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Supreme Court on the powers of the NCLT to initiate the corporate insolvency process on a financial creditor’s application

07 Jul 2023

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The Supreme Court has, in a recent decision, sought to narrow the discretion that may be exercised by National Company Law Tribunals in evaluating a financial creditor's insolvency application. The Supreme Court has held that once such a financial creditor has been able to establish debt and default, the tribunal is left with hardly any discretion but to admit such an application. This update examines the impact of the judgment against the backdrop of the Supreme Court's earlier decision in Vidarbha Industries v Axis Bank Limited.
Partner: Pallav Shukla, Senior Associate: Srishti Khare


A two-judge bench of the Supreme Court has recently re-examined the scope of powers of an adjudicating authority under Section 7(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate the corporate insolvency resolution process (CIRP) while deciding on a financial creditor’s application, in M Suresh Kumar Reddy v Canara Bank and Ors. (Suresh Kumar Reddy). The issue under consideration in Suresh Kumar Reddy was whether the National Company Law Tribunal (NCLT) possesses the power and jurisdiction to examine concerns extraneous to debt and default while considering a financial creditor’s application to initiate the insolvency resolution process.

The issue arose when the Supreme Court was asked to decide an appeal filed by a corporate debtor against an order of the National Company Law Appellate Tribunal (NCLAT), where the NCLAT had refused to set aside the CIRP initiated against the said debtor.


Clarity on the scope of powers of the NCLT in relation to deciding on a financial creditor’s application has been awaited since the Supreme Court’s decision in Vidarbha Industries v Axis Bank Limited (Vidarbha) in July 2022. In Vidarbha, the Supreme Court had held that the NCLT possesses sufficient discretion to not admit a financial creditor’s application even if the existence of financial debt and its default is proven based on the evidence as required under the IBC.

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