2017 (12) TMI 398 - AT - Insolvency and Bankruptcy

Corporate insolvency procedures - proof of existing debt - Held that - From the statement made by the Operational Creditor it is clear that the demand notice issued to the Corporate Debtor at its registered office and to the Director(s) were returned unserved. Notices were served only to the Company Secretary and to one ex-Director, Mr. Shyam Poddar. Though such specific statement has been made by the Operational Creditor in the application under Section 9, the Adjudicating Authority ignoring the same and without verifying the other facts admitted the case. In view of the plea taken by the appellant and the facts as narrated above, we hold that notice under sub-section(1) of Section 8 in form 3 was incomplete and the application under Section 9 was not maintainable. For the reasons aforesaid, we set aside the order dated 24th August, 2017 passed in C.P. No. (IB)- 211(ND)/2017. In effect, order(s), if any, passed by Ld. Adjudicating Authority appointing any Interim Resolution Professional or freezing of account, if any, and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional , including the advertisement, if any, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside

Summary

Issues:
1. Appeal against admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Completeness of demand notice under Section 8.
3. Maintainability of application under Section 9.
4. Service of notices to the Corporate Debtor.

Analysis:
1. The appeal was filed by the Director of a Corporate Debtor against the order admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The appellant contended that the admitted dues were paid to a third party after negotiation with the Operational Creditor, which was disputed by the respondent. The appellant also raised issues regarding the completeness of the demand notice under Section 8 and the maintainability of the application under Section 9.

2. The appellant argued that the demand notice issued by the Operational Creditor under Section 8 was incomplete as it did not contain the required documents. However, the Corporate Debtor's reply mentioned that the notice was incomplete as it lacked a tabular form demonstrating the computation of default. The appellant's counsel further highlighted discrepancies in the notice, questioning its completeness.

3. The appellant also raised concerns about the application under Section 9 being incomplete, pointing to Form 5 submitted by the Operational Creditor. The appellant argued that the notice served was incomplete, and the Adjudicating Authority should have rejected the application. The appellant's contentions were supported by discrepancies in the documents submitted by the Operational Creditor.

4. It was revealed that the notices sent to the Corporate Debtor were returned unserved, except for those served to the Company Secretary and an ex-Director. The Operational Creditor's statement confirmed the unserved notices, indicating that the demand notice was not effectively served. Despite this, the Adjudicating Authority admitted the case without verifying the facts, leading to the appeal's success and the dismissal of the application under Section 9.

5. The Tribunal set aside the order passed by the Adjudicating Authority, declaring all subsequent actions illegal. The Corporate Debtor was released from the obligations imposed by the order, allowing it to function independently. The Tribunal directed the Adjudicating Authority to determine the fee of the Interim Resolution Professional, if appointed, to be paid by the Corporate Debtor for the period of their service. The appeal was allowed without any costs imposed on the parties involved.