2025 (11) TMI 1715 - AT - IBC

Operational creditor's Section 9 claim restored; Section 10A exclusion doesn't reduce cumulative default below one crore threshold

Redpro Construction Private Limited Versus Skyline Infratech Private Limited, Delhi

NCLAT allowed the appeal and set aside the order of the Adjudicating Authority (NCLT) which had dismissed the operational creditor's Section 9 ... Seeking initiation of CIRP - validity of section 8 notice - defaults occurred during the suspended period under Section 10A - invoice falling in 10A period will prohibit or debars the OC to ever initiate Section 9 application or not - HELD THAT:- This issue has been examined by this Appellate Tribunal in the case of Naresh Chaudhary, Suspended Director of Nik-San Engineering Company Limited [2023 (8) TMI 799 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where it was held that 'The Adjudicating Authority has rightly admitted the application of the Operational Creditor filed under Section 9 of IBC - at the impugned order does not warrant any interference.' Based on above judgement passed by this Appellate Tribunal, even the concerned invoice dated 10.05.2020 is excluded, the cumulative amount of default is above the threshold limit of Rs. 1 Crores which is necessary for filing an insolvency application. Once, it is concluded that the Section 9 was correctly filed by the Appellant as OC, based on the said invoice dated 10.05.2020 and where 16 out of 17 invoices were prior to 10 A period, consequently it was valid on the part of the Appellant to issue demand notice under Section 8 (1) of the Code. Thus, the Adjudicating Authority erred on both the accounts on not considering the exclusion of one solitary invoice dated 10.05.2020 falling, in 10A period ignoring that all other invoices are pertaining to non 10A period and treating demand notice as not deemed valid under Section 8 of the Code. The Adjudicating Authority has incorrectly disallowed the petition filed by the Appellant. The Impugned Order is clearly hit by this Appellate Tribunal’s earlier judgments passed in the matter of Naresh Chaudhary, Suspended Director of Nik-San Engineering Company Limited [2023 (8) TMI 799 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] and Raghvendra Joshi [2023 (8) TMI 1376 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI]. The Impugned Order is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the presence of a single invoice falling within the statutory suspension period under Section 10A of the Insolvency and Bankruptcy Code, 2016 bars initiation and maintainability of an application under Section 9 when other unpaid invoices fall outside the Section 10A period and cumulatively exceed the threshold of Rs. 1 crore. 1.2 Whether the demand notice issued under Section 8 and the application under Section 9, founded on multiple invoices including one within the Section 10A period, were invalid on account of the bar under Section 10A. 1.3 Whether the Adjudicating Authority correctly applied and relied upon precedents, particularly the decisions in relation to Section 10A, including those in Ramesh Kymal and Yatra Online, in dismissing the Section 9 application. 1.4 Whether the existence of operational debt and default, dehors the Section 10A objection, stood established for the purpose of admission of the Section 9 application. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of a single invoice falling within Section 10A period on maintainability of Section 9 application where other invoices lie outside Section 10A and exceed the threshold Legal framework (as discussed by the Tribunal) 2.1 The Tribunal noted that Section 10A of the Code prohibits filing of applications for initiation of CIRP in respect of any default arising on or after 25.03.2020 till 24.03.2021. It referred to the construction of Section 10A in earlier decisions, including the judgment of the Supreme Court in Ramesh Kymal and of the Appellate Tribunal in Naresh Chaudhary and Raghvendra Joshi. Interpretation and reasoning 2.2 The Tribunal recorded that there were 17 invoices forming the basis of the operational debt, and only one invoice (dated 10.05.2020 for Rs. 1,67,296/-) fell within the Section 10A prohibited period, while all other invoices related to non-10A periods. 2.3 Relying on the earlier decision in Naresh Chaudhary, the Tribunal noted the principle that even if certain invoices or purchase orders are excluded on account of the Section 10A bar, a Section 9 application remains maintainable so long as the remaining uncontested invoices, falling outside the 10A period, cumulatively satisfy the minimum threshold of Rs. 1 crore. 2.4 Applying this reasoning, the Tribunal held that, even after excluding the single invoice dated 10.05.2020 which fell within the Section 10A period, the cumulative default amount under the remaining 16 invoices exceeded Rs. 1 crore, thereby satisfying the statutory threshold for initiation of CIRP. 2.5 The Tribunal further drew support from the decision in Raghvendra Joshi, reiterating that Section 10A was not intended to cover or obliterate defaults which occurred prior to the 10A period, nor to grant the benefit of Section 10A where there is categorical default prior to the suspension period and continuity of such default. Conclusions 2.6 The Tribunal concluded that the mere existence of one invoice falling within the Section 10A suspension period does not debar or prohibit an operational creditor from initiating proceedings under Section 9 where the remaining invoices lie outside the 10A period and cumulatively exceed the threshold of Rs. 1 crore. 2.7 The Tribunal held that the Section 9 application was legally maintainable even after excluding the invoice dated 10.05.2020, as the operational debt and default above the statutory threshold were established on the basis of invoices outside the 10A period. Issue 2: Validity of Section 8 notice and Section 9 application where claim includes an invoice within Section 10A period Interpretation and reasoning 2.8 The Adjudicating Authority had held that, since the demand notice under Section 8 as well as the Section 9 application included a default pertaining to an invoice falling in the 10A period, both the notice and the application were invalid; it further held that segregation of claims after filing was not permissible. 2.9 The Tribunal rejected this approach, holding that once it is accepted (on the basis of Naresh Chaudhary) that the default amount relatable to non-10A invoices independently crosses the statutory threshold, the Section 9 application cannot be treated as non-maintainable merely because it also refers to a claim which is barred under Section 10A. 2.10 On this footing, the Tribunal held that it was valid on the part of the operational creditor to issue the demand notice under Section 8(1) and to found the Section 9 petition on the entire running account, subject only to exclusion of the particular invoice falling within the 10A period for the purpose of admission and computation. 2.11 The Tribunal concluded that the Adjudicating Authority erred in treating the Section 8 notice as invalid and in rejecting the Section 9 application solely because one invoice forming part of the claim pertained to the 10A suspension period. Conclusions 2.12 The Tribunal held that the demand notice under Section 8 and the Section 9 application were not vitiated merely due to inclusion of a single invoice covered by Section 10A, and that proper legal treatment is to exclude the barred invoice while assessing maintainability and threshold, rather than to dismiss the entire application. Issue 3: Correctness of reliance on and application of precedents, particularly Ramesh Kymal and Yatra Online Interpretation and reasoning 2.13 The Tribunal noted that the Adjudicating Authority had relied upon the Supreme Court's decision in Ramesh Kymal to hold that no application could be pursued for defaults arising between 25.03.2020 and 24.03.2021, and on the Appellate Tribunal's judgment in Yatra Online to decline segregation of claims and to treat the entire Section 9 application as barred. 2.14 As regards Ramesh Kymal, the Tribunal observed that the case dealt with defaults wholly falling within the Section 10A period, not with a scenario where only a part of the claim arose in that period while other substantial defaults existed outside it. Therefore, the factual matrix and ratio were distinguishable from the present case. 2.15 As regards Yatra Online, the Tribunal noted that the said judgment had been challenged before the Supreme Court, and while disposing the relevant civil appeal, the Supreme Court expressly recorded that it had not gone into the question of law and left it open. Further, in Yatra Online, the issue concerned an attempt to change the date of default, which was not the situation in the present appeal. Hence, the factual context was materially dissimilar. 2.16 The Tribunal held that, in contrast, the binding ratio applicable to the present facts was that in Naresh Chaudhary and Raghvendra Joshi, which directly governed the treatment of claims involving both pre-10A and 10A-period components and the scope of Section 10A vis-à-vis continuing or earlier defaults. Conclusions 2.17 The Tribunal concluded that the Adjudicating Authority misapplied the decisions in Ramesh Kymal and Yatra Online and failed to apply the correct legal position laid down in Naresh Chaudhary and Raghvendra Joshi, rendering the rejection of the Section 9 petition unsustainable. Issue 4: Existence of operational debt and default for purposes of admission of Section 9 application Interpretation and reasoning 2.18 The Tribunal noted that the operational creditor had produced invoices, bank statements and ledger / running account details evidencing the outstanding amounts. It recorded that the Adjudicating Authority had not made any adverse comments on the existence of the debt and default in the impugned order and that the dispute before it was confined essentially to the application of Section 10A. 2.19 Taking on record that 16 out of 17 invoices were outside the Section 10A period and that the outstanding amount referable to such non-10A invoices exceeded Rs. 1 crore, the Tribunal inferred that the operational debt and default, for purposes of Section 9, stood substantiated. Conclusions 2.20 The Tribunal concluded that the existence of operational debt and default above the statutory threshold, apart from the single 10A-period invoice, stood proved on record and was not the basis of rejection by the Adjudicating Authority; therefore, once the erroneous Section 10A objection was set aside, the Section 9 petition could not be dismissed on grounds of absence of debt or default. Overall disposition 2.21 The Tribunal held that the Adjudicating Authority erred in law in dismissing the Section 9 application on the basis of Section 10A and misapplied the cited precedents. The impugned order was set aside and the original Section 9 petition was restored for fresh consideration in accordance with law, in light of the principles discussed.