New Delhi: The Supreme Court Thursday ruled the National Company Law Tribunal (NCLT) is not required to examine a corporate debtor’s inability to pay its debt while admitting insolvency proceedings. Rather, the tribunal should just ascertain the existence of default on a debt to either admit or reject the application-and adjudicate on nothing more, said the apex court.
A Bench led by Chief Justice Surya Kant said that when the financial creditor initiates the insolvency process for the purposes of admission, the tribunal is only required to ascertain the existence of a default from the records of the information utility or the evidence furnished by the financial creditor within 14 days from the receipt of such an application. At this stage, neither is a corporate debtor entitled nor is the tribunal required to examine any dispute regarding the existence of such debt, it said.
“The Insolvency and Bankruptcy Code (IBC) restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more,” the court said.
The legislative intent behind such prompt and summary intervention is to ensure the revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death through liquidation, the apex court said.
Rejecting Power Trust’s stand that Kolkata-based Hiranmaye Energy was an ongoing concern and had the ability to repay the debt and, therefore, no insolvency proceedings should be initiated against the company, the top court upheld REC plea for admitting debt-ridden Hiranmaye Energy into insolvency for ₹218 crore dues. The top court rejected the plea of Power Trust, the promoter of Hiranmayi Energy, to settle the case by paying money to creditors-REC and Power Finance Corp.
The IBC, introduced a decade ago to help extricate funds stuck in large borrower accounts, allows creditors-both financial and operational-to approach the NCLT in case of non-payment of dues.
In this case, REC Ltd, a public sector financial institution, had extended a loan of Rs 1,859 crore to Hiranmaye Energy for setting up a thermal power plant at Haldia, West Bengal. A further term loan of Rs 446.97 crore was sanctioned in October 2015 owing to cost overruns. However, the account was classified as a NPA asset in June 2018.
REC subsequently moved the NCLT, which admitted Hiranmaye Energy to insolvency in January 2024. The decision was upheld by the National Company Law Appellate Tribunal in January 2024 and now by the SC.
