Notice at registered office of borrower is mandatory for initiation of insolvency process

NOTICE AT REGISTERED OFFICE OF BORROWER IS MANDATORY FOR INITIATION OF INSOLVENCY PROCESS - NCLT - INSOLVENCY CODE

IBC is not a Recovery Law, it is Revival Law

SHORT SUMMARY

In this Flash editorial, the author begins by referring the provisions of rules 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in relation to Deliver of Notice at registered office of Corporate Debtor.

In some situations to avoid the reply from the Corporate Debtor or due to ignorance, non malafide intention etc. Creditor serves the notice/ application to debtor on address other then registered office address of the Debtor. The main thrust of the article, however, is upon the 'Whether service of notice/ application at the register office of the debtor is mandatory or directory or whether notice can be served at office other than registered office.'

In this editorial author discuss the decisions of Hon'ble National Company Law Tribunal (NCLT), New Delhi Bench in case of Indian Bank v/s Athena Demwe Power Ltd.

This is article no. 241 of the series of editorials written by the author on corporate laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.

Case Law Detail:

Factual Background:

I. Corporate Debtor had approached the Bank for multiple credit facilities in the form of term loan as well as non-fund based facilities as supplement to term loan. Request for financial facilities by the corporate debtor was accepted by bank, which comprised of term loan to the extent of Rs. 200 crores and non-fund based loan facilities of Rs. 100 crores and the sanction was valid for period of 6 months with pre-disbursement conditions. It was contended by the bank that in view of the defaults committed on the part of corporate debtor, it was forced to issue letter to corporate debtor calling upon it to remit the overdue amount with interest. On its failure to repay, bank filed the necessary application to initiate corporate insolvency resolution process

II. While in relation to the above petition/application as well as in the prescribed format filed in Form I of the Adjudicating Authority Rules, 2016, the registered office of the Corporate Debtor is stated to be J-38, 2nd Floor, B.K. Dutt Colony, Near Paryavaran Bhawan, Jor Bagh, New Delhi- 110 003 and prima facie it is seen from the postal receipt issued by the postal authorities as well as the related tracking report extracted and produced by the Financial Creditor discloses the delivery at Lodhi Road, Head Office of postal authorities.

III.  Rule 4 specifically directs that the applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the Corporate Debtor. Without producing any documentary evidence the financial creditor claimed that registered office of the Corporate Debtor having been shifted from 1st Floor, NBCC Tower, 15 Bhikaji Cama Place, New Delhi 110 066 to Lodhi Road, Head Office.

Provisions relating to Withdrawal Of Application under the IBC, 2016:

as per Rule 44 sub rule 2 of NCLT Rules, 2016 'A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (3) The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.'

Findings of the NCLT Bench: 

Based on the above factual background, the NCLT dismissed the and held as follows:

a. Service of the application at the registered office of the Corporate Debtor is a prerequisite as required under rule 4(2) of the Application to Adjudicating Authority Rules, for entertaining the application.

b. It is also pertinent to note that in Company Appeals (AT)(lns) No.31 of 2017 in the matter of Era Infra Engg. Ltd v. Prideco Commercial Projects (P.) Ltd, the Hon'ble NCLAT has laid down, albeit in the case of an "Operational Creditor' that in view of the mandatory provision under Section 8 of the I & B Code read with Rule 5 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 the same are strictly required to be complied with, failing which the application under Section 9 of IBC, 2016 is to be dismissed. In a similar vein in relation to a 'Financial Creditor' too as in the present instance service of the application at the registered office of the Corporate Debtor is a prerequisite as required under Rule 4(2).

c. Finally for the above reasons and despite considerable opportunity being afforded to the Financial Creditor to rectify the defects in relation to service of proper notice of the application as required under IBC, 2016 read with AAA Rules, 2016 on the Corporate Debtor not done , we are constrained to dismiss this Company Petition

Conclusion:

Based on the above judgment NCLT has cleared that It is mandatory for the Financial creditor to serve the copy of application at the registered office address of the Corporate Debtor, In case of failure it will be considered as non compliance of Rule 4(2) and petition can be dismiss.