M/S. Aruna Hotels Limited vs Mr. N. Krishnan

02.08.2017 In these three appeals, as common questions of law

involved, they are heard together and are being disposed of by this

common judgement.

2. The respondents, Mr. N. Krishnan (in Company Appeal (AT)

(Insolvency) No. 59 of 2017), Mr. D. Ramjee (in Company Appeal (AT)

(Insolvency) No. 87 of 2017) and Mr. C. Ganapathy (in Company

Appeal (AT) (Insolvency) No. 88 of 2017) are ex-employees of appellant-

M/ s. Aruna Hotels Limited, preferred their respective applications

under Section 9 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as 'I&B Code') for initiation of Corporate

Insolvency Resolution Process against the appellant/ 'Corporate

Debtor'-M/s. Aruna Hotels Ltd. They alleged that the arrears of

salaries due to them have not been paid and thereby, there is a default

of debt.

3. Learned Adjudicating Authority (National Company Law

Tribunal) Division Bench, Chennai (hereinafter referred to as

'Adjudicating Authority') noticed that one of the respondent employee,

Mr. D. Ramjee, claimed amount to the tune of Rs.2,13,65,565/-

towards arrears of salary, and Rs. 47,03,318/- towards gratuity and

leave salary, totalling Rs. 2,60,68,883/- and a demand notice was sent

by the said employee on 24th March, 2017. An affidavit sworn by Mr.D. Ramjee under Section 9(3)(b)(c) of the I&B Code has been placed

- on record and thereby admitted the application.

4. In view of the fact that one of the application has been admitted,

in relation to the other two applications, preferred by Mr. N. Kirshnan

and Mr. C. Ganapathy, both the 'Operational Creditors', Learned

Adjudicating Authority directed them to approach Interim Insolvency

Professional appointed pursuant to the first case of Mr. D. Ramjee to

make their claim and the Insolvency Professional has been asked to

deal with the same in accordance with law by common order dated

13th June, 2017. The aforesaid common order has been passed in C.P.

No. 478 of 2017 with C.P. No. 479 of 2017 and C.P. No. 480 of 2017.

5. On 7th July, 2017, when the matter was taken up, learned senior

counsel for the appellant submitted that all the respective

respondents/ ex-employees / 'Operational Creditors' served advocate

notice on the appellant purported to have been issued under Section

8 of the I&B Code. It was further submitted that no notice under

Section 8 read with Rule 5 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2.016 (hereinafter

referred to as 'Adjudicating Authority Rules') and Form-.3/Form-4

thereof were served on the appellant. The appellant also raised other

questions to suggest that the applications preferred by all the three

respondents/ 'Operational Creditors' under Section 9 of the I&B Code

were not complete and were fit to be rejected.

6. In view of such submission notices were issued on respondents.

They have appeared. We have heard learned counsel for the parties.

7. From the record we find that an advocate notice dated 27th

February, 2017 was given by one Shri G.V. Mohan Kumar, Advocate,

on behalf of respondent-Mr. N. Krishnan, aged about 66 years. He

retired on 30th September, 2011, i.e. about six years back.

8. In the case of Mr. D. Ramjee, similar notice was issued by Mr.

G.V. Mohan Kumar, Advocate on 27th February, 2017 on behalf of Mr.

D. Ramjee aged about 70 years who was relieved on 31st May, 2013

i.e. about four years back. Another similar notice dated 27th February,

2017 was issued by the same lawyer, on behalf of Mr. C. Ganapathy,

aged 70 years who was also relieved on 31st May, 2011 i.e. about six

years back. Thus, we find that there is delay in preferring all the

applications, without going into the question of limitation or the other

questions, as raised by learned senior counsel for the appellant, taking

into consideration the fact that the respondents are ex-employees of

the appellant, we requested the learned senior counsel for the

appellant to find out whether the appellant intends to pay the arrears,

if any, due to one or other employee.

Today, it is informed that though the claims of the respondents

are barred by limitation, the appellant may agree to pay arrears of three years' salary, if due to one or other respondent and post-

retirement benefit, if due.

9. Learned counsel for the respondents submits that the

respondents do not agree with the proposal as given on behalf of the

appellant and, therefore, we heard the appeals on merit.

10. Admittedly, no demand notice under Section 8 was given by any

of the individual respondent-'Operational Creditor', either in Form-3

or Form-4 of the Adjudicating Authority Rules. All the notices, which

are same and similar and all dated 27th February, 2017, were issued

by the same advocate, on behalf each of the respondents. Only the

amount of default shown therein are varying. Learned counsel for the

respondents accepts that apart from advocate notice, no separate

notice under . Section 8. were individually given by any of the

respondents.

11. Similar issue fell for consideration before this Appellate

Tribunal, in the case of "Macquarie Bank Limited Vs. Uttam Galva

Metallics Limited - (Company Appeal (AT) (Insol.) No. 96 of 2017." In

the said case, this Appellate Tribunal, having noticed that the notices

under Section 8 of the I&B Code, were issued by advocate /lawyer, by

judgement & 'order dated 17th July, 2017 observed and held as follows:

"13. From the plain reading of sub-section (1) of

Section 8 it is clear that on occurrence of default, the 6

'Operational Creditor' is required to deliver a

demand notice of unpaid operational debt, copy of

invoice, demanding payment of amount involved in

the default to the 'Corporate Debtor' "in such form

and manner as prescribed."

14. Sub-Rule (1) of Rule-5 of the Adjudicating

Authority Rules mandates the 'Operational Creditor' to

deliver the 'Corporate Debtor' the demand notice in

Form-3 or invoice attached with the notice in Form-4

as quoted below:-

"5. Demand notice by operational creditor. -

(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 sub-section (2)

of section 8 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.

15. Clause (a) & (b) of sub-Rule (1) of Rule-5 of the

Adjudicating Authority Rules mandates the

'Operational Creditor' to deliver the 'Corporate

Debtor' either the demand notice in Form - 3 or a

copy of an invoice attached with a notice in Form

- 4. If the Rule 5 is read with the demand notice

Form - 3 or invoice in Form - 4, it is clear that who

are persons authorized to give the notice under

Section 8 of the 'I&B Code', as apparent from last

portion of Form -3 & Form -4, as quoted below: -

"6. The undersigned request you to

unconditionally repay the unpaid 8

operational debt (in default) in full within ten

days from the receipt of this letter failing

which we shall initiate a corporate

insolvency resolution process in respect of

[name of corporate debtor].

Yours sincerely,

Signature of person authorised to act on behalf of the operational creditor Name in block letters Position with or in relation to the operational creditor Address of person singing

16.From bare perusal of Form-3 and Form-4, read

with sub-Rule (1) of Rule 5 and Section 8 of the 'I &

B Code, it is clear that the 'Operational Creditor'

can apply himself or through a person authorized

to act on behalf of the 'Operational Creditor, who

hold same position with or in relation to the

'Operational Creditor'. Thereby such person(s)

authorized by 'Operational Creditor',, holding

position with or in relation to the 'Operational.

Creditor' can only apply.

17. In view of such provision we hold that an

advocate / lawyer or Chartered Account or a

Company Secretary or any other person in absence 9

of any authority by the 'Operational Creditor', and

if such person do not hold any position with or in

relation to the 'Operational Creditor', cannot issue

notice under Section 8 of 'I & B Code', which

otherwise can be treated as a lawyer's notice/

pleader's notice, as distinct from notice under

Section 8 of 'I & B Code'.

18. The demand notice/ invoice Demanding

Payment under the I& B Code required to be issued

in Form-3 or Form - 4. By the said notice, the

'Corporate Debtor' is to be informed of particulars

of 'Operational Debt', with a demand of payment,

with clear understanding that the 'Operational

Debt' (in default), as claimed, is to be paid,

unconditionally within ten days from the date of

receipt of letter failing which the 'Operational

Creditor' will initiate a Corporate Insolvency

Process in respect of 'Corporate Debtor', as

apparent from last paragraph no. 6 of notice

contained inform - 3, and quoted above.

Only if such notice in Form -3 or Form -4 is

served, the 'Corporate Debtor' will understand the

serious consequences of non-payment of 10

'Operational Debtç otherwise like any normal

pleader notice/Advocate notice or like notice under

Section 80 of C.P.C. or notice for initiation of

proceeding under Section 433 of the Companies

Act 1956, the 'Corporate Debtor' may decide to

contest the suit/case iffiled, as distinct Corporate

Resolution Process, where such claim otherwise

cannot be contested, except where there is an

existence of dispute, prior to issuance of notice

under Section 8."

12. Learned counsel appearing on behalf of respondents tried to

make a distinction between the aforesaid case of 'Macquarie Bank

Limited' and the present case on the ground that the notice in the said

case was issued on behalf of the 'Operational Creditor', which was a

bank, whereas respondents are individual ex-employees. But such

distinction cannot be accepted, in view of the law laid down under the

I&B Code. It is true that no authorisation on behalf of any Company,

or firm is required to be given, but the individual(s) are also required

to give notice under Section 8 in Form-3 or Form-4 under their

signatures with clear understanding and request to repay the unpaid

'Operational Debt' (in default) unconditionally, in full, within ten days

from the receipt of the letter, with further intimation that on failure,

the said employee(s)/ workmen shall initiate a Corporate Insolvency 11

Process in respect of the 'Corporate Debtor'. If such notice in Form-3

or Form-4 with the aforesaid stipulation is served on the 'Corporate

Debtor', the 'Corporate Debtor' will understand the serious

consequences of non-payment of 'Operational Debt', otherwise like

any normal pleader notice/advocate notice or like notice under

Section 80 of the Code of Civil Procedure, 1908 or notice for initiation

of proceeding under the Industrial Disputes Act, 1947, the 'Corporate

Debtor' may not take it seriously and may decide to contest the

suit/case, if filed, before the appropriate forum. However, where the

claim is made under Section 8 of I&B Code, in such case, the

'Corporate Debtor' will understand the seriousness that it cannot

contest the claim, except in a case where a dispute has already been

raised, prior to the issuance of notice under Section 8.

13. As the case of the appellant in all the appeal, is covered by the

decision rendered in the case of 'Macquarie Bank Limited (supra)', we

are not going into other aspects as to whether the respective claims

made by the respondents are barred by limitation or there is a delay

and laches on their part or there is any dispute in existence.

14. In view of the discussion as made above, we have no other option

but to set aside the impugned order dated 13th June, 2017 passed by

the Learned Adjudicating Authority, Chennai Bench in C.P. No. 478 of

2017, C.P. No. 479 of 2017 and C.P. No. 480 of 2017. The common

order is accordingly set aside. .

12

15. In effect, order(s), if any, passed by the Learned Adjudicating

Authority appointing any 'Interim Resolution Professional' or declaring

moratorium, freezing of account and all other Order (s) passed by

Adjudicating Authority pursuant to impugned order and. action, if

any, taken by the 'Interim Resolution Professional', including the

advertisement, if any, published in the newspaper calling, for

applications all such orders and actions are declared illegal and are

set aside. The applications preferred by each of the respondents under

Section 9 of the I&B Code are dismissed. Learned Adjudicating

Authority will now close the proceedings. The appellant is released

from all the rigour of law and is allowed to function independently

through its Board of Directors with immediate effect.

16 Learned Adjudicating Authority will fix the fee of 'Interim

Resolution Professional', if appointed and the appellant will pay the

fees of the Interim Resolution Professional, for the period he has

functioned. The appeals are allowed, with the aforesaid observation

and direction.

17. However, we make it clear that the appellant has given

assurance that they will be paying the respondents three years'

arrears of salary, if due, for the period prior to their retirement, taking

into consideration any revision of salary, if any, and post-retirement

benefits such as Provident Fund, Gratuity etc., if due to one or other £ 13

respondent.. We hope and trust that the appellant will stick to its

assurance given before this Appellate Tribunal and pay such admitted

dues to the respondents.

18. All the appeals stand disposed of with the aforesaid observation

and direction. However, in the facts and circumstances of the case,

there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chair3erson

[Balvinder Singh] Member (Technical)

/ng/