The Hon’ble Supreme Court (SC) in the case of Vidarbha Power Industries Pvt Ltd has held that under section 7(5)(a), the National Company Law Tribunal (NCLT), which is the Adjudicating Authority (AA), needs to apply its own mind and consider factors pertaining to viability of the corporate insolvency resolution process (CIRP), as well as, the corporate debtor (CD) and that its power to admit an application of insolvency is discretionary and not mandatory in nature. The present judgement gives a third option to the authorities under the Insolvency and Banking Code (IBC or Code), which is to hold-up the proceedings, as against the present mandate to either accept or to reject the application for initiation of insolvency proceedings. This precedence is not just against the well accepted jurisprudence of the law but goes against the IBC, as the statute does not provide for holding-up the proceedings as a result of an external unrelated factor.
The purported discretionary power with AA shall allow it to entertain the reasons of such default in making the payment by the CD, which would lead to increase in time at pre-admission stage and would lead to further delays. This would encourage some unscrupulous debtors to seek refuge under this category which, in turn, would defeat the purpose of IBC to resolve insolvency in a time bound manner.
Inadvertently and unfortunately, this judgement by the Hon’ble SC has added to the challenges that the IBC is currently facing.
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