2021 (1) TMI 981 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - outstanding sum has been claimed at ₹ 11,30,146/- and date of default has been claimed as Financial Year 2018 - HELD THAT - In case of proceedings under Section 9 of IBC, 2016 or section 8 of IBC 2016 of significant nature. It has been observed by higher judicial forums that requirement of service of notice under Section 8(1) of IBC, 2016 is crucial so that any entity is not put into CIRP in a light manner. Rule 5 (Application to Adjudicating Authority) Rules, 2016 provides that Operational Creditor shall deliver to the Corporate Debtor. Demand notice in form-3 or copy of invoice attached with the notice in Form-4. Form No.3 and Form No.4 have been prescribed which provide for submission of all relevant information to the Corporate Debtor alongwith supporting documents so that the Corporate Debtor can raise dispute, if any, under Section 8(2) of IBC, 2016 within 10 days from the receipt of such notice. In the present case, so-called notice does not contain such details / information nor any documents which are required to be given to the Corporate Debtor alongwith such notice have been attached. In a number of cases, coordinate benches as well as Hon'ble NCLAT has taken a view that such notice is necessarily to be in the prescribed forms and in absence thereof, application filed under Section 9 was liable to be dismissed. As stated earlier, neither specified form has been delivered nor contents of such notice meet the requirements of law - the present application is liable to be dismissed as it is an incurable defect. Application disposed off.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process (CIRP) based on a default claim of outstanding sum against a Corporate Debtor. Dispute regarding the validity of the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the prescribed format for such notices.

Analysis:

Issue 1: Initiation of CIRP
The Operational Creditor filed an application to initiate CIRP against the Corporate Debtor for an outstanding sum of ?11,30,146 from a transaction in the Financial Year 2018. The Operational Creditor contended that the debt was due and payable, and no pre-existing dispute existed, making the application admissible. The Corporate Debtor, represented by its counsel, argued against the application's dismissal, highlighting technical defects in the demand notice and the lack of requisite authority of the signatory. Additionally, concerns were raised regarding the quality of the supplied material. The Tribunal noted the importance of the notice under Section 8 of the IBC and the prescribed formats under Regulation 5 of the Rules. It was observed that the notice in this case did not meet the required details or contain the necessary documents as per the prescribed forms. The Tribunal emphasized that the notice's contents and format are crucial for the Corporate Debtor to raise any disputes within the specified timeline. As the notice failed to comply with the prescribed forms and legal requirements, the Tribunal deemed the application incurably defective and dismissed it, following precedents that stressed adherence to the prescribed formats for such notices.

Issue 2: Validity of Demand Notice
The Operational Creditor argued that any technical defects in the demand notice could be overlooked at the Tribunal's discretion and that no pre-existing dispute had been substantiated by the Corporate Debtor. However, the Tribunal emphasized the significance of the prescribed forms for the notice under Section 8 of the IBC. It highlighted that the absence of required details and documents in the notice, as mandated by the prescribed forms, rendered the application dismissible. The Tribunal underscored that the notice's compliance with the prescribed forms is essential to prevent entities from being subjected to CIRP without proper grounds. In this case, the Tribunal found the notice deficient and lacking the necessary information and attachments, leading to the dismissal of the Operational Creditor's application. The Tribunal concluded that the application was to be dismissed due to the incurable defect arising from the non-compliance with the prescribed forms for the demand notice.

Conclusion
The Tribunal dismissed the application for initiating CIRP against the Corporate Debtor due to the defective demand notice that did not adhere to the prescribed formats under the IBC rules. The Tribunal's decision was based on the critical importance of the notice's contents and format in ensuring procedural fairness and compliance with legal requirements. The dismissal of the application highlighted the necessity of strict adherence to the prescribed forms for demand notices under the IBC to maintain the integrity of insolvency proceedings and safeguard the rights of the parties involved.