E S KRISHNAMURTHY & ORS. versus M/S BHARATH HI TECH BUILDERS PVT. LTD.

Citation: [2021] 12 S.C.R. 28 · Decided: 14-12-2021 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 12 S.C.R.
28
E S KRISHNAMURTHY & ORS.
v.
M/S BHARATH HI TECH BUILDERS PVT. LTD.
(Civil Appeal No 3325 of 2020)
DECEMBER 14, 2021
[DR. DHANANJAYA Y CHANDRACHUD AND
A S BOPANNA, JJ]
Insolvency and Bankruptcy Code, 2016: s. 7 – Initiation of
Corporate Insolvency Resolution Process by financial creditor –
On facts, respondent defaulted in making re-payment of an amount
of Rs 33 crores to the appellants – Petition u/s. 7 instituted by the
appellants against respondents – Adjudicating Authority-NCLT
declined to admit the petition and directed the respondent to settle
all the remaining claims within three months – Appeal there against
dismissed by the Appellate Authority-National Company Law
Appellate Tribunal – On appeal, held: Order of the Adjudicating
Authority, and the directions issued, suffered from an abdication of
jurisdiction – Adjudicating Authority acted outside the terms of its
jurisdiction u/s. 7(5) – Adjudicating Authority cannot compel a party
to the proceedings before it to settle a dispute – Such a course of
action is not contemplated by the IBC – While, adjudicating Authority
and Appellate Authority can encourage settlements, they cannot
direct them by acting as courts of equity – Adjudicating Authority is
empowered only to verify whether a default has occurred or not –
Based thereupon, the Adjudicating Authority must then either admit
or reject an application – These are the only two courses of action
which are open to the Adjudicating Authority in accordance with s.
7(5) – Furthermore, the Appellate Authority sought to make a
distinction by observing that the directions of the Adjudicating
Authority were at the ‘pre-admission stage’, and that the order was
not of such a nature which was prejudicial to the rights and interest
of the stakeholders – Also, settlement has not been arrived at by the
respondents with the appellants – Observation that the appeal was
not maintainable is erroneous – Order passed by the NCLAT and
NCLT set aside – Proceedings to be restored back to the adjudicating
authority for afresh consideration.
[2021] 12 S.C.R. 28
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s. 7 – Corporate Insolvency Resolution Process under – Scope
and jurisdiction of the powers of the Adjudicating authority –
Discussed.
 Allowing the appeal, the Court
HELD: 1.1 Sub-Section (1) of Section 7 of the Insolvency
and Bankruptcy Code, 2016 enables the financial creditor to file
an application for initiation of Corporate Insolvency Resolution
Process-CIRP against the corporate debtor before the
Adjudicating Authority “when a default has occurred”. The
expression ‘default’ is defined in Section 3(12) of the IBC. The
definition of default adverts to the non-payment of a debt, when it
has become due and payable in whole or in part, by the debtor or
the corporate debtor. Since the definition of “default” incorporates
the expression “debt”, it is necessary to advert to the definition
of the latter expression under Section 3(11) of the IBC. Thus, a
“debt” is defined to be a liability or an obligation in respect of a
claim due from any person. This includes a financial debt and an
operational debt. If the above criteria are met, the financial
creditor can make an application under sub-Section (2) of Section
7, in the manner prescribed, along with the necessary fees. Sub-
Section (3) requires the financial creditor, inter alia, to furnish a
record of the default with the information utility or such other
record or evidence of default as may be specified along with the
application. Under sub-Section (4), the Adjudicating Authority
must, within 14 days of the receipt of the application under sub-
Section (2), ascertain the existence of a default from the record
of an information utility or on the basis of other information
furnished by the financial creditor under sub-Section (3).
[Para 21, 22][49-B-H]
1.2 Sub-Section (5) of Section 7 is comprised in two parts:
Clause (a), which is the first part, empowers the Adjudicating
Authority to admit the application where it is satisfied that: (i) a
default has occurred; (ii) the application under sub-Section (2) is
complete; and (iii) no disciplinary proceeding is pending against
the proposed resolution professional; Clause (b), which is the
second part, empowers the Adjudicating Authority to reject the
application where it is satisfied that: (i) default has not occurred;
E S KRISHNAMURTHY & ORS. v. M/S BHARATH HI TECH
BUILDERS PVT. LTD.
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SUP

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