Mere Filing Of Defective Affidavit In Support of Application U/S.7 Of IBC Would Not Render Such Application Non Est: Supreme Court

The Apex Court was considering an appeal filed by the appellant company under Section 62 of the IBC.

The Division Bench of Justice Sanjay Kumar and Justice Alok Aradhe held, “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.”

Factual Background

The company availed a loan facility from the respondent-bank to the tune of Rs 5.5 crore, and the same came to be classified as a non-performing asset in 2019. Ultimately, the respondent bank filed an application under Section 7 of the IBC. This application was filed in Form 1 appended to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, in consonance with Rule 4(1). The National Company Law Tribunal, Ahmedabad Bench, non-suited the respondent-bank, in its petition filed under Section 7 of the IBC against the appellant-company. Disgruntled, the respondent-bank filed an appeal. The NCLAT noted that the proviso to Section 7(5)(b) of the IBC was not adhered to by the NCLT, and the rejection of the application filed by the respondent-bank could not be sustained. The matter was remanded to be decided on the merits and in accordance with the law. Aggrieved thereby, the appellant approached the Apex Court.

Reasoning

Ṭhe Bench explained 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. “In this regard, Rule 38 of the NCLT Rules, titled ‘Service of notices and processes’ assumes significance as Rule 38(5) therein provides that notice or process may also be served on an authorised representative of the applicant or the respondent, as the case may be, in any proceeding or on any person authorised to accept a notice or a process, and such service on the authorised representative shall be deemed to be proper service. Rule 38(5), thus, permits service of notice on the authorized representative of the applicant or the respondent, as the case may be”, it held.

As per the Bench, even though the Registry of the NCLT issued a process under Rule 28 of the NCLT Rules, the same was insufficient as there was no communication of a notice under the proviso to Section 7(5)(b) of the IBC at any time. “We, therefore, find no error having been committed by the NCLAT in holding to this effect. 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”, it noted.

The Bench also explained the issuance of a notice to an authorized representative of the respondent-bank was not enough to satisfy the mandate of the proviso to Section 7(5)(b) of the IBC. “The IBC, being the substantive legislation relating to the application filed by the respondent-bank under Section 7 thereof, the notice to cure the defects therein necessarily had to be given under the said provision and compliance with the Rules, independently framed for the National Company Law Tribunal, was not sufficient”, the order read.

The Bench thus disposed of the appeal by directing the respondent bank to cure the defects in the Petition, including the defective affidavit, within seven days. “...National Company Law Tribunal, Ahmedabad Bench, shall thereupon take up the matter for hearing in accordance with law and due procedure.”

Cause Tile: Livein Aqua Solutions Private Limited v. HDFC Bank Limited (Neutral Citation: 2025 INSC 1349)

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