NCLAT (2024.07.30) in Shirani Motors Pvt. Ltd. [Comp. App. (AT) (Ins) No. 1196 of 2024] held that;
Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the informations as required to be submitted in Form 6 of the Insolvency and Bankruptcy
If all information’s are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is bound to admit the application and cannot reject the application on any other ground.
Under both Section 7 and Section 10, the two factors are common i.e. the debt is due and there is a default. Sub-section (4) of section 7 is similar to that of Sub-section (4) of section 10. Therefore, we, hold that the law laid down by the Hon’ble Supreme Court in “Innoventive Industries Ltd. (Supra) is applicable for Section 10
“The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority”.
Excerpts of the Order;
30.07.2024: This appeal is against an impugned order dated 02.05.2024, in CP(IB)/36/MP/2021 whereby the petition filed under Section 10 of IBC by the Corporate Applicant through its Director for initiating Corporate Insolvency Resolution Process was dismissed on the following grounds:
“6. We have heard the learned PCS appearing for the petitioner on the issue of admission of petition filed under section 10 of the Code and have perused the relevant records and documents. It is noted that the corporate applicant had taken a loan facility from the Axis Bank and was unable to pay the same, resulting to which the Axis Bank invoked the bank guarantee given by the guarantor i.e. M/s Sagar Automobiles Private Limited (name of the directors are common as in the present matter). The corporate applicant executed a term sheet with the guarantor M/s Sagar Automobiles Private Limited (under liquidation) for repayment of loan within one year, however the corporate applicant failed to repay the same. The corporate applicant has also defaulted in paying the statutory dues towards the Income Tax Department and the Commercial Tax Department. We further note that as per the list of creditors provided by the corporate applicant, major part of the debt is payable to the group concern company, which was already admitted to CIRP under the provisions of section 10 of the Code and is presently under liquidation. One other operational debt is of Rs 2,38,304/-, and rest of the debt is payable towards the Government Departments.
7. We have also perused the provisional balance sheet and profit and loss account as on 21.06.2021 of the corporate applicant, which shows that except short-term loans and advances there are no assets available with the corporate applicant and the corporate applicant is not doing any business, the provisional balance sheet as available on record is reproduced here as under:
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8. After considering the above facts and circumstances, we are of the considered view that the primary purpose of this petition filed by the corporate applicant is to avoid liability for government dues and evade recovery proceedings rather than for the purpose of arriving at corporate insolvency resolution. Accordingly, we hold that the application is not at all filed for a corporate insolvency resolution and thereby we reject this application”.
# 2. It is the submission of the Ld. Counsel for the Appellant that the Petition filed under Section 10 of the Code has been dismissed on extraneous grounds. It is argued the appellant owes more amount to the Government bodies than to the Operational Creditor is no ground to reject the petition under Section 10 of the Code and the Ld. NCLT was only required to see if the company was in default and the conditions prescribed under Section 10 of the Code are satisfied or not and that the information as is required to be submitted in Form 6 of the Insolvency and Bankruptcy Rules, 2016, was given and there is no ineligibility prescribed under Section 11 of the Code.
# 3. Admittedly, the appellant is not ineligible per Section 11 of the Code and as such he submits his petition under Section 10 in Form 6 was complying with the rules as also Section 10 of the Code and since the Corporate Debtor was unable to pay its debts, its petition under Section 10 of the Code ought to have been allowed.
# 4. We have heard the arguments. We have also gone through the petition under Section 10 of the Code filed by the Appellant before the Ld. NCLT. It rather satisfies the requirement of Section 10 of the Code and the same is filed in Form 6 as required. In ‘Leo Duct Engineers and Consultants Ltd. vs. Canara Bank’ CA (AT) (Ins) No. 100 of 2017, the Court held:
“4. Similar question fell for consideration before this Appellate Tribunal in “M/s. Unigreen Global Pvt. Ltd. vs. Punjab National Bank and Ors.”- CA (AT) (Ins) No. 81 of 2017. In the said case, this Appellate Tribunal by its judgment dated 1st December, 2017 held as follows:
22. Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the informations as required to be submitted in Form 6 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 subject to ineligibility prescribed under Section 11. If all information’s are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is bound to admit the application and cannot reject the application on any other ground”.
6.The Adjudicating Authority, having held that otherwise the application under Section 10 is complete and in absence of any ineligibility of appellant, it was incumbent on the part of the Adjudicating Authority to admit the appeal, having no jurisdiction to notice unrelated facts beyond the requirement under the I & B Code and the Forms prescribed under the Adjudicating Authority Rules.
7. For the reasons aforesaid and as the case of the appellant is covered by the decision of this Appellate Tribunal in "M/s. Unigreen Global Private Limited" (Supra), we have no option but to set aside the order dated 22nd June, 2017 passed in CP No. 1103/I&BP/2017 and the same is accordingly set aside. The case is remitted back to the Adjudicating Authority, Mumbai Bench to admit the application under Section 10 after notice to the parties if there is no defect. In case of any defect, appellant be allowed time to remove the defects. The appeal is allowed with the aforesaid observations. However, there shall be no order as to costs.
# 5. Further in M/s Unigreen Global Pvt. Ltd. vs. Punjab National Bank 2017 SCC Online NCLAT 610 the Court held:
“20. Under both Section 7 and Section 10, the two factors are common i.e. the debt is due and there is a default. Sub-section (4) of section 7 is similar to that of Sub-section (4) of section 10. Therefore, we, hold that the law laid down by the Hon’ble Supreme Court in “Innoventive Industries Ltd. (Supra) is applicable for Section 10 also, wherein the Hon’ble Supreme Court observed as “The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority”.
# 6. Thus, in the circumstances stated above, since the default has occurred as it is evident from the impugned order itself and since the provision of Section 10 of the Code is complied with and also information as required under provision 6 is complete and that there exists no ineligibility under Section 11 (supra), it was incumbent upon the Ld. NCLT to allow the petition.
# 7. Considering the submissions, the impugned order dated 02.05.2024 passed in CP(IB)/36/MP/2021 is set aside. The case is remitted back to the Adjudicating Authority, Indore Bench to admit the application petition under Section 10 of the Code after notice to the parties if there is no defect. In case, there is any defect the appellant may allow time to remove defect.
# 8. The appeal is accordingly allowed. No order as to cost.
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