Tribunal Emphasizes Right to Rectify Defects in Insolvency Applications under IBC
In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) has set aside an earlier decision by the National Company Law Tribunal (NCLT), which dismissed an insolvency application filed by Culver Max Entertainment Pvt Ltd against Rechargekit Fintech Pvt Ltd due to improper authorization. The NCLAT, comprising Justice Yogesh Khanna and Mr. Ajai Das Mehrotra, ruled that the adjudicating authority is mandated to provide an opportunity to rectify any defects in the application before outright rejection under Section 9(5)(ii)(a) of the Insolvency and Bankruptcy Code (IBC).
The case revolved around the application for initiation of the corporate insolvency resolution process by Culver Max Entertainment as an operational creditor. The NCLT had dismissed the application on the grounds that there was no proper authorization included with the application, a decision which was challenged by the appellant in the NCLAT.
The appellate tribunal underscored that the NCLT should have adhered to the proviso of Section 9(5)(ii)(a) of the IBC, which explicitly requires the adjudicating authority to notify the applicant of any defects and allow a seven-day period for rectification. Citing previous cases such as Tek Travels Pvt Ltd v. Altius Travels Pvt Ltd, the NCLAT highlighted that the IBC is designed to be a self-contained code with provisions ensuring fair opportunities to rectify procedural deficiencies.
The NCLAT's decision mandates the NCLT to provide Culver Max Entertainment with the opportunity to cure the authorization defects and to reassess the application on its merits, ensuring compliance with procedural fairness. The case has been remanded back to the NCLT with instructions to expedite the process within two months.
Bottom Line:
Insolvency and Bankruptcy Code - Application under Section 9 of IBC - Appellate Tribunal held that Adjudicating Authority is required to provide an opportunity to rectify defects in the application before rejecting the same under Section 9(5)(ii)(a) of the Code.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 9, Section 9(5)(ii)(a)
