Supreme Court Upholds Demand Notice u/s 8 IBC on Corporate Debtor's Key Managerial Personnel [Read Judgement]

The Supreme Court upheld the delivery of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to the corporate debtor's Key Managerial Personnel (KMP), stating that the delivery of the notice to the KMP substantially complies with the requirement of Section 8 of IBC.

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The appellant, an operational creditor, operates a factory in Kalinganagar Industrial Complex, Jaipur Road, Odisha, where it manufactures and sells Low Ash Metallurgical Coke5. The corporate debtor, who works in the metals and mining industry, is the respondent.

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The appellant, who was the seller, and the respondent, who was the buyer, entered into a contract on 11.10.2019 for the sale and purchase of LAM Coke for 12,000 MT +/- 10% at the seller's option. The terms of the agreement were as follows: (a) the respondent agreed to buy the LAM Coke from the appellant for INR 18,800 per metric tonne + GST; (b) the delivery period was up to 10.11.2019; and (c) the respondent was required to pay the full amount in advance via RTGS/NEFT or by opening a Letter of Credit6 before the material was shipped.

The aforementioned contract was subsequently modified numerous times with regard to the date of lifting and the delivery period under clause 3. The date of lifting was moved to January 10, 2020, in accordance with the most recent revision, which was made on December 18, 2019. Thus, LAM Coke was provided by the appellant to the respondent, and money was received.

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According to the ruling written by Justice Mahadevan, the Court found that a substantive entitlement shouldn't be overturned on a technicality because the Respondent-Corporate Debtor was unable to show that the notice sent on its Key Managerial Personnel (KMP) caused any disadvantage. As a result, it regarded the notice's delivery as legitimate and considered it to be service of the demand notice.

The court noted that the respondent was unable to demonstrate that the procedural irregularity was causing them any significant prejudice. Accordingly, the court believed that the notification dated 31.03.2021 that the appellant sent to the Corporate Debtor's KMP and delivered to the Corporate Debtor's registered office can be interpreted as a presumed service of demand notice as required by section 8 of the IBC.

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In light of this, the NCLT and NCLAT's decision to deny the section 9 petition on the technical grounds that the appellant's notice to the corporate debtor's KMP could not be interpreted as a notice issued under section 8 of the IBC and that no notice was sent to the corporate debtor is unjustified and unsustainable under the law.

Setting aside the National Company Law Appellate Tribunal (NCLAT) ruling, the bench of Justices JB Pardiwala and R Mahadevan allowed the Operational Creditor's appeal, stating that delivery of the demand notice to the corporate debtor's KMP constitutes deemed service of the notice.

Reference was drawn to the case of Rajneesh Aggarwal v. Amit J. Bhalla, (2001), where, while dealing with the requirement of notice under Section 138 of the Negotiable Instruments Act, 1881, the Court held that a notice issued upon the Director of the Company amounts to notice to the Company. The Court allowed the appeal and remanded the matter to the NCLT for fresh consideration on merits.

To Read the full text of the Order CLICK HERE

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