Delay In Statutory Demand Notice No Ground to Reject Insolvency Plea If Within Limitation: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has held that a delay in issuing a statutory demand notice does not invalidate personal insolvency proceedings under the Insolvency and Bankruptcy Code so long as the insolvency plea is filed within time.

The tribunal clarified that the limitation runs from the date of default and not from the date on which the demand notice is issued.

The ruling was delivered by a coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar while admitting a personal insolvency application filed by Indian Bank against Nipun Verma, the personal guarantor of Frost International Limited.

The tribunal explained that a statutory demand notice is a procedural requirement that must precede the filing of the insolvency application. However, the law does not prescribe any specific time limit for issuing such notice, so long as the application is filed within the limitation period

It said, “the statutory demand notice can be issued at any time within the limitation period and limitation runs from the date of default and the Application seeking admission into Insolvency Resolution is to be filed within limitation period, accordingly, the statutory demand notice has to precede such filing. There is no provision in the law which vitiates the proceedings if the statutory demand notice is issued after gap of years so long as the filing of Application consequent thereto is found within the limitation period.”

The application arose from a default of Rs 285.77 crore in respect of credit facilities extended to Frost International Limited.

The date of default was ultimately fixed as July 4, 2018, after the tribunal allowed an amendment to the application. The statutory demand notice was issued on November 22, 2023. The insolvency application was filed on March 18, 2024.

Before the tribunal, the personal guarantor argued that the demand notice was issued after an inordinate delay and that such delay rendered the insolvency application untenable.

There were also allegations that material facts had been suppressed and that the statutory demand notice had not been served on him.

The tribunal rejected these objections, reiterating that a delay in issuing the demand notice does not undermine the proceedings, since limitation under the IBC is calculated from the date of default.

Finding no breach of the IBC, the tribunal admitted the application, appointed Pramod Kumar Ramesh Ladda as the resolution professional, and directed Indian Bank to deposit Rs 2 lakh towards the initial costs of the personal insolvency process.