2018 (1) TMI 951 - AT - Insolvency and Bankruptcy

Corporate insolvency process - no issue of notice - Held that - Admittedly, no notice was issued under sub-section (1) of Section 8 of the I&B Code . In terms with Rule 5, other informations were also not placed before the Adjudicating Authority. The 1st Respondent ( Operational Creditor ) having failed to provide all the details as required under Form-5 as noticed above, the application under sections 433 and 434 of the Companies Act, 1956 cannot be treated to be an application under section 9 of the I&B Code in terms of Rule 5 of Transfer Rules, 2016. For such failure to provide the information, in view of proviso to Rule 5 of the Transfer Rules, the application under Sections 433 and 434 of the Companies Act, 1956 filed by 1st Respondent stands abated. For the reasons aforesaid, while we set aside the impugned order dated 12th October, 2017 passed by the Adjudicating Authority, Chennai also declare that the application preferred by the 1st Respondent under Sections 433 and 434 of the Companies Act, 1956 stood abated.

Summary

Issues:
Challenge to order treating application under Section 9 of Insolvency and Bankruptcy Code without compliance, existence of dispute, and notice under Section 8.

Detailed Analysis:

1. Issue of Compliance with Insolvency and Bankruptcy Code:
The Appellant, a Shareholder and promoter of the Corporate Debtor, challenged the order treating the application under Section 9 of the Insolvency and Bankruptcy Code. The main contention was the non-compliance with the provisions of the Code before admitting the application. The Appellant argued that no notice under Section 8 was issued, and the application was admitted despite the existence of a dispute.

2. Background of the Case:
The case involved purchase orders placed by the Corporate Debtor with the Operational Creditor for cable supply. Disputes arose regarding warranty obligations, leading to a legal notice from the Operational Creditor demanding payment. The Corporate Debtor denied liability, and the Operational Creditor filed a petition under the Companies Act, which was later transferred to the Adjudicating Authority under the Insolvency and Bankruptcy Code.

3. Legal Provisions and Compliance Requirements:
The Appellant highlighted the necessity of issuing a demand notice under Section 8 of the Code before admission of an application. Additionally, the application was required to be filed in the prescribed format under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which mandates providing records of dues and defaults.

4. Abatement of Application:
The Tribunal observed that the Operational Creditor failed to provide all necessary details as required under Form-5 for filing an application under Section 9 of the Code. Consequently, the application under Sections 433 and 434 of the Companies Act was deemed abated under Rule 5 of the Transfer Rules, 2016.

5. Decision and Directions:
The Tribunal set aside the impugned order, declaring the application of the Operational Creditor as abated. The Operational Creditor was granted liberty to issue a fresh notice under Section 8 of the Code, and if no dispute was raised, file a new application under Section 9. All orders passed by the Adjudicating Authority were declared illegal and set aside, allowing the Corporate Debtor to function independently.

6. Conclusion and Costs:
The Tribunal directed the Adjudicating Authority to close the proceedings, fix the fees of the Resolution Professional, and ordered the Appellant to pay the fees for the period of functioning. The appeal was allowed with the specified observations and directions, with no costs awarded in the circumstances of the case.