For Deciding Preliminary Issue Of Maintainability In Section 9 Petition, Not Necessary To Seek Written Response From Corporate Debtor: NCLT Delhi

The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising of Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member), has held that it is not necessary to seek written response of the Corporate Debtor at the stage of deciding maintainability of petition under Section 9 of IBC.“However, in this regard, this Adjudicating Authority is of the view that, this application is being analyzed on a prima facie issue, i.e. on the issue of maintainability of Section 9 petition. The Civil Procedure Code in its strict sense is not applicable under the present case and only the principle underlying therein may be applied wherever necessary. However, for the limited purpose of deciding preliminary issue of maintainability, no fruitful purpose would be served, by seeking written response, from the Corporate Debtor, when the application is at the stage of maintainability, i.e. whether the Applicant, is an Operational Creditor under the provisions of IBC or not”, the Bench held.The Bench has dismissed a petition filed under Section 9 of IBC by Willis Lease Finance Corporation, seeking initiation of insolvency proceedings against Spicejet Ltd. for the amounts due to the Aircraft Lessors.BACKGROUND FACTS Spicejet Ltd. is engaged in affordable aviation business with domestic, international and charter flight facilities in India. Willis Lease (Ireland) Limited, WEST III Engines (Ireland) Limited, West IV Engines (Ireland) Limited and West V Engines (Ireland) Limited (collectively, “Lessors”) have leased aircrafts to Spicejet by executing respective Lease Agreements. Willis Lease Finance Corporation (“WLFC/Applicant”) acts as a 'Servicer' for the said Lessors. WLFC contended that it has been authorized by Lessors through Servicing Agreements to raise invoices on SpiceJet; direct SpiceJet to make payments to designated accounts; and enforce the rights of the Lessors under the Lease Agreements in event of a non-payment by due date. WLFC has asserted that SpiceJet was has at all times acknowledged its authority as a 'Servicer' of the individual Lessors.On 04.11.2022, WLFC issued a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to Spicejet demanding payment of USD 10,905,169.83/-. Subsequently, WLFC filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Spicejet. However, the petition was withdrawn on 02.03.2023 to exclude certain invoices which were barred by Section 10A of IBC.Thereafter, WLFC filed a second petition under Section 9 of IBC but without issuing a second Demand Notice under Section 8 of IBC. The amount in default was Rs. 53,96,65,759/-. Spicejet did not file any Reply to the petition. WLFC submitted that SpiceJet entered appearance without filing any vakalatnama and attempted to orally raise objections on the maintainability of the Petition. The NCLT permitted SpiceJet's oral submissions without directing to file a counter-affidavit/reply. Hearings were held on 16 occasions, without issuing notice.SpiceJet argued that no fresh Demand Notice was served before filing of the second petition under Section 9 of IBC. NCLT VERDICTThe Bench noted that Section 8(1) of IBC provides that an Operational Creditor is required to deliver a Demand Notice for unpaid operational debt and the same is sine qua non for filing and maintaining petition under Section 9 of IBC. However, WLFC had issued a Demand Notice dated 04.11.2022, pursuant to which a Section 9 petition was filed and the same was “dismissed as withdrawn” by the NCLT vide order dated 02.03.2023. Thereafter, no fresh Demand Notice was filed before filing the second Section 9 petition on 11.04.2023.It was observed that the default amount and date of default differed in Demand Notice dated 04.11.2022 and the second Section 9 petition filed on 11.04.2023. The Bench held that the erstwhile Demand Notice is defective and cannot be treated as a valid notice for the alleged debt amount in Section 9 petition. “Therefore, in view of the aforesaid observation, the demand notice dated 04 November 2022, cannot be treated as a valid Demand notice for the alleged debt amount, which is claimed by WLFC in the present petition. Therefore, the Demand Notice being relied upon by WLFC is defective and not a proper Demand Notice for the purposes of IBC”, the Bench held.The second issue was whether a party should be permitted to participate in proceedings without filing pleadings or affidavit setting out the case advanced. The Bench held that a response from the Corporate Debtor is not required for deciding the preliminary issue of maintainability i.e. whether the Applicant is an Operational Creditor under IBC or not. The Bench further held that WLFC has no locus standi to file petition under Section 9 of IBC since there is no privity of contract between WLFC and SpiceJet. The petition has been dismissed.Case title: Willis Lease Finance Corporation v...

For Deciding Preliminary Issue Of Maintainability In Section 9 Petition, Not Necessary To Seek Written Response From Corporate Debtor: NCLT Delhi

Pallavi Mishra

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