Section 7 IBC - The Legal Chamber

Supreme Court Ruling: Defective Affidavit Can Be Corrected in Insolvency Petitions

10Feb

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Supreme Court

Supreme Court Ruling: Defective Affidavit Can Be Corrected in Insolvency Petitions

The Supreme Court held that a defective affidavit filed in support of a Section 7 IBC application is a curable procedural irregularity and does not render the application non est. The Court emphasized that the mandatory notice under Section 7(5)(b) of the IBC must be specifically issued to the applicant before rejection, and procedural rules should not defeat substantive rights. Facts Of The Case: HDFC Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, against Livein Aqua Solutions Pvt. Ltd. for a defaulted loan of ₹5.5 crores. The application, verified on July 26, 2023, was supported by an affidavit deposed on July 17, 2023. The NCLT Ahmedabad Bench rejected the petition at the threshold, citing this date discrepancy in the affidavit as a fatal ...

Investment vs. Debt: Supreme Court Explains Why Preference Shares Don’t Trigger IBC

The Supreme Court held that Cumulative Redeemable Preference Shares (CRPS) represent an equity investment, not a financial debt under the IBC. Preference shareholders are not creditors, and redemption is contingent upon company profits under the Companies Act. Therefore, they cannot initiate insolvency proceedings under Section 7 of the IBC for non-redemption. Facts Of The Case: EPC Constructions India Limited (EPCC) held outstanding receivables from Matix Fertilizers and Chemicals Limited for construction work. In 2015, to help Matix meet lender-mandated debt-equity ratios, the parties agreed to convert ₹400 crores of dues into 8% Cumulative Redeemable Preference Shares (CRPS). Matix subsequently allotted CRPS worth ₹250 crores to EPCC. When the shares matured after three years, M...

Homebuyer Alert: Supreme Court Clarifies When a Real Estate Investment Becomes “Speculative”

This Supreme Court judgment clarifies the distinction between genuine homebuyers and speculative investors under the Insolvency and Bankruptcy Code, 2016. It holds that allottees with agreements structured for assured returns or buy-back clauses, without a genuine intent to possess the property, are speculative investors. Such investors are barred from initiating Corporate Insolvency Resolution Process under Section 7 of the IBC, as the Code is not a recovery mechanism for speculative investments. Facts Of The Case: This case consolidates four civil appeals concerning the initiation of Corporate Insolvency Resolution Process (CIRP) against real estate developers by individual allottees. The primary appellant, Mansi Brar Fernandes, entered into a Memorandum of Understanding (MoU) with Gay...