I.
The Hon'ble
Facts
The Appellant is short of funds, for the time being on account of a pending litigation before the SC, more particularly, Civil Appeal Number 372 of 2017 preferred by the
On or about
In view thereof, the Appellant preferred a Miscellaneous Application for seeking stay on the adjudication of CIRP admission proceedings, until the above-mentioned Civil Appeal is pending before the SC. However, by order dated
Aggrieved by the order dated
Aggrieved by the Impugned Order passed by the NCLAT, the Appellant preferred an appeal before the SC.
Issue
Whether Section 7(5)(a) of IBC is a mandatory or a discretionary provision. In other words, is the expression 'may' to be construed as 'shall', having regard to the facts and circumstances of the case.
Arguments
Contentions raised by the Appellant:
The Appellant submitted that considering the facts and circumstances of the case, the Appellant is unable to realize a sum of INR
The Appellant further contended that the use of the word 'may', and not 'shall', in the language of Section 7(5)(a) of the IBC, confers a discretion to the NCLT to reject an application, even if there is existence of debt, for any reason that the NCLT may deem fit, for meeting the ends of justice, keeping in mind the objective of the IBC, which includes revival of the company and value maximization. It was further submitted by the Appellant that Rule 11 of the National Company Law Tribunal Rules, 2016 ("NCLT Rules") provides inherent power to the NCLT to pass such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal. In view thereof, the Appellant submitted that on a conjoint reading of Section 7(5)(a) of the IBC read with Rule 11 of the NCLT Rules, it cannot be said that NCLT has no power, except to examine whether a debt exists or not and accordingly accept or reject the application under Section 7 of the IBC.
Contentions raised by the Respondent:
The Respondent submitted that the Appellant had admittedly defaulted in payment of its dues and the NCLT has rightly declined stay of proceedings initiated by the Respondent. It was further contended that Section 7(5)(a) of the IBC cast a mandatory obligation on the adjudicating authority to admit an application of the financial creditor under Section 7(2) of the IBC, once established that a corporate debtor has committed default in repayment of dues of the financial creditor. As such, there are no grounds to interfere with the concurrent findings of the NCLT and the NCLAT.
The Respondent further relied on the judgment of the SC in the matter of
Observations of the
The SC observed that placing reliance upon the Swiss Ribbons Judgment, the NCLT held that the imperativeness of timely resolution of a corporate debtor, who was in the red, indicated that no other extraneous matter should come in the way of deciding petitions filed under Section 7 and Section 9 of the IBC. However, in this regard, the SC held that the viability and overall financial health of the corporate debtor are not extraneous matters.
The SC further examined the question as to whether an award of the APTEL in favour of the Appellant for a sum of INR
The SC observed that both, the NCLT and the NCLAT proceeded on the premises that an application must be necessarily entertained under Section 7(5)(a) of the IBC, upon existence of a debt and corporate debtor found to be in default. In this regard, the SC held that the NCLAT and the NCLT erred in deciding that if the aforesaid two aspects are being satisfied, it is sufficient to trigger CIRP of the corporate debtor. In fact, the existence of a financial debt and default in payment in respect thereof only gave the financial creditor the right to apply for initiation of the CIRP. However, the adjudicating authority is supposed to apply its mind to all relevant factors including feasibility of initiation of CIRP and the overall financial health and viability of the corporate debtor under its existing management.
The SC agreed with the contention raised by the Appellant that the legislature has consciously used the word 'may' and not 'shall' in Section 7(5)(a) of the IBC. However, while arriving at the conclusion that it is discretionary upon the adjudicating authority to admit an application filed by financial creditor seeking initiation of CIRP of a corporate debtor, the SC has made it clear that in case of rejection of such application, the financial creditor will not be precluded from applying afresh for initiation of CIRP of that corporate debtor, if the dues continue to remain unpaid.
Click here to continue reading . . .
© 2020, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors,
The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.
Mr
Vaish Associates Advocates
1st & 11th Floors
13 Tolstoy Marg
Tel: 1142492532
E-mail: vpdalmia@vaishlaw.com
URL: www.vaishlaw.com
© Mondaq Ltd, 2022 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source