Rejection of Section 7 IBC Plea Erroneous as Debt and Default Proven | NCLAT

Case Details: Edelweiss Asset Reconstruction Company Ltd. vs. Takshashila Heights India (P.) Ltd. - [2025] 179 taxmann.com 530 (NCLAT-New Delhi)

Judiciary and Counsel Details

• Justice Ashok Bhushan, Chairperson & Arun Baroka, Technical Member
• Abhijeet Sinha, Sr. Adv., Anmol Bansal & Aditya Vashishth, Advs. for the Appellant.
• Saurabh Kalia, Avik Sarkar, Arjun Sheth & Rajiv Chawla, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant, a financial creditor, filed a Section 7 application against the corporate debtor. The NCLT dismissed the said application on the ground that, despite debt and default, the CIRP could not be initiated as the corporate debtor was a going concern, and the applicant’s acts indicated a recovery motive amounting to the misuse of the IBC.

Thereafter, an appeal was made before the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

It was noted that the NCLT itself had recorded that there existed a debt and default. Further, the appellant had annexed the NeSL report with the subject section 7 petition, which clearly evidenced the default committed by the corporate debtor.

NCLAT Held

The NCLAT held that there was no bar against a financial creditor proceeding under the Code as well as the SARFAESI Act against a corporate debtor, and the objections of the corporate debtor held no water.

Further, the NCLAT held that the rejection of the application for admission under section 7 when debt and default were clearly established in the facts and circumstances of the case, was an infirmity in the impugned order, which could not be ignored. Consequently, the order of NCLT was to be set aside, and admission of insolvency under section 7 was to be directed.

List of Cases Reviewed

• E S Krishnamurthy v. Bharath Hi Tech Builders Pvt. Ltd. [2021] 133 taxmann.com 159/[2022] 169 SCL 644 (SC) (para 41)
• M. Suresh Kumar Reddy v. Canara Bank [2023] 150 taxmann.com 256/178 SCL 517 (SC) (para 42)
• Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) (para 45) followed
• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355 (SC)(para 54) distinguished
• Order of National Company Law Tribunal, Ahmedabad Bench in CP (IB) No. 104 (AHM)/2024 dated 06.11.2024 (para 55) set aside

List of Cases Referred to

• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355 (SC) (para 1)
• Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) (para 14)
• E S Krishnamurthy v. Bharath Hi Tech Builders Pvt. Ltd. [2021] 133 taxmann.com 159/[2022] 169 SCL 644 (SC) (para 14)
• M. Suresh Kumar Reddy v. Canara Bank [2023] 150 taxmann.com 256/178 SCL 517 (SC) (para 14)
• Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC) (para 15)
• Bank of Maharashtra v. Newtech Promoters and Developers Pvt Ltd [Company Appeal (AT)(Ins) No. 1487 of 2022, dated 19.10.2023] (para 16)
• Indusind Bank Ltd v. Hacienda Projects Pvt Ltd MANU/NC/5231/2022 (para 17)
• Amar Vora v. City Union Bank Ltd [2022] 141 taxmann.com 198 (NCLAT – Chennai) (para 19)
• SEBI v. Rajesh Sureshchandra Sheth [Company Appeal (AT) (Ins.) No. 1194 of 2022, dated 4-4-2023] (para 48).