2018 (12) TMI 675 - AT - Insolvency and Bankruptcy

Corporate insolvency process - steps for Corporate Insolvency Resolution Process against the Corporate Debtor - Held that - From the provision of Section 8, it is clear that the legislature intended to put the Corporate Debtor on notice that the amount due having defaulted if the amount is not paid. The Operational Creditor may take steps for Corporate Insolvency Resolution Process against the Corporate Debtor . It is not a mere formality but mandate of law that such notice is actually served on the Corporate Debtor who may act accordingly. For the said reason, the Adjudicating Authority is required to record its satisfaction that the records, including service of demand notice are in order. The Adjudicating Authority is required to satisfy itself that the notice was actually served on the Corporate Debtor not that technically it was served in the address. Adjudicating Authority having failed to do so, we have no other option but to set aside the order dated 18th June, 2018 and the order dated 4th October, 2018. The parties having settled the matter we are not remitting the matter to the Adjudicating Authority. The Adjudicating Authority will direct the Registrar NCLT, Kolkata Bench to release the amount in favour of the 1st Respondent- Cytech Coatings Private Limited deposited on behalf of the Corporate Debtor immediately. Orders passed by the Adjudicating Authority appointing Resolution Professional , declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, taken by the Resolution Professional , including the advertisement, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the I&B Code is dismissed. Adjudicating Authority will now close the proceeding. The Corporate Debtor (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.

Summary

Issues:
1. Condonation of delay in preferring the appeal.
2. Validity of the service of demand notice under Section 8 of the Insolvency and Bankruptcy Code.
3. Settlement between parties and release of deposited amount.
4. Legal consequences of setting aside the orders passed by the Adjudicating Authority.

Condonation of Delay:
The appeal was filed by the shareholder of the 'Corporate Debtor' seeking condonation of delay. The Appellant argued that there was no delay if counted from the date of knowledge, but a delay of 6 days if counted from the date of the impugned order. The Tribunal held that there was no delay as the Appellant was not communicated with the order and was not a party before the Adjudicating Authority. Consequently, the appeal was allowed and the delay issue was disposed of.

Validity of Demand Notice Service:
The 'Operational Creditor' filed an application under Section 9 of the Insolvency and Bankruptcy Code for initiation of Corporate Insolvency Resolution Process against the 'Corporate Debtor'. The Adjudicating Authority admitted the application, leading to a challenge by the shareholder of the 'Corporate Debtor' regarding the service of demand notice. Despite contentions, the Tribunal found that the notice was not served at the correct address where the 'Corporate Debtor' was functioning. As per Section 8, it is crucial for the 'Corporate Debtor' to receive the demand notice before any further action can be taken. Thus, the Tribunal set aside the orders passed by the Adjudicating Authority and dismissed the application under Section 9 of the I&B Code.

Settlement and Release of Deposited Amount:
The parties had settled the matter, and the amount was deposited with the Registrar, NCLT, Kolkata Bench. The 'Operational Creditor' acknowledged that the notice was not served at the correct address and that the claim had been settled. The Tribunal directed the release of the deposited amount in favor of the 'Operational Creditor' and did not remit the matter back to the Adjudicating Authority.

Legal Consequences of Setting Aside Orders:
The Tribunal declared all orders passed by the Adjudicating Authority, including the appointment of the Resolution Professional, as illegal and set them aside. The 'Corporate Debtor' was released from the obligations of the law and allowed to function independently through its Board of Directors. The Adjudicating Authority was tasked with fixing the fees of the Resolution Professional, to be paid by the 'Corporate Debtor'. The appeal was allowed with these observations, and no costs were awarded in the circumstances.