The Hon’ble Supreme Court of India while dismissing an appeal from the order of NCLAT held that once the existence of a debt is established and default has been made, the NCLT must admit a petition under section 7 of the Insolvency and Bankruptcy Code, 2016.
Canara Bank initiated insolvency proceedings against Kranthi Edifice Pvt. Ltd., by filing a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) with the National Company Law Tribunal (NCLT), seeking to commence the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
The NCLT admitted the petition and initiated the CIRP against the corporate debtor; which order was also challenged before the NCLAT, however, the appeal before NCLAT was dismissed.
Following the NCLAT's decision, the Appellant contended before the Hon’ble Supreme Court, where it was contended that, based on the precedent established in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.; (2022) 8 SCC 352, the NCLT had the discretion to deny the admission of a Section 7 petition under the IBC, even when there was clear evidence of debt and default.
The Supreme Court, while reviewing the legal framework governing Section 7 petitions under the IBC, referred to its earlier rulings in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd, (2022) 3 SCC 161. The Hon’ble Court emphasized that the NCLT is required to admit a Section 7 petition once it verifies the occurrence of a default in the payment of a financial debt. The Supreme Court reiterated its decision in E.S. Krishnamurthy, wherein it examined the limited role of the NCLT, highlighting that its primary task is to determine whether a default has occurred.
Further examining the decision in Vidarbha Industries, (2022) 8 SCC 352, the Hon’ble Supreme Court acknowledged that it introduced a degree of discretion for the NCLT in admitting a Section 7 petition, allowing for non-admission based on valid reasons. However, the Hon’ble Court clarified that the discretion noted in Vidarbha Industries was specific to the circumstances of that case. Therefore, it reaffirmed that once a default is established, the NCLT has limited discretion to reject a Section 7 petition. The only valid ground for dismissal would be if the debt had not yet matured and become payable.
M. Suresh Kumar Reddy v. Canara Bank(2023) 8 SCC 387
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