Company Cannot Claim Non-Service of Notices After Keeping Registered Office Non-Functional: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has ruled that a company cannot complain of inadequate service of notices when it has itself allowed its registered office to remain non-functional for several years.

Dismissing an appeal by the suspended director of AS Infracon Pvt. Ltd., Judicial Member Mohd Faiz Alam Khan and Technical Member Naresh Salecha upheld the initiation of insolvency proceedings against the company.

The bench observed that notices had been sent to AS Infracon's registered office, which was the address recorded with the Registrar of Companies and available to the lender and the tribunal registry.

“Having admittedly allowed its registered office to remain non-functional for several years in breach of its statutory obligations, it is not open to the Corporate Debtor, through the Appellant, to contend that notice sent to that very address, the address recorded with the Registrar of Companies, and the address of record available to Respondent No. 1 and the Registry amounted to inadequate service.”, the tribunal ruled.

The case arose from an insolvency application filed by the Small Industries Development Bank of India, or SIDBI, against AS Infracon. The National Company Law Tribunal's Kolkata bench had admitted the application and initiated the Corporate Insolvency Resolution Process against the company.

AS Infracon had given a corporate guarantee for a ₹7 crore loan granted by SIDBI to Kosas Exports Ltd. A corporate guarantee means the company had agreed to meet the borrower's repayment obligations in accordance with the terms of the guarantee if the borrower defaulted.

After the borrower defaulted, its account was classified as a non-performing asset. SIDBI subsequently sought repayment and issued a notice purporting to invoke AS Infracon's guarantee.

The suspended director challenged the insolvency proceedings, contending that the guarantee invocation notice and the insolvency application had not been properly served on AS Infracon. It was argued that the company's registered office had remained closed and non-functional for more than five years.

The appellant alleged that SIDBI was aware of this but deliberately did not serve the company's directors or use another available address. It was also argued that this deprived AS Infracon of an opportunity to contest the proceedings.

The appellate tribunal rejected this contention. It found that maintaining a registered office capable of receiving communications was a continuing statutory obligation and that a party could not rely on its own failure to comply with that obligation to claim denial of a fair hearing.

It also noted that attempts had been made to serve the company through both post and email. The appellant had not shown that the email address used was incorrect or inaccessible or that the emails had failed to reach their destination.

The tribunal observed, “Where service has been attempted through more than one mode, it does not suffice for a party to impugn service by demonstrating the failure of one mode while remaining silent as to the other.”

The allegation of mala fide conduct by SIDBI was also rejected. The tribunal noted that the appellant had not produced material to substantiate the claim that the lender had deliberately avoided serving AS Infracon.

The appellant also argued that SIDBI's insolvency application was barred by limitation, meaning it had been filed after the legally permitted period.

The tribunal considered written one-time settlement proposals made by the principal borrower jointly with Kosas Industries Private Limited. These proposals acknowledged the outstanding liability.

AS Infracon's guarantee contained a clause under which an acknowledgement of debt by the principal borrower was also treated as an acknowledgement by the guarantor. The tribunal held that the settlement proposals extended the limitation period.

SIDBI's insolvency application was therefore filed within time, the tribunal ruled.

It also observed, “A party cannot rely on documents evidencing a live and acknowledged debt for one purpose (to demonstrate bona fide settlement efforts) while disowning the same documents' legal consequence (extension of limitation) for another.”

The appellate tribunal noted that the appeal did not dispute the loan, AS Infracon's corporate guarantee or the settlement proposals acknowledging the outstanding liability.

Finding no merit in the challenge, the appellate tribunal dismissed the appeal and declined to interfere with the order initiating the insolvency resolution process against AS Infracon.