national company law appellate tribunal

National Company Law Appellate Tribunal: In an appeal against the order of rejection of an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), a division bench comprising of Justice Ashok Bhushan, Chairperson and Mr. Barun Mitra (Technical Member), held that NCLT’s observation that the Financial Creditor seemed to be settling personal scores and exerting undue pressure on the Corporate Debtor does not fulfill the necessary requirements of Section 65 of the IBC to reject the Section 7 application.

The NCLAT set aside the Adjudicating Authority’s order and directed that the Section 7 application be revived before the Adjudicating Authority.

Brief Facts

In the instant matter, the appellant (Financial Creditor), filed an appeal against the order dated 23-05-2022 issued by the Adjudicating Authority had rejected the appellant’s application filed under Section 7 of the IBC, claiming a financial debt due from the Corporate Debtor.

The Adjudicating Authority’s basis for rejecting the application was that Section 7 application did not meet the requirements of Section 65 of the IBC, as the Adjudicating Authority found that Section 65 was applicable.

Appellant’s Contentions

The appellant asserted that it had extended a loan of Rs. 1,00,00,000/- to the Corporate Debtor, with an interest rate of 24% per annum, as per a Loan-cum-Share Pledge Agreement dated 20.11.2017. The appellant contended that the Corporate Debtor had defaulted on the loan repayment, leading to the filing of the Section 7 application.

The appellant challenged the Adjudicating Authority’s decision, contending that the loan disbursement was admitted, partial repayment had been made, and the debt remained due. Therefore, the finding that Section 65 of the IBC was attracted lacked a basis.

Respondent’s Contentions

The respondent contended that the entire loan amount had been paid to the appellant. Additionally, some payments had been made to the appellant’s son and his company, in accordance with the instructions of the appellant, which were covered by the loan agreement’s Clause (h).

The respondent referred to paragraph 26 of the Adjudicating Authority’s order, which suggested that the Financial Creditor had filed the Section 7 application with malicious intent and to settle personal scores, rather than for the purpose of resolving the Corporate Debtor’s insolvency. The order also stated that the Corporate Debtor was a solvent company.

NCLAT’s Analysis

Upon considering the arguments presented by both parties and reviewing the records, the NCLAT noted that the respondent’s contention that the entire loan amount had been paid and that the application was malicious had not been addressed with specific findings by the Adjudicating Authority. The Court stated that “for proving the ingredient of Section 65 there has to be adequate pleadings and findings.” The absence of findings on these crucial issues meant that the application could not be rejected on these grounds alone.

The NCLAT also emphasized that the observations made in paragraph 26 of the Adjudicating Authority’s order, indicating malicious intent on the part of the Financial Creditor, did not fulfill the requirements of Section 65 of the IBC. Section 65 requires adequate pleadings and findings to prove its elements, which were lacking in this case.

NCLAT’s Decision

The NCLAT held that the Adjudicating Authority’s order was not sustainable and is liable to be set aside. The NCLAT revived the Section 7 application and directed the Adjudicating Authority to decide the same afresh, ensuring that both parties have an opportunity to be heard in accordance with the law.

[Amour Infrastructure LLP v. Digital Integrated Technologies (P) Ltd., 2023 SCC OnLine NCLAT 727, order dated 03-10-2023]

Advocates who appeared in this case :

Mr. Karan Luthra, Mr. Naman Gowda, Counsel for the Appellant

Mr. Jitin Singhal, Mr. S.D. Singh, Counsel for the Respondent

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