A, electricity company, had an award from APTEL of Rs.1000 crore in its favor but same is being challenged at Supreme Court. Meantime, B, Bank, filed section 7 IBC against A for default of 500 crore. A filed M.A application seeking stay of IBC till Supreme Court decide APTEL appeal. The NCLT and NCLAT dismissed the M. A on reason that Section 7(5) only requires debt as due and payable and other factors irrelevant. The Supreme Court held that discretion given is too exercised considering all factors to ensure viability of company. Section 7(5) discretion cannot be exercised arbitrarily.
The Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP.
The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP.
The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the overall financial health and viability of the Corporate Debtor under its existing management.
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