top of page
Search

NCLT must admit Section 7 application upon confirming default, regardless of disputes or debt status


The Supreme Court Bench comprising Justices Abhay S. Oka and Rajesh Bindal, J. was hearing an appeal filed by the Corporate Debtor and held that once the NCLT is satisfied that a default has occurred, it is obligated to admit an application under Section 7 of the Insolvency and Bankruptcy Code, regardless of any dispute or the debt being due or not.


In the present case, an application filed by a bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a corporate debtor. The National Company Law Tribunal (NCLT) admitted the application and declared a moratorium. The appellant, who claims to be a suspended director of the corporate debtor, appealed against the NCLT's order to the National Company Law Appellate Tribunal (NCLAT), but the appeal was dismissed.


The bank had granted credit facilities to the corporate debtor, including a secured overdraft facility and bank guarantees. The bank stated that the corporate debtor had outstanding liabilities under the overdraft facility and bank guarantees. The appellant argued that efforts were made for a one-time settlement, but the bank rejected the proposal. The appellant claimed that the bank's failure to extend bank guarantees led to the default and argued that the NCLT should not have admitted the application under Section 7.


The appellant relied on a previous Supreme Court decision and pointed out the correspondence between the government and the bank regarding the extension of bank guarantees. The appellant argued that the bank's refusal to extend the bank guarantees caused the default. The appellant also mentioned an interim order from the Telangana High Court restraining the bank from taking coercive steps related to the bank guarantees.


The bank argued that the previous Supreme Court decision relied upon by the appellant was not applicable to the present case and that the NCLT rightly admitted the application under Section 7. The bank stated that it had rejected the corporate debtor's request for the extension of bank guarantees.


The Supreme Court referred to its previous decisions and explained the scope of Section 7 of the Insolvency and Bankruptcy Code. It held that the Adjudicating Authority, in this case, the NCLT, needs to determine whether a default has occurred based on the evidence provided by the financial creditor. If the Adjudicating Authority is satisfied that a default has occurred, it must admit the application unless it is incomplete. The Supreme Court emphasized that it is not relevant whether the debt is disputed as long as it is due and payable.


Based on these principles, the Supreme Court upheld the NCLAT's dismissal of the appeal. It concluded that the NCLT had rightly admitted the bank's application under Section 7 after satisfying itself that a default had occurred. The SC Bench rejected the appellant's arguments regarding the bank's responsibility for the default and the Telangana High Court's interim order, stating that they did not affect the NCLT's decision to admit the application.


Comments


bottom of page