M/S. Sabari Inn Pvt. Ltd vs M/S. Rameesh Associates Pvt. Ltd

M/s. Sabari Inn Pvt. Ltd. ...Appellant

Vs.

M/s. Rameesh Associates Pvt. Ltd. ...Respondent

Present: For Appellant:- Mr. Akash Jandial and Mr. Kumar Dushyant Singh, Advocates.

For Respondent:- None.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant-'Corporate Debtor' has challenged the impugned

order dated 19th June, 2017 passed by Adjudicating Authority (National

Company Law Tribunal), Chennai Bench, Chennai, whereby and

whereunder the application preferred by the Respondent- M/s. Rameesh

Associates Pvt. Ltd. ('Operational Creditor) under Sections 433 and 434 of

the Companies Act, 1956 has been treated to be an application under

Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as "I&B Code") read with Rule 6 of the Insolvency and

Company Appeal (AT) Insolvency No. 117 of 2017 2

Bankruptcy (Application to Adjudicating Authority) Rules, 2016

(hereinafter referred to as "Adjudicating Authority Rules, 2016"), the order

of admission and Moratorium has been passed, name of 'Interim

Resolution Professional' has been called for from the 'Insolvency and

Bankruptcy Board of India' (hereinafter referred to as "Board") with further

prohibitory orders in terms of 'I&B Code'.

2. Learned counsel for the Appellant-'Corporate Debtor' submitted

that before treating the application as under Section 9 of the 'I&B Code',

Respondent has not complied with the provisions of the 'I&B Code'. No

notice under sub-section (1) of Section 8 was issued in Form-3 or 4 and

the application has been admitted though there is an existence of dispute.

3. Notice was issued on Respondent but in spite of service of notice,

the Respondent has not appeared nor disputed the statement made in the

appeal.

4. The brief facts of the case are that the Appellant-'Corporate Debtor'

entered into a contract with Respondent Contractor. According to

Appellant, pursuant to the contract entire amount has already been settled

and paid. However, in spite of that the Respondent issued a legal notice

on 7th September, 2013 through a lawyer calling upon the Appellant to pay

the outstanding sum of Rs. 12,06,508/-. Thereafter, the Respondent filed

a Company Petition under Sections 433 & 434 of the Companies Act, 1956

before the Hon'ble High Court of Madras in C.P.No. 243 of 2015 claiming

a sum of Rs. 12,06,508/- from the Appellant.

Company Appeal (AT) Insolvency No. 117of0 3

5. After constitution of the Tribunal and Adjudicating Authority,

pursuant to the Notification No. G.S.R. 1119(E) dated 7th December, 2016,

issued by Central Government under Section 434 of the Companies Act,

2013 read with Section 239 of the 'I&B Code', the case was transferred to

Adjudicating Authority, Chennai Bench and re-numbered as

TCP/263/(IB)/2017.

6. On notice, the Appellant appeared on 7th June, 2017 and disputed

the liability. The case was adjourned to 20th June, 2017, on which date

the counsel for the Appellant sought time to file reply. According to

Appellant, no such opportunity was given and the transferred application

has been treated to be an application under Section 9 of the 'I&B Code'

and was admitted by impugned order dated 20th June, 2017 giving rise to

the present appeal.

7. Learned counsel for the Appellant submitted that no notice under

sub-section (1) of Section 8 was issued in Form-3 or 4 prior to treating the

application as under Section 9 of the 'I&B Code' or before the admission.

The application was also not filed in the proper format i.e. Form 5, as

required under Section 9 of the 'l&B Code' read with Rule 6 of the

Adjudicating Authority Rules, 2016 in terms of which details of record of

default etc. were required to be provided.

8. The aforesaid stand taken by the Appellant has not been disputed

by the Respondent, as he failed to appear.

Company Appeal (AT) Insolvency No. 117 of 2017 4

9. Learned counsel for the Appellant has enclosed the Central

Government notification dated 7th December, 2016 issued from the

Ministry of Corporate Affairs. By the said notification, in exercise of the

powers conferred under sub-sections (1) and (2) of Section 434 of the

Companies Act, 2013 read with sub-section (1) of Section 239 of the 'I&B

Code', the Central Government framed "The Companies (Transfer of

Pending Proceedings) Rules, 2016".

10. Rule 5 relates to transfer of pending proceedings of winding up on

the ground of inability to pay debts which are to be transferred from the

Hon'ble High Court's to the respective Tribunal and reads as follows: -

"5. Transfer of pending proceedings of Winding

upon the ground of inability to pay debts.- (1)All

petitions relating to winding up under clause (e)

of section 433 of the Act on the ground of inability

to pay its debts pending before a High Court, and

where the petition has not been served on the

respondent as required under rule 26 of the

Companies (Court) Rules, 1959 shall be

transferred to the Bench of the Tribunal

established under sub-section (4) of section 419

of the Act, exercising territorial jurisdiction and

such petitions shall be treated as applications

Company Appeal (AT) Insolvency No. 117 of 2017 under sections 7, 8 or 9 of the Code, as the case

may be, and dealt with in accordance with Part

H of the Code:

Provided that the petitioner shall submit all

information, other than information forming part

of the records transferred in accordance with

Rule 7, required 'for admission of the petition

under sections 7, 8 or 9 of the Code, as the case

may be, including details of the proposed

insolvency professional to the Tribunal within

sixty days from date of this notification, failing

which the petition shall abate.

2. All cases where opinion has been

forwarded by Board for Industrial and Financial

Reconstruction, for winding up of a company to a

High Court and where no appeal is pending, the

proceedings for winding up initiated under the

Act, pursuant to section 20 of the Sick Industrial

Companies (Special Provisions) Act, 1985 shall

continue to be dealt with by such High Court in

accordance with the provisions of the Act."

Company Appeal (AT) Insolvency No. 117012017 6

11. From the aforesaid Rule 5, it is clear after transfer of the case the

Applicant (Respondent herein) was required to submit all information,

other than in formation forming part of the records transferred from the

High Court, for admission of the petition under Sections 7, 8 or 9 of the

'I&B Code', including details of the proposed 'Insolvency Professional'

within sixty days, failing which, the petition shall stand abated.

12. As per Section 9 of the 'I&B Code', before admission of application

and its filing, a demand notice under sub-section (1) of Section 8 is

required to be issued on the 'Corporate Debtor', as quoted below: -

"8. Insolvency resolution by operational creditor.

- (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."

13. It is only on receipt of such notice under sub-section (1) of Section

8 of the 'I& B Code', the 'Corporate Debtor' may either pay the amount or

may dispute the claim in terms of sub-section (2) of Section 8 of the 'I&B

Code'.

14. Clause (a) and (b) of sub-rule (1) of Rule 5 of the 'Adjudicating

Authority Rules' provides the format in which the demand notice/invoice

Company Appeal (AT) Insolvency No. 117 of 2017 7

demanding payment in respect of unpaid 'Operational Debt' is to be

issued by 'Operational Creditor'. As per Rule 5(1) (a) & (b), the following

person (s) are authorised to act on behalf of operational creditor, as

apparent from the last portion of Form-3 and 4 which reads as follows: -

"6. The undersigned request you to unconditionally repay the unpaid 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 ofperson signing

15. In the case of "Uttam Galva Steels Limited v. DF Deutsche

Forfait AG & Anr. in Company Appeal (AT) (Insolvency) 39 of 2017"

this Appellate Tribunal by judgment dated 28th July, 2017 held as follows:

"30. 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 an Operational Creditor can

appltj himself or through a person authorised to act

on behalf of Operational Creditor. The person who

Company Appeal (AT) Insolvency No. 117 of 2017 8

is authorised to act on behalf of Operational

Creditor is also required to state "his position

with or in relation to the Operational

Creditor", meaninq thereby the person

authorised ky Operational Creditor must hold

position with or in relation to the Operational

Creditor and only such person can app hl.

31. The demand notice/invoice Demanding

Payment under the MB Code is required to be

issued in Form-3 or Form - 4. Through the said

formats, 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) required to pay the

debt, as claimed, 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 in Form - 3, and quoted above.

Only if such notice in Form-3 is served, the

'Corporate Debtor' will understand the serious

consequences of non-payment of 'Operational Debt',

Company Appeal (AT) Insolvency No. 117 of 2017 9

otherwise like any normal pleader notice/Advocate

notice, like notice under Section 80 of C.P. C. or for

proceeding under Section 433 of the Companies Act

1956, the 'Corporate Debtor' may decide to contest

the suit/case if filed, distinct Corporate Resolution

Process, where such claim otherwise cannot be

contested, except where there is an existence of

dispute, prior to issue of notice under Section 8."

16. Form-5 is the format for filing application under section 9, as per

which the following details are to be provided: -

"Part I- particulars of applicant

Part IT particulars of corporate debtor

Part III- particulars of the proposed interim resolution

professional (if proposed)

Part IV- particulars of operational debt

Part V- particulars of operational debt [documents,

records and evidence of default]

As per the instructions, the following documents are required to be

attached:

Annex I Copy of the invoice/demand notice as in

Form 3 of the Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016 served on the

Corporate debtor.

Company Appeal (AT) Insolvency No. 117 of 2017 10

Annex H Copies of all documents referred to in this

application.

Annex HI Copy of the relevant accounts from the

banks/financial institutions maintaining accounts of

the operational creditor confirming that there is no

payment of the relevant unpaid operational debt by

the operational debtor, if available.

Annex IV Affidavit in support of the application in

accordance with the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016.

Annex VI Written communication by the proposed

interim resolution professional as set out in Form 2 of

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016.

Annex VI Proof that the specified application fee

has been paid."

17. Admittedly, no notice was issued under sub-section (1) of Section

8 of the 'I&B Code'. In terms with Rule 5, other informations were also

not placed before the Adjudicating Authority.

18. The Respondent having failed to provide all the details as required

under Form-5 as noticed above, the application under sections 433 and

434 of the Companies Act, 1956 cannot be treated to be an application

under section 9 of the 'I&B Code' in terms of Rule 5 of Transfer Rules,

Company Appeal (AT) Insolvency No. 117 of 2017 11

2016. In such circumstances, in view of proviso to Rule 5 of the Transfer

Rules, the application under Sections 433 and 434 of the Companies Act,

1956 stands abated.

19. For the reasons aforesaid, while we set aside the impugned order

dated 20th June, 2017 passed by the Adjudicating Authority, Chennai

Bench in T.C.P No. 263/(IB)/2017, also declare that the application

preferred by Respondent under Sections 433 and 434 of the Companies

Act, 1956 stood abated.

20. In effect, order (s) passed by Adjudicating Authority appointing

'Interim Resolution Professional', 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 and all such orders and actions are

declared illegal and are set aside. The application preferred by

Respondent is dismissed as abated. Learned Adjudicating Authority will

now close the proceeding. The appellant company is released from all the

rigour of law and is allowed to function independently through its Board

of Directors from immediate effect.

21. The 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

Company Appeal (AT) Insolvency No. 117 of 2017 12

appeal is allowed with aforesaid observation and direction. However, in

the facts and circumstances of the case, there shall be no order as to cost.

(Justice A.I.S Cheema) (Justice S.J. Mukhopadhaya) Member (Judicial) Chairperson

NEW DELHI

171h November, 2017

AR

Company Appeal (AT) Insolvency No. 117of0