Kiran Raj

The Supreme Court of India Division Bench of Justice Sanjay Kumar and Justice Alok Aradhe held that the financial creditor must be allowed to correct procedural deficiencies in its Section 7 application under the Insolvency and Bankruptcy Code, directing it to cure the noted defects within seven days before the National Company Law Tribunal resumes proceedings. The Bench stated that irregularities such as a flawed affidavit are remediable and cannot form the basis for immediate rejection. The matter arises from a dispute concerning a loan that was later classified as a non-performing asset and the creditor’s attempt to initiate the corporate insolvency resolution process. The Court clarified that the application remained maintainable and required proper notice before any adverse action.

The dispute concerns a financial creditor’s application under Section 7 of the Insolvency and Bankruptcy Code (IBC) seeking initiation of the corporate insolvency resolution process against a company that had availed a loan facility of ₹5.5 crores. The account was classified as a non-performing asset in August 2019, following which the creditor filed the statutory Form 1 application before the National Company Law Tribunal (NCLT), accompanied by documents prescribed under the IBC framework. The application was supported by an affidavit that had been executed prior to the date on which the application itself was verified.

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During scrutiny, the NCLT Registry flagged defects in multiple filings, including the creditor’s application, and issued a consolidated notice asking parties to rectify errors within seven days. The creditor did not refile the corrected documents, leading the Joint Registrar to decline registration under the NCLT Rules. The creditor appealed under Rule 63, and the NCLT set aside the Registrar’s order while granting further time to remove defects.

The company argued that the filing was defective and, at later stages, contended that non-compliance with procedural requirements rendered the application invalid. The creditor maintained that the deficiencies, including those relating to the affidavit, were curable. Both sides relied on provisions such as Section 7(5)(b) of the IBC and procedural rules governing filings before the NCLT.

The Court examined the procedural scheme governing applications under Section 7 of the Insolvency and Bankruptcy Code and the requirements under the National Company Law Tribunal Rules. It recorded that the scrutiny process undertaken by the NCLT Registry, including the issuance of consolidated notices for several matters, did not satisfy the statutory mandate requiring notice to the applicant itself under the proviso to Section 7(5)(b). The Bench noted that compliance with the NCLT Rules cannot substitute for the specific obligation imposed by the IBC.

The Court stated that “the proviso to Section 7(5)(b) of the IBC requires the notice thereunder to be given to the applicant itself to rectify the defect in the application within seven days of the receipt of such notice.” It added that “issuance of a notice to an authorized representative… was not enough to satisfy the mandate of the proviso to Section 7(5)(b).” The Bench recorded that the defects raised by the Registry were not communicated in the manner required by the statute, and therefore the conditions for rejecting the application had not been met.

Addressing the company’s argument that the defective affidavit rendered the application non est, the Court referred to the material placed before the NCLT. It stated that “the petition deserved to be dismissed as ‘defective’ and not on the ground that it was ‘non est’.” It then recorded: “Mere filing of a ‘defective’ affidavit in support of an application would, however, not render the very application non est and liable to be rejected on that ground as it is neither an incurable nor a fundamental defect.” The Bench further stated: “Further, we are not persuaded to accept the argument of the learned senior counsel for the company that the defective affidavit filed in support of the respondent-bank's application under Section 7 of the IBC was sufficient to hold the application itself liable to be rejected on the ground of being non est.”

In support of its reasoning, the Court referred to earlier decisions stating that procedural rules serve the ends of justice. It quoted: “procedure, a handmaiden to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use.” It observed that curable defects cannot be treated as grounds for terminating proceedings at the outset unless the statute expressly requires such a consequence.

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The Court then turned to the role of the appellate authority. It stated: “However, the NCLAT ought to have asked the respondent-bank to cure the defective affidavit at least at that stage instead of ignoring the same and directing the NCLT to proceed to hear the company petition on merits and in accordance with law. To that extent, the NCLAT was in error.”

The Bench directed: “The appeal is accordingly disposed of directing the respondent-bank to cure the defects in C.P.(IB)/97(AHM)2024, including the defective affidavit, within seven days from today, and the National Company Law Tribunal, Ahmedabad Bench, shall thereupon take up the matter for hearing in accordance with law and due procedure. Parties shall bear their respective costs.”

Advocates Representing the Parties

For the Petitioners: Mr. Gaurav Agarwal, Sr. Adv. Mr. Prasanjet Keswani, Sr. Adv. Mr. Amjid Maqbool, Adv. Ms. Yashvi Aswani, Adv. Ms. Pallavi Pratap, AOR
For the Respondents: Mr. Gopal Jain, Sr. Adv. Mr. Bheem Sain Jain, Adv. Mr. Ayush Singhal, Adv. Mr. Nagarkatti Kartik Uday, AOR

Case Title: Livein Aqua Solutions Private Limited v. HDFC Bank Limited
Neutral Citation: 2025 INSC 1349
Case Number: Civil Appeal No. 11766 of 2025
Bench: Justice Sanjay Kumar, Justice Alok Aradhe