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(2022) 18 Comp Cas-OL 200 : 2022 SCC OnLine NCLAT 290 :
(2023) 172 CLA 213
†
In the National Company Law Appellate Tribunal
(BEFORE ASHOK BHUSHAN, CHAIRPERSON AND ALOK SRIVASTAVA, MEMBER
(TECHNICAL))
Brand Realty Services Ltd. … Appellant;
Versus
Sir John Bakeries India Pvt. Ltd. … Respondent.
Company Appeal (AT) (Insolvency) No. 958 of 2020
Decided on March 10, 2022
Advocates who appeared in this case:
Mr. Pankaj Agarwal, Advocate for the Appellant;
Mr. Nishant Awana, Mr. Devansh Malhotra, Advocates for the
Respondent.
ORDER
1. Heard Learned Counsel for the Appellant and Respondent.
nd
2. This Appeal has been filed against the Order dated 22 July,
2020 passed by the Adjudicating Authority (National Company Law
Tribunal, New Delhi, Bench-V) in IB 1677(ND)/2019. By which Order,
the Adjudicating Authority has rejected the Application filed by the
Appellant under Section 9 of the Insolvency and Bankruptcy Code,
2016 (IBC in short).
3. Section 9 Application claims that debt is due on the Corporate
th th
Debtor on the basis of Agreement dated 28 November, 2014 and 15
June, 2018. It is submitted that the part payments were made by the
Corporate Debtor to the Operational Creditor but when the Corporate
Debtor failed to clear the debt outstanding dues, Demand Notice under
Section 8 of IBC dated 30th April, 2019 was served. The Corporate
th
Debtor sent Reply dated 25 May, 2019 to Section 8 Demand Notice
thereafter Section 9 Application came to be filed on 03rd June, 2019
claiming operational debt to the tune of Rs. 54,94,874/-.
4. In the Section 9 Application, Notice was issued to the Corporate
Debtor and Corporate Debtor also filed a Reply to Section 9 Application.
The Adjudicating Authority by the Impugned Order rejected the Section
9 Application.
5. In the Impugned Order, two aspects need to be noticed; firstly,
that the Adjudicating Authority after noticing the Reply given to Section
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8 Demand Notice has observed that since the Demand Notice was
received on 4th May, 2019 and not on 17th May, 2019, Reply to Notice
having not been sent within the time prescribed under Section 8(2) of
the IBC. The Corporate Debtor failed to raise the disputes; secondly,
the Adjudicating Authority took the view that default of instalment of
settlement agreement does not come within the definition of
“Operational Debt”. In paragraph 14 of the Impugned Order, following
has been stated:
“14. In the light of that decisions and provisions which we have
referred in the aforementioned para, when we shall consider the case
in hand then we are of the considered view that the case of the
applicant is covered with the aforesaid decisions, therefore, we are of
the considered view that default of instalment of settlement
agreement does not come within the definition of operational debt,
hence, we are not inclined to admit the application rather we are of
the view the present application is liable to be dismissed.”
6. Learned Counsel for the Appellant challenging the Order of the
Adjudicating Authority contends that Adjudicating Authority committed
error in rejecting the Section 9 Application holding that default of
instalment of settlement agreement does not come within the definition
th
of Operational Debt. He submits that under the Agreement dated 28
November, 2014 and 15th June, 2018, the Appellant was entitled to
receive payment hence it cannot be said that no debt was due from the
Appellant. He submits that the claim of the Appellant flow from the
aforesaid Agreements and the Agreement cannot be discarded by
observing that it was default of instalment of settlement agreement.
7. Learned Counsel for the Respondent refuting the submissions of
the Learned Counsel for the Appellant submits that Corporate Debtor
th
immediately replied to the Demand Notice dated 25 May, 2019 which
has been filed at Page 214 of the Appeal Paper Book where claim of the
Appellant was disputed. It is submitted that Reply to Section 9
Application, a detail Reply was filed by the Corporate Debtor raising
various issues and which Reply has also been brought on record as
Annexure A-15 of the Appeal Paper Book at page 250. Learned Counsel
for the Respondent further in the Reply has raised question regarding
execution of Agreement dated 15th June, 2018 and has made serious
allegations against the Appellant. Allegations of stealing cheques have
also been made and certain Police Complaints have also been filed
which all have been referred to in the Reply.
8. We have considered the submissions of Learned Counsel for the
parties and perused the record.
9. Coming to the reasons given by the Adjudicating Authority for
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rejecting the Section 9 Application as noticed above. The only reason
given by the Adjudicating Authority is that no operational debt has
been proved by the Appellant as quoted above in Paragraph 14. The
Adjudicating Authority observed that “default of instalment of
settlement agreement” does not come within the definition of
Operational Debt. The present is the case which cannot be said to be
case of default of any instalment of agreement, present is the case
where Appellant claims certain payments to be made to the Appellant
th
by the Corporate Debtor by virtue of Agreement dated 28 November,
2014. The said Agreement has been projected as Annexure A-5(Colly).
The subsequent Agreement dated 15th June, 2018 has also been relied
on by the Appellant with regard to which Respondent has raised
objection regarding execution.
th
10. Be that as it may, a perusal of the Agreement dated 28
November, 2014 indicates that the said Agreement entitled the
Appellant to receive certain payment from the Corporate Debtor. The
present cannot be said to be case of default in payment of instalment.
The Agreement was not a kind of Settlement Agreement rather the
Agreement gave rights and obligations to the parties hence the very
basis of rejecting the Application by the Adjudicating Authority is
erroneous. We thus are of the view that the Impugned Order deserved
to be set aside on this ground alone.
11. The disputes were raised by the Respondent by replying to the
Notice under Section 8 of the IBC as well as the details given in the
Reply to Section 9 Application. The Adjudicating Authority has not
adverted to these pleas and has discarded the Reply to Section 8 Notice
only on the ground that the reply to the Demand Notice was not
submitted within time as per Section 8(2) of the IBC. The Demand
th
Notice was issued on 30 April, 2019 and the same was replied on
25.05.2019 by the Respondent. Present is the case where there is no
dispute with regard to the submission of Reply to Demand Notice by
the Corporate Debtor before filing Section 9 Application.
12. One of the questions to be considered in the present case is as
to; when Reply submitted by Corporate Debtor was not within 10 days
from the receipt of the notice under Section 8, whether the Corporate
Debtor is precluded to raise the issue of Pre-Existing Dispute before the
Adjudicating Authority. We need to notice the provisions of Section 8, 9
(1) and 9(5) which are to the following effect:
“Section 8: Insolvency resolution by operational creditor.
8. (1) An operational creditor may, on the occurrence of a default,
deliver a demand notice of unpaid operational debt or copy of an
invoice demanding payment of the amount involved in the default to
the corporate debtor in such form and manner as may be prescribed.
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(2) 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, [if any, or] record of the pendency of
the suit or arbitration proceedings filed before the receipt of
such notice or invoice in relation to such dispute;
(b) the [payment] of unpaid operational debt—
(i) by sending an attested copy of the record of electronic
transfer of the unpaid amount from the bank account of the
corporate debtor; or
(ii) by sending an attested copy of record that the operational
creditor has encashed a cheque issued by the corporate
debtor.
…
9. (1) 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
subsection (2) of section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
….
9(5) The Adjudicating Authority shall, within fourteen days of the
receipt of the application under sub-section (2), by an order—
(i) admit the application and communicate such decision to the
operational creditor and the corporate debtor if—
(a) the application made under sub-section (2) is complete;
(b) there is no 3[payment] of the unpaid operational debt;
(c) the invoice or notice for payment to the corporate debtor
has been delivered by the operational creditor;
(d) no notice of dispute has been received by the operational
creditor or there is no record of dispute in the information
utility; and
4
(e) there is no disciplinary proceeding pending against any
resolution professional proposed under sub-section (4), if
any.
(ii) reject the application and communicate such decision to the
operational creditor and the corporate debtor, if—
(a) the application made under sub-section (2) is incomplete;
(b) there has been 3[payment] of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for
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payment to the corporate debtor;
(d) notice of dispute has been received by the operational
creditor or there is a record of dispute in the information
utility; or
4
(e) any disciplinary proceeding is pending against any
proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting
an application under sub-clause (a) of clause (ii) give a notice
to the applicant to rectify the defect in his application within
seven days of the date of receipt of such notice from the
adjudicating Authority.”
13. 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.
14. Our above conclusion is further fortified then we look into the
scheme of Section 9(5)(ii) which provides that the Adjudicating
Authority can reject the Application if-“notice of dispute has been
received by the Operational Creditor or there is a record of dispute in
the information utility”. The above provision indicates that even if no
notice of dispute has been received, and there is record of dispute in
the Information Utility the Application under Section 9 is to be rejected
by the Adjudicating Authority. The above provision clearly indicates
that even in absence of notice of dispute, Adjudicating Authority can
reject the Application if there is record of dispute in the Information
Utility. It goes without saying that record of dispute in the Information
Utility can very well be pointed out by the Corporate Debtor before the
Adjudicating Authority when notice is issued under Section 9. Further
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in Reply to Section 9 Corporate Debtor can bring the material to
indicate that there are pre-existing disputes in existence prior to
issuance of demand notice under Section 8. We thus are of the
considered opinion that mere fact that Reply to notice under Section 8
(1) having not been given within 10 days or no reply to demand notice
having been filed by the Corporate Debtor does not preclude the
Corporate Debtor to bring relevant materials before the Adjudicating
Authority to establish that there are pre-existing dispute which may
lead to the rejection of Section 9 application. In the above context, we
may refer to Judgment of this Tribunal in “Neeraj Jain v. Cloudwalker
Streaming Technologies Private Limited” (Company Appeal (AT) Ins.
No. 1354 of 2019) decided on 24th February, 2020 in paragraph 50
following observations have been made by this Tribunal:
“…Even otherwise, mere failure to reply to the demand notice
does not extinguish the rights of the Operational Creditor to show
the existence of a preexisting dispute…”
15. We thus set aside the Impugned Order and remit the matter
back to the Adjudicating Authority to consider the Application afresh.
We are not expressing any view on the merits of the case and it is for
the Adjudicating Authority to consider the submission of the parties
and after hearing the parties pass appropriate order. In view of the
setting aside of the Impugned Order, Application under Section 9 of the
IBC is revived before the Adjudicating Authority and be considered
afresh in accordance with law after hearing the parties. The Appeal is
allowed to the above extent.
———
†
Principal Bench, New Delhi
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