Refusal Of Demand Notice at MCA-Registered Office Amounts To Valid Service: NCLAT

The National Company Law Appellate Tribunal at New Delhi has ruled that a demand notice sent by an operational creditor and returned with the postal endorsement “refused” from the corporate debtor's MCA-registered office amounts to valid service under the insolvency rules.

A bench of Justice Mohd Faiz Alam Khan and Technical Member Indevar Pandey set aside an order of the National Company Law Tribunal that had rejected an insolvency plea on the ground of defective service.

The appellate tribunal said the adjudicating authority committed a “mistake apparent on the face of the record” by relying on an earlier returned notice and ignoring the later notice that was expressly refused.

“If the notice sent by the operational creditor on the registered office of the CD, as is reflected from the record of the MCA and the same has been received with endorsement as 'refused by the CD', a crystal clear finding should have been recorded by the tribunal with regard to the fact as to why the refusal endorsed on such notice could not be accepted as sufficient service, which the tribunal has not done.” the bench observed.

The case arose from a dispute between M & B Engineering Ltd. and Mascot Suryapur LLP. The operational creditor supplied pre-engineered structures for the debtor's industrial unit. It claimed Rs 1.21 crore as unpaid out of a total contract value of Rs 10.67 crore.

A demand notice issued in 2023 was returned from the corporate debtor's registered office. A fresh notice sent in 2024 to the MCA-registered address was refused.

The adjudicating authority rejected the insolvency plea, citing defective service. The NCLAT found this approach flawed.

It noted that the notice was sent by speed post to the MCA-registered address and could not be discarded without examining the refusal. The bench also recorded that the corporate debtor admitted the MCA address was correct and that it continued to operate from there.

The tribunal further said that doubts over email service should not have led to outright rejection. It held that the adjudicating authority ought to have given the operational creditor an opportunity to place additional proof on record.

The appeal was allowed and the order initiating insolvency was set aside.