Appellate Tribunal emphasizes the importance of proper service under IBC, 2016; calls for adherence to principles of natural justice.
In a significant development, the National Company Law Appellate Tribunal (NCLAT) has set aside the National Company Law Tribunal (NCLT) Ahmedabad's decision dismissing a Section 9 petition filed by M/s M & B Engineering Ltd. against Mascot Suryapur LLP. The case, revolving around the procedural aspect of serving a demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016, has been remanded back to NCLT for a fresh decision.
The Appellant, M/s M & B Engineering Ltd., had approached the NCLAT after the NCLT dismissed its application for initiating Corporate Insolvency Resolution Process (CIRP) due to alleged insufficient service of the demand notice. The case highlights the critical role of procedural compliance in insolvency proceedings, particularly concerning the service of demand notices.
Justice Mohd. Faiz Alam Khan and Indevar Pandey of the NCLAT bench reviewed the case, focusing on whether the demand notice sent by the operational creditor was sufficient to initiate CIRP under Section 9 of the IBC. The Tribunal underscored the necessity of delivering demand notices to the registered office of the corporate debtor, as per records available with the Ministry of Corporate Affairs (MCA), and emphasized the need for the Tribunal to provide parties with the opportunity to present evidence on service adequacy.
The judgment detailed several procedural lapses in the original tribunal's handling, such as failing to consider the return of a demand notice with the endorsement "refused to accept service" as potentially sufficient service. The NCLAT criticized the NCLT for relying on prior service reports instead of focusing on the current demand notice's service status.
Furthermore, the NCLAT noted the need for the Tribunal to consider alternative modes of service, including electronic communication, and urged adherence to principles of natural justice by allowing parties to present additional evidence.
The appellate decision mandates the NCLT to reconsider the matter, providing both parties a fair chance to submit evidence and arguments. The ruling also clarified that the NCLT must address other claims, including the dispute over the threshold amount and alleged pre-existing disputes, which were not adequately considered in the original decision.
Both parties have been directed to appear before the NCLT on December 11, 2025, for further proceedings. The appellate tribunal's decision underscores the importance of procedural diligence and the right of parties to a fair hearing in insolvency cases.
Bottom Line:
Under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016, proper service of demand notice to the corporate debtor is a condition precedent for filing an application under Section 9 of the IBC. Tribunal must provide opportunity for parties to present evidence on service of such notice.
Statutory provision(s):
- Insolvency and Bankruptcy Code, 2016 Sections 8 and 9
- Rule 5 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
- Section 61 of the Insolvency and Bankruptcy Code 2016
