2026 (2) TMI 1284 - AT - IBC

Procedural defects in CIRP proceedings are curable; admission sustained where financial debt and default are established by corroborative evidence.

Adjudicatory admission under Section 7 was upheld where the Tribunal treated alleged procedural defects as curable and non-jurisdictional: filings with ... Existence of financial debt and occurrence of default for admission u/s 7 - completeness of application and limitation for Section 7 admission - curable procedural defects (including non-service on Information Utility and inadequate stamping) - admissibility of electronic records and Section 65B at admission stage - principles of natural justice in respect of additional affidavit and opportunity to rebut - authorization defect and cure by subsequent board resolutions - misuse or mala fides u/s 65 - HELD THAT:- We observe that the original financial debt was sanctioned by Dombivli Nagri Sahkari Bank Limited but subsequently it was assigned to the Respondent ARC and it constitutes a financial debt within a meaning of Section 5(8) of the Code. We find that the sanctioned term loan and cash credit facilities, were supported by security documents which included hypothecation and mortgages, assignment deed dated 31.12.2020 and it is also reflected as a liability in the Corporate Debtors audited balance sheets. Thus we observe that under the SARFAESI Act assignment of debt vests a right in the assignee and the Corporate Debtor cannot dispute once acknowledgement is evident from its own records. We also note that this application was filed on 01.11.2023 and the acknowledgements as per the audited financial statements and also the admission of liability in its email dated 16.02.2024 shows that the application is within the limitation period as provided under Section 18 of the Limitation Act. The objections raised regarding the limitations thus cannot be sustained. Authorization defect and cure by subsequent board resolutions - HELD THAT:- On some technical objections relating to authorization defect, it is brought to our notice that initial defect in authorization defect which is curable was cured once the board resolutions were placed on record during the proceeding. Such a procedural defect cannot defeat substantive justice especially when debt and default are undisputed. On the objections relating to stamp duty and the registration objections, Adjudicating Authority has relied on the judgment of Hon’ble Supreme Court in N.N. Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. [2023 (7) TMI 761 - SUPREME COURT] holding that inadequate stamping is curable defect and unstamped documents are not void or non-existence. Moreover, at the Section 7 admission stage the Tribunal is not adjudicating the enforceability of contracts but merely verifying the debt and default. Misuse or mala fides under Section 65 of the IBC - HELD THAT:- In the absence of Section 65B certificate the proceedings at admission stage are not invalidated and certified bank statements are admissible under the Bankers Books Evidence Act. Moreover, the proceedings of admission are independently corroborated, rendering this objection unsustainable. With respect to the objection relating to the Rule 4(3) regarding the service on IBBI, the Adjudicating Authority had held that this defect can be treated as it is a rectifiable procedural lapse and which was subsequently cured pursuant to the directions of NCLT. Once the compliance was affected and was proved on affidavit the objections ceased to survive. Thus, we conclude that the impugned order meticulously applies these parameters and does not suffer from any jurisdictional error, perversity, or misapplication of law warranting appellate interference. We find that the impugned order is a reasoned order which is based on material record and is in conformity with statutory provisions and binding precedents. - No ground which is made out for interfering under Section 61 of the Code. Accordingly, the Appeal is dismissed. Issues: (i) Whether the Adjudicating Authority's admission of the Section 7 petition and initiation of CIRP against the Corporate Debtor was vitiated by alleged procedural irregularities including non-service of an additional affidavit, non-compliance with Rule 4(3) of the IBC (Application to Adjudicating Authority) Rules, 2016, non-filing of record with an information utility under Regulation 20(1A) of the IBBI (Information Utilities) Regulations, 2017, non-compliance with Section 65B of the Indian Evidence Act, 1872, inadequate stamping of loan documents, defects in authorization, and related technical objections.Analysis: The legal framework for admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 requires examination of (a) existence of a financial debt, (b) occurrence of default, and (c) completeness and limitation. Procedural defects such as failure to serve or filing additional affidavits after reservation were assessed against whether they were curable or rectifiable and whether they caused jurisdictional error or prejudice affecting the core requirements for admission. The Tribunal applied established principles that information utility filing is directory (Regulation 20(1A) of the IBBI (Information Utilities) Regulations, 2017), that inadequate stamping is a curable defect at the admission stage, that Section 65B requirements for electronic evidence do not necessarily invalidate admission where other corroborative material (including acknowledgements in audited accounts and email admissions) establish debt and default, and that authorization defects can be cured by subsequent board resolutions. The Tribunal evaluated the record showing assignment of debt, security documentation, acknowledgement in audited financial statements and email admissions, proof of service and affidavit curing of the Rule 4(3) defect, and the quantum of default to determine whether the Adjudicating Authority erred in admitting the petition.Conclusion: The Appellate Tribunal found that the Adjudicating Authority correctly recorded existence of a financial debt and occurrence of default, that the procedural defects were either cured or were rectifiable/curable and did not vitiate jurisdiction, and that no jurisdictional error or perversity warranted interference under Section 61 of the Insolvency and Bankruptcy Code, 2016. The appeal is dismissed and the initiation of CIRP against the Corporate Debtor is sustained in favour of the Financial Creditor/Respondent.