The NCLAT, has, while setting aside an order passed by the NCLT initiating insolvency, declared all actions taken by the Interim Resolution Professional (IRP) to be illegal..On June 1, 2017, Chennai Bench of the NCLT had admitted an application filed by operational creditor, Mobme Wireless Solutions Ltd. (Mobme) against Bhash Software Labs Pvt Ltd (Bhash) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code)..Two key elements required for maintaining an application by an “operational creditor” are:.Serving of notice under Section 8 of the Code read alone with Regulation 5(3) of the I&B (Application to Adjudicating Authority) Rules, 2016;The absence of a prior dispute by the the debtor in relation to the debt owed..The appeal filed by Bhash sought to challenge the order for not having qualified either of two:.Violation of Rules of natural justice inasmuch as no notice was served to Bhash;There is an existence of dispute and therefore the application is not maintainable;.Although Mobme had rightfully issued a notice u/s 8 of the Code, the notice was not served due to change in address of Bhash. While acknowledging the failure to serve the statutory notice, neither Mobme, nor the NCLT found it necessary to serve the notice on the correct updated address..In answering the first question, the NCLAT relied on the case of Innoventive Industries Ltd. v. ICICI Bank; where the NCLAT had ruled that,.“The Adjudicating Authority (NCLT) is bound to issue a limited notice to the corporate debtor before admitting a case for ascertainment of existence of default based on material submitted by the financial creditor and to find out whether the application is complete and or there is any other defect required to be removed.”.The above case relates to filing of the application by a financial creditor. In the case of an operational creditor, there is an added (statutory) responsibility under Section 8 of the Code. In view of the NCLAT ruling in the case if Innoventive, the Bench was of the opinion that rules of natural justice have not been followed and the order initiating insolvency is likely to be set aside..The second question, which arose before the Bench, was one which has been dealt with before several times – the meaning of the term “existence of dispute” as envisaged in section 8(2)(a) of the Code. While previous order(s) from NCLT have (literally) interpreted this to mean existence of a dispute in “court or arbitration proceedings”, the Bench relied on the NCLAT judgment in Kirusa Software Pvt Ltd. c. Mobilox Innovations Pvt. Ltd, where it was ruled,.“The scope of existence of ‘dispute’, if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this relation to clause (a) or (b) or (c) of sub-section (6) of Section 5.”.Prior to filing of this insolvency application by Mobme, a notice under Section 433(e) of the Companies Ac, 1956 was issued by Mobme demanding payment of the outstanding debt, which was disputed by Bhash. Relying on the ruling in the case of Kirusa, the Bench noted that there being an “existence of dispute”, petition under Section 9 was not maintainable..The order of the NCLT admitting the application and all subsequent orders by the IRP were declared “illegal” and set aside. The NCLAT ruled,.“The appellant company is released from all rigour of law and is allowed to function independently through its Board of Directors from immediate effect.”.Shishira Amarnath and Shoumendu Mukherji appeared for Bhash, the corporate debtor/appellant company. Sharmender Mukherji, Haripriya Padmanabhan and Pooja Dhir appeared for Mobme, the operational creditor/respondent company..(Read the judgment)
