NCLAT Sets Aside The Order Of NCLT Rejecting CIRP Initiation, Finds That The Service On The Respondent Was Effected As Per Master Data Details.

Background Facts

In 2016, Sparta Global Projects Pvt. Ltd. ("Operational Creditor/Appellant") was approached by KUGD Services Pvt. Ltd. ("Corporate Debtor") for availing services related to manpower supply. However, the Corporate Debtor partially failed to pay the Operational Creditor for the services availed. In 2019, the Operational Creditor had issued a Demand Notice under Section 8 of the IBC to the Corporate Debtor through speed post and email (as provided in MCA Master Data of the Company). The service through speed post was unsuccessful and was returned with "left" remarks while the service was complete through email. As no payments were received, the Operational Creditor filed an application under Section 9 of the IBC before the NCLT Delhi ("Adjudicating Authority"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor. The Company Master Data of the Corporate Debtor was annexed alongwith the petition.

Relevant Rule

Rule 5 of the IBBI (Application to Adjudicating Authority) Rules, 2016

"5. Demand notice by operational creditor.—

(1) An operational creditor shall deliver to the corporate debtor, the following documents, namely.- (a) a demand notice in Form 3; or (b) a copy of an invoice attached with a notice in Form 4.

(2) The demand notice or the copy of the invoice demanding payment referred to in subsection (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.

(3) A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any."

Decision Of The NCLT

The NCLT Bench had issued Notice in the petition, however, service to the Corporate Debtor could not be made through speed post and upon direction of the Adjudicating Authority the service was done through publication in local newspapers. The Corporate Debtor did not enter appearance throughout the proceedings.

The NCLT observed as per Rule 5(2) of the Adjudicatory Authority Rules, the service of Demand Notice can be done only on the email ID of a Whole Time Director, Designated Partner or Key Managerial Person of the Corporate Debtor. It was further observed that Master Data was not on record and there was nothing on record to show even otherwise that the email ID mentioned in the Master Data belongs to any of the three persons named in the Rule 5(2).

The NCLT vide an order dated 21.02.2022 rejected the Petition, stating that service of Demand Notice is a condition precedent for filing a petition under Section 9 of the IBC and since the Operational Creditor had failed to deliver the same before filing of the petition, such petition would not be maintainable.

The Operational Creditor filed an appeal before the NCLAT against the order dated 21.02.2022, challenging the rejection of petition despite service of Demand Notice through email and the Master Data of Corporate Debtor being on record as an Annexure in the Petition.

Proceedings Before The NCLAT

The Bench observed that the Adjudicating Authority had incorrectly observed that the Master Data of the Corporate Debtor has not been placed on record as the same was annexed with the Petition under Section 9. It was further observed that the email ID on which Notice was issued to the Corporate Debtor was very much part of the Master Data and the service was effected on the said email ID.

"…we are of the view that observations made by the Adjudicating Authority that Master Data of the Corporate Debtor has not been placed to establish the fact of sending the Notices by email ID is incorrect. The email ID on which Notice was issued was very much part of the Master Data and the service was effected on the said email ID.

Furthermore, Learned Counsel for the Appellant submits that neither before the Adjudicating Authority nor before this Tribunal, the Respondent has appeared. Notices in the two Newspaper having already been published under the Orders of this Court, the Respondent did not appear. We are thus of the view that ground for rejection of the Application under Section 9 of IBC was erroneous. We set aside the Order dated 21st February, 2022 and direct the Adjudicating Authority to pass an Order of admission of Section 9 Application under IBC within a period of one month from the date when the Copy of the Order is produced and to take further steps in accordance with the law."

The Bench held that the ground for rejection of the Application under Section 9 of IBC was erroneous. Accordingly, the Order dated 21.02.2022 was set aside and the Adjudicating Authority was directed to admit the Petition under Section 9 within a period of one month.

Case Title: Sparta Global Projects Pvt. Ltd. v KUGD Services Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 341 of 2022.

Counsel For Appellant: Ms. Swati Bhardwaj, Mr. Rajiv Virmani, Mr. Arjun Agarwal, Mr. Abhinav Agarwal, Mr. Atul Malhotra, Advocates.

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