During hearing of CIRP application u/s 7 of IBC, NCLT cannot force Financial Creditor to settle its outstanding dues with Corporate Debtor – Avargreen Organic Foods Pvt. Ltd. Vs. Raghupati Construction Pvt. Ltd. – NCLT Allahabad Bench
October 23, 2023
NCLT Allahabad Bench observed that:
(i) Section 7(5) empowers Adjudicating Authority either to accept the application in lieu of section 7(5)(a) or to reject under section 7(5)(b). Therefore, no other order can be passed by the adjudicating authority in a petition under section 7.
(ii) Once Adjudicating Authority identify a default by the corporate debtor, then it is bounded by the statute (as per IBC) to admit the CIRP application under section 7. The Adjudicating Authority cannot pass any other order at this instance.
(iii) These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5), either admit or reject an application, but the Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.
(iii) Undoubtedly, settlements have to be encouraged because the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation.
(iv) Initiated CIRP u/s 7 of IBC against the Raghupati Construction Pvt. Ltd., Corporate Debtor.
