NCLAT: Registry Or NCLT Cannot Reject Section 7 IBC Petition Without Allowing Time To Cure Defects In Affidavit
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha (Technical Member), has held that neither the registry nor the Adjudicating Authority (NCLT) can dismiss a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) without first giving the applicant an opportunity to cure defects in the supporting affidavit. The Appellate Tribunal emphasized that the proviso to Section 7(5)(b) of the IBC makes it mandatory for the Adjudicating Authority to notify the applicant and allow them time to correct defects in the application before rejecting it.
Background
The case arose out of a Section 7 IBC petition filed by HDFC Bank seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Livein Aqua Solutions Pvt. Ltd., the corporate debtor, for an outstanding debt of ₹5.85 crore. The NCLT registry initially pointed out certain procedural defects in the filing and granted seven days’ time to rectify them as per Rule 28(2) of the NCLT Rules, 2016. However, the bank failed to cure the defects within the stipulated time, leading the registry to refuse acceptance of the application. HDFC Bank, aggrieved by this, preferred an appeal under Rule 63 of the NCLT Rules, 2016, which was allowed, and the petition was restored. The respondent thereafter raised an objection to the maintainability of the Section 7 petition on the ground that the supporting affidavit was sworn on 17.07.2024, whereas the petition was signed and verified later on 26.07.2024. The Adjudicating Authority dismissed the petition, citing this defect in the affidavit.
Appellant’s Contentions
The appellant contended that the NCLT had erred in rejecting the petition outright without issuing a formal notice or granting time to cure the defects. It argued that the requirement to provide an opportunity to rectify errors is a statutory mandate under the proviso to Section 7(5)(b) of the IBC. The appellant relied on the Supreme Court’s ruling in Dena Bank vs. C. Shivakumar Reddy & Anr. (2021) 10 SCC 330, which held that an Adjudicating Authority must give the applicant notice to correct any defects before rejecting a petition. The appellant further cited Surendra Trading Company vs. Juggilal Kamlapat Jute Mills Company Ltd. & Ors. (2017) 16 SCC 143, where it was held that the seven-day period for curing defects is directory, not mandatory, allowing flexibility in genuine cases.
Respondent’s Submissions
The respondent argued that the registry had already granted an opportunity to cure the defects, and the appellant’s failure to comply justified the dismissal. It contended that a second opportunity was not warranted. The respondent further relied on Rule 26(2) of the NCLT Rules, 2016, which mandates that every petition or appeal must be signed and verified by the party in accordance with the prescribed format. It was argued that the affidavit was defective, as it did not conform to Order XIX Rule 3 of the CPC or Rule 126 of the NCLT Rules, 2016. Relying on Shri Mool Chand Wahi vs. National Paints Pvt. Ltd. (1983 SCC Online P&H 651), the respondent submitted that the defect arising from an improper affidavit cannot be cured, and therefore, the petition was rightly dismissed.
Findings of the NCLAT
The Appellate Tribunal observed that while the affidavit was indeed sworn before the petition was verified, this discrepancy was a curable defect and could not justify the outright dismissal of the case. The Bench noted that both the proviso to Section 7(5)(b) of the IBC and the rulings of the Supreme Court in Dena Bank (supra) impose a clear obligation on the NCLT to issue a notice of defect and allow rectification before rejection. “It is the obligation of the Adjudicating Authority to serve notice to rectify the defects before rejecting the application,” the Bench emphasized. The NCLAT also clarified that the precedents cited by the respondent were not applicable to the present case, as the issue here directly related to the mandatory notice requirement under Section 7(5)(b). It further observed that the NCLT Rules, 2016, under Rule 28, provide a mechanism for the registry to issue defect notices and grant seven days to rectify them. This safeguard, the Tribunal stated, ensures that meritorious cases are not rejected on mere technicalities.
Holding that the defect in the affidavit was curable and that procedural fairness was not followed, the NCLAT allowed the appeal and set aside the NCLT’s impugned order. The Bench concluded that both the registry and the NCLT are bound to provide an opportunity to cure defects before rejecting a petition under Section 7 of the IBC, reaffirming that procedural technicalities cannot override substantive justice. Accordingly, the appeal was allowed, and the matter was restored for adjudication on merits.
Appearance
For Appellant: Mr. Bheem Sain Jain, Prerna M., Adv.
For Respondent: Mr. Prasenjit Keswani, Sr. Adv. with Pallavi Pratap
Cause Title: HDFC Bank v. Livein Aqua Solutions Pvt. Ltd.
Case No: Comp. App. (AT) (Ins) No. 1534 of 2024 & I.A. No. 5559, 5560 of 2024
Coram: Justice Rakesh Kumar Jain (Member-Judicial), Naresh Salecha (Member-Technical)
