Can NCLT say no to section 7 application despite proven debt ?

Vidarbha Industries Power Limited v. Axis Bank Limited (Civil Appeal No. 4633 of 2021)

Previously there existed a mechanical role of the National Company Law Tribunal ("NCLT") in CIRPs initiated by a financial creditor under Section 7 of the Code. However, in this judgment, the Supreme Court held that there exists a discretionary power to admit or reject a petition despite the financial creditor satisfying the debt and default test or twin test.

In this case, Vidharbha Industries was a power generation company and there was a sum of INR 1,730 crores realisable by it in terms of the order of the Appellate Tribunal for Electricity ("APTEL"). In light of the order, the Supreme Court came to the conclusion that the amount receivable was more than the claim amount and therefore the touchstone for initiating the insolvency does not lie in a mechanical exercise of jurisdiction in the admission of CIRPs under Section 7 of the Code. Moreover, the Court also gave the reasoning that the literal interpretation of Section 7(5)(a) would indicate that the word "may" is used to indicate the discretion of the Court which is unlike the case in Section 9(5)(a) where the word "shall" is used.

The judgment of the Supreme Court should be read in the fact-specific context. Industry watchers have criticised the judgment arguing that a general principle of this sort can certainly add to ambiguities and delays.

( LLM, MBA, (UK), PhD, AIMA, AFAI, PHD Chamber, ICTC, PCI, FCC, DFC, PPL, MNP, BNI, ICJ (UK), WP, (UK), MLE, Harvard Square, London, CT, Blair Singer Institute, (USA), Dip. in International Crime, Leiden University, the Netherlands )


Delhi, Mumbai & Dubai
Tel: M- 91- 9818320572. Email: editor.kumar@gmail.com

Website:
www.supremelawnews.com
www.ajaykr.com, www.4Csupremelawint.com

Facebook: /4Clawfirm, /legalajay Linkedin: /ajaykumarpandey1 Twitter: /editorkumar / YouTube: c/4cSupremeLaw Insta: /editor.kumarg
Telegram Channel
Whatsup Channel