NCLAT Revives SREI’s Insolvency Plea, Holds Section 7 Petition Validly Filed Through Authorised Power of Attorney

NCLAT Revives SREI’s Insolvency Plea, Holds Section 7 Petition Validly Filed Through Authorised Power of Attorney

Introduction

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in SREI Equipment Finance Ltd. v. Roadwings International Pvt. Ltd., set aside an order of the NCLT, Kolkata Bench-II, which had dismissed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) on the ground of lack of proper authorisation. The Appellate Tribunal held that the Section 7 application was validly instituted by a duly authorised power of attorney holder and that subsequent ratification by competent authorities cured any alleged defect in authorisation. Consequently, the NCLAT directed admission of the insolvency application.

Factual Background

SREI Equipment Finance Ltd. (SEFL), a financial service provider, had extended loan facilities to Roadwings International Pvt. Ltd. under four financial agreements executed between April 2017 and July 2019. Meanwhile, SEFL itself underwent insolvency proceedings pursuant to an RBI-triggered action, resulting in supersession of its Board and appointment of an Administrator in October 2021. During the CIRP of SEFL, a Power of Attorney (POA) dated 28 March 2023 was issued by the Administrator in favour of Mr. Sohan Kumar Jha, an officer of SEFL, authorising him to initiate and defend legal proceedings, including proceedings under the IBC.

Subsequently, SEFL’s resolution plan submitted by NARCL was approved on 11 August 2023, leading to the constitution of an Implementation and Monitoring Committee (IMC) to manage SEFL as a going concern. The IMC expressly ratified and confirmed the POAs earlier issued by the Administrator, including that in favour of Mr. Jha. Acting under this authorisation, a Section 7 application was filed on 4 November 2023 against Roadwings International Pvt. Ltd.

Procedural Background

The NCLT, Kolkata Bench-II dismissed the Section 7 application on 21 November 2024 solely on the ground that the petition had been filed without a subsisting valid authorisation, holding that the POA issued by the Administrator ceased upon his discharge after approval of the resolution plan. Aggrieved by this finding, SEFL preferred an appeal under Section 61 of the IBC before the NCLAT.

Issues

1. Whether the Section 7 application was filed with valid and subsisting authorisation.

2. Whether ratification by the IMC and the subsequently reconstituted Board of Directors cured any alleged defect in authorisation.

3. Whether a power of attorney holder, acting on behalf of a financial creditor, is competent to institute CIRP proceedings under Section 7 of the IBC.

Contentions of the Parties

The appellant contended that the IMC, under the approved resolution plan, was vested with all powers of a Resolution Professional and was competent to ratify and continue authorisations issued by the former Administrator. It was argued that the POA in favour of Mr. Jha remained valid until 31 March 2024, was never revoked, and was expressly ratified by both the IMC and the newly constituted Board of Directors. Reliance was placed on the principle of ratification and on judicial precedents recognising the authority of POA holders to file insolvency applications.

The respondent, on the other hand, argued that once the Administrator stood discharged, the POA issued by him automatically lapsed. It was contended that the IMC was merely a supervisory body for implementation of the resolution plan and had no authority to initiate insolvency proceedings or delegate such powers. The respondent further invoked the doctrine of delegatus non potest delegare to argue that the IMC could not further delegate authority to a POA holder.

Reasoning and Analysis

The NCLAT undertook a detailed examination of the POA dated 28 March 2023 and found that it authorised Mr. Jha to initiate and defend all legal proceedings, including proceedings under the IBC, until 31 March 2024 or until his employment ceased. The Tribunal noted that this authorisation was neither revoked nor terminated in accordance with Section 201 of the Indian Contract Act, 1872.

The Tribunal further analysed the resolution plan provisions governing the IMC and held that the IMC was expressly vested with all powers of a Resolution Professional and with authority to manage SEFL as a going concern. The IMC’s resolution dated 17 August 2023 explicitly ratified all POAs issued during CIRP, thereby validating Mr. Jha’s authority even after the Administrator’s discharge.

Placing reliance on the Supreme Court’s ruling in National Institute of Technology v. Pannalal Choudhury, the NCLAT reiterated that ratification operates retrospectively and cures any defect in initial authorisation. The subsequent ratification by the newly constituted Board of Directors on 26 February 2024 further reinforced the validity of the authorisation and the filing of the Section 7 application.

The Tribunal rejected the argument based on delegatus non potest delegare, holding that the IBC framework expressly permits Resolution Professionals to act through officers and professionals of the corporate debtor. Statutory provisions under Sections 17, 19, 20 and 25 of the IBC, read with judicial precedents including Rajendra Narottamdas Sheth v. Chandra Prakash Jain, clearly recognise the permissibility of filings through authorised representatives and POA holders.

The NCLAT also noted that the NCLT had already recorded findings on debt, default and limitation in favour of the financial creditor, which were not disputed by the corporate debtor. The sole ground for dismissal being authorisation, the Tribunal found the NCLT’s approach legally unsustainable.

Decision

The NCLAT allowed the appeal, set aside the impugned order dated 21 November 2024, and directed the Adjudicating Authority to admit the Section 7 application within one month and proceed in accordance with law. No order as to costs was passed.

In this case the appellant was represented by Mr. Arun Kathpalia, Sr. Advocate with Ms. Vivya Nagpal, Mr. Aditya Kanodia, Ms. Diksha Gupta, Mr. Syed Sarfaraz Karim, Ms. Osheen Jain and Ms. Suparna Sardar, Advocates. Meanwhile the respondent was represented by Ms. Swati Dalmia, Mr. S. Rai and Ms. Safura Ahmed, Advocates.