NCLT Hyderabad Rejects Section 9 Petition For Incompliance Of Rule 5(2) Of Insolvency And Bankruptcy (Application To Adjudicating Authority) Rules, 2016

The Corporate Debtor claimed that the Demand Notice was served to the Security Guard while the office was closed during Covid-19 pandemic. The Operational Creditor failed to place on record any document to depict that service of Demand Notice was made through Speed Post with “acknowledgement due”. Further, no proof was placed on record to show that Demand Notice was served through email to the Director of Corporate Debtor.

Background Facts

In 2019, M/s. Trident Sugars Limited (“Corporate Debtor”) and M/s Tata International Limited (“Operational Creditor”) entered into a Trade Agreement for supply of sugar. The Corporate Debtor allegedly failed to supply sugar as per agreed terms.

On 15.11.2021, the Operational Creditor sent a Demand Notice under Section 8 of the Insolvency & Bankruptcy Code, 2016 (“IBC”) to the Corporate Debtor, claiming the outstanding amount of Rs.21,67,10,677/-, due as on 31.03.2021. Subsequently, a Memorandum of Understanding (MoU) dated 18.02.2022 was entered between the Parties whereby a fresh repayment schedule was agreed upon.

On 16.07.2022, the Operational Creditor filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor, over a default of Rs.21,67,10,677/- which occurred prior to execution of MoU. In the petition, the date of default was stated as 31.03.2020.

The Corporate Debtor contended that Demand Notice was served on the security guard deployed at its office during Covid-19 pandemic and the same is not a proper service in terms of mandatory Rule 5 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“Adjudicating Authority Rules”). Secondly, the Operational Creditor is relying on the postal track report, which is not ‘acknowledgement due’ as mandated under Rule 5(2) of Adjudicating Authority Rules and the service, if any, is invalid. Also, no notice was received over e-mail.

Relevant Law

Rule 5(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

“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, unless the above stated procedure in complied with by the Petitioner herein, compliance procedure remain breached.”

NCLT Verdict

The Bench placed reliance on Section 8(1) of IBC, which states that, “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”.

The Bench noted that the Operational Creditor failed to place on record any document to depict that service of Demand Notice was made through Speed Post with “acknowledgement due”. Further, no proof was placed on record to show that Demand Notice was served through email to the Director of Corporate Debtor.

“In the above legal frame, the factual aspects relating to the service of demand notice on the respondent when examined it is clear that the petitioner failed in placing any record before us to show that the demand notice that was claimed to have been sent to the respondent by speed post was, with “acknowledgement due”. Therefore, noncompliance of sub rule 2 (a) of rule 5, supra, glaringly stares at the petitioner. In so far as the email is concerned the receipt of which also has been denied by the respondent, in the absence of any proof of delivery of the said email on the director of the respondent it is not safe to conclude that the same has been delivered on the whole time director of the corporate debtor.”

The Bench held that the Demand Notice has not been served in consonance with the manner prescribed under IBC. The petition has been dismissed for not being maintainable on law or facts.

Case Title: M/s Tata International Limited v M/s Trident Sugars Ltd

Case No.: CP (IB) No. 221/9/HDB/2022

Counsel For Petitioner: Shri. Y Suryanarayana Ld. Counsel for Mrs.Mano Ranjani, Advocate for Petitioner.

Counsel for Respondent: Sri. P. Sri Raghuram, Ld. Sr. Counsel for Shri. P.Sastry, Advocate for Respondent

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