Insolvency referral under RBI instructions was held invalid without Central Government concurrence, making the petition not maintainable.

A section 7 insolvency application was found unsustainable where contemporaneous records showed the financial creditor acted on RBI instructions rather than an independent commercial decision. The applicable principle was that directions to initiate insolvency resolution under the Insolvency and Bankruptcy Code must be traceable to section 35AA of the Banking Regulation Act, while RBI's other powers over stressed assets remain distinct. Because the materials indicated that the corporate debtor was referred to NCLT pursuant to RBI instructions without the required Central Government concurrence, the insolvency petition was held not maintainable and was dismissed.

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Issues: Whether the section 7 insolvency application was maintainable when the record showed that the financial creditor acted on RBI instructions without the concurrence of the Central Government as required for directions under the Banking Regulation Act, 1949.

Analysis: The application was examined in the light of the Supreme Court's interpretation of sections 35A, 35AA and 35AB of the Banking Regulation Act, 1949. The controlling principle applied was that directions to initiate insolvency resolution under the Insolvency and Bankruptcy Code, 2016 can be issued only under section 35AA, and such power is distinct from the RBI's other powers concerning stressed assets. On the facts, the contemporaneous materials and meeting minutes showed that the decision to move the corporate debtor to NCLT was not independent but was taken pursuant to RBI instructions. Since such instructions, in the absence of Central Government concurrence, could not validly sustain the insolvency trigger, the proceeding was held to be not maintainable.

Conclusion: The insolvency petition was not maintainable and was liable to be dismissed.

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