Crompton Greaves Consumer Electricals ... vs K. P. R. Industries (India) Limited

[Arising out of Order dated 15th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP (IB) No. 177/9/HDB/2017]

IN THE MATTER OF:

Crompton Greaves Consumer Electricals Limited Equinox Business Park, Tower 3, 1st Floor, Kurla (West) Mumbai - 400 070. ...Appellant

Vs

K. P. R. Industries (India) Limited Survey No. 1, 2, 3, 4, Kanedu Metta Road, Balabhadrapuram, Bicavolu Mandal, East Godavari District, Guntur, Andhra Pradesh - 533 343. ....Respondent

Present:

For Appellant: Mr. Hemant Daswani and Ms. Ishanki Gupta, Advocates. For Respondent: Mr. Mullapudi Rambabu and Ms. Vijayshree Pattnaik, Advocates.

BANSI LAL BHAT, J.

The Appellant/Operational Creditor - M/s Crompton Greaves

Consumer Electricals Limited approached the Adjudicating Authority -2-

(National Company Law Tribunal), Hyderabad Bench, Hyderabad with an

application under Section 9 of Insolvency and Bankruptcy Code, 2016 (for

short 'I&B Code') seeking to trigger Corporate Insolvency Resolution Process

(CIRP) against Respondent/Corporate Debtor - M/s K. P. R. Industries (India)

Limited for committing default in respect of unpaid operational debt amount

of Rs.34,42,005.57. The Appellant claimed to have sold, supplied and

delivered to the Respondent/Corporate Debtor material for designing,

engineering, manufacturing, testing, supply, erection and commissioning

spares of industrial light fixtures with accessories in terms of purchase order

dated 25.07.2014 placed by the Respondent/Corporate Debtor with it. It was

alleged by the Appellant/ Operational Creditor that despite raising invoices

on the Respondent/Corporate Debtor as specified in para 4 (vi) of the

impugned judgement on service of notice of demand, the Respondent/

Corporate Debtor failed to clear the outstanding dues, thereby leaving the

Appellant/ Operational Creditor with no option but to seek triggering of CIRP

under Section 9 of the I&B Code.

2. Respondent/ Corporate Debtor filed a counter affidavit before the

Adjudicating Authority raising many pleas to contest the application which

primarily related to non-compliance with mandate of Section 8 of I&B Code.

3. The Adjudicating Authority, upon consideration of the material brought

on record by the parties, found that the Appellant/Operational Creditor had

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submitted the letter dated 11.09.2017 from ICICI Bank confirming that no

amount had been received in the account of Appellant/Operational Creditor

from any account of the Respondent/Corporate Debtor since 07.07.2016 till

11.09.2017. However, despite such finding the Adjudicating Authority

rejected the application of the Appellant/ Operational Creditor on the ground

that notice of demand issued by the advocate of the Appellant/Operational

Creditor under Section 8(1) of I&B Code was not in the format as prescribed

and that no authority of the Board of Directors for issue of the aforesaid notice

had been submitted. Rejection of the application under Section 9 of the I&B

Code in terms of impugned order dated 15.11.2017 was partially based on the

decision rendered by this Appellate Tribunal in 'Uttam Galva Steels

Limited' Versus 'DF Deutsche Forfait AG & Anr.' in Company Appeal (AT)

(Insolvency) No.39 of 2017 on 28th July, 2017.

4. Appellant/ Operational Creditor has assailed the impugned order on

the ground that the Adjudicating Authority even after noticing that there was

an admitted liability by the Respondent/Corporate Debtor failed to appreciate

that the Appellant/ Operational Creditor had issued two demand notices in

terms of provisions of I&B Code calling upon the Respondent/ Corporate

Debtor to pay the debt amount of Rs.34,42,005.57 being the amount due.

According to the Appellant the Adjudicating Authority was bound to admit the

application once it had found that the Respondent had admitted its liability

and expressed its inability to make the due payment after receipt of the

Company Appeal (AT) (Insolvency) No. 12 of 2018 -4-

demand notice. However, the Respondent reiterated that the demand notices

were defective and did not comply with the mandatory statutory provisions of

the Code.

5. Assailing the impugned order, learned counsel for the Appellant

submits that despite admission of liability by the Respondent, the

Adjudicating Authority overlooked the fact that the Appellant had issued

demand notices calling upon the Respondent to pay the outstanding dues to

the tune of Rs.34,42,005.57. It is contended that once the Respondent

admitted its liability and expressed its inability to make the due payment in

response to the demand notice, the Adjudicating Authority was left with no

option but to pass order of admission of application. It is further contended

that since Respondent had taken objection to first demand notice dated

17.04.2017 as not complying with the requirement of law, the Appellant had

sent another demand notice in conformity with the law laid down in

'Macquarie Bank Limited' Vs 'Shilpi Cable Technologies Ltd.' which was

retuned back on 04.05.2017 with endorsement 'Refused hence returned to

sender'. It is contended that the Adjudicating Authority has not even referred

to the second demand notice issued by the Appellant, which formed annexure

to the application and the impugned order came to be passed ignoring the

same. Per Contra, learned counsel for Respondent submits that though the

Appellant claimed to have issued three demand notices respectively dated

07.07.2016, 07.04.2017 and 25.04.2017, Respondent had received the first

Company Appeal (AT) (Insolvency) No. 12 of 2018 -5-

two notices which were defective and same were replied by the Respondent.

However, third notice was not received by the Respondent and no proof of

service thereof was produced by the Appellant before the Adjudicating

Authority. Learned counsel for Respondent supported the impugned order as

according to him the demand notices were defective as not being in the

prescribed form.

6. Heard learned counsel for the parties. It appears that the Adjudicating

Authority relied upon the judgment of this Appellate Tribunal rendered in

'Uttam Galva Steels Limited' Versus 'DF Deutsche Forfait AG & Anr.' in

Company Appeal (AT) (Insolvency) No.39 of 2017 on 28th July, 2017 in

arriving at the conclusion that an advocate holding no position with or in

relation to the Operational Creditor, in absence of any authority of the Board

of Directors, cannot issue any notice under Section 8 of the I&B Code. The

aforesaid judgement has been set aside by the Hon'ble Apex Court in

'Macquarie Bank Limited' Vs 'Shilpi Cable Technologies Ltd.' in Civil

Appeals No. 15135, 15481 and 15447 of 2017 decided on 15th

December, 2017, it being held that the expression "an Operational Creditor"

may on the occurrence of a default deliver a demand notice under Section 8

of the I&B Code must be read as "including an Operational Creditor's

authorized agent and lawyer, as has been fleshed out in Forms 3 and 5

appended to the Adjudicating Authority Rules". Even the Respondent has

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accepted this legal position as emanates from his written submissions. In

view of the same the impugned order cannot be supported.

7. The requisite conditions necessary to trigger the CIRP under Section 9

by an Operational Creditor are:

(i) occurrence of a default;

(ii) delivery of a demand notice of an unpaid operational debt;

(iii) non-receipt of payment by the Operational Creditor from the Corporate

Debtor within the period of 10 days of receipt of the demand notice or

receipt of reply from the Corporate Debtor not indicating existence of a

pre-existing dispute or repayment of the unpaid operational debt.

If the aforesaid conditions exist, the Operational Creditor may file an

application under Section 9(2) of the I&B Code in the prescribed manner

alongwith the requisite fee. A copy of the invoice demanding payment or

demand notice delivered by the Operational Creditor to the Corporate Debtor

has to be furnished with the application. This is clearly borne out by conjoint

reading of Section 8 and 9 (1) of the I&B Code. The Hon'ble Apex Court while

dealing with this aspect in 'Macquarie Bank Limited' (Supra) held that the

requirement of an application filed under Section 9(2) of the I&B Code being

accompanied by an invoice/ demand notice is a mandatory condition

precedent to the filing of the application.

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8. Adverting to the facts of instant matter, be it seen that the Appellant/

Operational Creditor served demand notice dated 7th April, 2017 on the

Respondent/ Corporate Debtor in terms of Section 8 of the I&B Code.

Respondent/ Corporate Debtor claimed that the demand notice was defective.

The Adjudicating Authority observed that the demand notice had been issued

by the advocate of the Operational Creditor and the same was not in the

format as prescribed. Relying upon the decision of this Appellate Tribunal in

'Uttam Galva Steels Limited' (Supra), the Adjudicating Authority rejected

the application of Operational Creditor seeking triggering of CIRP. As already

observed in this judgement elsewhere, the decision of this Appellate Tribunal

in 'Uttam Galva Steels Limited' Versus 'DF Deutsche Forfait AG & Anr.'

has been set aside by the Hon'ble Apex Court in 'Macquarie Bank Limited'

(supra). It has been held that a notice sent on behalf of an Operational

Creditor by a lawyer would perfectly be in order. The impugned order could

be set aside on this ground alone. However, the second issue raised in regard

to demand notice is required to be dealt with. As held by the Hon'ble Apex

Court in 'Innoventive Industries Ltd.' versus 'ICICI Bank & Anr.', Civil

Appeal Nos.8337-8338 of 2017 decided on 31st August, 2017, under

Section 8 of I&B Code, the Operational Creditor is, on the occurrence of a

default required to first deliver a demand notice of the unpaid debt to the

Corporate Debtor in the manner provided in Section 8(1) of the I&B Code and

the Corporate Debtor is, under Section 8(2), required to bring to the notice of

the Operational Creditor, within a period of 10 days of receipt of demand

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notice, the existence of dispute or pendency of a suit or arbitration proceeding

which is pre-existing. Proof of existence of a debt and a default in relation to

such debt can be proved by documentary evidence as contemplated by Section

9(3)(d) of the I&B Code. Section 8 does not prescribe any particular method

of proof of occurrence of default. In the instant case it has been noticed by

the Adjudicating Authority that the Operational Creditor had submitted a

letter dated 11.09.2017 from ICICI Bank confirming that no amount had been

received in the account of Operational Creditor from any account of the

Corporate Debtor since 07.07.2016. The existence of debt and default were

satisfactorily established by the Operational Creditor. No pre-existing dispute

was brought to the notice of the Adjudicating Authority to reject the

application. Assuming that there was a defect in the demand notice, the

Adjudicating Authority was required to provide opportunity to the Operational

Creditor to remove the same. The Adjudicating Authority appears to have

overlooked the legal aspects. It also appears that the Appellant had sent

another demand notice which was received back as 'refused'. This is claimed

to have been filed as an Annexure with Form-5 filed by the Operational

Creditor before the Adjudicating Authority. The Adjudicating Authority

appears to have ignored the same, for no valid reason.

9. In view of the foregoing discussion, the impugned order cannot be

supported. The appeal is allowed and the impugned order is set aside. The

case is remitted back to the Adjudicating Authority to admit the application

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in terms of provisions of Section 9(5)(i). If any defect is noticed in the

application for initiation of CIRP by Operational Creditor, the Adjudicating

Authority shall provide adequate opportunity to the Operational Creditor to

remove the same.

10. The appeal is accordingly disposed of.

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 12th April, 2018

Company Appeal (AT) (Insolvency) No. 12 of 2018