Shiv Glitz Hotels And Resorts Llp vs Oravel Stays Limited

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.577 of 2024 (Arising out of Order dated 02.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad, Special Bench, Court-2 in C.P.(IB)/310(AHM)2023)

IN THE MATTER OF: Shiv Glitz Hotels and Resorts LLP Having Registered Office at: 255, Sindhi Colony, Bani Park Jaipur, Rajasthan 302016 ... Appellant

Versus Oravel Stays Limited Having Registered Office at: Ground Floor - 001, Mauryansh Elanza, Shayamal Cross Road, Nr. Parekh Hospital, Satellite Ahmedabad Gujrat 380015 Having Corporate Office at: 3rd Floor, Orchid Centre, Sector 53, Golf Course Road, Village Haiderpur Viran, Gurugram, Haryana 122 002 ... Respondent

Present:

For Appellant : Mr. Manish Kumar Shekhari, Ms. Anisha Mahajan, Mr. Ashish Khatri and Ms. Sanjana Shrivastava, Advocates.

For Respondent : Mr. Amit Sibal along with Ms. Adrija Mishra, Mr. Ankit and Mr. Harsh Kaushik, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by Operational Creditor has been filed challenging order

dated 02.01.2024 passed by National Company Law Tribunal, Ahmedabad,

Company Appeal (AT) (Insolvency) No.577 of 2024 1 Special Bench, Court-2, rejecting Section 9 Application filed by the Appellant

as defective. Aggrieved by the order, the Appellant has come up in this Appeal.

2. On 07.10.2017, the Appellant and the Respondent executed a Merchant

Agreement wherein fixed revenue of Rs.40 lakhs per month was agreed to by

the Respondent - Corporate Debtor. Pursuant to the above Agreement, the

Appellant provided services of boarding & lodging, conducting social events

and F&B services to the Respondent on OYO Platform. The Appellant raised

various invoices in references to services provided to the Respondent. On

29.03.2023, a Demand Notice was sent by the Operational Creditor to the

Corporate Debtor in Form-3, claiming total amount of Rs.1,98,09,748/-,

which included principal amount of Rs.1,12,23,598/- and interest of

Rs.85,86,150/- till 31.03.2023. The Demand Notice was replied by the

Corporate Debtor by letter dated 13.04.2023 denying the claim. The Appellant

filed Application under Section 9 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as the "IBC") on 10.12.2023, on which IB-

310/AHM/2023 was registered. On 02.01.2024, which was the first date of

hearing of the Application under Section 9, the Adjudicating Authority

dismissed the Application as defective. Aggrieved by which order, this Appeal

has been filed.

3. We have issued notice in the appeal and on advance copy of this Appeal

being served on the Respondent, the Respondent has appeared when the

Appeal was taken for consideration. Both the parties were heard on

Company Appeal (AT) (Insolvency) No.577 of 2024 2 14.08.2024 and orders were reserved. Both the parties have filed their short

notice of written submission also.

4. We have heard Shri Manish Kumar Shekhari, learned Counsel

appearing for the Appellant and Shri Amit Sibal, learned Senior Counsel

appearing for the Respondent.

5. The learned Counsel for the Appellant challenging the impugned order

contends that Adjudicating Authority on the first day of hearing, dismissed

the Application as defective. It is submitted that in event Adjudicating

Authority found the Application defective, an opportunity was required to be

given to rectify the defect as required by Section 9, sub-section (5) (ii) (a) and

its proviso. The Adjudicating Authority committed error in rejecting the

Application as defective without giving an opportunity. It is further submitted

that Application contained all relevant pleadings and materials and the

Adjudicating Authority has not dismissed the Application on merits. The

learned Counsel for the Appellant has relied on judgment of this Tribunal in

Tek Travels Private Ltd. vs. Altius Travels Private Ltd. - Company

Appeal (AT) (Ins.) No.172 of 2020, where this Tribunal has held that before

rejection of an Application on the ground of defect, the Adjudicating Authority

ought to have provided an opportunity to rectify the defects within seven days.

6. Shri Amit Sibal, learned Senior Counsel appearing for the Respondent

refuting the submissions of learned Counsel for the Appellant submits that

Company Appeal (AT) (Insolvency) No.577 of 2024 3 Adjudicating Authority has rightly dismissed the Application. In the

Application there was no proper explanation on the date of invoice; no proper

explanation was given on the date of default; no proper explanation was given

on the limitation period to ascertain the due date; invoices had not been

segregated and had been raised on two different entities. It is submitted that

it is not the case of the Appellant that Application was defective, hence the

Appellants are not entitled for any opportunity to clear the defects, if any. It

is submitted that opportunity at this stage to the Appellant to rectify the

defects is unnecessary. It is submitted that Demand Notice which is the basis

of Section 9 Application being defective, the Application deserve to be rejected

and no useful purpose will be served in remanding the matter for

consideration by the Adjudicating Authority. It is further submitted that the

Appellant's case also fall within the ambit of Section 9 (5) (ii) (d), since the

Appellant has received a notice of dispute from the Respondent and there

being pre-existing dispute, the Application deserves to be rejected. The

Appellant has failed to establish the debt, hence, there was no question of

issuing any notice by the Adjudicating Authority. The learned Counsel for the

Respondent has relied on the judgment of this Tribunal in Ramco Systems

Ltd. vs. Spicejet Ltd - (2019) SCC OnLine NCLAT 354, which judgment has

also been affirmed by the Hon'ble Supreme Court vide its order dated

26.09.2023 Civil Appeal No.7217 of 2019.

Company Appeal (AT) (Insolvency) No.577 of 2024 4

7. We have considered the submissions of learned Counsel for the parties

and have perused the records.

8. The impugned order under challenge was passed by the Adjudicating

Authority on the first date of hearing, without issuing any notice to the

Corporate Debtor, which is as follows:

"Heard the counsel for applicant. There was no proper explanation given on the date of invoice, default and limitation period to ascertain the due date. It was also observed that the invoices were raised on two different entities and not segregated. In view of the same, application stands dismissed as defective."

9. Section 9 provides for 'Application for initiation of corporate insolvency

resolution process by operation creditor'. Section 9, sub-section (3) provides

that the operational creditor shall, along with the application furnish

materials as referred to in Item (a) to (e). Section 9, sub-section (5) (ii), which

is relevant in the present case provides as follows:

"9(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order-

x x x (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if - (a) the application made under sub-section (2) is incomplete; (b) there has been 1 [payment] of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational

creditor or there is a record of dispute in the information utility; or

Company Appeal (AT) (Insolvency) No.577 of 2024 5

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under subclause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority.

10. In the present case, Application under Section 9 has been rejected by

the Adjudicating Authority, we need to notice relevant provisions of Section 9,

sub-section (5) (ii). When we look into the impugned order, observation made

by the Adjudicating Authority is "There was no proper explanation given on the

date of invoice, default and limitation period to ascertain the due date". It was

also observed that invoices were raised on two different entities and not

segregated. The Adjudicating Authority by the impugned order, dismissed the

Application as defective. It is relevant to notice that proviso to Section 9, sub-

section (5) (ii) uses the expression "shall before rejecting an Application, under

sub-clause (a) of clause (ii), give a notice to the applicant to rectify the defect

in the application within seven days of the receipt of such notice". Thus,

before rejecting the Application as defective, proviso mandates Adjudicating

Authority to provide an opportunity to Applicant to rectify the defect. In the

present case, although the Adjudicating Authority made observations as

noted above and ultimately dismissed the Application as defective. The

rejection of the Application, thus is clearly referrable to Section 9, sub-section

(5) (ii) (a). The rejection of the Application under Section 9, sub-section (5) (ii)

Company Appeal (AT) (Insolvency) No.577 of 2024 6 can be on five grounds as noted above. The order of the rejection is not

applicable to sub-Clause (ii), (b), (c), (d) and (e). Shri Amit Sibal, learned

Counsel for the Respondent has strenuously contended that the notice of

dispute having already been given to Operational Creditor by Corporate

Debtor dated 13.04.2023, after receipt of the Demand Notice dated

29.03.2023 and hence there is pre-existing dispute and the Application is

liable to be rejected under Section 9(5)(ii)(d). As noted above, the Adjudicating

Authority has not dismissed the Application on the ground of dispute which

has been raised by the Operational Creditor. The Adjudicating Authority has

not even entered into the issue of pre-existing dispute between the parties.

Hence, the above issue need not be gone into the present Appeal. The

Adjudicating Authority has ample jurisdiction to pass an order of rejection

under Section 9, sub-section (5) (ii) (d), provided the Adjudicating Authority

returns a finding on the materials on record that notice of dispute has been

received by the Operational Creditor and there is pre-existing dispute.

Although, learned Counsel for the Respondent has contended that the issue

of pre-existing dispute may be gone into in this Appeal and decided and no

useful purpose will be served in sending the matter back to the Adjudicating

Authority, we are of the view that Adjudicating Authority having not adverted

on the said issue, it is appropriate that said issue be gone into and considered

by the Adjudicating Authority in accordance with law.

Company Appeal (AT) (Insolvency) No.577 of 2024 7

11. The learned Counsel for the Respondent has also submitted that

Demand Notice was itself defective, hence, the Application deserves to be

dismissed on account of Demand Notice being defective. The issue of Demand

Notice being defective, having not been gone into by the Adjudicating

Authority, nor any finding returned that Demand Notice is defective and is not

in accordance with provisions of the IBC, we see no occasion to enter into the

said issue.

12. Learned Counsel for the Respondent has placed reliance on judgment

of this Tribunal in Ramco Systems Ltd. (supra). In the above case,

Application was rejected by the Adjudicating Authority on the ground of

inconsistency in the overall payments and the non-compliance with the

provisions of Section 9(3)(c) of the IBC. Section 9(3)(c) of the provides as

follows:

"9(3)(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt 1 [by the corporate debtor, if available;"

13. The facts in order of the Adjudicating Authority have been noticed in

paragraph 1 in the judgment of the Ramco Systems Ltd., which are as

follows:

"1. The Appellant- 'Ramco Systems Limited'- ('Operational Creditor') filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short) against the 'Spicejet Limited'- ('Corporate Debtor'). The Adjudicating Authority (National Company

Company Appeal (AT) (Insolvency) No.577 of 2024 8 Law Tribunal), Bench-III, New Delhi, by impugned order dated 14th December, 2017, dismissed the application on the ground of inconsistency in the overall payments and the non-compliance with the provisions of Section 9(3)(c) by the 'Operational Creditor', in the absence of a certificate from the financial institution maintaining accounts of the 'Operational Creditor'. The Adjudicating Authority further observed that the 'Corporate Debtor' on the other hand shown that certain payment has been made."

14. The Appeal filed by the Operational Creditor was dismissed. This

Tribunal in paragraph 8 to 11 made the reasons for dismissal of the Appeal.

From paragraph 10 of the judgment, it is clear that this Tribunal has

dismissed the Appeal while observing "... but in absence of specific evidence

relating to invoices actually forwarded by the Appellant and there being a

doubt, we hold that the Adjudicating Authority has rightly refused to entertain

application under Section 9 which requires strict proof of debt and default".

This Tribunal dismissed the Appeal on the above ground. The judgment of

this Tribunal in Ramco Systems Ltd., does not help the Respondent in the

present case, since the Application has been rejected by the Adjudicating

Authority without returning any finding on the merits of the Application.

15. The learned Counsel for the Respondent has also relied on the judgment

of this Tribunal in Dheeraj Wadhawan vs. Yes Bank Ltd. & Anr. - (2022)

SCC OnLine NCLAT 2395, where this Tribunal has observed that record of

information is relevant but record of information utility is not conclusive proof

of any default and a Corporate Debtor is always at liberty to disapprove the

Company Appeal (AT) (Insolvency) No.577 of 2024 9 statement as contained in information utility record. In paragraph 31,

following observations were made by this Tribunal:

"31. As noted above, there being no default by the principal borrower on 01.08.2019, all subsequent action by the Bank on the alleged default dated 01.08.2019 are unsustainable. Hence, information recorded in the information utility on the strength of loan recall notice dated 18.11.2019 in no manner can be read as material to prove that default was committed by the Bank on 01.08.2019. Under the statutory scheme, the record of information utility is relevant but record of information utility is not conclusive proof of any default and a Corporate Debtor is always at liberty to disapprove the statement as contained in the information utility record."

16. There can be no quarrel to the proposition laid down by this Tribunal

in the above case. However, the order impugned does not indicate that

Adjudicating Authority has adverted to the certificate issued by the financial

institutions. Hence, the said judgment has no application in the present case.

17. The learned Counsel for the Respondent has also relied on judgment of

the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of

India & Ors. - (2019) 4 SCC 17, where Hon'ble Supreme Court has laid down

following:

"87. The aforesaid Regulations also make it clear that apart from the stringent requirements as to registration of such utility, the moment information of default is received, such information has to be communicated to all parties and sureties to the debt. Apart from this, the utility is to expeditiously undertake the process of authentication and verification of information, which will include authentication and

Company Appeal (AT) (Insolvency) No.577 of 2024 10 verification from the debtor who has defaulted. This being the case, coupled with the fact that such evidence, as has been conceded by the learned Attorney General, is only prima facie evidence of default, which is rebuttable by the corporate debtor, makes it clear that the challenge based on this ground must also fail."

18. The above observation of the Hon'ble Supreme Court related to stringent

requirements as to registration of such utility the moment information of

default is received. The observation above has no application in the facts of

the present case, where Adjudicating Authority has not even adverted to the

information utility certificate.

19. We are of the view that various issues raised by the learned Senior

Counsel for the Respondent Shri Amit Sibal need not be gone into at this

stage, when the Adjudicating Authority has not adverted to any of the above

issues and has rejected the Application as defective. When the Adjudicating

Authority has proceeded to dismiss the Application as defective, it was

obligatory as per Proviso to Section 9, sub-section (ii) to give a notice to the

Applicant to rectify the defect in the Application within seven days from the

date of receipt of such notice. The Adjudicating Authority having not issued

a notice under Proviso, the order impugned is unsustainable on this ground

alone.

20. The judgment of this Tribunal relied by the learned Counsel for the

Appellant in Tek Travels Private Ltd. vs. Altius Travels Pvt. Ltd. (supra)

fully support the submissions of learned Counsel for the Appellant. We make

Company Appeal (AT) (Insolvency) No.577 of 2024 11 it clear that we have not entered into any of the issues regarding the

Application filed by the Operational Creditor under Section 9, nor we are

making any observation regarding the merits of the Application under Section

9, or on defenses, which are sought to be raised by learned Counsel for the

Respondent in the present Appeal. It is for Adjudicating Authority to consider

all relevant issues and take a decision in accordance with law.

21. In view of the above, we set aside the order dated 02.01.2024 and revive

Section 9 Application filed by the Appellant before the Adjudicating Authority.

The Adjudicating Authority may give a notice for rectifying the defect and

thereafter proceed to consider the Application in accordance with law. The

Appeal is disposed of accordingly. There shall be no order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

9th September, 2024

Ashwani

Company Appeal (AT) (Insolvency) No.577 of 2024 12