No Bar On Corporate Debtor From Contesting Application U/S 9 Of IBC Even If No Reply Is Given To Demand Notice Issued U/S 8: NCLAT

Brief Facts:

The present appeal has been filed against an order passed by the Adjudicating Authority by which an application under section 9 of the Code was dismissed on the ground that the amount claimed in the application did not cross the threshold limit.

The Spik Enviro Management Pvt. Ltd. (Appellant) filed the application under Section 9 of the Code on 18.08.2020 for an amount of Rs. 2,77,68,000/- allegedly due and payable by the Vision Earthcare Pvt. Ltd. (Corporate Debtor).

The Corporate Debtor got three work orders from three companies based in Gujarat through the Operational Creditor. It is alleged that instead of making the payment to the Operational Creditor, the Corporate Debtor sent a notice on 18.07.2020 asking Mr. Iyengar, director of the Operational Creditor, to resign from its board. As a result of the aforesaid, it is alleged that Operational Creditor, served a demand notice under Section 8 of the Code claiming the principal amount of Rs. 2,77,68,000/- .

The said notice was not replied by the Corporate Debtor. However, reply was filed by the Corporate Debtor to the petition filed under Section 9 on 01.04.2021 alleging that the Operational Creditor is claiming the amount under Agreement executed on 25.11.2018 which has not been executed with the Appellant.

Contentions:

The respondent submitted that issuance of notice under Section 8 is an obligation on the part of the Operational Creditor because the application cannot be maintained under section 9 of the code without issuing the notice under Section 8 but there is no bar for the Corporate Debtor to contest the application filed under Section 9 without giving reply to the notice under Section 8 of the code.

Issue Before Tribunal

Whether the Corporate Debtor can raise its defence at the stage of Section 9 application without giving reply to the notice issued under Section 8 of the Code?

Observations:

The Tribunal noted that as per scheme of the code, it is the duty of the Operational Creditor to send a demand notice on occurrence of default claiming unpaid operational debt. The demand notice should also be accompanied by the invoice demanding payment of the amount involved. Thereafter, the Corporate Debtor is given the time period of 10 days to give reply to the notice or the invoice showing that there was a pre-existing dispute between the parties or that the Corporate Debtor had already paid the operational debts.

If no payment is received by the Operational Creditor from the Corporate Debtor or no notice of dispute is received within 10 days from the date of serving the notice, the Operational Creditor can file an application under section 9 of the Code before the Adjudicating Authority seeking initiation of the Corporate Insolvency Resolution Process (CIRP).

Based on the above, the Tribunal rejected the submission of the respondent that the corporate debtor was barred from contesting the application under section 9 of the code on the ground that no reply to the demand notice sent under section 8 of the code was given by the Corporate Debtor.

It held that “notice under Section 8 is a sine qua non for maintaining an application under Section 9 but if the notice under Section 8 is not replied by the Corporate Debtor for some reason or other it does not debar the Corporate Debtor to contest the application filed under Section 9 of the Code by raising its defence.”

Accordingly, the present appeal was dismissed.

Case Title: Spik Enviro Management Pvt. Ltd. Versus Vision Earthcare Pvt. Ltd.

Case Number: Company Appeal (AT) (Ins) No. 1507 of 2023 & I.A. No. 5431, 5432, 5433 of 2023

Judgment Date: 13/02/2025

For Appellant: Mr. Bishwajeet Bhattacharyya, Sr. Advocate, Mr. Abhinav Prakash, Mr. Arvind Wishwabandhu, Mr. Himanshu Singh, Advocates.

For Respondent: Mr. Piyush Joshi, Advocate

Click Here To Read/Download The Order