2022 (2) TMI 1434 - SCH - Insolvency and Bankruptcy

Rejection of petition filed by the appellant under the Insolvency and Bankruptcy Code 2016 - it is latently and patently clear that once the Debt is converted into Capital it cannot be termed as Financial Debt and the Appellant cannot be described as Financial Creditor - HELD THAT - A substantive appeal is provided against the decision of the NCLT under the provisions of Section 61(1) of the IBC. A further appeal to this Court under Section 62(1) is envisaged on a question of law. Hence it is necessary for the NCLAT when an appeal is filed under Section 61(1) to evaluate the facts and the submissions independently and to record its reasons. The impugned order does not meet that standard. The impugned order set aside - appeal allowed.

Summary

Issues: Appeal against NCLAT order rejecting petition under IBC

Analysis:
The Supreme Court addressed the appeal arising from the National Company Law Appellate Tribunal (NCLAT) order, which stemmed from a National Company Law Tribunal (NCLT) decision rejecting the appellant's petition under the Insolvency and Bankruptcy Code 2016 (IBC). The NCLAT's reasoning, summarized in a single sentence, was the focal point of contention, stating that once debt is converted into capital, it cannot be considered financial debt, thereby impacting the appellant's status as a financial creditor.

The Supreme Court highlighted the lack of independent evaluation by the NCLAT regarding the appellant's submissions, emphasizing the necessity for a substantive review when appeals are filed under the IBC provisions. The Court underscored that the NCLAT failed to meet the required standard of evaluating facts and submissions independently, leading to the decision to allow the appeal and set aside the impugned order dated 2 September 2020. Consequently, the Company Appeal (AT) (Insolvency) No 111 of 2020 was remanded back to the NCLAT for fresh disposal, with a directive that the unresolved contentions be addressed before the NCLAT.

In conclusion, the Supreme Court disposed of the appeal, along with any pending applications, while clarifying that no opinion was expressed on the conflicting contentions, leaving them open for consideration by the NCLAT upon remand. The judgment highlighted the importance of thorough and independent review by appellate bodies in insolvency cases under the IBC, ensuring a fair and reasoned decision-making process.