Corporate Insolvency Resolution Process by Operational Creditor [ Section 8 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Corporate Insolvency Resolution Process by Operational Creditor Issue Demand notice on occurrence of default [ Section 8(1) ] An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. Relevant Case Law Innoventive Industries Ltd. Vs. ICICI Bank Anr. 2017 (9) TMI 58 - SUPREME COURT dated 31.08.2017 The Supreme Court held that the scheme of section 7 stands in contrast with the scheme under section 8 where an OC is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in section 8(1) of the Code. Time Period to revert by the Corporate Debtor [ Section 8(2) ] The corporate debtor shall, within a period of 10 days of the receipt of the demand notice or copy of the invoice mentioned in section 8(1) bring to the notice of the operational creditor- (a) existence of a dispute, if any, or and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; (b) the payment of unpaid operational debt- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Meaning of Demand notice As per Explanation of Section 8 For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred. Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 Demand notice by operational creditor [ Rule 5 ] (1) An operational creditor shall deliver to the corporate debtor, the following documents, namely:- (a) a demand notice in Form 3; or (b) a copy of an invoice attached with a notice in Form 4. (2) The demand notice or the copy of the invoice demanding payment referred to in section 8(2) of the Code, may be delivered to the corporate debtor, (a) at the registered office by hand, registered post or speed post with acknowledgement due; or (b) by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor. (3) A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any. Some Judicial Interpretation of Section 8 by Supreme Court / NCLAT A dispute must truly exist in facts and should not be spurious, hypothetical and illusory. [ Vishal Vijay Kalantri Vs. DBM Geotechnics Constructions Pvt. Ltd. Anr. Supreme Court, dated 20.07.2020 ]. The moment there is pre-existence of a dispute, the OC gets out of the clutches of the Code. [ Innoventive Industries Ltd. Vs. ICICI Bank Anr. Supreme Court, dated 31.08.2017 ] The expression an operational creditor may on the occurrence of a default deliver a demand notice under section 8 of the Code must be read as including an OCs authorised agent and lawyer, as has been fleshed out in Forms 3 and 5 appended to the AA Rules. [ Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd. Supreme Court, dated 15.12.2017]. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the AA has to reject the application. [ Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. Supreme Court , dated 21.09.2017] OCs cannot use the Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. [ K. Kishan Vs. Vijay Nirman Company Pvt. Ltd. Supreme Court , dated 14.08.2018]. The expression existence of a dispute, if any , infers that a dispute shall not only be limited to instances specified in the definition as provided under section 5(6) of the Code, as it has far arms, apart from pending Suit or Arbitration. [ Kuntal Construction Pvt. Ltd. Vs. Bharat Hotels Ltd. NCLAT , dated 04.09.2020]. A prior notice under section 8 of the Code is mandatory before initiation of interim resolution process, in the absence of which, the AA was right in rejecting the application. [ Seema Gupta Vs. Supreme Infrastructure India Ltd. Ors. NCLAT , dated 25.05.2017]. Pendency of the case under section 138 / section 141 of the Negotiable Instruments Act, 1881, even if accepted as recovery proceeding, cannot be held to be a dispute pending before a court of law. Such pendency actually amounts to admission of debt and not an existence of dispute. [ Sudhi Sachdev Vs. APPL Industries Ltd. NCLAT , dated 13.11.2018]. The legislative intent of issuance of demand notice under section 8(1) is not a mere formality but a mandatory provision. [ Prajna Prakash Nayak Vs. ASAP Info Systems Pvt. Ltd. Anr. NCLAT , dated 11.07.2018 ]. The CD can show and satisfy the AA that a default has not occurred in the sense that the debt, which may also include a disputed claim, is not due or payable in law or in fact. [ Neha Himatsingka Anr. Vs. Himatsingka Resorts Pvt. Ltd. Anr. NCLAT , dated 30.11.2018]. The OC had a relief open under the MSME Act and utilising the same does not mean that there is a preexisting dispute. The context of the word dispute in section 18 of the MSME Act takes colour from section 17 thereof and is different from the context of section 5(6) read with section 8 of the Code. [ iValue Advisors Pvt. Ltd. Vs. Srinagar Banihal Expressway Ltd. NCLAT , dated 13.01.2020]. In case of a CD who refuses to accept the delivery of notice under section 8 of the Code, it would not be justified to say that the notice has not been served on the CD.[ D. Srinivasa Rao Vs. Vaishnovi Infratech Ltd. NCLAT , dated 05.01.2021].