2025 (2) TMI 594 - AT - IBC

Dismissal of section 9 application - failure to give reply to the notice issued under Section 8 of the Code - whether the CD can raise its defence at the stage of Section 9 application without giving reply to the notice issued under Section 8 of the Code? - HELD THAT - As per the scheme of the Code and the Rules for the purpose of filing an application under Section 9 it is an obligation on the part of the OC that on the occurrence of the default he should to deliver a demand notice of unpaid operational debt copy of the invoice demanding payment of amount involved following rule 5 and in form 3 of the Rules. The CD is given 10 days time to react to the notice or copy of the invoice for raising defence qua existing of a dispute between the parties before issuance of notice under Section 8 or that the CD had already paid the operational debts. The argument raised by the Appellant that since there was no reply to the notice issued under Section 8(1) of the Code therefore the CD could not have contested the application filed under Section 9 by filing a reply thereto is totally misplaced because Section 8 travels in a different direction then an application filed under Section 9. Section 8 lays an obligation upon the OC to serve the notice if he had to maintain the application under Section 9 because the language employed in Section 9 of the Code is that the OC had to wait for 10 days from the date of delivery of notice or the invoice prescribed under Section 8 (1) of the Code and if he does not receive payment from the CD or any notice of dispute as prescribed under Section 8(2) then only the OC can file an application otherwise the application is not maintainable. Conclusion - 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 CD for some reason or other it does not debar the CD to contest the application filed under Section 9 of the Code by raising its defence. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered by the Tribunal was whether the Corporate Debtor (CD) could raise a defense at the stage of a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (the Code), without having replied to the demand notice issued under Section 8 of the Code. Additionally, the Tribunal examined whether the Appellant's application under Section 9 met the threshold requirement of an undisputed debt of at least Rs. 1 crore, as stipulated by Section 4 of the Code.

ISSUE-WISE DETAILED ANALYSIS

1. Threshold Requirement under Section 4 of the Code

- Relevant Legal Framework and Precedents: Section 4 of the Insolvency and Bankruptcy Code, 2016, stipulates that an application for initiating the corporate insolvency resolution process (CIRP) can only be made if the minimum amount of default is Rs. 1 crore.

- Court's Interpretation and Reasoning: The Tribunal found that the Appellant's claim of Rs. 277.68 lakhs included disputed amounts. The undisputed debt was calculated to be only Rs. 41.74 lakhs, which did not meet the threshold requirement.

- Key Evidence and Findings: The Tribunal noted that the Appellant claimed various amounts, including facilitation fees, travel costs, and remuneration, but only Rs. 41.74 lakhs was undisputed. The remaining claims required further adjudication.

- Application of Law to Facts: Given that the undisputed debt was less than Rs. 1 crore, the Tribunal concluded that the application under Section 9 could not be maintained.

- Treatment of Competing Arguments: The Appellant argued that the entire claimed amount should be considered, but the Tribunal emphasized the need for the debt to be undisputed to meet the threshold.

- Conclusions: The Tribunal dismissed the application due to the failure to meet the threshold requirement under Section 4.

2. Right to Contest Application under Section 9 without Replying to Section 8 Notice

- Relevant Legal Framework and Precedents: Sections 8 and 9 of the Code outline the process for operational creditors to initiate CIRP, including the requirement for a demand notice under Section 8 and the subsequent application under Section 9.

- Court's Interpretation and Reasoning: The Tribunal clarified that while a Section 8 notice is necessary for maintaining a Section 9 application, the absence of a reply from the CD does not preclude it from contesting the application.

- Key Evidence and Findings: The Tribunal noted that the CD did not reply to the Section 8 notice but contested the application under Section 9, raising disputes about the claimed amounts.

- Application of Law to Facts: The Tribunal found that the CD was within its rights to contest the application despite not replying to the Section 8 notice, as Section 9 allows for such defenses.

- Treatment of Competing Arguments: The Appellant argued that the lack of a reply should prevent the CD from contesting the application, but the Tribunal disagreed, emphasizing the procedural independence of Sections 8 and 9.

- Conclusions: The Tribunal held that the CD could raise defenses during the Section 9 proceedings, even without replying to the Section 8 notice.

SIGNIFICANT HOLDINGS

- Verbatim Quotes of Crucial Legal Reasoning: "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 CD for some reason or other it does not debar the CD to contest the application filed under Section 9 of the Code by raising its defense."

- Core Principles Established: The Tribunal established that an undisputed debt of at least Rs. 1 crore is necessary to maintain an application under Section 9. Additionally, it clarified that a CD's failure to reply to a Section 8 notice does not prevent it from contesting a Section 9 application.

- Final Determinations on Each Issue: The Tribunal dismissed the appeal, affirming the dismissal of the Section 9 application due to the failure to meet the threshold requirement and upholding the CD's right to contest the application despite not replying to the Section 8 notice.