Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, and Mr. Naresh Salecha (Technical Member), has held that an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be rejected on a hyper-technical ground that the demand notice was issued in the wrong form when the claim was based on invoices that were duly included with the notice and were never challenged by the Corporate Debtor as fake or fabricated.

Also Read: NCLAT: Time Spent In DRT Proceedings Cannot Be Excluded Under Section 14 Of Limitation Act

The appeal was filed under Section 61 of the IBC by KNK Ship Management (Operational Creditor) against an order of the National Company Law Tribunal (NCLT), New Delhi, which had dismissed its application under Section 9 of the Code against Thrani Industries Ltd. (Corporate Debtor).

The Appellant contended that it had provided marine consultancy and management services to the Corporate Debtor for its two vessels — Istanbul and Istanbul 2 — and had raised invoices for services rendered during financial years 2018–19, 2019–20, and 2021–22. Out of the total claim of ₹2,25,87,068, only ₹1,64,15,810 had been paid, leaving the remaining dues unpaid. When payments were not made, a demand notice under Section 8 of the IBC was issued on 2 May 2022 in Form 3 of Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, enclosing all unpaid invoices.

The NCLT, however, dismissed the application, holding that since the claim was based on invoices, the demand notice ought to have been issued in Form 4, not in Form 3, and further that there existed a pre-existing dispute between the parties.

Before the Appellate Tribunal, the Operational Creditor argued that there was complete compliance with Rule 5, as all invoices were enclosed with the demand notice, satisfying the legal requirement. It was also contended that the NCLT’s reliance on selective emails dated 29 September 2018 and 8 October 2018 to conclude the existence of a pre-existing dispute was misplaced. The Appellant pointed out that the alleged issues were rectified, the vessels were inaugurated by the Union Minister on 17 November 2018, and continued operations until 13 March 2020, as confirmed by communications from the restaurant manager. No dispute, suit, or arbitration was initiated by the Corporate Debtor prior to the issuance of the demand notice.

The Respondent, on the other hand, maintained that the demand notice was defective, having been issued in the wrong form, and claimed that deficiencies in the Appellant’s services had led to the seizure of the vessels by the Customs Department.

After reviewing the record, the Appellate Tribunal observed that both Form 3 and Form 4 under Rule 5 are valid formats for a demand notice, with Form 3 intended for a demand notice containing particulars of the unpaid operational debt, and Form 4 for a notice accompanied by invoices. The Bench noted that since the Appellant’s notice included all invoices and the same were not disputed as fabricated or false, rejecting the application merely because the notice was in Form 3 rather than Form 4 was “a hyper-technical plea.”

The Bench also found that the NCLT had erred in treating two old emails as proof of a pre-existing dispute, overlooking that the vessels were operational and commercially inaugurated after those communications. It further held that the seizure of the vessels by Customs on 25 November 2020 occurred much later and was unrelated to any alleged deficiency in the Appellant’s services. Moreover, Sunrich Logistics Pvt. Ltd., which had been appointed by the Respondent as its customs clearing and forwarding agent, was responsible for customs documentation, and the liability arising from the customs proceedings was still under appeal, hence not crystallized.

Also Read: CESTAT Quashes ₹56.47 Crore Customs Duty Demand On Dish TV Over Smart Card Classification

Concluding that the NCLT had committed a patent error, the NCLAT held that the demand notice in Form 3 with invoices attached fully satisfied the requirements of Section 8 of the IBC. Accordingly, the appeal was allowed, and the impugned order was set aside, with each party directed to bear its own costs.

Appearance

For Appellant: Mr. Saket Sikri, Mr. Gautam Khanzanchi, Mr. Rohit Pardeshi, Mr. Ajay Pal Kullar, Ms. Suruchi Jaiswal & Ms. Aditi Kukreja, Advocates.  

For Respondent: Mr. Karan Luthra & Mr. Rohan Dua, Advocates. 

Cause Title: KNK Ship Management Versus Thrani Industries Ltd.

Case No: Comp. App. (AT) (Ins) No. 2149 of 2024

Coram: Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, Mr. Naresh Salecha (Technical Member)