2018 (2) TMI 1221 - AT - Insolvency and Bankruptcy

NCLAT overturns rejection of insolvency application, stresses debt criteria

Krishna Kraftex Pvt. Ltd. Versus HDFC Bank & Ors.

The National Company Law Appellate Tribunal, New Delhi, allowed the appeal in a case involving the rejection of an insolvency resolution process ... Corporate insolvency process - satisfaction of default - Held that:- The case is remitted back to the Adjudicating Authority (National Company Law Tribunal), New Delhi to admit the application under Section 10 after notice to the parties if there is no defect. In case of any defect, appellant be allowed time to remove the defects. The appeal is allowed with the aforesaid observations. See “M/s. Unigreen Global Private Limited vs. Punjab National Bank and others” – Company Appeal (AT) (Insolvency) [2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] Issues:- Rejection of insolvency resolution process application under Section 10 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority.- Interpretation of Section 10 of the I & B Code regarding admission of application.- Eligibility criteria under Section 11 of the I & B Code for filing insolvency resolution process application.- Non-disclosure of facts and its impact on the application under Section 10.Analysis:The judgment by the National Company Law Appellate Tribunal, New Delhi, involved the rejection of an insolvency resolution process application by the Adjudicating Authority under Section 10 of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority rejected the application on the grounds that the petitioner failed to produce evidence of a claim lodged with the Corporate Debtor and highlighted concerns about the misuse of the insolvency resolution process by entities with significant liabilities. The Adjudicating Authority emphasized the need for a thorough evaluation before initiating the insolvency resolution process to prevent abuse of the system.The appellant contended that their application under Section 10 was complete and free from defects, with no pending winding-up proceedings against them. Additionally, a 7th Respondent, identified as a Financial Creditor, expressed no objection to the initiation of the Corporate Insolvency Resolution Process against the Corporate Applicant. The Tribunal referenced a previous case, 'M/s. Unigreen Global Private Limited vs. Punjab National Bank and others,' to establish the common factors of debt due and default under Sections 7 and 10. The Tribunal emphasized the importance of satisfying the debt and default criteria for admitting an application under Section 10.Regarding the eligibility criteria under Section 11 of the I & B Code, the Tribunal clarified that the Adjudicating Authority must admit an application under Section 10 if all required information is provided by the applicant and the Corporate Applicant is not ineligible under Section 11. The Tribunal highlighted that the Adjudicating Authority cannot reject an application under Section 10 on grounds other than those specified in the Code. The judgment emphasized that non-disclosure of certain facts unrelated to Section 10 and Form 6 requirements should not be considered suppression of facts unless they directly impact the eligibility of the Corporate Applicant under Section 11.Furthermore, the judgment addressed the ineligibility under Section 11(d) of the I & B Code, stating that if winding-up proceedings have been initiated against a Corporate Debtor or a liquidation order has been passed, the Corporate Applicant cannot file an application under Section 10. The Tribunal directed the Adjudicating Authority to admit the application under Section 10 after rectifying any defects, following the principles established in the 'M/s. Unigreen Global Private Limited' case. The appeal was allowed, setting aside the previous order and remitting the case back to the Adjudicating Authority for further proceedings.