Prajna Prakash Nayak vs Asap Info Systems Pvt. Ltd. & Anr

Prajna Prakash Nayak ...Appellant

Vs.

ASAP Info Systems Pvt. Ltd. & Anr. ...Respondents

Present: For Appellant: - Mr. Arun Kathpalia, Mr. Shankh Sengupta, Mr. Aanchal Kapoor and Ms. Bani Brar, Advocates

For Respondents:- Mr. Ashok Kumar Juneja, Ms. Renu Tyagi and Mr. Mithilesh Kumar, Advocates for RP (R-2)

ORDER

11.07.2018─ This appeal has been preferred by the appellant Prajna

Prakash Nayak, shareholder and Managing Director of M/s Business Arts

India Private Limited (Corporate Debtor) against Order dated 19th April 2018

passed by the Adjudicating Authority,( National Company Law Tribunal ),

(NCLT), Hyderabad Bench, Hyderabad. By the impugned order the

application preferred by 1st Respondent M/s ASAP Info Systems Pvt. Limited,

(Operational Creditor) under Section 9 of the Insolvency and Bankruptcy

Code, 2016 (hereinafter referred to as 'I & B Code' 2016) has been admitted,

order of moratorium has been passed and Resolution Professional has been

appointed with certain directions on 6th July 2017.

2. Learned counsel for the appellant submitted that the notice under

Section 8(1) of the 'I & B Code' 2016 was never served on the Corporate Debtor. It was also submitted that Adjudicating Authority has not served any

notice on the Corporate Debtor before admitting the application under Section

9.

3. Learned counsel appearing on behalf of the respondent submitted that

the Corporate Debtor avoided to receive the notice though the notice was sent

in the registered office of the Corporate Debtor as shown in the web site of the

Ministry of Corporate Affairs.

4. Further, according to him the notice for date of hearing was also served

on the Corporate Debtor, which the Corporate Debtor acknowledged by email.

5. From the record, we find that the notice under Rule 5 (1) of the 'I & B

Code' 2016 (Application to Adjudicating Authority) Rules 2016 i.e. Demand

Notice under Section 8(1) was issued by the Operational Creditor on 29th

August 2017. It was not served on the Corporate Debtor and returned with

the note "insufficient address". The Adjudicating Authority at paragraph 4 of

the impugned order though noticed that notice sent to the Corporate Debtor

returned unserved with insufficient address, in spite of the same the

application under Section 9 was entertained on the ground that the address

of the Corporate Debtor as appearing on the website was mentioned by the

Operational Creditor.

6. The legislative intent of issuance of Demand Notice under Section 8(1)

is not a mere formality but a mandatory provision. Only after service of notice

under Section 8(1) and on completion of 10 days, if payment towards the

demand is not made, an Operational Creditor accrues right to file application

under Section 9 and not before such date.

7. In that view of aforesaid admitted position and in absence of service of

Demand Notice, we hold that application under Section 9 of 'I & B Code' 2016

was not maintainable.

8. This apart, we find that the Adjudicating Authority had not issued any

Notice on the Corporate Debtor before admission of the application under

Section 9 which was required to be issued in the light of the decision of this

Appellate Tribunal in "Innoventive Industries Ltd. Vs. ICICI Bank and Ors.

(Company Appeal (AT)(Ins.) No. 1 and 2 of 2017)".

9. The direction given to Operational Creditor to serve notice of date of

hearing on the Corporate Debtor is not in accordance with the NCLT Rules,

2016 and cannot be treated to be a notice issued and served by the

Adjudicating Authority. It is also against sub-Section (2) of Section 424 of the

Companies Act, which is applicable to 'I & B Code' 2016.

10. In view of the aforesaid findings, we have no other option but to set

aside the impugned order dated 19th April, 2018 in CP (IB) No.

48/9/HDB/2018.

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

'Resolution Professional', declaring moratorium, freezing of account, and all

other order (s) passed by the Adjudicating Authority pursuant to impugned

order and action taken by the 'Resolution Professional', including the

advertisement published in the newspaper calling for applications all such

orders and actions are declared illegal and are set aside. The application

preferred by Respondent under Section 9 of the I&B Code, 2016 is dismissed.

The Adjudicating Authority will now close the proceeding. The 'Corporate Debtor' (company) is released from all the rigour of law and is allowed to

function independently through its Board of Directors from immediate effect.

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

Professional', if appointed, and the 'Corporate Debtor' will pay the fees of the

'Interim Resolution Professional', for the period he has functioned. The

appeal is allowed with aforesaid observation. However, in the facts and

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

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) sm/uk