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Issues: (i) Whether Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 empowers the Adjudicating Authority to examine the financial statements and go beyond the requirements of Section 10 of the Insolvency and Bankruptcy Code, 2016 and Form 6. (ii) Whether an application under Section 10 can be rejected on the ground that it was filed to defeat SARFAESI measures or on other extraneous grounds.
Issue (i): Whether Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 empowers the Adjudicating Authority to examine the financial statements and go beyond the requirements of Section 10 of the Insolvency and Bankruptcy Code, 2016 and Form 6.
Analysis: Section 10 requires the Adjudicating Authority to satisfy itself only on the existence of debt, default, completeness of the application, and the absence of disqualification under Section 11. Rule 7 is only a procedural provision governing the filing of the application in Form 6 with the prescribed documents. It does not enlarge the jurisdiction of the Adjudicating Authority to scrutinise the corporate applicant's financial statements or test the application on matters outside the statutory scheme. Rejection on the basis of perceived discrepancies in balance sheets therefore amounts to travelling beyond the scope of Section 10.
Conclusion: The Adjudicating Authority had no authority under Rule 7 to examine the financial statements beyond the requirements of Section 10 and Form 6.
Issue (ii): Whether an application under Section 10 can be rejected on the ground that it was filed to defeat SARFAESI measures or on other extraneous grounds.
Analysis: Once debt and default are shown and the applicant is otherwise eligible, the application cannot be rejected for reasons unrelated to the requirements of the Insolvency and Bankruptcy Code, 2016. The fact that SARFAESI proceedings were initiated against the borrower, or an inference that the application was filed with an ulterior motive, is not a valid ground for rejection of a complete Section 10 application. The rejection on such considerations was therefore unsustainable.
Conclusion: The application could not be rejected on the basis of alleged ulterior motive or other extraneous considerations.
Final Conclusion: The rejection order was set aside and the matter was sent back for consideration of admission of the Section 10 application in accordance with law, after curing any defect if found.
Ratio Decidendi: In a Section 10 insolvency application, the Adjudicating Authority's scrutiny is confined to the statutory requirements of debt, default, completeness, and eligibility, and the application cannot be rejected on extraneous or unrelated grounds.
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