A financial creditor cannot intervene in or object to an admission of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), according to a recent decision by the National Company Law Appellate Tribunal ("NCLAT") in the case of L&T Infrastructure Finance Company Private Limited v. Gwalior Bypass Project Limited and Others (decided on August 19, 2019).
In the instant case titled L&T Infrastructure Finance Company Private Limited v. Gwalior Bypass Project Limited and Others the issue raised for clarification before the NCLAT was:
IBC Section 7 application: Does a financial creditor have the right to intervene and object to admission?
With regard to this issue, The Hon'ble Supreme Court's ruling in Innoventive Industries Limited v. ICICI Bank [(2018) 1 SCC 407] held that when a default occurs—that is, when a debt becomes due and is not paid—IBC is triggered the moment the default is of INR 1 lakh or more. NCLAT has cited this ruling in support of its position. The Court continued by stating that the adjudicating body must be convinced that a default in the repayment of the obligation has occurred within a period of 14 days. The corporate debtor shall have the opportunity to assert that no default has occurred during these 14 days. If the application is comprehensive and the adjudicating body is convinced that a default in debt has occurred, the application will be accepted. As a result, the NCLAT noted that an adjudicating body must confirm that the application is full, that the corporate debtor is at fault for a debt that has not been paid, and that the debt has a value of INR 1 lakh or more.
Additionally, the corporate debtor may submit an application asserting that there is no legal obligation due or that no default has been made, in accordance with the NCLAT's ruling in the case of Innoventive Industries Limited v. ICICI Bank (decided on May 15, 2017). The applicant may not be a financial creditor or an operational creditor, the Corporate Debtor may also argue. It follows that no financial creditor shall have the right to object to the application of another financial creditor. Only a corporate debtor shall have the right to object to an application with respect to the CIRP.
The NCLAT categorically stated that,
“After the admission of the application under Section 7, if the Appellant claims that it is one of the ‘Financial Creditor’, it can file a claim before the ‘Resolution Professional’, but it cannot challenge the order of admission in absence of any challenge by the ‘Corporate Debtor’, on the ground that it has the first charge on the asset of the ‘Corporate Debtor’ or has superior claim over the claim of the other ‘Financial Creditors’.”