2020 (1) TMI 472 - AT - Insolvency and Bankruptcy

Service of notice - initiation of CIRP - Whether the demand notice issued U/S 8 of the I B Code 2016, against the corporate debtor, for the dues of sister concern/group company, can be treated as a valid notice? - HELD THAT - Admittedly invoices have been issued in the name of 'M/s Flywheel Logistics Pvt. Ltd.'. It is also on record that 'M/s Flywheel Logistics Pvt. Ltd.' and 'M/s Flywheel Logistics Solutions Pvt. Ltd' are different 'Corporate Entities', having deferent CIN Numbers and registered addresses - it is clear that the Respondent No 1 Applicant / 'Operational Creditor' has no right to claim dues, relating to the invoices issued against 'M/s Flywheel Logistics Pvt. Ltd.', from the corporate debtor M/s 'Flywheel Logistics Solutions Pvt. Ltd.' i.e. FLSPL, the Respondent No 2, which is a separate corporate entity, having different CIN Number. It is also on record that the mandatory primary requirement for filing petition U/S 9 of the 'Insolvency and Bankruptcy Code, 2016' is the service of the Demand Notice U/S 8 of the Code. The demand notice should have been served along with the copy/bill(s) / invoice(s) on the 'Corporate Debtor' - But in the present case, the Bill / Invoice was raised against, M/s Flywheel Logistics Private Limited, whereas the mandatory demand notice under Section 8 of the 'IBC' has been served against the 'Flywheel Logistics Solutions Pvt. Ltd.'. The demand notice issued against the 'Corporate Debtor' is not a valid notice U/S 8 of the Code. The alleged demand notice relates to the dues of the other Company, namely 'M/s Flywheel Logistics Private Limited'. For filing a petition under Section 9 of the Code, service of demand notice under Section 8 is mandatory requirement, and after that if a 'Corporate Debtor' fails to pay the dues within 10 days of service of demand notice with copy of the invoices, as mentioned in sub-Section 1, or bring to the notice of the 'Operational Creditor' existence of dispute, then right to file an application under Section 9 of the 'Insolvency and Bankruptcy Code, 2016' accrues. In this case demand notice in Form 3 and Form, 4 has been issued in the name of 'M/s Flywheel Logistics Solutions Pvt. Ltd.' - But the amount being claimed by the said demand notice is not relating to the 'Corporate Debtor' but relates to another company viz. 'M/s Flywheel Logistics Pvt. Ltd.' The service of demand notice cannot be treated as valid and proper service - impugned order regarding admission of the Company Petition filed under Section 9 of the 'Insolvency and Bankruptcy Code, 2016 is set aside - appeal allowed.

Summary

Issues:
1. Validity of demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
2. Dispute regarding invoices and corporate entities involved.

Issue 1: Validity of demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016

The appellant, an ex-director and shareholder of a company, filed an appeal against an order admitting a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. The dispute arose from invoices issued by the operational creditor against the corporate debtor. The operational creditor claimed dues amounting to ?66,00,860, of which a partial payment was received. The operational creditor issued a demand notice under Section 8 of the Code for the outstanding amount. However, the corporate debtor contended that the invoices were forged and disputed the validity of the demand notice due to discrepancies in the entities mentioned.

Issue 2: Dispute regarding invoices and corporate entities involved

The key contention revolved around the discrepancy in the entities mentioned in the invoices and the demand notice. The invoices were raised against 'M/s Flywheel Logistics Pvt. Ltd.,' whereas the demand notice was served on 'Flywheel Logistics Solutions Pvt. Ltd.' The tribunal noted that these were distinct corporate entities with different CIN numbers and registered addresses. The demand notice, a prerequisite for initiating insolvency proceedings, must be served on the correct entity. As the demand notice related to dues of a different company, 'M/s Flywheel Logistics Pvt. Ltd.,' the tribunal found it invalid. The tribunal emphasized the importance of serving the demand notice accurately, as per the Code's requirements, to initiate insolvency proceedings.

In conclusion, the appellate tribunal allowed the appeal, setting aside the order admitting the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. The tribunal directed the release of the corporate debtor from the insolvency process and instructed the adjudicating authority to determine costs and fees to be paid. The order clarified that the appellant retained the right to take action against 'Flywheel Logistics Pvt Ltd.' This judgment underscores the significance of strict adherence to procedural requirements, such as serving accurate demand notices, in insolvency proceedings to uphold the integrity of the process.