Applicability of Section 10A to Post-Exclusion Operational Debt Crossing IBC Threshold—Section 9 Dismissal Set Aside
- REEDLAW
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REEDLAW Legal News Network reports: In a significant ruling on the scope of Section 10A of the Insolvency and Bankruptcy Code, the National Company Law Appellate Tribunal clarified that a Section 9 application could not be rejected solely on the ground of the Section 10A embargo where a portion of the operational debt arose from defaults occurring beyond the excluded period and independently satisfied the statutory threshold prescribed under Section 4 of the Code, thereby necessitating adjudication on merits.
The Appellate Tribunal, Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating the appeal, held that the Adjudicating Authority had erred in dismissing the Section 9 application as barred under Section 10A. It was observed that where invoices giving rise to default fell outside the Section 10A excluded period, and the corresponding operational debt independently crossed the minimum threshold under Section 4 of the Code, such claims were legally maintainable and required consideration on merits rather than summary rejection.
The appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, arose from an order of the Adjudicating Authority dismissing a Section 9 application on the ground that the alleged defaults fell within the excluded period under Section 10A of the Code. The Appellant, acting as the Operational Creditor, had rendered HVAC and allied services to the Corporate Debtor in respect of three separate projects pursuant to independent work orders and had raised running account invoices for each project. Upon non-payment, a demand notice under Section 8 was issued claiming outstanding operational debt exceeding the statutory threshold. The Corporate Debtor denied liability, alleging deficiencies in performance and the existence of disputes, leading to dismissal of the Section 9 application by the Adjudicating Authority.
Before the Appellate Tribunal, the Appellant contended that the Adjudicating Authority had erred in treating all invoices as falling within the Section 10A prohibited period. It was submitted that while invoices pertaining to two projects admittedly fell within the excluded period, two invoices relating to one project had dates of default occurring after the Section 10A period and independently crossed the threshold limit prescribed under Section 4 of the Code. It was argued that these invoices were wrongly ignored, rendering the dismissal legally unsustainable. The Appellant further asserted that disputes relied upon by the Corporate Debtor were either unrelated to the concerned project or were raised only after issuance of the Section 8 demand notice and hence could not qualify as pre-existing disputes.
The Corporate Debtor opposed the appeal by asserting the existence of pre-existing disputes, prior issuance of a demand notice seeking refund of alleged excess payments, invocation of arbitration, and alleged over-billing and abandonment of work by the Operational Creditor. It was contended that the documents relied upon by the Appellant were disputed and that reconciliation statements demonstrated that amounts were in fact recoverable from the Operational Creditor.
Upon examination of the records, the Appellate Tribunal found that the Section 9 application was based on six invoices, out of which two invoices relating to the concerned project had dates of default that undisputedly fell beyond the Section 10A excluded period. It was noted that the Adjudicating Authority had confined its analysis only to invoices dated during the prohibited period and had completely failed to consider the two later invoices,s which independently constituted an operational debt exceeding the statutory threshold. The Tribunal held that dismissal of the application solely on the basis of Section 10A, without examining these invoices, was legally untenable.
Accordingly, the Appellate Tribunal concluded that the impugned order was unsustainable and set it aside. The Section 9 application was restored and remanded to the Adjudicating Authority for fresh consideration in accordance with law, with the specific limitation that the claim of operational debt would remain confined to the two invoices falling outside the Section 10A period. The Tribunal clarified that it had not expressed any opinion on the merits of the alleged pre-existing disputes. No order as to costs was passed.
Mr. Vipul Ganda, Ms. Avnika Mishra, Ms. Nitu Barik and Mr. Gyanesh Tiwary, Advocates, represented the Appellant.
Mr. Bhupesh Narula, Advocate, appeared for the Respondent.
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