Tribunal stresses on default assessment before commencing insolvency process

The National Company Law Appellate Tribunal dismissed the premature appeal challenging the finding of 'financial debt' without considering default and admission under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Tribunal emphasized the necessity of assessing default along with the debt claim before commencing the Corporate Insolvency Resolution Process. The appeal was deemed premature as the application under Section 7 had not been decided on admission or rejection. The judgment clarified that the Appellant could raise all issues in a subsequent appeal if aggrieved by an admission order under Section 7.

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Issues:
Premature appeal challenging finding of 'financial debt' without consideration of default and admission under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis:
The judgment by the National Company Law Appellate Tribunal, New Delhi, addressed the issue of the premature appeal filed by the Appellant challenging the finding of 'financial debt' without the consideration of default and admission under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority had only disposed of an Interlocutory Application, recording that the money advanced constituted a 'financial debt', which was disputed by the Appellant. However, it was noted that the application under Section 7 had not been dealt with at the stage of admission, and no order had been passed either admitting or rejecting the application.

The Tribunal emphasized that a mere finding on an Interlocutory Application regarding the debt claimed as a 'financial debt' does not automatically justify the admission or rejection of the application. The Adjudicating Authority is required to consider the debt along with default, and without a finding on default and an order of admission, the 'Corporate Insolvency Resolution Process' does not commence. Therefore, it was deemed futile to argue that the appeal under Section 60(1) would be maintainable in such circumstances.

Consequently, the appeal was dismissed as premature, with the Tribunal leaving it open for the Adjudicating Authority to decide on the application's merit. The judgment clarified that if the Appellant is aggrieved by an order of admission passed under Section 7, they would have the opportunity to raise all issues in a subsequent appeal. This decision highlights the importance of considering default along with the debt claim before initiating the insolvency resolution process under the I&B Code, ensuring a fair and comprehensive assessment of the situation before proceeding with legal actions.

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