Insolvency and
Bankruptcy Code 2016-Reply to section 8 notice not necessary
The
Insolvency & Bankruptcy Code (IBC) 2016 is a comprehensive code for
resolution, rehabilitation and dissolution of the assets of corporate debtors
in the face of liability of such corporate debtor, a company incorporate dunder
the provisions of Companies Act 2013. The Financial Creditors (FCs) or
Operational Creditors (OCs) as the case may be, may prefer petition for seeking
initiation of Corporate Insolvency resolution Process (CIRP) against the
corporate debtor/s, who, despite the admitted liability, refused or omitted to
repay the debt owed to such operational creditors. We know that the threshold of maintaining the
petitions is different in respect of Financial Creditor (FC) and Operational
Creditors (OCs). We are presently concerned about Operational Creditor. Section
9 of IBC entails the process of preferring petition by Operational Creditors
(OCs) under the code. In case, the liability owed by the corporate debtors are
evident and admitted, then, the National Company Law Tribunals (NCLTs) upon
admitting such petition, sets in motion, Corporate Insolvency Resolution
Process (CIRP). As per the procedure laid down under the code, before
initiating section 9 proceedings, operational creditor is mandated to issue a
notice u/s 8 of IBC 2016 calling upon the corporate debtor to pay the debt
within stipulated period. This is a sine qua non for preferring and
maintaining a petition u/s 9 of IBC. After service of notice as indicated
above, if a corporate debtors under section 9, sends reply and in the reply the
corporate debtors raises dispute, and claims that that the alleged liability is
under dispute, being not payable and the
disputes existed or subsisted before receiving the notice u/s 9 of IBC 2016,
then, in that event, prima facie, the petition u/s 9 of IBC 2016 may not
be maintainable. It is so, since, the liability itself is in dispute and not
admitted and hence, admission of the petition in this backdrop shall be
unlikely. However, a situation may arise to the effect, that, the reply to the
notice raising dispute is not sent by a proposed corporate debtor, though, on
the basis of petition and documents filed by the Operational Creditor (OCs),
the dispute as regards debts owed allegedly by corporate debtor had suggested
existence of dispute. Still, the question arises, whether for want of raising
dispute by replying to the notice u/s 8 of IBC 2016 received by corporate
debtor, shall inevitably go against the corporate debtor and the petition u/s 9
shall have to be admitted is a moot point. In other words, not sending reply to
the section 8 notice shall inevitably lead to acceptance of insolvency petition
filed by corporate debtor and initiation of Corporate Insolvency Resolution
Process (CIRP). The answer is thus craved for, in this perspective and that is further
deliberated hereinafter.
The National Company Law Appellate
Tribunal (NCLAT), New Delhi (Principal Bench) had occasion to deal with the
issue raised above in a recent judgment captioned as Anil Kumar Seth vs
Valplast Technologies Private Limited Comp. App. (AT) (Ins) No. 1105 of 2024 &
I.A. No. 6587 of 2024.
The
above appeal was directed by the suspended Directors of corporate debtor
company, against the order dated 14.05.2024 by which the National Company Law
Tribunal, Allahabad Bench, Prayagraj ('Tribunal') had admitted an application
filed by M/s Valplast Technologies Pvt. Ltd. on 02.06.2023, under
Section 9 of the Insolvency & Bankruptcy Code, 2016 ('Code'), against M/s
Supercast Technologies Pvt. Ltd. ('Corporate Debtor') for the resolution of
an amount of Rs. 2,29,48,069.19/- and also appointed an Insolvency Resolution
Professional (IRP).
In
this appeal, it was alleged by the Suspended Director of the Corporate Debtor, that
the issue of pre-existing dispute, raised by the Appellant, had not been
decided by the Tribunal in accordance with law and it was alleged that the
Tribunal has not looked into various emails/ letters exchanged between the
parties which were attached with the reply affidavit only on the ground that
the Appellant did not file reply to the demand notice issued under section 8 of
the Code. Reliance was placed on M/s Brand Realty Services Ltd. vs. M/s
Sir John Bakeries India Pvt. Ltd. in Company Appeal (AT) (Ins.) No. 958
of 2020 decided on 10.03.2022 and para 12 of the said judgment are reproduced
as under:
"12. ***Section 8(2) of the
Code provides that the corporate debtor shall, within a period of ten days of
the receipt of the demand notice or copy of the invoice mentioned in sub-
section (1) bring to the notice of the operational creditor- (a) existence of a
dispute. Section 9(1) of the Code provides that 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. Section 8(2) when read with Section 9(1), it is clear that
Section 9(1) enables the Operational Creditor to file Section 9
application if no payment has been received by the Operational Creditor form
Corporate Debtor or no notice of the dispute under sub-section (2) of section 8
has been received. 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."
The
case of the appellant therefore was that the communication between the parties was
filed with the memo of appeal and if these communications are taken note of,
the indication of pre-existing dispute shall be evident and such a petition is
liable to be dismissed at the threshold. Though, the respondent had
vociferously submitted that reply to section 8 notice by way of notice of
dispute shall have to be sent by corporate debtor, as per the mandate of
section 8 of IBC and if that is not done, the issue of dispute raised
thereafter and more so after filing of petition u/s 9 of IBC shall be
misconceived.
The
nclat New Delhi in Anil Kumar
Seth (Supra) has thus held as under:
9.
We are of the considered opinion that finding of the Learned Tribunal is not
acceptable as it is contrary to the well settled law that even if no reply is
filed to the notice issued under Section 8 of the Code, the court is obliged to
look into the material produced before it by the Corporate Debtor for proving
that there was a pre-existing dispute between the parties before the issuance
of notice under Section 8 of the Code.
The
order passed by NCLAT we therefore, set aside and appeal was allowed and the main
petition bearing CP No. 36/ALD/ 2023 was thus restored and remanded back to the
NCLT for rendering decision in accordance with law, since, after taking into
consideration the emails/ letters exchanged between the parties before
08.05.2023 when the notice under Section 8 was issued, there is no doubt that prima
facie dispute existed and sending no reply and notice of dispute to the
notice u/s 8 of IBC 2016 shall not, in itself, preclude the corporate debtor
from raising pleas of dispute in the course of hearing before NCLT and the same
shall have to be decided in accordance with law. It was thus left on the
tribunal to decide, afresh, the issue of pre-existing dispute after going
through the material on record. It was held that as the matter was decided in
the backdrop, that, reply to section 8 IBC notice was not filed, and decision
based on that premise itself, is not correct. The NCLAT had accorded liberty to
the parties to file additional documents, if necessary.
-----
Anil
K Khaware
Founder
& Senior Associate
Sociertylawandjustice.com
No comments:
Post a Comment