NCLAT on validity of notice issued by law firm on behalf of operational creditor

The National Company Law Appellate Tribunal (NCLAT) has passed a judgment setting aside an admission order by the Chennai Bench of NCLT for procedural issues in serving of notice to the debtor..The appeal has been filed by corporate debtor, Smartcity (Kochi) Infrastructure Pvt. Ltd. (SmartCity), against an insolvency application preferred by Synergy Property Development Services Pvt. Ltd. (Synergy)..Synergy had, in its capacity as an operational creditor, filed the application under Section 9 of the Code, which was admitted by the Chennai Bench of NCLT in June 2017. An application under Section 9, has a statutory prerequisite attached to it that requires the operational creditor to serve a notice to the debtor demanding payment of debt within 10 days..The appeal moved by Smartcity has been filed primarily on two grounds:.That the notice issued under section 8 of the Code was not by the debtor itself but by a law firm – JUSTLAW;There is a dispute in existence and therefore the application under Section 9 was not maintainable..On the first point of notice issued by a law firm, the Bench referred to a previous ruling by the NCLAT, where it was held that a notice under Section 8 can be issued by the operational creditor or through a person authorised to act on behalf of the operational creditor. It was further ruled that lawyer/CA/CS in absence of any authority of the Board of the Directors, and holding no position with or in relation to the Operational Creditor cannot issue a notice under Section 8 of the Code ..In the present case, since there was nothing on record to suggest that the said law firm was authorised by the Board of Synergy, there is nothing on record to suggest that any lawyer or law firm hold any position with relation to the Synergy. Therefore, the NCLAT ruled, the notice issued by the law firm JUSTLAW cannot be treated as a notice under Section 8..As regards the second question, Smartcity, the appellant debtor presented a letter written to Synergy in November 2016 indicating inaction by Synergy and abandonment of project, which was the cause of non-payment. The NCLAT here observed that there was a bona fide dispute in existence prior to filing of application..Therefore, the NCLAT set aside the NCLT admission order as illegal, lifting the moratorium declared. Further, any actions taken by the Interim Resolution Professional (IRP) till date were also declared illegal and Synergy was directed to pay the fee to IRP for the period of functioning without imposing any order as to costs..Read the Judgment