IBC Code : Application filed under Section 7, Procedural defects do not render the application non est.

Supreme Court Clarifies Procedural Norms Under IBC; Allows Cure for Defective Affidavits Supreme Court mandates notice under IBC Section 7(5)(b) for curing defects, emphasizing procedural justice over technicalities.

In a significant judgment that underscores the importance of procedural justice, the Supreme Court of India ruled on the case of Livein Aqua Solutions Private Limited versus HDFC Bank Limited. The apex court addressed the critical issue of procedural defects in applications filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The court clarified that defects such as a defective affidavit do not render an application non-existent and are indeed curable. This landmark decision aims to balance procedural requirements with substantive justice, ensuring that technicalities do not obstruct the adjudication of insolvency proceedings on their merits.

The legal dispute arose when HDFC Bank's application for initiating the corporate insolvency resolution process against Livein Aqua Solutions was rejected by the National Company Law Tribunal (NCLT), Ahmedabad Bench, due to procedural deficiencies, including a defective affidavit. Dissatisfied, HDFC Bank successfully appealed to the National Company Law Appellate Tribunal (NCLAT), which reinstated the application. However, Livein Aqua Solutions contested this decision in the Supreme Court.

The Supreme Court, presided by Justices Sanjay Kumar and Alok Aradhe, found that the NCLT failed to comply with the mandatory notice requirement under the proviso to Section 7(5)(b) of the IBC. This provision obliges the adjudicating authority to notify the applicant to rectify defects within seven days before rejecting an application. The court emphasized that notice must be served directly to the applicant, not merely their authorized representative, as proper service is crucial for compliance with procedural justice.

Citing precedent cases like Dena Bank v. C. Shivakumar Reddy and Uday Shankar Triyar v. Ram Kalewar Prasad Singh, the Supreme Court reiterated that procedural rules are designed to facilitate justice rather than impede it. The court ruled that the NCLAT erred by not requiring the respondent bank to cure the defective affidavit before proceeding with the application, thus directing HDFC Bank to rectify the defects within seven days.

This judgment reinforces the principle that procedural defects should not automatically lead to dismissal unless mandated by law, aligning with the judiciary's broader commitment to ensuring that procedural formalities do not overshadow substantive rights.

Bottom Line:

Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 should comply with procedural rules; however, procedural defects such as defective affidavits are curable and do not render the application non est. Issuance of notice under the proviso to Section 7(5)(b) is mandatory before rejecting the application.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 7, Section 7(5)(b), National Company Law Tribunal Rules, 2016 Rule 28, Rule 34(4), Rule 38(5)

Livein Aqua Solutions Private Limited v. HDFC Bank Limited, (SC) : Law Finder Doc Id # 2812281