Insolvency initiation: SC upholds NCLT’s discretionary powers | The Financial Express

Insolvency initiation: SC upholds NCLT’s discretionary powers

While seeking review of the judgment, Mehta and Divan told the SC that there was a need to revisit the verdict as IBC for the last 6 years had worked well.

Insolvency initiation: SC upholds NCLT’s discretionary powers
The July ruling also held that loan defaults will have to be assessed to check if it was due to genuine business reasons or contingencies such as pending litigation.

The Supreme Court on Thursday rejected Axis Bank’s petition seeking reconsideration of its earlier judgment that held that the NCLT while examining the existence of debt and default by a corporate debtor on a financial creditor’s plea for initiating corporate insolvency resolution process has the discretion to admit or not admit the plea.

A Bench comprising justices Indira Banerjee and MM Sundresh, which had earlier allowed the review petition to be heard in the open court, after hearing all the parties – Solicitor General Tushar Mehta and Additional Solicitor General Madhvi Divan (for IBBI), senior counsel KV Vishwanathan and Jaideep Gupta – refused to interfere with its earlier judgment. However, it clarified that the NCLT can exercise its discretion only under special circumstances.

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While seeking review of the judgment, Mehta and Divan told the SC that there was a need to revisit the verdict as IBC for the last 6 years had worked well.

In the case, Axis Bank vs Vidarbha Industries Power, the apex court had on July 12 held that Section 7(5)(a) of the IBC conferred a discretionary power on the adjudicating authority to admit an application for initiation of CIRP and such power is required to be exercised with caution. It had differed from the long-settled view that the moment the NCLT was satisfied that a default has occurred, the application must be admitted unless it is incomplete.

The July ruling also held that loan defaults will have to be assessed to check if it was due to genuine business reasons or contingencies such as pending litigation.

Until this order, the courts had held that the NCLT can only check for compliance and adherence to the legal framework and not interfere in the commercial aspect of negotiation or resolution.

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