2021 (7) TMI 714 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - issuance of demand notice in Form 3 annexed with invoices - query raised from the Operational Creditor as to how the Demand Notice based on invoices issued in Form 3 is in compliance of Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - Subject of the Form 3 is Demand Notice/invoice, which requires the Operational Creditor to give comprehensive details of the operational debt in columns from 1 to 7 like Total amount of debt, Date of Default, Calculation of reaching the amount of Default, Particulars of Security held, Record with Information Utility etc. However, in contrast, the Form 4 provides an escape route to the Operational Creditor from disclosing these important facts - Hence, one finds that no prejudice can ever be caused to any of the parties if the Demand Notice based on Invoices is sent in Form 3. The facts of the Neeraj Jain 2020 (3) TMI 99 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI decided by Hon'ble NCLAT were different from the facts of the present case inasmuch as no invoice was ever sent by the Operational Creditor in that case, whereas the Operational Creditor in the present case has annexed the invoices with its demand notice sent in Form 3. Hence, the conclusion made in the aforesaid Judgment is binding on this Adjudicating Authority only in a situation where invoice is not only generated but is also a relevant document to prove the existence of default but the same is not annexed with the Demand Notice sent in Form 3 or Form 4. In a situation where an Operational Debt arises out of the provision of goods and services and pursuant to that Invoices are raised, there is no illegality in choosing the Form 3 as provided in Rule 5(1)(a) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for sending the Demand Notice provided that the Unpaid Invoices forming part of the transaction are annexed therewith - issuance of Demand Notice in Form 3 annexed with invoices by the Operational Creditor in the present case would be in order in terms of the Rules. List this matter for hearing on 12.07.2021 on the point of delivery of Demand Notice to the Corporate Debtor, pecuniary jurisdiction, limitation etc.

Issues Involved:
1. Compliance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 regarding the form of demand notice.
2. Interpretation of Section 8(1) of the Insolvency and Bankruptcy Code, 2016 concerning the use of Form 3 and Form 4.
3. Validity of demand notice based on invoices sent in Form 3.

Issue-wise Analysis:

1. Compliance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 regarding the form of demand notice:

The Tribunal examined whether the demand notice issued by the Operational Creditor in Form 3, based on invoices, complied with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Rule 5(1) states that an operational creditor must deliver either a demand notice in Form 3 or a copy of an invoice attached with a notice in Form 4. The Tribunal noted that the word "or" between the options indicates a choice for the Operational Creditor to select an appropriate form.

2. Interpretation of Section 8(1) of the Insolvency and Bankruptcy Code, 2016 concerning the use of Form 3 and Form 4:

The Tribunal referred to the judgment in Neeraj Jain Vs. Cloudwalker Streaming Technologies Private Limited, which clarified that if a demand notice is sent in Form 3, the Operational Creditor must submit documents proving the existence of the operational debt and the amount in default along with the notice. The Tribunal emphasized that the choice between Form 3 and Form 4 depends on the nature of the operational debt and the corresponding transactions.

3. Validity of demand notice based on invoices sent in Form 3:

The Tribunal compared the facts of the present case with the Neeraj Jain case. In Neeraj Jain, no invoice was attached with the demand notice in Form 3, whereas in the present case, the Operational Creditor had annexed the invoices with the demand notice sent in Form 3. The Tribunal referred to subsequent judgments, such as Aparna Enterprise Ltd. Vs. SJR Prime Corporation Pvt. Ltd., which supported the validity of demand notices issued in Form 3 with attached invoices.

The Tribunal observed that the title and subject of Form 3 and Form 4 both mention 'invoice,' and Form 3 provides comprehensive details of the operational debt, unlike Form 4, which merely serves as a cover page for the invoice. The Tribunal concluded that no prejudice is caused to any party if the demand notice based on invoices is sent in Form 3.

The Tribunal held that the use of Form 3 with attached invoices is in compliance with Rule 5(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and the demand notice in the present case was valid. The Tribunal emphasized that the interpretation of procedural rules should not cause serious general inconvenience, citing the Supreme Court's judgment in Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd.

Conclusion:

The Tribunal concluded that the demand notice issued by the Operational Creditor in Form 3, with attached invoices, was valid and in compliance with the relevant rules and provisions of the Insolvency and Bankruptcy Code, 2016. The matter was listed for further hearing on other aspects, including the delivery of the demand notice, pecuniary jurisdiction, and limitation.

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