Tribunal rejects Financial Creditor's application under Insolvency Code, deeming it non est

The Tribunal rejected the Financial Creditor's application under section 7 of the Insolvency & Bankruptcy Code, declaring it non est due to being based on an RBI circular deemed ultra vires by the Supreme Court. The Corporate Debtor's challenge on various grounds was upheld, emphasizing the need for adherence to legal guidelines and invalidation of circular-based proceedings. The order directed communication to both parties and issuance of a certified copy upon formalities' compliance, disposing of the proceeding.

---

---

Issues involved:
Financial creditor's application under section 7 of the Insolvency & Bankruptcy Code, 2016 against corporate debtor for default in payment of financial debt.

Analysis:
The Financial Creditor, State Bank of India, filed an application under section 7 of the Insolvency & Bankruptcy Code against the Corporate Debtor, alleging default in paying a substantial financial debt. The Corporate Debtor did not dispute the debt or default but challenged the proceeding on various grounds. These included the authority of the Assistant General Manager to initiate the proceeding, the effect of a winding-up petition in the High Court, and the absence of a certificate of default from the Information Utility. The Financial Creditor argued that the proceeding was valid, producing evidence of default and highlighting the self-contained nature of the I&B Code. The Corporate Debtor contended that the proceeding was based on an RBI circular declared ultra vires by the Supreme Court, rendering it non est.

The Tribunal considered the arguments presented by both parties. While the Corporate Debtor did not insist on certain disputed facts, the focus was on the validity of the proceeding in light of the RBI circular dated 12.02.2018. The Financial Creditor maintained that the proceeding was independent of the circular and valid under the I&B Code. However, evidence revealed that the proceeding was indeed initiated based on the said circular, which the Supreme Court had deemed bad in law and ultra vires. Consequently, the Tribunal held that the proceeding was not maintainable and declared it non est, in line with the Supreme Court's ruling.

In conclusion, the Tribunal rejected the Financial Creditor's application under section 7 of the Insolvency & Bankruptcy Code, disposing of the proceeding. The order was directed to be communicated to both parties, and a certified copy was to be issued upon compliance with formalities. The judgment highlighted the importance of adherence to legal guidelines and the implications of initiating proceedings based on invalidated circulars.

---