2017 (11) TMI 924 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - eligibility of advocate/lawyer as giving notice as not authorised by Board of Directors of the Respondents - Held that - In the present case as an advocate/lawyer has given notice and there is nothing on record to suggest that the lawyer has been authorised by Board of Directors of the Respondents - Maheshwar Textiles & Anr. and there is nothing on record to suggest that the lawyer hold any position with or in relation with the Respondents, we hold that the notice issued by the lawyer on behalf of the Respondents cannot be treated as a notice under section 8 of the I & B Code and for that the petition under section 9 at the instance of the Respondents against the Appellant was not maintainable. For the reasons aforesaid, we set aside the impugned order passed by the Adjudicating Authority, New Delhi and allow the appeal. In the result, the appointment of Interim Resolution Professional, order declaring moratorium, freezing of account and all other order (s) passed by the Adjudicating Authority pursuant to impugned order(s) and action taken by the Interim Resolution Professional including the advertisement published in the newspaper calling for applications are declared illegal.

Summary

Issues:
Application under section 9 of the Insolvency and Bankruptcy Code - Violation of natural justice - Notice under sub-section (1) of section 8 - Authority to issue notice on behalf of operational creditor.

Analysis:
The respondent, an operational creditor, filed an application under section 9 of the Insolvency and Bankruptcy Code against the appellant, a corporate debtor. The Adjudicating Authority admitted the application, declared moratorium, and called for the appointment of an Interim Resolution Professional. The appellant contended that the Adjudicating Authority did not issue any notice before admitting the application, violating natural justice. The respondent's counsel argued that notices were indeed issued to the appellant on two occasions. The appellant further argued that the notice under section 8 was not issued by the operational creditor but by an advocate on their behalf.

The Appellate Tribunal referred to a previous case and highlighted the importance of the notice being issued by a person authorized to act on behalf of the operational creditor, holding a position with or in relation to the operational creditor. The Tribunal emphasized that the notice must be in Form-3 or Form-4, informing the corporate debtor of the operational debt and demanding payment within a specified period. In this case, the notice was issued by an advocate without authorization from the Board of Directors of the operational creditor, and the advocate did not hold any position in relation to the operational creditor. Therefore, the notice was deemed invalid under section 8 of the Insolvency and Bankruptcy Code.

Consequently, the Tribunal set aside the impugned order passed by the Adjudicating Authority, declaring the petition under section 9 against the appellant as not maintainable. The Tribunal ruled that the appointment of the Interim Resolution Professional, the order declaring moratorium, and other related actions were illegal. The appellant was released from the legal constraints and allowed to function independently through its Board of Directors. The Tribunal directed the Adjudicating Authority to determine the fee of the Interim Resolution Professional, to be paid by the appellant for the period worked. The appeals were disposed of with no order as to costs, and the Company Petition was dismissed.