Application under Section 7 of IBC cannot be rejected merely because Corporate Debtor is a viable entity: NCLAT

The NCLAT New Delhi Bench has held that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, cannot be rejected solely on the ground that the corporate debtor is a going concern or that admitting the petition may adversely affect stakeholders. Once debt and default are established, the Adjudicating Authority has no discretion to reject the application.

The appeal was filed by Edelweiss Asset Reconstruction Company Ltd. challenging the NCLT Ahmedabad’s order dated 06.11.2024, which dismissed its Section 7 application against Takshashila Heights Pvt. Ltd. The application, based on loan defaults aggregating to ₹93.54 crores, was rejected by the NCLT citing that the proceeding was intended for debt recovery rather than resolution and that CIRP admission would harm stakeholders.

NCLAT rejected this reasoning, holding that neither the viability of the corporate debtor nor its status as a going concern can override the statutory mandate under Section 7. Citing ES Krishnamurthy, M. Suresh Kumar Reddy, and Innoventive Industries, the Tribunal reiterated that once financial debt and default are established, admission is mandatory.

The Tribunal noted that restructuring agreements had failed due to non-payment, defaults were acknowledged in multiple emails by the corporate debtor, and attempts by unrelated third parties to intervene at the admission stage lack legal standing.

It also rejected allegations of mala fide intent or abuse of process under Section 65, holding that prior actions under SARFAESI or DRT do not preclude CIRP initiation under IBC.

Accordingly, the Appellate Tribunal set aside the NCLT’s order and allowed the appeal.

Edelweiss Asset Reconstruction Company Limited vs. Takshashila Heights India Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 2261 of 2024