Notice filing procedures clarified for operational creditors

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The National Company Law Appellate Tribunal (NCLAT) recently passed a judgment setting aside an admission order by the Chennai bench of the National Company Law Tribunal (NCLT) over procedural issues with the manner a notice was served to the debtor.

In SmartCity (Kochi) Infrastructure Pvt Ltd v Synergy Property Development Services Private Limited and Another, Synergy in its capacity as an operational creditor filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), which was admitted by the NCLT in June 2017. An appeal was filed by Smartcity before NCLAT firstly on the grounds that the notice issued under section 8 and rule 4(3) of the IBC was not by the debtor itself, but by a law firm, which is not in accordance with law; secondly there was a dispute regarding non-completion and abandoning of work, due to which the application under section 9 of IBC was not maintainable.

NCLAT observed that the demand notice/invoice demanding payment under IBC needs to be issued in Form 3 or Form 4 through which the corporate debtor is to be informed of particulars of operational debt, with an unconditional demand of payment within 10 days from the date of receipt. The operational creditor can initiate a corporate insolvency process failing due payment . Only if such notice is served, will the corporate debtor understand the serious consequences of nonpayment of operational debt.

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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.

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