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2018 (7) TMI 1690 - AT - Insolvency and BankruptcyInitiation of Corporate Insolvency Resolution Process - Held that - If the application is filed under Section 7, default in respect of a financial debt owed to any of the Financial Creditors of the corporate debtor, it need not be a default of debt owed to the particular Financial Creditor and may be a Co-Financial Creditor under Section 7(2). Application made under Sub-section (1) in the form prescribed required to accompany the documents and records therein. If the authorization letter was not accompanied or other record relating to debt or a default was not enclosed, as pleaded by learned counsel appearing on behalf of Corporate Debtor, which requires to be mentioned in Part-IV and Part-V of Form 1, it was duty on part of the Adjudicating Authority to allow time to the Financial Creditor(s) to remove the defects and should not have rejected the application on the ground that the loan amount of certain Financial Creditor is not clear from the record. For the reasons aforesaid, we set aside the order passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad and allow Appellant to remove all the defect as pointed out by learned counsel for the Corporate Debtor and enclose the authorization letter by the Financial Creditor(s), providing all the detailed material required under Part-IV and Part-V of Form 1 within three weeks.
Issues:
1. Rejection of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. 2. Requirement of authorization letter by Financial Creditor. 3. Examination of debt and default by the Adjudicating Authority. 4. Compliance with Form 1 and accompanying documents. 5. Adjudicating Authority's duty to allow time for rectifying defects in the application. Analysis: 1. The Appellant, a Financial Creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code for initiating Corporate Insolvency Resolution Process against the Corporate Debtor. The Adjudicating Authority rejected the application citing the absence of an authorization letter by M/s R. B. Synthetics and HUF of Radhakishan Bhagwandas Ruchandani. 2. The Adjudicating Authority examined the audited accounts and found unsecured loans from Radhakrishan Bhagwandas Ruchandani in the financial statements. The Corporate Debtor contested, stating that the balance sheets did not clarify the balances and amounts payable or receivable, and the authorization letter was not submitted. 3. The judgment highlighted the importance of the Adjudicating Authority allowing time for rectifying defects in the application, especially concerning the authorization letter. The Adjudicating Authority should not reject an application outright without giving the Financial Creditor a chance to complete the necessary records. 4. The analysis emphasized the necessity of the Financial Creditor providing all required information, including the authorization letter, as per the prescribed form (Form 1). Failure to enclose essential documents should prompt the Adjudicating Authority to grant an opportunity to rectify the deficiencies rather than outright rejection. 5. The judgment referred to the case law "Innoventive Industries Ltd. Vs. ICICI Bank and Ors." to underscore the process of application under Section 7, emphasizing that a default need not be specific to the applicant Financial Creditor. The Adjudicating Authority must ascertain the existence of a default promptly and allow for rectification of any incomplete applications. In conclusion, the Appellate Tribunal set aside the Adjudicating Authority's order, instructing the Appellant to rectify the defects within three weeks and provide the necessary authorization letter. Failure to comply may result in dismissal of the application. The judgment stressed the importance of procedural compliance and the Adjudicating Authority's duty to ensure fairness in the application process.
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