Financial condition analysis before CIRP order: allowed?

[2021] 133 taxmann.com 62 (Article)

Financial Debt has been clearly defined under the provisions of section 5(8) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’). Also, in various judgements/orders by different NCLT/NCLAT benches, the definition has been well unleashed. Further, in the matter of Nikhil Mehta & Sons v. AMR Infrastructure (P.) Ltd. [2017] 84 taxmann.com 163/143 SCL 278, the Hon’ble NCLAT has very clearly explained the criteria to be checked for ascertaining if debt is a financial debt or not. Also, it is well settled that while dealing with the application under section 7 of the IBC the Hon’ble Adjudicating Authority(NCLT)has to only focus on the nature of debt i.e. if it is financial debt or not and whether it is due and defaulted and not having existence of any dispute.

In the recent matter of Drip Capital Inc. v. Concord Creations (India) P. Ltd. [Company Appeal (AT) (CH) (Ins.) No. 167 of 2021, dated 8-11-2021], the Hon’ble NCLT Bengaluru Bench in reference to and interpreting certain sayings of various courts in several judgements, considered the financial position of the corporate debtor even though the debt was duly acknowledged, and considering it as solvent granted 6 months’ time to the Corporate Debtor to pay the sum and didn’t admitted the application to initiate Corporate Insolvency Resolution Process (CIRP).

In this article, we will analyze the judgement(s) of NCLT and NCLAT in the matter of Drip Capital Inc.

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