When debt and default is proved, Adjudicating Authority has to admit application unless it is Incomplete: NCLAT upholds Section 7 Application [Read Order]

debt - When debt and default is proved - Adjudicating Authority - Incomplete - NCLAT - taxscan

The Delhi bench of the National Company Law Appellate Tribunal(NCLAT) held that when debt and default is proved ,adjudicating authority (NCLT)has to admit the application unless it is incomplete .Therefore the bench upheld the section 7 application filed by the  Financial creditor.

The present appeal was filed by Shweta Sharma , shareholder of a corporate debtor. The Financial Creditor by Loan Agreement dated 13.06.2017 extended the facility of Rs. 18,09,00,000/- to the Corporate Debtor- ‘Shweta Housing & Hospitality Private Limited.

The Corporate Debtor failed to repay the loan to the financial creditor.

The Financial Creditor also initiated arbitration proceedings as per the Loan Agreement in which an award dated 04.02.2020 was given. The Corporate Debtor having not made the payment, Section 7 application was filed by the Financial Creditor on 31.01.2022. Reply was filed by the Corporate Debtor to Section 7 application.

The Financial Creditor has also for seeking enforcement of ex parte arbitral award filed an execution application before the Delhi High Court on 22.07.2021. Corporate Debtor filed his objection in the execution application which is claimed to be pending.Thereafter the adjudicating authority(NCLT) passed an order in favor of the financial creditor.

Aggrieved by the order the appellant filed appeal before the tribunal.

Amit Singh Chadha, Senior Counsel appearing for the Appellant argued that Adjudicating Authority committed error in relying on ex parte arbitral award . It is submitted that the arbitral award is a void award which could not be relied on by the Financial Creditor.

Further argued that the unilateral appointment of the arbitrator by the financial creditor is non-est in the eyes of law. The award consequently is void. It is further submitted that the Section 7 application was barred by time. It is submitted that there is no requirement of getting an award set aside under Section 34 of the Arbitration Act which award is void.

Krishnendu Datta, Counsel appearing for the Financial Creditor refuting the submissions of the Counsel for the Appellant submits that in the reply to Section 7 application, Corporate Debtor has admitted his default and has pleaded that it has repaid only Rs.40 lakhs. Debt and default being established, Adjudicating Authority has rightly admitted Section 7 application. It is submitted that the application filed by the Financial Creditor was well within time.

It was observed by the tribunal that debt and default is fully established and even if the arbitral award dated 04.02.2020 is not taken into consideration the debt and default is proved on the part of the Corporate Debtor.

After analyzing the submission of both parties the bench comprising  Justice Ashok Bhushan  (Chairperson),   Barun Mitra (Technical Member) and   Arun Baroka (Technical Member)  observed that the adjudicating Authority did not commit any error in admitting Section 7 application. Debt and default having been proved on the part of the Corporate Debtor, thus, do not find any error in the order passed by the Adjudicating Authority admitting Section 7 application.

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