Law Insider India

Legal News, Current Trends and Legal Insight | Supreme Court of India and High Courts

SC: Provision to Notify Financial Creditor Before Rejecting Claim Extends to Appeals Before NCLAT u/s 7(5)(b) of IBC

1 min read

Debangana Ray

Published on August 14, 2022 at 21:43 IST

The Supreme Court stated that the provision of Section 7(5)(b) of the Insolvency and Bankruptcy Code, 2016 which requires the adjudicating authority to notify the financial creditor before rejection of a claim would be applicable to appeals since an appeal is a continuation of the original proceedings.

A bench consisting of Justices Indira Banerjee and J.K. Maheshwari allowed an appeal filed by Kotak Mahindra Bank regarding an order of the National Company Law Appellate Tribunal.

The order had terminated the adjudicating authority’s corporate insolvency resolution process against the corporate debtor on the grounds that the claim was time barred.

The bench referred the issue back to NCLAT for reconsideration. By rejecting a claim, the bank was supposed to be provided an opportunity to rectify the defects in the application under Section 7.

The Court held that “NCLAT had erred in closing the CIRP proceedings without giving the bank an opportunity to explain if there was sufficient cause for the delay in approaching the NCLT.”

“Because an appeal is a continuation of the original proceedings, the bank should have been notified under IBC Section 7(5)(b) before its claim was rejected.”

“If notified of the proposal to close the proceedings, the bank might have rectified the defects in its application under Section 7 by filing additional pleadings and/or documents.”