Mr. Karthikk Elangovan vs M/S. Metal Gems And Anr

(Arising out of Order dated 22.09.2017 passed by the Adjudicating Authority (National Company Law Tribunal), Chennai Bench, Chennai in TCP No. 77/(IB)/CB/2017)

(Company Appeal (AT) (Insolvency) No. 247 of 2017)

IN THE MATTER OF:

Mr. Karthikk Elangovan ...Appellant

Vs

M/s. Metal Gems and Anr. ...Respondents

Present: For Appellant:- Shri Gautam Singh and Shri Amol Dhadrak, Advocates.

For Respondents:- Shri R.K.Bachchan, Advocate.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant/shareholder of the 'Corporate Debtor' has challenged

the order dated 22nd September, 2017 passed by Adjudicating Authority

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

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

Gems. ('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

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

"I&B Code") read with Rule 6 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to

as "Adjudicating Authority Rules, 2016"), admitted the application, passed

order of Moratorium and name of 'Interim Resolution Professional' has

been called for from the 'Insolvency and Bankruptcy Board of India' (IBBI).

2. Learned counsel for the Appellant submitted that before treating the

application as under Section 9 of the 'I&B Code', Respondent- 'Operational

Creditor' 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. The brief facts of the case is that "M/s. Saranya Forging & Engineers

India Private Limited" ('Corporate Debtor') is involved in manufacturing of

components made up of aluminium, copper, brass & steel and part of

pump, automobile and machinery and also supply components to spare

manufacturing industries. The 1st Respondent "M/s. Metal Gems"

('Operational Creditor') is engaged in business of manufacturing and

selling of all kinds of copper and copper alloys. According to Appellant, the

Respondent- 'Operational Creditor' supplied copper rods and other

products to 'Corporate Debtor' during the years 2012 and 2013, however,

the goods were of sub-standard quality, which was informed by the

'Corporate Debtor' to the Respondent by e-mails dated 27th February, 2013

and 3rd August, 2013, but no step was taken by the Respondent-

'Operational Creditor' to replace the materials supplied.

Company Appeal (AT) Insolvency No. 117 of 2017 3

4. The 1st Respondent-'Operational Creditor' initially send an Advocate

notice on 28th November, 2014 to the 'Corporate Debtor' claiming the

amount, which was disputed by the 'Corporate Debtor' by letter dated 20th

December, 2014 informing the sub-standard quality of goods supplied by

the 1st Respondent. Thereafter, the 1st Respondent send a statutory notice

to the 'Corporate Debtor' on 1st June, 2015 under sections 433 and 434 of

the Companies Act, 1956, followed by filing of a winding up petition before

the Hon'ble High Court of Madras under Sections 433 and 434 of the

Companies Act, 1956. In the said case, notice was issued on 7th December,

2016 but before notice could be served and the 'Corporate Debtor' could

appear before the Hon'ble High Court, the Central Government from its

Ministry of Corporate Affairs issued a notification dated 7th December,

2016 transferring pending winding up cases from the High Courts to the

respective Tribunal.

5. On notice, the 'Corporate Debtor' appeared and disputed the liability

and brought to the notice of the Tribunal that no notice under sub-section

(1) of Section 8 of the 'I&B Code' has been received. On hearing the parties,

the Adjudicating Authority treated the petition as an application under

Section 9 of the 'I&B Code' and admitted the application by impugned

order dated 22nd September, 2017.

6. 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

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

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

The application was also not filed in Form 5, as required under Section 9

of the 'I&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 were not provided.

7. Learned counsel appearing on behalf of the Respondent submitted

that statutory notice under Sections 433 and 434 of the Companies Act,

1956, having issued no further notice was required to be issued under

sub-section (1) of Section 8 of the 'I&B Code', which is also accepted by

the Adjudicating Authority.

8. Learned counsel for the Appellant brought to our notice the Central

Government notification dated 7th December, 2016 issued from the

Ministry of Corporate Affairs whereunder 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".

9. 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

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

petitions relating to winding up under clause (e)

Company Appeal (AT) Insolvency No. 117 of 2017 5

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

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

may be, and dealt with in accordance with Part

II 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.

Company Appeal (AT) Insolvency No. 117 of 2017 6

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."

10. 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.

11. 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

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

payment of the amount involved in the default to the

corporate debtor in such form and manner as may be

prescribed."

12. 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'.

13. 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

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

issued by 'Operational Creditor'. The said notice is to be given in Form 3

or Form 4.

14. 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 II- 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]

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

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.

Annex II Copies of all documents referred to in this

application.

Annex III 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."

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

From the aforesaid instructions, it is evident that copy of the

invoice/demand notice as in Form 3 of Adjudicating Authority Rules

served on the 'Corporate Debtor' is to be enclosed.

15. 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.

16. 1st 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,

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.

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

dated 22nd September, 2017 passed by the Adjudicating Authority,

Chennai Bench in T.C.P No. 77/(IB)/CB/2017, also declare that the

application preferred by Respondent under Sections 433 and 434 of the

Companies Act, 1956 stands abated.

18. In effect, order (s) passed by the 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

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

Professional', including the advertisement published in the newspapers

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 'Corporate Debtor' is released from all the rigour of law and is allowed

to function independently through its Board of Directors from immediate

effect.

19. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional', which the 'Corporate Debtor' will pay. The 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 Bansi Lal Bhat) (Justice S.J. Mukhopadhaya) Member (Judicial) Chairperson

NEW DELHI

13th December, 2017 AR

Company Appeal (AT) Insolvency No. 117 of 2017