By Rahul Goyal
Kranthi Edifice Pvt. Ltd. (Corporate Debtor) had taken credit from Canara Bank (Financial Creditor) later failed to repay the loan amount taken. Financial Creditor filed a petition under Section 7 of the IBC before the National Company Law Tribunal (NCLT) for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
NCLT admitted the petition on 27.06.2022 and commenced CIRP against the Appellant. Appeal was made by the Appellant before NCLAT but the same was dismissed. Thereafter, appellant approached the Supreme Court against the decision of NCLAT.
ISSUES
Whether the NCLT have the discretion to decline the admission of Section 7 Petition under the IBC even if there was proof of debt and default?
APPELLANT’S CONTENTION
Appellant argued that the decision made in Vidarbha Industries Power Limited v. Axis Bank Limited[1] gave the discretion to reject the admission of Section 7 Petition even the default in payment or debt have been proven.
RATIO
The discretion which was given to the NCLT in regard to admission of Section 7 Petition, if there are valid enough reasons for that. Thereafter it was held that the dicta in Vidharbha Industries was limited to those facts of the case.
DECISION
Supreme Court made decision referring Innoventive Industries Limited v. ICICI Bank[2] and E.S. Krishnamurthy v. Bharath HiTecch Builders Pvt. Ltd.[3], Section 7 petition must be allowed if there are no reasons to reject the same. Therefore, the appeal was dismissed.
ANALYSIS
A crucial decision was made by SC by dismissing the appeal filed by the Appellant. Section 7 of IBC is a recovery mechanism for the financial creditors of the corporate debtors goes on to bankruptcy. The contention made by the Appellant that even when there is a failure in payment debts NCLT may reject Section 7 petition. If this appeal had been allowed by the SC then Financial creditors would itself go insolvent one day. They would be in huge losses.
The author of this article is Rahul Goyal, a third-year BALLB student at KIIT School of Law, Bhubaneswar.
[1] 2022 8 SCC 352
[2] (2018) 1 SCC 407
[3] (2022) 3 SCC 161
References
[1] (n.d.). Retrieved from Supreme Court of India: https://main.sci.gov.in/supremecourt/2022/31608/31608_2022_14_1502_44326_Judgement_11-May-2023.pdf
[2] (n.d.). Retrieved from Livelaw: https://www.livelaw.in/tags/section-7-ibc
[3] Srivastava, A. P. (n.d.). Decoding Section 7 of IB Code for admitting an application for Corporate Insolvency Resolution Process... Retrieved from SCCOnline: https://www.scconline.com/blog/post/2023/06/23/decoding-section-7-of-ib-code-for-admitting-an-application-for-corporate-insolvency-resolution-process/
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