Failure To Reply To Demand Notice U/S 8(1) Within 10 Days Does Not Preclude The Corporate Debtor From Raising The Existence Of A Dispute In A S. 9 Application: NCLAT, New Delhi

The Appellant, operational creditor, filed an appeal against the order of the Adjudicating Authority rejecting the application filed u/s 9 of the Code for initiation of CIRP against the corporate debtor, M/s. Sir John Bakeries India Pvt. Ltd.

In its observations, however, the Adjudicating Authority has rejected the plea of the operational creditor to dismiss the Section 9 application on the ground that the corporate debtor raised the issue of existence of dispute in the reply to Section 8 notice as well as in the reply to the Section 9 application filed by the operational creditor, solely on the ground that the reply to the Demand Notice was not submitted as per the time mentioned in Section 8(2) of the Code.

The issue that arose for consideration was-

When Reply submitted by Corporate Debtor was not within 10 days from the receipt of the notice under Section 8, whether the Corporate Debtor is precluded to raise the issue of Pre-Existing Dispute before the Adjudicating Authority.

The Tribunal analysed the provisions contained in Section 8, 9(1) and 9(5) of the IBC.

Section 8(2) requires the corporate debtor to reply to the demand notice within 10 days of its receipt and bring to the notice of the operational creditor, the existence of a dispute.

Section 9(1) empowers the operational creditor to file an application before the Adjudicating Authority for initiating CIRP against the Corporate Debtor, on failure of receipt of reply to the demand notice by the corporate debtor. The statutory scheme under Section 8 and 9 does not indicate that in an event Reply to Notice is not filed within 10 days by Corporate Debtor or no Reply to Notice under Section 8(1) have been given, the Corporate Debtor is precluded from raising the question of dispute.

Section 9(5)(ii) of the Code provides that the Adjudicating Authority can reject the application if the notice of the dispute has been received by the Operational Creditor or there is a record of the dispute in the Information Utility.

Thus, even if no notice of dispute has been received, but the record of the dispute is there in the Information Utility, the application u/s 9 is to be rejected by the Adjudicating Authority.

The record of the dispute in the Information Utility can be pointed out by the Corporate Debtor before the Adjudicating Authority when notice is issued u/s 9 of the IBC. In reply to Section 9, the Corporate Debtor can bring material on record to show the existence of a dispute.

The Tribunal relied on the judgment of Neeraj Jain Vs. Cloudwalker Streaming Technologies Private Limited (Company Appeal (AT) Ins. No. 1354 of 2019 and noted-

"We thus are of the considered opinion that mere fact that Reply to notice under Section 8 (1) having not been given within 10 days or no reply to demand notice having been filed by the Corporate Debtor does not preclude the Corporate Debtor to bring relevant materials before the Adjudicating Authority to establish that there are pre-existing dispute which may lead to the rejection of Section 9 application"

The NCLAT set aside the impugned order of the Adjudicating Authority and remitted the matter back the Authority for fresh consideration of the Application.

Counsel for the Appellant: Mr. Pankaj Agarwal, Advocate

Counsel for the Respondent: Mr. Nishant Awana, Mr. Devansh Malhotra, Advocates

Click Here To Read/Download Order