Section 10A Bar Does Not Defeat Section 9 Proceedings When Pre-Suspension Defaults Independently Cross IBC Threshold: NCLAT
- REEDLAW
- 9 hours ago
- 3 min read
REEDLAW Legal News Network reports: In a decisive ruling on the scope of Section 10A of the Insolvency and Bankruptcy Code, the Appellate Tribunal clarified that exclusion of an isolated invoice falling within the COVID-19 suspension period does not defeat an operational creditor’s right to initiate insolvency proceedings when the remaining defaults arose outside the prohibited period and independently meet the statutory threshold.
The National Company Law Appellate Tribunal, comprising Justice Mohammad Faiz Alam Khan (Judicial Member) and Mr. Naresh Salecha (Technical Member), held that Section 10A bars only those insolvency applications founded entirely on defaults occurring during the suspension period. Relying on settled precedent, the Tribunal ruled that segregation of invoices is legally permissible and that a Section 9 application remains maintainable where pre-suspension defaults subsist and cross the minimum threshold, warranting restoration of the petition dismissed by the Adjudicating Authority.
The appeal was filed challenging the dismissal of a petition under Section 9 of the Code on the ground that one invoice forming part of the operational debt fell within the suspension period prescribed under Section 10A. The Appellant contended that the transactions between the parties were maintained as a running account, supported by multiple invoices and part payments, and that only one invoice was raised during the prohibited period, while the remaining invoices pertained to a period prior thereto and independently crossed the statutory threshold.
The Appellate Tribunal observed that Section 10A imposed a bar only in respect of defaults arising during the specified COVID-19 suspension period and was not intended to extinguish remedies for defaults that had occurred prior thereto. Relying on its earlier decisions, particularly Naresh Choudhary (Suspended Director of NIK-SAN Engineering Company Ltd.) v. Sterling Enamelled Wires Private Limited and Another, REEDLAW 2023 NCLAT Del 08565 and Raghvendra Joshi, the Tribunal held that exclusion of invoices falling within the Section 10A period was legally permissible and that such exclusion did not vitiate the maintainability of a Section 9 application where the remaining debt was otherwise enforceable.
The Tribunal further distinguished the reliance placed on Ramesh Kymal v. Siemens Gamesa Renewable Power Private Limited, REEDLAW 2021 SC 02503 and Yatra Online, noting that those decisions dealt with defaults wholly arising within the prohibited period or with impermissible attempts to alter the date of default. Finding that the existence of debt and default stood substantiated through invoices, bank statements, and ledger accounts, the Tribunal held that the Adjudicating Authority had erred in treating the demand notice as invalid and in dismissing the petition. Consequently, the impugned order was set aside, and the Section 9 petition was restored for adjudication in accordance with law.
Ms. Kanika Singhal, Ms. Richa Tripathi and Ms. Deepshikha, Advocate, represented the Appellant.
Mr. Anuj Agarwal, Advocate, appeared for the Respondent.
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