Sharing financial details with Information Utility not mandatory for filing IBC application: HC

The Calcutta High Court has struck down an order passed by the Principal Bench of Delhi NCLT making it mandatory for all financial creditors to submit certain financial information as a record of default before the Information Utility (IU) as a condition for filing any new application under Section 7 of the IBC, 2016.

The NCLT order further imposes this rule retrospectively on all those financial creditors who have pre-existing applications filed under Section 7 of the IBC, 2016 and pending before the various Benches of the NCLT prior to such final hearing of these applications.

Setting aside the 12 May 2020 order of the NCLT, the Calcutta High Court said that the NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited by the Companies Act, 2013 by passing the order in violation of Section 7(3)(a) of the IBC, 2016. It also said that NCLT’s 12 May order ‘is clearly in confrontation with Rule 4 of Adjudicating Authority Rules, 2016 and Regulation 8 of the CIRP Regulations, 2016 and thereby defeats the very purpose for which the IBC, 2016 has been enacted’.

Regulation 8 of the CIRP Regulations, 2016 lays down the modalities for submitting claims by financial creditors. Section 7(3)(a) of the IBC 2016 says ‘the financial creditor shall, along with the application furnish record of the default recorded with the information utility or such other record or evidence of default as may be specified.

It further says that IU is only one of the designated methods of furnishing proof to the NCLT to prove the existence of a financial debt that has accrued to a financial creditor. It cites Regulation 8 of CIRP Regulations, 2016 to point out that debt that is due to a financial creditor may be proved before the NCLT by any of these four classes of documents –  a financial contract supported by financial statements as evidence of the debt, a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor, financial statements showing that the debt has not been paid or an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.

On the retrospective nature of the order, the high court has said that the retrospective nature of the order promulgated by the NCLT is bad in law and it creates new disabilities for financial creditors.

It further observes: “Section 240 of the IBC 2016 which empowers the IBBI to make regulations  stipulates that such regulations must be consistent with the IBC 2016 to carry out the provisions of the IBC 2016 and upon such perusal comes across as silent when it comes to empowering the IBBI to make regulations which are retrospective in nature.”

Two writ petitions – by Univalue Projects Ltd and Cygnus Investment and Finance — were filed in high court against the 12 May order of the New Delhi Bench of the NCLT.

The country so far there is only one insolvency utility — National e-governance Services Ltd (NeSL).