NCLAT Sets Aside Dismissal of Section 7 Application, Emphasizes Opportunity to Cure Defects

NCLAT Sets Aside Dismissal of Section 7 Application, Emphasizes Opportunity to Cure Defects

Introduction

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Member-Judicial) and Naresh Salecha (Member-Technical), has held that neither the registry nor the NCLT can dismiss a Section 7 application without giving an opportunity to the party to cure the defects in the supporting affidavit.

Factual Background

HDFC Bank filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate Corporate Insolvency Resolution Process (CIRP) against Livein Aqua Solutions Pvt. Ltd. for an outstanding debt of Rs. 5.85 Cr. The registry raised defects in the filings and granted seven days' time to cure the defects, but the applicant failed to do so, leading to the dismissal of the application.

Procedural Background

The applicant challenged the order of the registry before the NCLAT, arguing that the Adjudicating Authority erred in rejecting the petition without issuing a notice to cure the defects, as mandated under the proviso to Section 7(5)(b) of the IBC.

Issues

The main issue before the NCLAT was whether the Adjudicating Authority can dismiss a Section 7 application without giving an opportunity to the party to cure the defects in the supporting affidavit.

Contentions of the Parties

Appellant: The appellant submitted that the Adjudicating Authority has an obligation to give notice to the applicant to cure the defects before rejecting the petition, relying on the decision of Dena Bank vs. C. Shivakumar Reddy & Anr.

Respondent: The respondent argued that the registry had already granted the opportunity to cure the defects, and the appellant failed to comply with it. Therefore, a second chance should not be given.

Reasoning and Analysis

The NCLAT held that:

• Opportunity to Cure Defects: It is the obligation of the Adjudicating Authority to serve notice to rectify the defects, as per the proviso to Section 7(5)(b) of the IBC and the ruling of Dena Bank.
• Curable Defects: The defect in the affidavit is curable, and the Adjudicating Authority should have given an opportunity to the appellant to cure the defects.

Implications

The NCLAT's decision emphasizes the importance of giving an opportunity to cure defects in Section 7 applications, ensuring that meritorious cases are not dismissed on technical grounds.

Relief Sought

The appellant sought to set aside the order of the Adjudicating Authority dismissing the Section 7 application, and the NCLAT allowed the appeal and set aside the impugned order.

In this case the appellant was represented by Mr. Bheem Sain Jain and Ms. Prerna M., Advocate. Meanwhile the respondent was represented by Mr. Prasenjit Keswani, Sr. Adv. with Ms. Pallavi Pratap and Ms. Yashvi Aswani, Advocates.