The Supreme Court determined that the financial creditor is solely responsible for demonstrating the occurrence of default and the validity of the application submitted pursuant to Section 7 of the IBC.
In this instance, the financial creditor made a request under Section 7 of the IBC to start the procedure for resolving corporate insolvency. The adjudicating authority accepted the application and rejected the corporate debtor's arguments that it was unmaintainable because it was submitted by a person with power of attorney and was time-barred. The appellant corporate debtor reiterated on appeal that the NCLAT's jurisdiction over the application under Section 7 of the Code was time-barred.
The NCLAT dismissed the appeal because the corporate debtor was unable to show that the adjudicating authority's order was incorrect. The corporate debtor's claim that the application under Section 7 should be denied was rejected by the NCLAT after it was considered a power of attorney.
In the instant case titled Rajendra Narottamdas Sheth v. Chandra Prakash Jain, the issue raised for clarification before the Supreme Court was:
Whether the burden to prove occurrence lies on the petitioner or not?
With regard to this issue, the Apex Court ruled that the financial creditor bears the entire burden of demonstrating the occurrence of the default and the timely filing of the application.
The court determined that the facts of this case precluded the appellants from being helped by the argument that Section 18 of the Limitation Act was not invoked by the financial creditor in the application filed under Section 7. The court explained that this does not seek to reduce the financial creditor's obligation to show default with respect to a debt that is not time-barred at the time an application is filed.
The Court categorically stated that,
“In the present case, if the documents constituting acknowledgement of the debt beyond April 2016 had not been brought on record by the corporate debtor, the application would have been fit for dismissal on the ground of lack of any plea by the financial creditor before the Adjudicating Authority with respect to an extension of the limitation period and application of Section 18 of the Limitation Act”.
The Court further noted that while the financial creditor's materials are typically used to determine whether to admit an application under Section 7, the adjudicating authority is not prohibited from reviewing the corporate debtor's materials to determine whether the application is within the statute of limitations.