30 April 2025 Legal Updates

S. 8 IBC | SERVICE OF DEMAND NOTICE ON CORPORATE DEBTOR'S KEY MANAGERIAL PERSONNEL IS VALID TO TRIGGER INSOLVENCY PROCESS: SUPREME COURT

(a) Case Title:

• Visa Coke Limited v. M/s Mesco Kalinga Steel Limited

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• April 29, 2025

(d) Bench:

• Justice J.B. Pardiwala and Justice R. Mahadevan

Key Facts

Visa Coke Limited (Operational Creditor/Appellant) supplied Low Ash Metallurgical Coke to Mesco Kalinga Steel Limited (Corporate Debtor/Respondent) worth ₹3,34,16,661.60, which remained unpaid. The appellant sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) addressed to three Key Managerial Personnel (KMP) of the respondent at their registered office. When no payment was made, the appellant filed a petition under Section 9 of the IBC before the National Company Law Tribunal (NCLT). Both the NCLT and National Company Law Appellate Tribunal (NCLAT) dismissed the petition, holding that no notice was addressed to the Corporate Debtor as required under Section 8 of the IBC.

Issue

Whether a demand notice under Section 8 of the IBC addressed to the Key Managerial Personnel of a company at its registered office constitutes valid service on the Corporate Debtor ?

Judgment

The Supreme Court allowed the appeal and set aside the orders of the NCLT and NCLAT, holding:

• A demand notice under Section 8 of the IBC can be delivered to the corporate debtor through its Key Managerial Personnel, as per Rule 5(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
• The notice sent by the appellant to the Key Managerial Personnel of the respondent at their registered office clearly demonstrated that it was issued to the corporate debtor demanding payment of operational debt.
• The purpose of sending a demand notice is to give the corporate debtor an opportunity to either repay the outstanding debt or dispute it if there are genuine reasons.
• A substantive right should not be defeated merely on technicality. The respondent could not show any substantial prejudice caused by such procedural irregularity.
• The question of novation of contract and the date of default, being mixed questions of law and fact, should be decided by the NCLT on merits.

Legal Principles

• An operational creditor must send a demand notice of unpaid operational debt to the corporate debtor under Section 8 of the IBC before initiating proceedings under Section 9.
• Rule 5(2) of the Adjudicating Authority Rules provides that demand notice may be delivered to the corporate debtor at the registered office by hand, registered post, or speed post, or by electronic mail to a whole-time director, designated partner, or key managerial personnel.
• Service of notice on a Director/Key Managerial Personnel can be construed as deemed service on the corporate debtor.
• Procedural defects falling within the purview of irregularity should not defeat substantive rights without affording reasonable opportunity

CONSUMER PROTECTION ACT 2019 | FIXING PECUNIARY JURISDICTION BASED ON VALUE OF CONSIDERATION IS CONSTITUTIONAL: SUPREME COURT

(a) Case Title:

• Rutu Mihir Panchal & Ors. v. Union of India & Ors.

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• April 29, 2025

(d) Bench:

• Justice Pamidighantam Sri Narasimha and Justice Manoj Misra

Key Facts

The case challenged the constitutionality of Sections 34(1), 47(1)(a)(i), and 58(1)(a)(i) of the Consumer Protection Act, 2019 (CPA 2019). These provisions establish the pecuniary jurisdiction of the District, State, and National Consumer Commissions based on "the value of goods or services paid as consideration" rather than "compensation claimed" as was previously the case under the 1986 Act.

Two matters were heard together:

• A writ petition where the petitioner's husband died when his Ford vehicle caught fire. She filed a complaint seeking ₹51.49 crores in compensation but was required to approach the District Commission as the vehicle's cost was ₹31.19 lakhs.
• A civil appeal where the appellant's husband, a Lions Club official, died of COVID-19. Her claim for insurance compensation of ₹14.94 crores was rejected by the National Commission as the consideration (premium) did not exceed ₹10 crores.

Legal Issues

• Whether Parliament has the power to determine pecuniary jurisdiction of consumer forums?
• Whether the provisions are discriminatory and violative of Article 14?
• Whether the new basis for jurisdiction is manifestly arbitrary?
• Whether the provisions lead to loss of remedy for consumers?

Court's Analysis and Findings

1. Power to Determine Pecuniary Jurisdiction

• Parliament has clear legislative competence to enact the Consumer Protection Act 2019 under Entry 95 of List I read with Entries 11-A and 46 of List III
• Parliament can prescribe pecuniary limits for courts and tribunals
• This power has been consistently recognized in previous judgments

2. Article 14 Challenge

• The Court applied the twin test from State of West Bengal v. Anwar Ali Sarkar (1952)
• Classification based on consideration value is valid as:

- "Consideration" is an integral part of contract formation and the definition of a "consumer"

- The classification has a rational nexus to the object of creating a hierarchical structure of judicial remedies

• The Court rejected the argument that the provisions arbitrarily restrict the definition of "consumer"

3. Legislative Intent

• The Court noted that the previous system often resulted in disproportionate case burden on the National Commission
• The new provisions aim to:

- Streamline determination of jurisdiction

- Prevent forum shopping through inflated compensation claims

- Allocate more cases to District and State Commissions

4. Performance Audit

• The Court emphasized the need for performance audit of the statute
• It recognized the roles of the Central Consumer Protection Council (under Section 3) and Central Consumer Protection Authority (under Section 10)
• These bodies must work effectively to achieve the objectives of consumer protection

Judgment

The Court dismissed the constitutional challenge, holding that:

• Sections 34, 47, and 58 of the CPA 2019 are constitutional and not violative of Article 14
• The Central Consumer Protection Council and Authority must exercise their statutory duties to review and advise the government on measures necessary for effective functioning of the consumer protection regime

S.34 ARBITRATION ACT | RESPECT ARBITRAL AUTONOMY; JUDICIAL INTERFERENCE SHOULD BE MINIMAL: SUPREME COURT

(a) Case Title:

• Consolidated Construction Consortium Limited vs. Software Technology Parks of India

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• April 28, 2025

(d) Bench:

• Justice Abhay S. Oka and Justice Ujjal Bhuyan

Key Facts

The respondent awarded a contract to the appellant for construction of an office building and incubation centre, with scheduled completion by January 15, 2007. The appellant completed the work only by November 30, 2007 - a delay of about 10 months. The respondent deducted liquidated damages of Rs. 82,43,499 from the payment due to the appellant by invoking clause 26 of the contract agreement which dealt with liquidated damages. During the project, the respondent had granted multiple extensions of time, but each time reserved its right to levy liquidated damages.

Procedural History

• The appellant initiated arbitration challenging the deduction of liquidated damages.
• The arbitrator upheld the deduction of liquidated damages by the respondent.
• The appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, and the Single Judge of the High Court set aside the arbitral award.
• The respondent filed an appeal under Section 37 of the Act, and the Division Bench of the High Court reversed the Single Judge's decision, thereby restoring the arbitral award.
• The appellant then filed the present appeal before the Supreme Court.

Legal Issues

• Whether an extension of time granted for contract completion precludes the levy of liquidated damages.
• The scope of judicial interference with arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996.
• The interpretation of contract clauses related to liquidated damages and time extensions.

Court's Analysis

• The Court analyzed Clauses 26, 27, and 28 of the contract agreement, which dealt with liquidated damages, extension of time, and failure to comply with instructions, respectively.
• The Court found that the respondent had put the appellant on notice that notwithstanding extensions, it reserved the right to levy liquidated damages.
• The Court examined Sections 55, 73, and 74 of the Indian Contract Act regarding time being of the essence in contracts and compensation for breach.
• The Court emphasized that Section 34 of the Arbitration Act provides limited grounds for setting aside an arbitral award, and courts cannot function as appellate authorities.
• The Court found that the Single Judge had exceeded jurisdiction by reinterpreting the contract clauses beyond the grounds specified in Section 34.

Court's Decision

• The Supreme Court dismissed the appeal, holding that the Single Judge had gone beyond the permissible grounds under Section 34 of the Arbitration Act.
• The Court affirmed that the arbitrator's interpretation of the contract clauses was a possible and plausible view.
• The Court upheld the Division Bench's decision to restore the arbitral award.