Defective Affidavit in Section 7 Application should not Lead to Automatic Rejection: Supreme Court allows HDFC to cure defects [Read Judgement]
The Court reiterated that a defective affidavit is a curable, not a fundamental, defect, and does not render an application "non est" (non-existent).
The Supreme Court has allowed an appeal filed by HDFC Bank, holding that a defective affidavit in a Section 7 application under the Insolvency and Bankruptcy Code (IBC) does not warrant automatic rejection, pointing out that procedural technicalities should not defeat substantive rights.
The bench of Justices Sanjay Kumar and Alok Aradhe held that while the National Company Law Appellate Tribunal (NCLAT) was correct in restoring the bank's application against Livein Aqua Solutions Private Limited, it erred in not first directing the bank to cure the curable defect.
HDFC Bank, as a financial creditor, had filed a Section 7 application against the corporate debtor who had defaulted on a ₹5.5 crore loan. The application was initially rejected by the National Company Law Tribunal (NCLT) on the ground that the supporting affidavit was deposed to (sworn) on 17.07.2023, despite the application being verified on a later date, 26.07.2023.
The Supreme Court found that the NCLT had failed to issue a specific notice under the proviso to Section 7(5)(b) of the IBC, which requires an adjudicating authority to give a specific notice to the applicant to rectify defects before rejection. Instead, a general notice was issued under the NCLT Rules, which was insufficient to satisfy the statutory requirement.
The Court reiterated that a defective affidavit is a curable, not a fundamental, defect, and does not render an application "non est" (non-existent). Citing precedents, the bench held that rules of procedure are made to further the cause of justice and should not be used as a tool to perpetuate injustice.
Accordingly, the Supreme Court disposed of the appeal by directing HDFC Bank to cure the defects in its application, including the defective affidavit, within seven days.
Following this compliance, the National Company Law Tribunal, Ahmedabad Bench, was instructed to take up the matter for hearing in accordance with law and due procedure, ensuring that the bank's substantive right to initiate the corporate insolvency resolution process is not defeated by a procedural irregularity.
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