Krystal Integrated Services Pvt. Ltd vs Indiaontime Express Pvt Ltd

[Arising out of order dated 23rd January, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench in C.P. No.223/16 (T.P. No. 83/17)

IN THE MATTER OF:

M/s Krystal Integrated Services Pvt. Ltd., Krystal House, 15 A 17, Shivaji Fort, CHS Duncans Causeway Road, Mumbai - 400022. ....Appellant Vs

M/s Indiaontime Express Private Limited, 81, SS Commercial Estate, Nagavarapalya, CV Raman Nagar, Bangalore - 560 093. ....Respondent Present: For Appellant: Mr. Mritunjay Kr. Tiwari, Advocate. For Respondent: None.

BANSI LAL BHAT, J.

Appellant, in the year 2016, filed a petition under Section 433 r/w

Section 434 and 439 of the Companies Act, 1956 for winding up of the

Respondent Company - 'M/s Indiaontime Express Private Limited'

(hereinafter referred to as 'Corporate Debtor') before the Hon'ble High Court

of Karnataka. Subsequently, the petition came to be transferred to National

Company Law Tribunal, Bengaluru Bench in terms of Gazette Notification

No. GSR119(E) dated 7th December, 2016. It was renumbered as TP No. -2-

83/2017 and directed to be treated as application under Section 9 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Code') only after complying with the relevant provisions of the I&B Code.

Appellant was directed to serve notice on the Respondent and upon its

failure to deliver the same to Respondent, the National Company Law

Tribunal, Bengaluru Bench (hereinafter referred to as the 'Adjudicating

Authority') issued notice to Respondent - Corporate Debtor, which was

returned with endorsement "Left". Substituted service through publication

in English and Kannada Newspapers directed by the Adjudicating Authority

does not appear to have been carried out by the Appellant on the score that

notice sent through Registered Address of Respondent was deemed to have

been served. Consequently, the matter was heard in ex-parte. On

consideration of the material on record, the Adjudicating Authority passed

the impugned order dated 23rd January, 2019 by virtue whereof the

application came to be rejected on the ground that the Appellant had failed

to prove the claim which was also prima facie barred by limitation.

Aggrieved thereof the Appellant has filed the instant appeal assailing the

impugned order as being legally infirm and unsustainable.

2. In these appeal proceedings also service could not be effected on the

Respondent through ordinary mode as the postal article containing the

notice was received back with postal endorsement "Left". Even the track

consignment report in respect of service through electronic mode revealed

non-delivery of notice as "Addressee left without instructions". According to

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learned counsel for Appellant, particulars of Respondent were in accordance

with the Registered Office Address as per record of Registrar of Companies.

Mode of substituted service was resorted to and the notice was published in

English newspaper - Indian Express and Kannada Newspaper - 'Vijayavani'

(Bengaluru Edition) issues dated 16th April, 2019 and 12th May, 2019,

respectively. However, none appeared on behalf of the Respondent and the

appeal was heard in ex-parte.

3. The case setup by the Appellant is that the Appellant is a Private

Limited Company engaged inter-alia in the business of providing facility

management, security, portfolio management and aviation services. The

Respondent - Corporate Debtor dealing in transport, storage and

communications business, being in continuous requirement of manpower

for its works contacted the Appellant for supply of manpower culminating in

a letter of intent dated 24th August, 2012 for supply of manpower styled as

"facility services" which, according to Appellant, constituted a contract

between the parties. According to Appellant, the Appellant supplied

manpower on regular basis to Respondent - Corporate Debtor between

September, 2012 to December, 2013 but against the invoices raised for

Rs.1,89,25,381/- only Rs.1,06,53,549/- was paid. According to Appellant,

Respondent was liable to pay the sums within 15 days of each invoice and in

default the outstanding payment was liable to be paid with interest at 14%

per annum. According to Appellant, invoices raised from July, 2013 to

December, 2013 for total outstanding amount of Rs.81,49,542/- alongwith

Company Appeal (AT) (Insolvency) No. 194 of 2019 -4-

interest @ 14% per annum calculated till 31st July, 2017 at Rs.43,62,224/-

being total dues of Rs.1,25,56,766/- is the amount of default, which the

Respondent - Corporate Debtor, despite admission and acknowledgment of

debt, failed to repay even after issuance of demand notice in the prescribed

form.

4. The findings in the impugned order culminating in rejection of the

application under Section 9 of I&B Code, which have been assailed in this

appeal, may briefly be summarized as under:-

(i) That the operational debt was time barred.

(ii) That there was no proof of purchase order/ contract between

the parties to substantiate the services provided.

(iii) That service of Respondent was not effected through

substituted service as directed by the Adjudicating Authority.

5. We have gone through the record and heard learned counsel for

Appellant in ex-parte. From perusal of record it comes to fore that the

petition for winding up filed by the Appellant bearing CP No.223/16 before

Hon'ble High Court of Karnataka sought a direction to wind up the

Respondent Company in terms of provisions of Companies Act, 1956 which

came to be transferred to the National Company Law Tribunal, Bengaluru

Bench which registered and renumbered the petition as TP No.83/2017 and

directed the Appellant to comply with the provisions of law under I&B Code

Company Appeal (AT) (Insolvency) No. 194 of 2019 -5-

applicable to initiation of Corporate Insolvency Resolution Process at the

instance of an Operational Creditor. It appears that the Appellant was

directed to issue notice to the Respondent after collecting the same from the

Registry which could not be delivered even when the Adjudicating Authority

sent a fresh notice which came to be returned with the endorsement "Left".

From the impugned order it further emerges that neither the statutory

notice under the relevant Companies Act nor the Demand Notice as

contemplated under Section 8(1) of I&B Code has been served upon the

Respondent - Corporate Debtor. In this regard it would be apposite to

reproduce Para 9 of the impugned order, which reads as under:-

"9. There are two problems basically involved in the

petition one so far the Petitioner has not been in a position

to serve the 'Statutory Notice' even under the old act i.e.,

Companies Act 1956 nor they have been able to serve the

'Demand Notice' under Insolvency and Bankruptcy Code to

the Respondent. They are unable even to locate the

address and serve it to the Directors. Even if we assume

while CIRP process initiated, Interim professional will not

in position to find the location where the company is

situated and where is the office of the firm. Hence no

purpose will be served. No proof has been submitted that

the manpower has been supplied to the Respondent

Company and to what extent they have accepted their

Company Appeal (AT) (Insolvency) No. 194 of 2019 -6-

supply of manpower. All these suggest that the case is not

right to initiate Corporate Insolvency Resolution Process.

Hence we are of the view that the contract was not based

on any Joint agreement between the parties nor through

purchase order or through supply manpower contract, the

contract is simply based on some form of understanding.

Supply has been made long back in the year 2013, hence

also barred by law of limitation."

It would also be appropriate to extract opening lines of Para 11

summing up the observations and findings recorded by the Adjudicating

Authority, which read as under:-

"11. The above facts and circumstances show that the

Petitioner failed to substantiate the impugned amount with

proper evidence. The efforts made by the Petitioner to

serve the notice failed, even though the Tribunal ordered to

serve notice to the Respondent. Moreover the claim itself is

not proved and the prima facia barred by the law of

limitation."

From the aforesaid, it is manifestly clear that the initiation of

Corporate Insolvency Resolution Process was declined by the Adjudicating

Authority not only for failure on the part of Appellant - Operational Creditor

to serve Demand Notice in terms of Section 8(1) of the I&B Code upon the

Company Appeal (AT) (Insolvency) No. 194 of 2019 -7-

Respondent - Corporate Debtor but also for failure on its part to

substantiate the claim which was also held to be prima facia barred by the

law of limitation. It is queer that the Adjudicating Authority proceeded to

pronounce upon the merits of the claim and its enforceability at the very

threshold stage when no notice of dispute was received from the Corporate

Debtor in response to the Demand Notice within the prescribed time.

Admittedly, notice of demand was not served upon the Respondent and in

such situation demand notice of claim of Appellant filed in Form 5 forming

Annexure A/10 at page 91 of the paper book was not responded to by the

Respondent. Thus, dispute regarding the claim of Appellant being payable

or not payable in law or in fact as also factum of a pre-existing dispute was

not raised before the Adjudicating Authority. It was therefore not prudent

on the part of the Adjudicating Authority to pronounce upon the merits of

the claim. If the notice of demand under Section 8(1) of the I&B Code was

not served upon the Corporate Debtor or any of its Directors and existence

of Corporate Debtor itself was in the region of doubt as emerges from record,

the only course open to the Adjudicating Authority was to have recourse to

the provision engrafted in Section 9(5)(ii)(c) of the I&B Code. It would be

appropriate to profitably refer to the dictum of Hon'ble Apex Court in

"Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC

353, Para 33", which reads as under:-

"33. The scheme under Sections 8 and 9 of the Code,

appears to be that an operational creditor, as defined,

Company Appeal (AT) (Insolvency) No. 194 of 2019 -8-

may, on the occurrence of a default (i.e. on non-payment of

a debt, any part whereof has become due and payable

and has not been repaid), deliver a demand notice of such

unpaid operational debt or deliver the copy of an invoice

demanding payment of such amount to the corporate

debtor in the form set out in Rule 5 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules,

2016 read with Form 3 or 4, as the case may be [Section

8(1)]. Within a period of 10 days of the receipt of such

demand notice or copy of invoice, the corporate debtor

must bring to the notice of the operational creditor the

existence of a dispute and/or the record of the pendency of

a suit or arbitration proceeding filed before the receipt of

such notice or invoice in relation to such dispute [Section

8(2)(a)]. What is important is that the existence of the

dispute and/or the suit or arbitration proceeding must be

pre-existing i.e. it must exist before the receipt of the

demand notice or invoice, as the case may be. In case the

unpaid operational debt has been repaid, the corporate

debtor shall within a period of the self-same 10 days send

an attested copy of the record of the electronic transfer of

the unpaid amount from the bank account of the corporate

debtor or send an attested copy of the record that the

operational creditor has encashed a cheque or otherwise

Company Appeal (AT) (Insolvency) No. 194 of 2019 -9-

received payment from the corporate debtor [Section

8(2)(b)]. It is only if, after the expiry of the period of the

said 10 days, the operational creditor does not either

receive payment from the corporate debtor or notice of

dispute, that the operational creditor may trigger the

insolvency process by filing an application before the

adjudicating authority under Sections 9(1) and 9(2). This

application is to be filed under Rule 6 of the Insolvency

and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 in Form 5, accompanied with documents and

records that are required under the said form. Under Rule

6(2), the applicant is to dispatch by registered post or

speed post, a copy of the application to the registered office

of the corporate debtor. Under Section 9(3), along with the

application, the statutory requirement is to furnish a copy

of the invoice or demand notice, an affidavit to the effect

that there is no notice given by the corporate debtor

relating to a dispute of the unpaid operational debt and a

copy of the certificate from the financial institution

maintaining accounts of the operational creditor confirming

that there is no payment of an unpaid operational debt by

the corporate debtor. Apart from this information, the other

information required under Form 5 is also to be given.

Once this is done, the adjudicating authority may either

Company Appeal (AT) (Insolvency) No. 194 of 2019 -10-

admit the application or reject it. If the application made

under sub-section (2) is incomplete, the adjudicating

authority, under the proviso to sub-section (5), may give a

notice to the applicant to rectify defects within 7 days of

the receipt of the notice from the adjudicating authority to

make the application complete. Once this is done, and the

adjudicating authority finds that either there is no

repayment of the unpaid operational debt after the invoice

[Section 9(5)(i)(b)] or the invoice or notice of payment to the

corporate debtor has been delivered by the operational

creditor [Section 9(5)(i)(c)], or that no notice of dispute has

been received by the operational creditor from the

corporate debtor or that there is no record of such dispute

in the information utility [Section 9(5)(i)(d)], or that there is

no disciplinary proceeding pending against any resolution

professional proposed by the operational creditor [Section

9(5)(i)(e)], it shall admit the application within 14 days of

the receipt of the application, after which the corporate

insolvency resolution process gets triggered. On the other

hand, the adjudicating authority shall, within 14 days of

the receipt of an application by the operational creditor,

reject such application if the application is incomplete and

has not been completed within the period of 7 days

granted by the proviso [Section 9(5)(ii)(a)]. It may also

Company Appeal (AT) (Insolvency) No. 194 of 2019 -11-

reject the application where there has been

repayment of the operational debt [Section 9(5)(ii)(b)],

or the creditor has not delivered the invoice or notice

for payment to the corporate debtor [Section

9(5)(ii)(c)]. It may also reject the application if the notice of

dispute has been received by the operational creditor or

there is a record of dispute in the information utility

[Section 9(5)(ii)(d)]. Section 9(5)(ii)(d) refers to the notice of

an existing dispute that has so been received, as it must

be read with Section 8(2)(a). Also, if any disciplinary

proceeding is pending against any proposed resolution

professional, the application may be rejected [Section

9(5)(ii)(e)]." [emphasis added]

In the light of the authoritative pronouncement of law, the application

of Appellant was required to be rejected merely on the ground of non-

delivery of notice of demand upon the Corporate Debtor and the

Adjudicating Authority had no jurisdiction to record finding with regard to

merits of the claim.

6. This leaves us to consider the issue of limitation. We may at the very

outset make it clear that limitation for purposes of triggering of Corporate

Insolvency Resolution Process would not be identical with the limitation for

purposes of claim. We take judicial notice of the fact that vide S.O.3594(E)

dated 30th November, 2016 published in the Gazette of India, inter-alia,

Company Appeal (AT) (Insolvency) No. 194 of 2019 -12- Sections 8 & 9 of the I&B Code came into force on 1st December, 2016.

Remedy provided to an Operational Creditor, therefore, was not available

before the date of enforcement of the aforesaid provisions and Corporate

Insolvency Resolution Process in the instant case could be triggered only

after 1st December, 2016. Viewed in that context the application for

triggering of Corporate Insolvency Resolution Process under Section 9 of I&B

Code could not be held to be hit by law of limitation notwithstanding the fact

that the instant case seeking winding up as one of the reliefs before the

Hon'ble High Court stood transferred to the Adjudicating Authority which

directed the Appellant to comply with the legal provisions under I&B Code

for triggering of Corporate Insolvency Resolution Process. We are therefore

of the considered view that the application filed in Form 5 in compliance to

the order of Adjudicating Authority seeking initiation of Corporate

Insolvency Resolution Process under Section 9 of I&B Code was not hit by

limitation but the application was premature as the demand notice stated to

have been sent on 11.10.2017 could not be served upon the Respondent

and was received back with endorsement "Addressee Left". Even the notice

sent on alternate address was returned with endorsement "No Such Firm".

In absence of service of demand notice upon the Respondent - Corporate

Debtor whose existence at the given address itself was doubtful, the

Appellant - Operational Creditor was not entitled to seek triggering of

Corporate Insolvency Resolution Process. Once application in prescribed

form was filed by the Appellant, the Adjudicating Authority was empowered

Company Appeal (AT) (Insolvency) No. 194 of 2019 -13-

to reject the same for failure on the part of Operational Creditor to deliver

demand notice to the Corporate Debtor.

7. In view of the foregoing discussion, we find ourselves left with no

course but to dismiss the appeal though only for reasons of non-compliance

with the procedural requirements as laid down under Section 8(1) r/w

Section 9(5)(ii)(c) of I&B Code. The impugned order as regards findings on

admissibility, sustainability and proof of claim besides observations as

regards limitation cannot be supported and is set aside. The Appellant shall

be at liberty to seek triggering of Corporate Insolvency Resolution Process

under Section 9 of I&B Code afresh after complying with the mandatory

requirement of Section 8(1) of I&B Code within thirty days from the date

certified copy of this judgment is provided to it. The period for which the

Appellant has been prosecuting his claim before the Adjudicating Authority

and before this Appellate Tribunal shall be excluded from computation of

limitation.

[Justice Bansi Lal Bhat] Member (Judicial)

[Mr. Balvinder Singh] Member (Judicial)

NEW DELHI 12th July, 2019

AM

Company Appeal (AT) (Insolvency) No. 194 of 2019