Insolvency application challenge dismissed as filed post notice period, notification not retroactive.

The Tribunal dismissed the challenge to the maintainability of the insolvency application under Section 9 of the Insolvency and Bankruptcy Code. It held that the application was filed after the mandatory 10-day notice period and was not impacted by the notification increasing the minimum default amount. The Tribunal ruled that the notification was prospective and did not apply retroactively. Consequently, the application was deemed maintainable, and the Corporate Debtor's objection was rejected.

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Issues Involved:
1. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Applicability of the notification dated 24.03.2020 enhancing the minimum amount of default to Rs. 1 crore.
3. Compliance with the mandatory 10-day notice period under Section 8 of the Insolvency and Bankruptcy Code, 2016.
4. Impact of the COVID-19 pandemic on the insolvency proceedings.

Issue-wise Analysis:

1. Maintainability of the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016:

The Corporate Debtor argued that the application under Section 9 was not maintainable as it was filed prematurely before the expiration of the mandatory 10-day notice period stipulated under Section 8 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor received the Form 3 Demand Notice on 02.03.2020, and the application was filed on 07.03.2020, which was within the 10-day period. The Tribunal emphasized that the 10-day period is mandatory and not optional, and any application filed before the expiration of this period is not maintainable. However, the Tribunal noted that the application was actually filed on 25.09.2020, well beyond the mandatory period, thus making the application maintainable.

2. Applicability of the Notification dated 24.03.2020 Enhancing the Minimum Amount of Default to Rs. 1 Crore:

The Corporate Debtor contended that the application was not maintainable as the minimum amount of default required to file an application under the Insolvency and Bankruptcy Code was enhanced to Rs. 1 crore by the notification dated 24.03.2020. The Tribunal referred to the judgment of the Hon’ble NCLAT in Madhusudhan Tantia vs. Amit Choraria, which held that the notification is prospective in nature and does not apply to defaults that occurred before the notification date. The Tribunal concluded that since the debt became due on 06.07.2019, prior to the notification, the application is not affected by the enhanced threshold and is maintainable.

3. Compliance with the Mandatory 10-Day Notice Period under Section 8 of the Insolvency and Bankruptcy Code, 2016:

The Corporate Debtor argued that the application was filed prematurely before the expiration of the 10-day notice period. The Tribunal noted that the Demand Notice in Form 3 was sent on 25.02.2020, and the application was filed on 25.09.2020, well beyond the 10-day period. The Tribunal emphasized that the mandatory notice period was observed, and the application was filed after the expiration of the 10-day period, making it compliant with the provisions of the Insolvency and Bankruptcy Code.

4. Impact of the COVID-19 Pandemic on the Insolvency Proceedings:

The Respondent/Operational Creditor argued that the notification dated 24.03.2020 was intended to provide relief to Corporate Debtors from the impact of the COVID-19 pandemic and should not affect defaults that occurred prior to the notification date. The Tribunal referred to the Ordinance 9/2020 dated 05.06.2020, which suspended Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code for defaults arising on or after 25.03.2020. The Tribunal concluded that the notification and the Ordinance were intended to prevent large-scale insolvencies due to the pandemic and did not apply retrospectively to defaults that occurred before the notification date.

Conclusion:

The Tribunal dismissed the application challenging the maintainability of the insolvency application, holding that the application was filed after complying with the mandatory 10-day notice period and was not affected by the notification enhancing the minimum amount of default to Rs. 1 crore. The Tribunal emphasized that the notification is prospective in nature and does not apply to defaults that occurred before the notification date. The application under Section 9 of the Insolvency and Bankruptcy Code was found to be maintainable, and the Corporate Debtor's challenge was dismissed.

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