NCLT’s Latest Order on Petitions under Section 7 of IBC Ultra Vires

The National Company Law Tribunal issued an order mandating that any application filed by a financial creditor under Section 7 of Insolvency and Bankruptcy Code has to be accompanied by a default record from an information utility. Moreover, the authorized representatives of the financial creditors must file default records in all the pending insolvency applications. The process of initiation of Corporate Insolvency Resolution by a financial creditor is provided in Section 7 of IBC.

The financial creditor can file the appropriate application by himself or jointly with other financial creditors against the financial debtor. Explicitly, the information utility has to furnish the information as per the NCLT order. Notably, National e-Governance Services Ltd. is the only information utility in India; authorized by the Insolvency and Bankruptcy Board of India.

Is the Order Valid?

The order passed by the NCLT is, notably, contrary to the provisions of Section 7 of IBC. The Section provides a choice to the financial creditor. Being that, he may either furnish record of default recorded with the information utility or such other record or evidence of default as may be specified. Therefore, NCLT cannot override the provisions by the way of an order. Furthermore, the Supreme court judgment in the case of P.T Rajan v. TPM Sahir supports the argument. Vide this judgement, the court held that Section 7 is a procedural provision; the word ‘shall’ does not make it mandatory. Hence, NCLT cannot make furnishing of default record mandatory as it is ultra vires the framework of Section 7. However, no questions have been raised explicitly against the order dated May 12, 2020 yet.

About the Author

Shriya Kataria
A writer by day and a reader by night. I am a Lawyer in making and a lifelong humanitarian. My enthusiasm for content writing and public speaking is real and undeniable. When not writing, I'm either painting or busy with my slam poetry.

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