NCLT can either admit or reject an insolvency petition; it has no third option, says NCLAT

Under the insolvency and Bankruptcy Code (IBC), the adjudicating authority has only two options, either to admit an insolvency application or reject it; no third option or course is postulated by law, said the National Company Law Appellate Tribunal (NCLAT) while hearing an appeal by Sodexo India Services.

Sodexo had appealed against the Bengaluru bench of the National Company Law Tribunal (NCLT) decision to dismiss the appellant’s insolvency petition against Chemizol Additives Private Ltd directing it to resolve the issue through alternate channels.

The NCLAT expressed its disbelief at Bengaluru NCLT’s order asking the petitioner to seek alternate remedy. “We cannot understand as to how the availability of alternate remedy would render the debt and default disputed,” says the NCLAT.

It said in its order that on a plain reading of provisions of IBC, it emerges that the Adjudicating Authority is required either to admit the Application if the same is complete, or reject the Application if the Application is incomplete or that the operational debt stands paid, or the creditor has not delivered the invoice or notice for payment to corporate debtor.

“In absence of pre-existing dispute having been raised by the corporate debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt… the Adjudicating Authority would not be justified in drawing a conclusion in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the operational creditor, notwithstanding the fact that such Agreement provided for reference of a dispute arising between the parties in relation to a claim through arbitration,” said the appellant tribunal.

It pointed out that Section 238 of the IBC, which has an overriding effect over the existing laws or any other law or contract, would not admit of the alternative remedy being a disabling provision for operational creditor to seek resolution of a dispute in regard to operational debt claimed against the corporate debtor by triggering the corporate insolvency resolution process.

Taking note of the fact that the Adjudicating Authority was more considerate towards the corporate debtor because it is a solvent company, the appellant tribunal said it was immaterial if the corporate debtor was solvent or insolvent with respect to other creditors, and that the IBC would not permit the Adjudicating Authority to make a roving enquiry into the aspect of solvency or insolvency of the corporate debtor except to the extent of the financial creditors or the operational creditors, who sought triggering of CIRP.

The NCLAT, therefore, ordered the NCLT to admit the insolvency petition filed by Sodexo India Services against the corporate debtor.

Also Read: Insolvency application cannot be rejected merely because of technical defects