CIRP Application made by Financial Creditor under the insolvency code: Does NCLT have any discretion?

Home / Articles

CIRP Application made by Financial Creditor under the insolvency code: Does NCLT have any discretion?

Date \| Version	August 04, 2022 \| 1.0
Keywords	Insolvency Code, Discretionary Nature, Corporate Insolvency Resolution Process, Vidarbha Industries Power Limited v. Axis Bank Limited
List of Legislation Referred	The Insolvency and Bankruptcy Code, 2016
Jurisdiction	India

Abstract

This article analyses the Supreme Court’s judgment in Vidarbha Industries Power Limited v. Axis Bank Limited, which upheld the discretionary power of the Adjudicating Authority to admit an application for initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Introduction

The Insolvency and Bankruptcy Code, 2016 is a comprehensive legislation aimed at ensuring timely resolution of financially distressed entities. Under the Code, a financial creditor may initiate the Corporate Insolvency Resolution Process (CIRP) when a corporate debtor defaults in repayment of its debt.

Traditionally, judicial interpretation suggested that once the Adjudicating Authority was satisfied that a default had occurred, admission of the insolvency application was mandatory. However, the Supreme Court in Vidarbha Industries Power Limited v. Axis Bank Limited revisited this position and held that the existence of debt and default merely gives a financial creditor the right to apply for CIRP, while the Adjudicating Authority retains discretion in deciding whether to admit such application.

The article examines the factual background of the dispute, the distinction between the use of the terms “may” and “shall” under Sections 7 and 9 of the Insolvency Code, and the Supreme Court’s reasoning in recognising the discretionary powers of the National Company Law Tribunal (NCLT).

It further discusses the implications of the judgment on insolvency jurisprudence in India and the extent to which discretionary powers may be exercised while balancing the objectives of insolvency resolution against the interests of solvent companies facing temporary financial difficulties.

alayalegal

Most Recent Posts

All Posts
Articles

CIRP Application made by Financial Creditor under the insolvency code: Does NCLT have any discretion?

Home / Articles