NCLAT held that a Corporate Debtor can dispute claims at the Section 9 stage even without responding to the Section 8 notice.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, reviewed an appeal on 13-02-2025 and held that a corporate debtor can dispute a claim at the Section 9 stage even if it has not responded to the Section 8 demand notice. The Three-Member Bench further emphasized that an application under Section 9 must meet the mandatory monetary threshold prescribed under Section 4 of the Insolvency and Bankruptcy Code, 2016, failing which it is liable to be dismissed.
The National Company Law Appellate Tribunal (NCLAT) dismissed the appeal challenging the order dated 06.06.2023, which had rejected the Appellant’s application under Section 9 of the Insolvency and Bankruptcy Code, 2016, on the ground that it did not meet the minimum threshold of ₹1 crore prescribed under Section 4 of the Code. The Appellant had sought to initiate the corporate insolvency resolution process (CIRP) against the Corporate Debtor (CD) for an alleged outstanding amount of ₹2,77,68,000, claiming default as of 24.01.2019 under an MOU/Agreement executed between the parties. The Appellant asserted that its director, Mr. Chackravarthi D. Iyengar, had facilitated multiple project acquisitions for the CD under an MOU dated 11/15.06.2018, entitling the Appellant to a facilitation fee. Further, an agreement dated 25.11.2018 had appointed Mr. Iyengar as a whole-time director of the CD, with payment obligations tied to invoicing. Despite these engagements, the CD allegedly failed to make payments and subsequently issued a notice on 18.07.2020 seeking Mr. Iyengar’s resignation, prompting the Appellant to issue a demand notice under Section 8 of the Code.
The Appellant argued that since the CD had failed to respond to the Section 8 demand notice, it was barred from raising any dispute in the subsequent Section 9 proceedings. However, the Respondent contended that while an operational creditor must serve a demand notice before initiating insolvency proceedings, the Code did not preclude the CD from contesting the claim at the adjudication stage even in the absence of a prior response. The Adjudicating Authority had found that only ₹41.74 lakhs of the claim was undisputed, which fell below the ₹1 crore threshold, rendering the Section 9 application non-maintainable. The NCLAT upheld this reasoning, affirming that a CD retains the right to dispute a claim at the Section 9 stage irrespective of whether a response to the Section 8 notice was filed.
The NCLAT reiterated that compliance with the procedural requirements under the Insolvency and Bankruptcy Code, 2016, was mandatory for initiating CIRP. It referred to Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which requires an operational creditor to serve a demand notice in Form-3, granting the CD a 10-day period to either dispute the claim by establishing the existence of a prior dispute or provide proof of payment. Further, Rule 6 mandates that an application under Section 9 be filed in Form-5 along with supporting documents. The tribunal underscored that adherence to these statutory requirements is essential, and failure to meet the prescribed criteria, including the monetary threshold under Section 4, would result in the dismissal of an application under Section 9. Accordingly, the NCLAT dismissed the appeal, upholding the decision of the Adjudicating Authority.
Mr. Bishwajeet Bhattacharyya, Sr. Advocate, Mr. Abhinav Prakash, Mr. Arvind Wishwabandhu and Mr. Himanshu Singh, Advocates represented the Appellant.
Mr. Piyush Joshi, Advocate appeared for the Respondent.
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