NCLAT held that before dismissing an application under Section 9 of the IBC on technical grounds, the Adjudicating Authority must provide the applicant with an opportunity to rectify the identified defects within seven days.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the NCLT's rejection of the Section 9 application as defective without granting an opportunity to rectify the defects, as mandated by the proviso to Section 9(5)(ii)(a) of the IBC, was procedurally incorrect and unsustainable. The NCLAT Bench emphasized that before dismissing an application on technical grounds, the applicant must be given a chance to rectify the identified defects within seven days.
The appeal was filed by the Operational Creditor, challenging the order passed by the National Company Law Tribunal (NCLT), Ahmedabad, which had rejected the Section 9 application filed by the appellant as defective. The appellant, aggrieved by the decision, sought the intervention of the National Company Law Appellate Tribunal (NCLAT). The basis of the appellant’s claim stemmed from a Merchant Agreement dated October 7, 2017, under which the appellant provided various services to the Corporate Debtor and raised invoices, leading to a demand notice being sent in March 2023. However, the NCLT dismissed the Section 9 application during the first hearing in January 2024, without issuing a notice to rectify defects, as mandated by the Insolvency and Bankruptcy Code (IBC).
The appellant argued that the NCLT erred in dismissing the application without granting an opportunity to rectify the defects, citing the proviso to Section 9(5)(ii)(a) of the IBC, which requires the adjudicating authority to allow rectification within seven days. The respondent contended that the application was correctly dismissed due to defects, including lack of clarity on the invoice dates, default, limitation period, and the involvement of two separate entities. The respondent also raised the issue of a pre-existing dispute, which, under Section 9(5)(ii)(d), would bar the application.
Upon review, the NCLAT concluded that the NCLT's failure to provide an opportunity for rectification, as required by law, rendered the order unsustainable. The tribunal did not delve into the substantive merits of the case, including the pre-existing dispute or the validity of the demand notice, leaving those matters for the NCLT to consider. The NCLAT set aside the NCLT's order and revived the Section 9 application, directing the NCLT to issue a notice to rectify the defects and proceed in accordance with the law.
Mr. Manish Kumar Shekhari, Ms. Anisha Mahajan, Mr. Ashish Khatri and Ms. Sanjana Shrivastava, Advocates represented the Appellant.
Mr. Amit Sibal along with Ms. Adrija Mishra, Mr. Ankit and Mr. Harsh Kaushik, Advocates appeared for the Respondent.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines Press Release and more.
Click on the Citation/Link to access these resources
Comments