NCLAT Sets Aside Rejection of Section 9 Application, Citing Hyper-Technical Plea

NCLAT Sets Aside Rejection of Section 9 Application, Citing Hyper-Technical Plea

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has set aside the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code (IBC), holding that a hyper-technical plea regarding the form of demand notice cannot be the basis for rejection.

Factual Background

The appellant, an operational creditor, filed an application under Section 9 of the IBC, which was dismissed by the National Company Law Tribunal (NCLT). The NCLT held that the demand notice was issued in Form 3 instead of Form 4, which was required for claims based on invoices.

Procedural Background

The appellant challenged the NCLT's order before the NCLAT, arguing that the demand notice included all invoices, which were not challenged by the corporate debtor as fake or fabricated. The appellant submitted that there was complete compliance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Issues

The main issue before the NCLAT was whether the NCLT erred in rejecting the application under Section 9 of the IBC on the grounds that the demand notice was issued in Form 3 instead of Form 4.

Contentions of the Parties

Appellant: The appellant argued that the demand notice included all invoices, which were not challenged by the corporate debtor as fake or fabricated. The appellant submitted that there was no pre-existing dispute between the parties, and the corporate debtor had not raised any dispute in the form of notice, suit, or arbitration.

Respondent: The respondent argued that the demand notice should have been issued in Form 4, as it was based on invoices. The respondent submitted that the appellant had erroneously contended that the customs clearance was done by the customs broker, and the dispute was not notified to it.

Reasoning and Analysis

The bench of Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) observed that the demand notice with invoices fulfills the requirements to prove the existence of operational debt and the amount of default. The tribunal held that the mere fact that the notice under Section 8 of the IBC was issued under Form 3 cannot lead to the dismissal of the application under Section 9 when the notice was issued along with invoices, which have not been challenged by the respondent as fake or fabricated.

Implications

The judgment highlights the importance of substance over form in insolvency proceedings. The NCLAT's decision underscores that hyper-technical pleas cannot be the basis for rejection of an application under Section 9 of the IBC.

Relief Sought

The appellant sought to set aside the impugned order passed by the NCLT. The NCLAT allowed the appeal and set aside the impugned order.

In this case the appellant was represented by Mr. Saket Sikri, Mr. Gautam Khanzanchi, Mr. Rohit Pardeshi, Mr. Ajay Pal Kullar, Ms. Suruchi Jaiswal and Ms. Aditi Kukreja, Advocates. Meanwhile the respondent was represented by Mr. Karan Luthra and Mr. Rohan Dua, Advocates.