Supreme Court Rules Demand Notice to KMP and Registered Office as Deemed Service Under IBC
Supreme Court Rules Demand Notice to KMP and Registered Office as Deemed Service Under IBC
Introduction
The Supreme Court of India has allowed a civil appeal filed by Visa Coke Limited, setting aside the judgment of the National Company Law Appellate Tribunal (NCLAT). The Court held that a demand notice issued to the Key Managerial Personnel (KMP) of the Corporate Debtor and delivered at the registered office of the Corporate Debtor can be construed as a deemed service of demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Factual Background
The appellant, Visa Coke Limited, was engaged in the business of manufacturing and selling Low Ash Metallurgical Coke (LAM Coke). The respondent, Mesco Kalinga Steel Limited, was the Corporate Debtor. The parties entered into a contract for the sale and purchase of LAM Coke, which was amended several times. The appellant supplied LAM Coke to the respondent, but the respondent defaulted on payment.
Procedural Background
The appellant issued a demand notice to the KMP of the Corporate Debtor and delivered it at the registered office of the Corporate Debtor. The respondent failed to respond or make payment, leading the appellant to file a Section 9 petition before the National Company Law Tribunal (NCLT). The NCLT dismissed the petition, and the NCLAT upheld the decision.
Issues Involved
1. Deemed Service of Demand Notice: Whether a demand notice issued to the KMP of the Corporate Debtor and delivered at the registered office can be considered as deemed service under Section 8 of the IBC.
2. Procedural Irregularity: Whether the procedural defect in serving the demand notice can be considered an irregularity that does not affect the substantive right of the appellant.
Contentions of the Parties
Appellant's Contentions: Visa Coke Limited argued that the demand notice was served on the KMP and delivered at the registered office, which constitutes deemed service under Section 8 of the IBC. The appellant also contended that the respondent was aware of the outstanding payment and had admitted its default.
Respondent's Contentions: The respondent argued that the demand notice was not served on the Corporate Debtor, and therefore, the Section 9 petition was not maintainable.
Reasoning and Analysis
The Supreme Court held that the approach of the NCLT and NCLAT rejecting the Section 9 petition on technical grounds was incorrect and unsustainable in law. The Court observed that procedural defects should not be allowed to defeat substantive rights, and in this case, the respondent had failed to show any substantial prejudice caused by the alleged procedural irregularity.
Final Decision
The court presided by Justice R. Mahadevan allowed the civil appeal, setting aside the judgment of the NCLAT. The Court held that the demand notice issued to the KMP and delivered at the registered office of the Corporate Debtor can be construed as deemed service under Section 8 of the IBC.
Implications
This judgment highlights the importance of substantive justice over procedural technicalities. It also underscores the need for courts to consider the merits of a case rather than dismissing it on technical grounds.
In this case the appellant was represented by AOR Pratiksha Mishra. Meanwhile the respondent was represented by AOR Dhananjay Bhaskar Ray, Mr. Saswat Kumar Acharya, and Mr. Abhijeet Agarwal, Advocates.
