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2021 (2) TMI 451 - AT - Insolvency and BankruptcyJurisdiction - power of Adjudicating Authority to examine the documents filed with the application under section 10 of I B Code - HELD THAT - Ld. Adjudicating Authority has analyzed the financial statements of the corporate applicant and held that there are discrepancies in financial statements. We are of the view that ld. Adjudicating Authority exceeded its jurisdiction in analyzing the financial statements of the Corporate Applicant. It is held in the case of M/S. UNIGREEN GLOBAL PRIVATE LIMITED VERSUS PUNJAB NATIONAL BANK, CORPORATION BANK, VIJAYA BANK AND ORIENTAL BANK OF COMMERCE 2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI that if any action has been taken by the financial creditor under SARFAESI Act 2002, against the Corporate Debtor or a suit is pending against the corporate debtor under Section 19 of DRT ACT before a Debt Recovery Tribunal or appeal pending before the Debt Recovery AT cannot be a ground to reject an application under Section 10 of I B Code - In the present case the financial creditor has initiated proceedings under SARFAESI Act against the borrower. The applicant being a guarantor has filed the application under Section 10 of I B Code hence the Adjudicating Authority has drawn an inference that the corporate applicant has filed the application under Section 10 with an intention to defeat the SARFAESI measures initiated by the financial creditor. Thus the application is filed with an ulterior motive. The finding of ld. Adjudicating Authority also be cannot be agreed, and it is held that this fact is unrelated and beyond the requirement under I B Code or forms prescribed under the Adjudicating Authority Rules. Therefore, the application cannot be rejected on this ground. The existence of debt and default is established and no winding up proceedings against the appellant and appellant is not covered by the ineligibilities provided under Section 11 of the I B Code. However, the adjudicating authority has rejected the application on extraneous grounds. Therefore, the impugned order is set aside. The case is remitted back to the adjudicating authority (NCLT, Chennai) to admit the application under Section 10 after notice to the parties if there is no defect - Appeal allowed by way of remand.
Issues:
1. Rejection of application under Section 10 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority. 2. Interpretation of Rule 7 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules 2016. 3. Examination of financial statements by the Adjudicating Authority. 4. Allegation of ulterior motive in filing the application under Section 10. Analysis: Issue 1: Rejection of application under Section 10: The appeal was filed against the rejection of the application under Section 10 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority. The Corporate Applicant had filed the application to initiate the corporate insolvency resolution process due to default by the borrower. The Adjudicating Authority rejected the application citing discrepancies in audited balance sheets and lack of information in the application. Issue 2: Interpretation of Rule 7: The Appellate Tribunal analyzed Rule 7 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules 2016. It was clarified that Rule 7 pertains to the procedure for filing the application under Section 10 and does not empower the Adjudicating Authority to examine the financial statements annexed with the application. The Tribunal emphasized that the Adjudicating Authority exceeded its jurisdiction in analyzing the financial statements of the Corporate Applicant. Issue 3: Examination of financial statements: The Tribunal highlighted that the Adjudicating Authority's scrutiny of the financial statements and subsequent rejection of the application based on discrepancies in the statements was beyond its purview. The Tribunal held that as long as the application contains the necessary information as required under Section 10 and Form 6 of the Adjudicating Authority Rules, it should be admitted unless incomplete. Issue 4: Allegation of ulterior motive: The Respondent alleged that the application was filed with an ulterior motive to defeat the SARFAESI measures initiated by the financial creditor. However, the Tribunal disagreed with this finding, stating that such a fact is unrelated to the requirements under the Insolvency & Bankruptcy Code or the prescribed forms. The Tribunal concluded that the rejection of the application on extraneous grounds was unwarranted. In conclusion, the Appellate Tribunal set aside the impugned order and remitted the case back to the Adjudicating Authority to admit the application under Section 10 after ensuring there are no defects. The Tribunal emphasized that the Adjudicating Authority should not reject applications based on extraneous grounds and must adhere to the requirements specified under the law.
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