Neeta Chemicals Vs State Bank of India

Fact of the Case:

M/s Neeta Chemicals (I) Private Limited (‘Corporate Applicant’) filed an application under section 10 of the Insolvency and Bankruptcy Code (IBC), 2016 before NCLT which was dismissed and awarded cost on following lines.

• that loan was availed by the Corporate Debtor in the year 2009-10, which was classified as NPA by the bank. SARFASEI proceedings were initiated and at advanced stage of E-auction, against which applicant had filed a suit challenging the proceedings before concerned judicial authority. NCLT found that the application was filed only to hold the proceedings of SARFAESI. The Corporate Debtor had not taken any steps to clear even a part of loan and surprisingly and mischievously trying to deny the loans in question and present application was filed on frivolous and mischievous grounds with a malafide intention and un-clean hands to take advantage of provisions of IBC, 2016.
• cost of Rs 10 lakhs was imposed on the corporate debtor.

Subsequently, corporate debtor filed appeal with NCLAT.

Question of Law:

1. When an application under Section 10 of IBC, 2016 can be filed and rejected?
2. Whether NCLT is justified in awarding cost as per provision of Section 65 of IBC, 2016 the present case?

NCLAT finding:

• Corporate Applicant’ is eligible to file application under Section 10 of the IBC, if there is a debt and default. NCLT cannot reject application under Section 10 merely on the basis pendency of a petition for winding up before any other judicial authority.
• Penalty under Section 65 can only be imposed if Adjudicating Authority on the basis of record found that the person (Financial Creditor / Corporate Applicant / Operational Applicant) has filed the petition for initiation of proceeding “fraudulently” or “with malicious intent” for the purpose other than the resolution of the insolvency or liquidation or that voluntary liquidation proceedings has been filed with the intent to defraud any person.

NCLAT Order:

• There is nothing on record to suggest that the ‘Corporate Applicant’ has suppressed any fact or has not come with the clean hands, penalty cannot be imposed.
• The case is remitted back to NCLT for admission of the application under Section 10, if the application is otherwise complete. In case it is incomplete, the Adjudicating Authority will grant time to the appellant to remove the defects.

Court: NCLAT New Delhi dated 22/03/2018