Date of Default Not Mandatory in Invoice-Based Demand Notice: NCLAT Sets Aside Section 9 Rejection [Read Order]
The Tribunal ruled that Form-4 demand notices need not mention a specific date of default when invoices reflect the default, and limitation applies from the last transaction in continuous dealings. Thus, setting aside Section 9 of the IBC.
![Date of Default Not Mandatory in Invoice-Based Demand Notice: NCLAT Sets Aside Section 9 Rejection [Read Order]](https://images.taxscan.in/h-upload/2025/12/15/2112278-date-default-not-mandatory-invoice-based-demand-notice-nclat-sets-aside-section-9-rejection-taxscan.webp "Date of Default Not Mandatory in Invoice-Based Demand Notice: NCLAT Sets Aside Section 9 Rejection [Read Order]")
The Chennai Bench of National Company Law Appellate Tribunal (NCLAT) clarified that a specific date of default was not mandatory in Form-4 invoice-based demand notices under Section 9 of the IBC, 2016. The Tribunal held that default was established from the invoices themselves and limitation runs from the last transaction in continuous dealings. It further ruled that discrepancies...
The Chennai Bench of National Company Law Appellate Tribunal (NCLAT) clarified that a specific date of default was not mandatory in Form-4 invoice-based demand notices under Section 9 of the IBC, 2016. The Tribunal held that default was established from the invoices themselves and limitation runs from the last transaction in continuous dealings.
It further ruled that discrepancies in default dates were curable procedural defects. Accordingly, the rejection of the Section 9 application was set aside and the matter remanded to NCLT Chennai for decision on merits.
The Appellant, M/S. METALS AND METAL ELECTRIC PRIVATE LIMITED, being an operational creditor, filed an appeal against M/S. PRINCE FOUNDATIONS LIMITED, being Corporate Debtor, where the appeal was allowed and matter was remitted back to the National Company Law Tribunal (NCLT) for a fresh decision on merits.
The Appellant had initiated Corporate Insolvency Resolution Process (CIRP) proceedings against the Corporate Debtor under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). Though, the NCLT dismissed the application stating that the date of default 22.02.2022 mentioned in the application was later than the date of the demand Notice dated 18.02.2022; Most of the invoices were deemed barred by limitation; the demand notice did not explicitly mention a date of default and lastly Section 9(3)(b) of the IBC, 2016 affidavit was not attached.
Section 9 of the Insolvency and Bankruptcy Code, 2016 explained that: Application for initiation of corporate insolvency resolution process by operational creditor.
“After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(3) The operational creditor shall, along with the application furnish:
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt”
The Counsel for the Appellant challenged this dismissal before the NCLAT, arguing that their demand notice, issued on 18.02.2022, was invoice-based and fell under Form-4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. They contended that Form-4 did not statutorily require a specific mention of the date of default, unlike Form-3, and thus, its omission was not fatal to the proceedings.
Further, the NCLAT, referencing its earlier judgment in Neeraj Jain Vs. Cloudwalker Streaming Technologies Private Limited, affirmed that the choice between Form-3 and Form-4 depends on the nature of the operational debt, and Form-4, being invoice-based, did not mandate a date of default. Regarding the limitation issue, the Appellant highlighted a clause in their invoices stating, "Interest @ 24% will be charged if Bill/s unpaid over Seven Days after delivery."
The Counsel also argued that this provision indicated a continuous transaction, making the date of default variable and dependent on demand, rather than a fixed 7-day period from the invoice date. Consequently, the limitation period should be computed from the last transaction on 10.08.2020, making the application filed on 27.04.2022 well within the limitation period.
The NCLAT found logic in this argument, agreeing that the interest clause made the invoices "running invoices," and thus, computing limitations solely from 7 days after the invoice date was incorrect.
The Tribunal consisted of Judicial Member, Justice Sharad Kumar Sharma and Technical Member, Jatindranath Swain, heard and reviewed the matter.
The NCLAT observed that the discrepancies cited by the NCLT for rejecting the application were not among the specific conditions for rejection enumerated under Section 9(5)(ii) of the I&B Code, 2016. It also stated that a discrepancy in the date of default is generally a rectifiable defect.
Thus, the impugned order dated 21.02.2023 was quashed, and the matter was remitted back to the NCLT, Chennai, for a fresh decision on the Section 9 application exclusively on its merits.
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