2016. The orders passed by the Adjudicating Authority appointing 'Resolution Professional', declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action taken by the 'Resolution Professional', including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside - application dismissed.
Issues:
1. Service of notice under Section 8(1) of the Insolvency and Bankruptcy Code, 2016. 2. Adjudicating Authority's failure to issue notice on the Corporate Debtor before admitting the application under Section 9. 3. Legality of the direction given to the Operational Creditor to serve notice of the date of hearing on the Corporate Debtor. Analysis: Issue 1: Service of notice under Section 8(1) of the Insolvency and Bankruptcy Code, 2016 The appellant contended that the notice under Section 8(1) of the Insolvency and Bankruptcy Code, 2016 was never served on the Corporate Debtor. The Operational Creditor had issued a Demand Notice on 29th August 2017, but it was not served on the Corporate Debtor and was returned with the note "insufficient address." The Adjudicating Authority acknowledged this but still entertained the application under Section 9 based on the address mentioned by the Operational Creditor. The Appellate Tribunal emphasized that the issuance of the Demand Notice under Section 8(1) is mandatory, and without its service, an Operational Creditor cannot file an application under Section 9. Issue 2: Failure to issue notice on the Corporate Debtor before admitting the application under Section 9 The Adjudicating Authority failed to issue any notice on the Corporate Debtor before admitting the application under Section 9. This omission was deemed necessary as per the decision of the Appellate Tribunal in a previous case. The absence of such notice rendered the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 not maintainable. Issue 3: Legality of the direction to serve notice of the date of hearing on the Corporate Debtor The direction given to the Operational Creditor to serve notice of the date of hearing on the Corporate Debtor was found to be against the NCLT Rules, 2016 and not in compliance with Section 424(2) of the Companies Act, which is applicable to the Insolvency and Bankruptcy Code, 2016. This direction could not be considered as a notice issued and served by the Adjudicating Authority. Consequently, the Appellate Tribunal set aside the impugned order, declared all related orders and actions illegal, dismissed the application under Section 9, and allowed the Corporate Debtor to function independently through its Board of Directors. In conclusion, the Appellate Tribunal allowed the appeal, set aside the impugned order, and directed the Adjudicating Authority to close the proceedings. The Corporate Debtor was released from the legal obligations, and the fee of the Interim Resolution Professional, if appointed, was to be fixed and paid by the Corporate Debtor for the period of service.
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