The National Company Law Appellate Tribunal has held that a financial creditor cannot intervene or oppose the admission of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
In the instant case titled L&T Infrastructure Finance Company Private Limited v. Gwalior Bypass Project Limited and Others issue that was raised before the NCLAT was:
Whether a financial creditor has the right to intervene and oppose the admission of an application under Section 7 of the IBC?
The NCLAT has relied on the Supreme Court's decision in Innoventive Industries Limited v. ICICI Bank [(2018) 1 SCC 407], which stated that IBC is triggered when a debt becomes due and is not paid, and the default is of INR 1 lakh or more. The Court went on to say that the adjudicating body must be satisfied that a default in the repayment of the debt has occurred within 14 days. The corporate debtor has the ability to assert that no default has occurred within these 14 days.
Unless the application is defective, the adjudicating body must admit it after it is satisfied that a debt default has happened. As a result, the NCLAT stated that an adjudicating body must evaluate if the application is full, whether the corporate debtor is at fault for non-payment of a debt, and whether the debt is worth INR 1 lakh or more.
Furthermore, pursuant to NCLAT's ruling in Innoventive Industries Limited v. ICICI Bank (decided on May 15, 2017), the Corporate Debtor may file an application claiming that there is no legally enforceable debt or that no default has occurred. The Corporate Debtor could potentially argue that the applicant isn't a financial or operational creditor. As a result, it is inferred that only a corporate debtor has the right to object to a CIRP application and that no financial creditor has the right to object to another financial creditor's application.
The Tribunal categorically held that:
“ In absence of any prohibition, it is always open to ‘Financial Creditor’ to file an application under Section 7 of the I&B Code for initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Debtor’, if the ‘Financial Creditor’ owes a debt and the ‘Corporate Debtor’ defaults in payment.”
Hence, it was held that the Appellant has no right to intervene or oppose the admission of the application by ICICI Bank against the Corporate Debtor because it is a financial creditor of the Corporate Debtor and not a member or shareholder of the Corporate Debtor. As a result, the appeal was dismissed.