Pranav B Prem

In a recent judgment, the National Company Law Tribunal (NCLT), Hyderabad Bench, comprising Sri Rajeev Bhardwaj (Member, Judicial) and Sri Sanjay Puri (Member, Technical), dismissed a Section 9 petition filed by Noveltech Feeds Private Limited against M/s. Gold Chick Hatcheries & Food Private Limited. The tribunal held that any default falling within the Section 10-A period of the Insolvency and Bankruptcy Code (IBC), 2016, must be excluded while calculating the total outstanding debt. The bench also emphasized that non-compliance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 is fatal to the initiation of insolvency proceedings.

Background of the Case

The petitioner, Noveltech Feeds Private Limited (Operational Creditor), entered into a contractual agreement with M/s. Gold Chick Hatcheries & Food Private Limited (Corporate Debtor) concerning the supply of poultry feed. According to the Operational Creditor, the Corporate Debtor defaulted on the payment of ₹1,29,03,363/- and ₹18,02,845/- in interest calculated at 24% for the period from September 19, 2021, to March 31, 2022. Upon the Corporate Debtor's failure to clear the dues, a demand notice under Section 8 of the IBC was sent on May 24, 2022. Despite the notice, the Corporate Debtor did not pay, and the Operational Creditor alleged that the date of default occurred on September 16, 2021.

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Contentions of the Parties

The Operational Creditor argued that the Corporate Debtor had failed to pay the legitimate dues despite being served with a demand notice. They claimed that the total default amount, including the principal and interest, was recoverable under Section 9 of the IBC.

On the other hand, the Corporate Debtor contended that the notice under Section 8 was not sent to the registered office as required by law and was accompanied by incomplete documentation, as it did not include invoices and supporting documents. They also asserted that the quality of poultry feed supplied was substandard, causing bird mortality and financial losses, which had been communicated to the Operational Creditor. Furthermore, the Corporate Debtor emphasized that a major portion of the outstanding amount pertained to invoices raised between April 1, 2020, and January 5, 2021, which falls within the Section 10-A exclusion period, making the claim ineligible for CIRP initiation.

Key Legal Issues

1. Whether defaults falling within the Section 10-A period of the IBC can be considered for initiating the Corporate Insolvency Resolution Process (CIRP).

2. Whether non-compliance with the service requirements under Rule 5 of the Insolvency and Bankruptcy Rules, 2016 invalidates the Section 9 application.

NCLT's Observations and Ruling

1. On Section 10-A Exclusion: The Tribunal held that Section 10-A explicitly bars the initiation of CIRP for defaults occurring during the period of March 25, 2020, to March 25, 2021. Citing the Supreme Court's decision in Ramesh Kymal v. Siemens Gamesa Renewable Power Private Limited [(2020) 3 SCC 22], the bench noted: "The expression 'shall ever be filed' is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified." The Tribunal observed that a substantial portion of the invoices claimed by the Operational Creditor fell within this protected window, and therefore, cannot form the basis of the Section 9 petition.

2. On Non-Compliance with Rule 5: The Tribunal underscored the mandatory nature of Rule 5 under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which requires that a demand notice must be sent in Form 3 or Form 4 to the registered office of the Corporate Debtor. "As the notice was sent to an incorrect address and was returned undelivered, it means the Corporate Debtor never received proper notice," the Tribunal observed. The bench ruled that failure to comply with procedural requirements under Rule 5 is a fatal defect that renders the application defective and non-maintainable.

3. On Procedural Safeguards and the Corporate Debtor's Right to Respond: The Tribunal emphasized that procedural safeguards like proper service of notice are crucial to protect the Corporate Debtor's rights under the IBC. Since the demand notice was improperly served and returned undelivered, the Corporate Debtor was deprived of an opportunity to respond or raise a valid dispute.

Final Verdict

The NCLT Hyderabad Bench dismissed the Section 9 application on two primary grounds:

Also Read: NCLAT Rules, Order Passed After Considering All Materials Essential For Determining Issue Cannot Be Recalled

1. Exclusion under Section 10-A: Since a substantial portion of the claim related to defaults falling within the protected COVID-19 moratorium period, those amounts cannot be included for CIRP initiation.

2. Procedural Non-Compliance: The failure to serve the demand notice correctly in accordance with Rule 5 is a procedural irregularity that is fatal to the validity of the Section 9 application.

Appearance

For the Petitioner: Mr.N.B.Sudarshan, Learned Counsel

For the Respondent: Mr.Rajgopal, Learned Counsel

Cause Title: M/s.Noveltech Feeds Private Limited V. M/s.Gold Chick Hatcheries & Foods Pvt Ltd

Case No: CP (IB) No.202/9/HDB/2022

Coram: Sri Rajeev Bhardwaj, Hon’ble Member [Judicial], Sri Sanjay Puri, Hon’ble Member [Technical]

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