NCLT can Proceed with CIRP Based on Evidence of Default without Investigating Reasons

  • Blog|News|Insolvency and Bankruptcy Code|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 2 July, 2023

Recent Posts

Blog, News, Account & Audit

[Opinion] Audit of Hedge Funds – Complexities & Challenges

Blog, News, Income Tax

[Opinion] Family Settlement Agreement | An Effective Tool to Save Disputes & Taxes

Latest from Taxmann

Section 7 application for insolvency resolution

Case Details: State Bank of India v. N.S. Engineering Projects (P.) Ltd. - [2023] 151 taxmann.com 185 (NCLAT-New Delhi)

Judiciary and Counsel Details

    • Justice Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
    • Krishnan Venugopal, Sr. Adv. Sanjay Kapur, Ms. Megha Karnwal, Surya Prakash, Arjun Bhatia & Suray Prakash, Advs. for the Appellant.
    • Ramji Srinivasan, Sr. Adv. Zeeshan Haq, Animesh Kumar, Ram Maroo, Tanay Agarwal, Ms Shruti Pandey & Ms Megha Dugar, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant (i.e. a financial creditor) had extended certain credit facilities to the respondent-corporate debtor. Thereafter, the corporate debtor applied for debt restructuring and in consideration of the corporate debtor’s commitment to improve its operation, a master restructuring agreement (MRA) was executed.

However, the corporate debtor defaulted in making repayment and consequently, the account of the corporate debtor was classified as a non-performing asset (NPA). The appellant then issued a demand notice u/s 8 of IBC demanding a due amount with interest and filed an application u/s 7 against the corporate debtor.

The Adjudicating Authority (NCLT) dismissed the said application by holding that due to the non-disbursement of part of the financial assistance sanction by the appellant, there was contributory negligence committed by the appellant. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

NCLAT Held

The NCLAT observed that the fact that a certain portion of the sanctioned amount of financial facilities could not be disbursed by the financial creditor could not be ground for rejecting the Section 7 application.

The NCLAT held that when an application under section 7 is filed by a financial creditor and, there is ample material that the corporate debtor is unable to pay its due debt and had committed a default, the NCLT is not required to go into reasons of default and ignore the real status of the corporate debtor and close its eyes to the fact that corporate debtor needs insolvency resolution.

Therefore, the order passed by the NCLT rejecting the Section 7 application was unsustainable and the same was to be set aside.

List of Cases Reviewed

List of Cases Referred to

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied