Back
Identity Science's Insolvency Plea Revived by NCLAT as Service Objection Fails
The has delivered a significant ruling on the validity of service under the , holding that to the mode of service cannot defeat insolvency proceedings when the has actually received the notice and had knowledge of the claim. The decision, rendered on Thursday by a bench comprising Judicial Member Justice Sharad Kumar Sharma, Technical Member Arun Baroka, and Technical Member Indevar Pandey, sets aside an order of the and revives a Section 9 petition filed by , a Japanese company, against .
Background of the Dispute
The dispute traces back to 2018 and 2019, when Identity Science entered into contracts with Sonal Plasrub for the supply of 1-Bromo Butane and Hydro Bromic Acid. Identity Science paid advances for consignments that were never supplied. After the deal fell through, Sonal Plasrub agreed to repay the advances but failed to do so. Consequently, Identity Science issued a on , claiming ₹1.12 crore. The notice was delivered via courier to the registered office of Sonal Plasrub on , with a confirmed tracking number and delivery receipt.
When Sonal Plasrub did not clear the outstanding amount, Identity Science filed a petition under , which allows an to initiate the against a defaulting . The NCLT Mumbai bench dismissed the petition, prompting the appeal before the NCLAT.
The Core Legal Issue: Service of
The primary ground raised by Sonal Plasrub before the NCLAT was that the was invalid because is not among the modes of service specified under . The argued that the notice must be served by hand, registered post, or speed post, and that a private courier service does not qualify.
The NCLAT firmly rejected this contention. The bench observed that the record contained clear proof of dispatch, delivery, and a tracking number. The notice was sent to the registered office of the and was actually delivered there. In its words, “ cannot be permitted to defeat a proceeding when from the circumstantial evidence it is inferred that the has, in substance, received the and had knowledge of the claim.”
The appellate tribunal further noted that Identity Science, being a Japanese company, opted for a reliable private courier service. The use of , under the circumstances, could not defeat the proceeding when effective delivery was established. This reasoning underscores a pragmatic approach to procedural compliance, prioritising .
Threshold Amount and Exchange Rate
Sonal Plasrub also contended that the operational debt fell below the of ₹1 crore required for filing a Section 9 petition. It pointed to a disputed amount of USD 16,766 claimed as damages for an allegedly damaged consignment, arguing that this amount should be excluded from the debt calculation.
The NCLAT examined the evidence and held that even after excluding the disputed damages claim, the operational debt crossed ₹1 crore. The bench clarified that the exchange rate applicable on the date of the ——should be used for converting the foreign-currency claim into Indian rupees. This clarification provides a useful reference point for future cases involving cross-border commercial transactions under the IBC.
Defence
Another defence raised by Sonal Plasrub was that there existed a regarding the USD 16,766 damages claim, which should bar the Section 9 petition. The NCLAT, however, found that the correspondence between the parties over the damages claim did not amount to a concerning the admitted advance amounts. The had explicitly agreed to repay those advances but failed to do so. The bench held that a dispute over a relatively small damages claim could not be used to defeat the main , especially when the debtor had acknowledged its liability.
The tribunal also dismissed Sonal Plasrub's argument that it was a solvent and profit-making company. The bench observed that solvency alone cannot justify rejecting a Section 9 petition when all statutory requirements for initiating CIRP are satisfied. The IBC is designed to address defaults, not merely to target insolvent companies.
Setting Aside the NCLT Order
In its final ruling, the NCLAT set aside the NCLT's order of dismissal and directed the NCLT Mumbai bench to pass the necessary order for initiating CIRP within 15 days. However, the tribunal granted Sonal Plasrub the liberty to pay the amount due before the Section 9 order is formally issued, potentially avoiding the commencement of insolvency proceedings.
Legal Implications and Impact
This judgment has several important implications for insolvency practitioners and corporate debtors. First, it clarifies that the mode of service of a under the IBC is not an inflexible requirement. If the notice is actually received by the , technical objections about the courier service will not be entertained. This aligns with the broader principle that procedural rules should facilitate, not obstruct, the resolution of commercial disputes.
Second, the decision reinforces the need for courts and tribunals to focus on when evaluating compliance with IBC provisions. The NCLAT's observation about "" is likely to be cited in future cases where debtors attempt to evade CIRP by raising procedural quibbles.
Third, the ruling provides guidance on the treatment of foreign-currency claims and exchange rates in IBC matters. By fixing the relevant date as the date of the , the NCLAT has introduced a degree of certainty for operational creditors dealing with international contracts.
Finally, the judgment reiterates that a must be genuine and relate to the core . A minor damages claim that does not challenge the principal amount cannot be used to defeat a Section 9 petition. This protects operational creditors from being forced into prolonged litigation over ancillary issues.
Conclusion
The NCLAT's decision in the Identity Science case is a welcome reaffirmation of the IBC's objective of timely resolution of defaults. By rejecting and focusing on the actual receipt of the , the tribunal has ensured that procedural hurdles do not derail legitimate insolvency claims. Corporate debtors can no longer rely on creative service arguments to delay or avoid CIRP. The ruling also offers practical clarity on exchange rate computation and the threshold of genuine disputes. As the NCLT now proceeds to admit the petition, the case serves as a reminder that the IBC is a creditor-friendly regime that prioritises commercial reality over legal formalism.
