2020 (10) TMI 329 - AT - IBC

Maintainability of application - initiation of CIRP - Corporate Debtor Debtor failed to make repayment of its dues - existence of pre-existing dispute or not - Service of notice - Condonation of delay in filing appeal - time limitation - Appeal is dismissed on the ground that the same is filed beyond 30 days from the date of passing of the impugned order which is beyond the statutory period as prescribed under Section 61(2) of the I B Code - HELD THAT - In the present case, the notice issued against the Corporate Debtor returned unserved because of insufficient address . After that, without exploring the possibility of service by other modes like email, the Adjudicating Authority passed the order for substituted service by publication of notice in the newspaper. In such circumstances, passing of an order for an ex-parte hearing against the Corporate Debtor, based on substituted service, cannot be held proper in the light of the law laid down by Hon ble Supreme Court in the Neerja Realtors (P) Ltd 2018 (1) TMI 1536 - SUPREME COURT . Admittedly, in this case, the demand notice, dated 22nd March 2019, in Form-3, was issued against the Corporate Debtor by registered post, which could not be served on account of insufficient address. After that, the demand notice dated 21st May 2019 in Form-3 was again sent through speed post. On perusal of the email dated 14th July 2018, it appears that the Corporate Debtor objected to the posting of wrong revenue on barter ledgers . It also appears from a perusal of email correspondence dated 17th October 2018 that the Corporate Debtor objected to releasing post-dated cheque of ₹ 73 lakhs without keeping it informed to the Corporate Debtor. It is also stated in the email that management fees will be paid after the barter reconciliation issue is resolved. By perusal of email communication dated 17th January 2019, it appears that dispute was raised regarding the quality of services. On perusal of email dated 14th March 2019, it appears that the Corporate Debtor raised the issue regarding service rendered by the Operational Creditor. It also shows that the Corporate Debtor informed the operational Creditor of taking over the complete management in its own hands because of being dissatisfied with the services rendered by the Operational Creditor. All these correspondences are before issuance of demand notice. Thus, there was a pre-existing dispute regarding the operation of management and services provided by the Respondent No.1 before the issuance of the demand notice dated 21.05.2019 under Section 8 of the I B Code. In the present case, it is crystal clear that there was a pre-existing dispute, even though the Adjudicating Authority admitted the Application for initiation of Corporate Insolvency Resolution Process by the impugned order - petition admitted - moratorium declared.

Summary

Issues Involved:
1. Whether the appeal was filed within the statutory period of limitation.
2. Compliance with the service procedure under the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016.
3. Existence of a pre-existing dispute between the parties before the initiation of proceedings under Section 9 of the Insolvency & Bankruptcy Code, 2016 (I&B Code).

Issue-wise Detailed Analysis:

1. Statutory Period of Limitation:
The Respondent contended that the appeal was filed beyond the 30-day statutory period as prescribed under Section 61(2) of the I&B Code. However, it was established that the impugned order dated 14th November 2019, and the appeal was filed on 5th December 2019, which is within the statutory period of limitation. Thus, the appeal was filed within the prescribed period.

2. Compliance with Service Procedure:
The Appellant argued that the impugned order should be set aside due to non-compliance with the service procedure prescribed under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016. The prescribed mode of service is registered post or speed post, and publication of notice is not a prescribed mode. The Respondent had sent the demand notice dated 21st May 2019 to the Appellant's registered office, which was returned due to insufficient address. A copy was also sent to the corporate address and successfully delivered. Additionally, the notice was sent via email. The Adjudicating Authority ordered substituted service by publication in the newspaper without exploring other modes like email, which was improper as per the Supreme Court's ruling in Neerja Realtors (P) Ltd. Vs. Janglu. Hence, the ex-parte hearing order based on substituted service was not proper.

3. Existence of Pre-existing Dispute:
The Appellant contended that there was a pre-existing dispute regarding the performance of services by the Respondent, which was not considered by the Adjudicating Authority. The Appellant provided email communications dated 14th July 2018, 17th October 2018, 17th January 2019, and 14th March 2019, indicating disputes over service quality, posting of wrong revenue, and issuance of post-dated cheques without informing the Appellant. The Supreme Court in Mobilox Innovation Pvt Ltd vs. Kirusa Software Pvt Ltd explained that if there is a plausible contention requiring further investigation and the dispute is not patently feeble, the application under Section 9 should be rejected. The Appellant's correspondences before the issuance of the demand notice indicated a pre-existing dispute.

Conclusion:
The appeal was allowed, and the impugned order dated 14th November 2019 was set aside. The order appointing the Interim Resolution Professional and declaring moratorium was declared illegal. The application under Section 9 of the I&B Code filed by Respondent No.1 was dismissed. The Adjudicating Authority was directed to close the proceeding and fix the fee of the Interim Resolution Professional for the period he functioned. No order as to costs was made.