2017 (11) TMI 892 - Tri - Insolvency and Bankruptcy

Corporate insolvency resolution process - Whether the advocate who issued the demand notice in Form-3 has got any authority to issue the notice? - Whether the dispute raised by the respondent/corporate debtor comes under the definition of section 5(6) of I&B Code, 2016? - Held that - A demand notice issued in the instant case was not issued in terms of the provisions of the Adjudicating Authority Rules and I&B Code. We hereby hold that the demand notice issued by the applicant advocate was not issued Under S. 8(l) of I&B Code, and therefore the contention on the side of the respondent that Annexure A notice is not a notice issued under S. 8(1) of I&B code is sustainable. This point is answered accordingly. Here in this case respondent has no case that the dispute he already raised with the applicant is pending for any consideration before any adjudicating authority or in any Court. However, it has come out in evidence that respondent disputed quality of the goods received upon receipt of the goods and communicated the complaint in writing to the applicant in appropriate time. No explanation forth coming from the applicant regarding the disputes highlighted in the notices issued by the respondent to the applicant. More over the copy of reply notice evidently received by the applicant not at all produced along with the application. The documents produced on the side of the respondent not at all challenged on the side of the applicant. Therefore, the respondent succeeded in proving that a dispute regarding quality of the goods and the money liable to be paid by the respondent was pending for consideration with the applicant even before the statutory notice issued by the applicant and that it is a genuine dispute which according to us comes under the purview of section 5(6) of I&B code. Respondent has succeeded in proving existence of a genuine dispute prior to issuance of demand notice and, therefore, this application is liable to be rejected.

Summary

Issues Involved:

1. Authority of advocate to issue demand notice in Form-3.
2. Existence of a dispute under Section 5(6) of the Insolvency and Bankruptcy Code, 2016 (I&B Code).

Issue-wise Detailed Analysis:

1. Authority of Advocate to Issue Demand Notice in Form-3:

The Tribunal examined whether the advocate who issued the demand notice in Form-3 had the authority to do so. The demand notice was issued by Advocate Mr. Ankita Mitra, who was purportedly authorized by Mr. Laxmi Narayan Shaw. However, the Tribunal found no letter of authorization from Mr. Laxmi Narayan Shaw or Mr. Mohan Shaw in favor of Advocate Ankita Mitra. The Tribunal concluded that the advocate was not an authorized person as per the statutory requirements, citing precedents such as *Macquarie Bank Ltd. v. Uttam Galva Metallic Ltd.*, where it was held that a notice issued by an advocate without proper authorization cannot be treated as a notice under Section 8 of the I&B Code. Consequently, the Tribunal held that the demand notice was not issued in accordance with Section 8(1) of the I&B Code, thus making the application unsustainable on this ground.

2. Existence of a Dispute Under Section 5(6) of the I&B Code:

The respondent contended that there was a pre-existing dispute regarding the quality of goods supplied, which was communicated to the applicant long before the issuance of the demand notice. The Tribunal examined various notices and communications, including a notice dated 15.04.2013, where the respondent complained about the quality of waste paper supplied. The Tribunal found that the dispute was genuine and had been raised in a timely manner. The applicant's argument that the dispute was not pending before any court or adjudicating authority was dismissed, as the Tribunal emphasized that the existence of a dispute, rather than its merit or pendency, was the crucial factor. The Tribunal referred to the Supreme Court's judgment in *Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd.*, which clarified that the existence of a plausible dispute, even if not adjudicated, is sufficient to reject an application under Section 9 of the I&B Code. The Tribunal concluded that the respondent had successfully demonstrated the existence of a genuine dispute, thereby making the application liable for rejection.

Conclusion:

In light of the findings on both issues, the Tribunal rejected the application for initiating the corporate insolvency resolution process. The demand notice was not issued by an authorized person, and there was a pre-existing genuine dispute regarding the quality of goods supplied. Therefore, the application was dismissed with no order as to costs.