2022 (5) TMI 714 - Tri - Insolvency and Bankruptcy

Violation of principles of natural justice - Service of notice - seeking to set aside the ex-parte order - Corporate Debtor Company did not receive the attempted service of notice - argument of the Petitioner's Counsel has been that the office of the Corporate Debtor was closed due to Covid-19 pandemic and that only a watchman was present and the watchman might have refused the notice, due to which an endorsement of refusal came to be made on the notice issued by the Operational Creditor. HELD THAT - According to Section 8 of IBC, a demand notice shall be delivered on the occurrence of default and the Corporate Debtor shall within a period of 10 days issue reply notice. Section 9 (1) of IBC, prescribes that after the expiry of the period of 10 days from the date of delivery of the notice or invoice, demanding payment, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute, under Section 8(2) of IBC, he may file an application. Hence for filing an application, the 10 days' time starts from the date of delivery of notice to the Corporate Debtor, which in this case expired by 07.01.2022, which is the date of filing the application since admittedly, the notice is delivered on 27.12.2021. In the impugned order, it can be seen that this Tribunal considered the reply notice dated 04.10.2021 wherein it was stated that the Operational Creditor failed to perform his duties as prescribed under the agreements and that the term of 4 years elapsed as per contract dated 31.12.2011 and was not renewed and that the project did not materialize during the term in question, and observed that no evidence was produced in that regard, since the Corporate Debtor did not choose to appear and contest the case and prove the contentions made in the reply notice. Powers of the Tribunal in going in to the merits of the case in an application filed, seeking to set aside the order setting the Corporate Debtor ex-parte - HELD THAT - In an application seeking to set aside the order of ex-parte, the Applicant needs to either prove that the service of notice is not effected on him or that he was prevented by sufficient cause not to appear before this Tribunal inspite of such service. In this case the pleas taken in the application are none of the above two. The plea taken is that the notice was refused as the Office was not functioning or that the office was functioning limitedly with skeleton staff, which can be held as not proved in the light of above discussion. The reply notices do not spell existence of pre-existing dispute in terms of section 8 of IBC. It is only the contentions in the demand notices that are disputed. According to section 8 of IBC a dispute should be existing by the date of demand notice or there should be pending a suit or arbitration proceedings which are filed before the receipt of such notice, which is not made out in this case. Application dismissed.

Issues Involved:
1. Service of Notice
2. Alleged Mala Fide Intentions of the Operational Creditor
3. Existence of a Pre-existing Dispute
4. Merits of the Case
5. Powers of the Tribunal to Set Aside Ex-parte Orders

Issue-wise Detailed Analysis:

1. Service of Notice:
The Corporate Debtor contended that they did not receive the attempted service of notice as the office was closed due to Covid-19, and no notice was served via email. The Tribunal found that the office was not completely closed and had limited functioning with skeleton staff, who could have received the notice. The Tribunal noted that the affidavit filed by the Corporate Debtor did not deny the occurrence of transactions on the date of the service of notice, indicating the office was operational. The Tribunal concluded that the notice was presumed to be duly served, citing Section 27 of the General Clauses Act, 1897, which presumes service if a notice is sent to the correct address by registered post and returned with an endorsement such as "refused."

2. Alleged Mala Fide Intentions of the Operational Creditor:
The Corporate Debtor alleged that the Operational Creditor proceeded with mala fide intentions to obtain an ex-parte order. The Tribunal dismissed this claim, noting that the Operational Creditor followed the necessary procedures, including issuing demand notices and reminders. The Tribunal found no evidence of mala fide intentions and observed that the Corporate Debtor's management was aware of the proceedings but failed to act promptly.

3. Existence of a Pre-existing Dispute:
The Corporate Debtor argued that there was a contractual dispute and consistently denied any amount was payable. The Tribunal examined the reply notices dated 04.10.2021 and 06.01.2022, finding that they did not spell out any pre-existing dispute but merely raised contentions regarding contractual obligations. The Tribunal emphasized that for a dispute to be considered pre-existing under Section 8 of the IBC, it should be existing by the date of the demand notice or there should be pending a suit or arbitration proceedings filed before the receipt of such notice, which was not the case here.

4. Merits of the Case:
The Tribunal reiterated that the merits of the case cannot be gone into while deciding an application seeking to set aside an ex-parte order. The focus should be on whether the notice was duly served or if there was sufficient cause for non-appearance. The Tribunal referenced judgments from the NCLAT and the Supreme Court, emphasizing that the object of limited notice is to enable the Adjudicating Authority to satisfy itself that there is no pre-existing dispute and no suit or arbitration proceeding in relation to such dispute was pending before the receipt of the demand notice by the Corporate Debtor.

5. Powers of the Tribunal to Set Aside Ex-parte Orders:
The Tribunal highlighted that it has the power to set aside ex-parte orders only if the Applicant proves that the notice was not duly served or that they were prevented by sufficient cause from appearing. The Tribunal found that the Corporate Debtor failed to prove either of these grounds. The Tribunal cited relevant judgments, including those from the NCLAT and the Supreme Court, to support its decision.

Conclusion:
The Tribunal dismissed the application to set aside the ex-parte orders dated 17.03.2022 and 21.03.2022, concluding that the Corporate Debtor failed to prove that the notice was not duly served or that they were prevented by sufficient cause from appearing. The Tribunal emphasized the importance of adhering to procedural requirements and the limited scope of review in applications to set aside ex-parte orders.

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