No Bar on Corporate Debtor from Contesting Application u/s 9 of IBC even in absence of  Demand Notice: NCLAT [Read Order]

The National Company Law Appellate Tribunal (“NCLAT”) New Delhi bench has held that the Corporate Debtor cannot be prevented from opposing the application submitted under section 9 of the Insolvency and Bankruptcy Code, 2016 (Code), simply because the Debtor did not respond to the Operational Creditor's demand notice issued under section 8 of the Code.

The appellant, Spik Enviro Management Pvt. Ltd., filed an application under Section 9 of the Code for Rs. 2,77,68,000 that it claimed was owed and payable by the corporate debtor, Vision Earthcare Pvt. Ltd. Through the Operational Creditor, the Corporate Debtor received three work orders from three Gujarati enterprises. Instead of paying the Operational Creditor, the Corporate Debtor allegedly sent a notification on July 18, 2020, requesting that Mr. Iyengar, the Operational Creditor's director, step down from his position on the board. The Operational Creditor is accused of claiming the principal amount of Rs. 2,77,68,000/-by submitting a demand notice under Section 8 of the Code as a result of the aforementioned.

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The Corporate Debtor did not respond to the aforementioned notice. But on April 1, 2021, the Corporate Debtor filed a reply to the petition filed under Section 9, stating that the Operational Creditor is demanding the amount under an agreement signed on November 25, 2018, that hasn't been signed with the Appellant.

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.

The judicial member, Justice Rakesh Kumar Jain, the technical member, Mr. Naresh Salecha, and the technical member, Mr. Indevar Pandey, noted that the code's scheme requires the operational creditor to send a demand notice upon the occurrence of default, claiming unpaid operational debt. Along with the demand notice, the invoice requesting payment of the relevant sum should be included. The notice or invoice indicating that there was a prior disagreement between the parties or that the Corporate Debtor has already paid the operating debts must then be responded to within ten days.

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The Operational Creditor can submit an application under section 9 of the Code to the Adjudicating Authority to start the Corporate Insolvency Resolution Process (CIRP) if the Corporate Debtor does not pay them or if they do not receive a notice of dispute within ten days of the notice being served.

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.

“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.”, the bench added.

To Read the full text of the Order CLICK HERE

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