NCLAT: Joint Section 9 Application Not Maintainable If Individual Claims Fall Below ₹1 Crore Threshold; Dismisses Appeal by Desein Pvt. Ltd. Employees
Pranav B Prem
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a joint application filed by multiple operational creditors under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) is not maintainable unless each creditor independently satisfies the threshold limit prescribed under Section 4. The decision clarifies that the aggregate of all debts owed to the applicants cannot be clubbed to reach the statutory minimum default amount of ₹1 crore.
The bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra, and Mr. Arun Baroka (Technical Members), delivered the judgment in an appeal filed by 12 former employees of M/s Desein Private Limited. The employees had filed a joint application under Section 9 seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the company for unpaid dues totaling ₹2.89 crores, claimed collectively. However, the application was rejected by the Adjudicating Authority (NCLT, New Delhi) on the ground that none of the individual applicants had a claim exceeding the ₹1 crore threshold required under Section 4 of the IBC.
Background of the Case
The appellants were appointed between 1979 and 2018 in different roles by the corporate debtor. After June 2018, the company allegedly failed to pay their salaries and other dues. A joint demand notice under Section 8 of the IBC was issued by them on 11.03.2022, and the company responded stating that there was no provision for joint notices or applications under Sections 8 and 9. The company also contended that the threshold requirement of ₹1 crore introduced by Notification dated 24.03.2020 had not been satisfied by any single claimant.
The Section 9 application was heard by the NCLT, which dismissed it by an order dated 14.07.2023. The Tribunal relied on its earlier decisions in Sadashiv Nomaya Nayak & Ors. v. Gammon Engineers & Contractors Pvt. Ltd [Company Appeal (AT) (Ins.) No.218 of 2023]. and Mr. Suresh Narayan Singh v. Tayo Rolls Ltd [Company Appeal (AT) (Ins.) No.112 of 2018], holding that each operational creditor must independently fulfill the threshold to maintain a Section 9 application.
Legal Arguments Before NCLAT
The appellants argued that Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and the Note appended to Part V of Form 5, allow workmen/employees to file a joint application. It was contended that the legislative intent was to ease procedural difficulties faced by employees, who may not be able to meet the threshold individually.
The appellants also relied on the Supreme Court's ruling in JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd. [(2019) 11 SCC 332], which recognized that trade unions can file Section 9 applications on behalf of employees. They submitted that since joint filing is permitted in that context, their application should also be considered maintainable.
Per contra, the respondents argued that the IBC clearly distinguishes between financial and operational creditors. Section 7 expressly permits joint applications by financial creditors, whereas Sections 8 and 9 contain no such provision for operational creditors. Further, each operational debt arises independently, requiring separate notices and separate claims. The Note in Form 5, it was argued, only facilitates filing by one authorized representative and cannot override the substantive threshold requirement under Section 4 of the IBC.
NCLAT’s Analysis and Findings
The Tribunal held that the statutory framework governing CIRP under Chapter II of the IBC treats financial and operational creditors differently. Section 7(1) allows a financial creditor to file a CIRP application “either by itself or jointly with other financial creditors.” However, Section 8 requires each operational creditor to issue a separate demand notice, and Section 9 allows that creditor, if unpaid, to individually initiate CIRP.
The Tribunal stated: “The contrast in the provisions of Section 7 and 9 clearly indicates that the legislature, while permitting financial creditors to jointly file applications, has not extended a similar provision to operational creditors.”
Regarding the Note in Form 5, the Tribunal clarified that it merely permits one employee or workman to represent others for the purpose of filing. It does not dilute the substantive requirement that each claim must individually meet the threshold under Section 4 of the IBC, which currently stands at ₹1 crore.
“The Note… only entitles filing of the application by one person in joint capacity… [it] cannot be read to mean that operational creditors may jointly file the claim to complete the threshold.”
Further, the Tribunal referred to its own judgment in Sadashiv Nomaya Nayak and found that the same principle applied in the present case. In that matter, the Tribunal held that the individual debts of operational creditors cannot be clubbed together to meet the ₹1 crore requirement under Section 4. The Tribunal also took note of the fact that the Supreme Court had dismissed the civil appeal filed against Sadashiv Nomaya Nayak, thereby confirming the principle.
As regards the JK Jute Mill case, the Tribunal emphasized that the Supreme Court had not addressed the issue of clubbing debts to meet the threshold; rather, it had allowed a registered trade union to file an application under Section 9 on behalf of its members. Thus, the judgment was distinguishable.
Quoting from the judgment: “The said judgment of the Hon’ble Supreme Court, thus, lays down that Trade Union can file an application under Section 9 and it is an Operational Creditor. The question as to whether operational creditors can jointly file an application and for fulfilling the threshold their dues can be combined, neither had come up for consideration nor answered in the said judgment.”
The Tribunal also underscored the statutory purpose behind the ₹1 crore threshold. It was designed to prevent initiation of CIRP on the basis of minor operational debts and avoid clogging the insolvency process with routine recovery disputes. It observed:“The purpose of keeping a threshold of default… has its own statutory object. The debts of lesser amount cannot be basis for initiating any CIRP against the Corporate Debtor.”
In the present case, the demand notice placed on record (Annexure-O) detailed the dues of each appellant individually. Even the largest individual claim—₹35,26,000 by Mr. Kavindra Kumar—fell short of the ₹1 crore requirement. As a result, the Tribunal concluded that the application was rightly rejected.
In light of the Tribunal’s detailed findings, the appeal filed by the former employees of M/s Desein Private Limited was dismissed. The NCLAT upheld the order of the Adjudicating Authority dated 14.07.2023, which had rejected the Section 9 application on the ground that none of the individual operational creditors had claims exceeding the ₹1 crore threshold as required under Section 4 of the Insolvency and Bankruptcy Code. The Tribunal held that the joint application could not be maintained and thus confirmed the rejection of the Corporate Insolvency Resolution Process (CIRP) initiated by the appellants.
Appearance
For Appellants: Mr. Kumar Deepraj, Advocate.
For Respondent: Mr. Krishnendu Datta, Sr. Advocate with Mr. Prashant Mehta, Mr. Varun Gupta, Ms. Simran Wasan, Mr. Akhil G. Kurup and Ms. Ronak Gupta, Advocates.
Cause Title: Kavindra Kumar and Ors. V. M/s Desein Private Limited
Case No: Company Appeal (AT) (Insolvency) No. 1272 of 2023
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
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