2024 (9) TMI 563 - AT - IBC

Section 9 application rejection overturned for failure to provide mandatory seven-day defect rectification notice

Shiv Glitz Hotels and Resorts LLP Versus Oravel Stays Limited

The NCLAT set aside the Adjudicating Authority's rejection of a Section 9 application as defective. The court held that before rejecting an application ... Rejection of Section 9 Application filed by the Appellant as defective - rejection of application as defective without giving an opportunity of hearing - violation of principles of natural justice - HELD THAT:- The various issues raised by the learned Senior Counsel for the Respondent Shri Amit Sibal need not be gone into at this stage, when the Adjudicating Authority has not adverted to any of the above issues and has rejected the Application as defective. When the Adjudicating Authority has proceeded to dismiss the Application as defective, it was obligatory as per Proviso to Section 9, sub-section (ii) to give a notice to the Applicant to rectify the defect in the Application within seven days from the date of receipt of such notice. The Adjudicating Authority having not issued a notice under Proviso, the order impugned is unsustainable on this ground alone. The judgment of this Tribunal relied by the learned Counsel for the Appellant in TEK TRAVELS PRIVATE LIMITED VERSUS ALTIUS TRAVELS PRIVATE LIMITED [2021 (4) TMI 813 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , NEW DELHI] fully support the submissions of learned Counsel for the Appellant, where this Tribunal has held that before rejection of an Application on the ground of defect, the Adjudicating Authority ought to have provided an opportunity to rectify the defects within seven days. The order dated 02.01.2024 is set aside - Section 9 Application filed by the Appellant before the Adjudicating Authority is revived - appeal disposed off. Issues Involved:1. Dismissal of Section 9 Application as defective.2. Requirement to provide an opportunity to rectify defects in the application.3. Existence of pre-existing dispute.4. Validity of the Demand Notice.5. Compliance with Section 9(3)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC).Issue-wise Detailed Analysis:1. Dismissal of Section 9 Application as Defective:The Appellant, an Operational Creditor, challenged the order dated 02.01.2024 by the National Company Law Tribunal (NCLT), Ahmedabad, which dismissed the Section 9 Application as defective. The application was dismissed on the first date of hearing without issuing any notice to the Corporate Debtor. The NCLT observed that there was no proper explanation regarding the date of invoice, default, and limitation period to ascertain the due date. Additionally, invoices were raised on two different entities and not segregated.2. Requirement to Provide an Opportunity to Rectify Defects:The Appellant argued that the Adjudicating Authority erred in dismissing the application without providing an opportunity to rectify the defect, as required by Section 9(5)(ii)(a) and its proviso. The Tribunal emphasized that the proviso to Section 9(5)(ii) mandates the Adjudicating Authority to give notice to the applicant to rectify the defect within seven days before rejecting the application. The Tribunal cited its earlier judgment in Tek Travels Private Ltd. vs. Altius Travels Private Ltd., which supported this procedural requirement.3. Existence of Pre-existing Dispute:The Respondent contended that the application should be dismissed under Section 9(5)(ii)(d) due to a pre-existing dispute, as the Corporate Debtor had already issued a notice of dispute to the Operational Creditor. However, the Tribunal noted that the Adjudicating Authority did not dismiss the application on the ground of a pre-existing dispute and had not even addressed this issue. Therefore, the Tribunal deemed it appropriate for the Adjudicating Authority to consider this issue in accordance with the law.4. Validity of the Demand Notice:The Respondent argued that the Demand Notice was defective, which should warrant the dismissal of the application. The Tribunal observed that the Adjudicating Authority had not examined the issue of the Demand Notice's validity or returned any finding on this matter. Hence, the Tribunal refrained from addressing this issue in the appeal.5. Compliance with Section 9(3)(c) of the IBC:The Respondent relied on the judgment in Ramco Systems Ltd. vs. Spicejet Ltd., where the application was dismissed due to inconsistency in payments and non-compliance with Section 9(3)(c) of the IBC, which requires a certificate from financial institutions confirming non-payment of debt. The Tribunal clarified that the facts of the present case differ as the Adjudicating Authority had not returned any finding on the merits of the application or compliance with Section 9(3)(c).Conclusion:The Tribunal set aside the order dated 02.01.2024 and revived the Section 9 Application filed by the Appellant. The Adjudicating Authority was directed to issue a notice for rectifying the defect and then proceed to consider the application in accordance with the law. The Tribunal made it clear that it had not entered into the merits of the application or the defenses raised by the Respondent. The appeal was disposed of with no order as to costs.