2018 (10) TMI 776 - AT - Insolvency and Bankruptcy

Corporate insolvency process - no demand notice given to the corporate debtor - Appellant enclosing terms of settlement which shows that the amount payable to the Respondent has been paid by draft dated 27th August, 2018 - Held that - The impugned order passed by the Adjudicating Authority without taking into consideration the evidence that the demand notice under Section 8(1) was never served on the Corporate Debtor, we set aside the impugned order dated 14th June, 2018. The case is not remitted parties have settled the claim. In effect, order(s) passed by the Adjudicating Authority appointing Resolution Professional , declaring moratorium, freezing of account, and all other order(s) passed pursuant to impugned order and action taken by the Resolution Professional , including the advertisement published in the newspaper calling for applications and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the I&B Code, 2016 is dismissed. The Corporate Debtor is released from the rigours of law and is allowed to function independently through its Board of Directors from immediate effect.

Summary

Issues involved:
Admission of application under Section 9 of Insolvency and Bankruptcy Code without proper service of demand notice under Section 8(1).

Analysis:
The appeal was filed by a Shareholder and Ex-Director of a Corporate Debtor against an order passed by the Adjudicating Authority admitting the application of an Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Appellant argued that no demand notice under Section 8(1) was served on the Corporate Debtor, despite the Adjudicating Authority treating it as served. Evidence confirmed that the demand notice was never served on the Corporate Debtor, as acknowledged by both parties. The Appellant mentioned that settlement negotiations were ongoing, and a draft of a bank was to be handed over to the Operational Creditor as part of the settlement. An affidavit was filed by the Appellant, providing terms of settlement and confirming payment to the Respondent through a draft. The Tribunal found that the impugned order was passed without considering the evidence of non-service of the demand notice, leading to the setting aside of the order. The case was not remitted as the parties had settled the claim.

The Tribunal declared all orders passed by the Adjudicating Authority, including the appointment of Resolution Professional, declaration of moratorium, freezing of accounts, and actions taken by the Resolution Professional, as illegal and set them aside. The application under Section 9 of the I&B Code was dismissed, releasing the Corporate Debtor to function independently through its Board of Directors immediately. The Adjudicating Authority was tasked with fixing the fee of the Resolution Professional, to be paid by the Corporate Debtor. The appeal was allowed with no costs imposed.