Supreme Court directs bank to cure defective affidavit before insolvency petition proceeds

A bench of Justices Sanjay Kumar and Alok Aradhe heard an appeal by a corporate debtor challenging the National Company Law Appellate Tribunal’s order that restored a Section 7 petition and remanded it to the NCLT for adjudication on merits. The narrow issue before the Court was whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 that was verified on 26.07.2023 but supported by an affidavit sworn on 17.07.2023 could be rejected at the threshold for that reason and whether the procedural mandate of the proviso to Section 7(5)(b) had been complied with.

The Court allowed the appeal in part and clarified the consequence of procedural defects in Section 7 filings. It held that registry action under the NCLT Rules could not substitute for the mandatory notice required by the proviso to Section 7(5)(b) of the IBC and that a defective affidavit did not render the application non est. The Court relied on this Court’s earlier exposition in Dena Bank v. C. Shivakumar Reddy and noted that “the proviso to Section 7(5)(b) IBC obliges the adjudicating authority to give notice to an applicant, to rectify the defect in its application within seven days of receipt of such notice from the adjudicating authority, before rejecting its application under clause (b) of sub-section (5) of Section 7 IBC.” The Court, in its reasoning, observed: “Further, we are not persuaded to accept the argument of the learned senior counsel for the company that the defective affidavit filed in support of the respondent-bank’s application under Section 7 of the IBC was sufficient to hold the application itself liable to be rejected on the ground of being non est. Perusal of the objection raised by the company itself, in para 4 of its additional affidavit dated 02.04.2024 filed before the NCLT, indicates that it had stated that the petition deserved to be dismissed as ‘defective’ and not on the ground that it was ‘non est’. This argument was, however, advanced before the NCLAT and, once again, before us. Mere filing of a ‘defective’ affidavit in support of an application would, however, not render the very application non est and liable to be rejected on that ground as it is neither an incurable nor a fundamental defect.” The Court directed the respondent-bank to cure the defects, including the defective affidavit, within seven days and instructed the NCLT, Ahmedabad Bench, to proceed thereafter in accordance with law.

Background

The dispute arose after the appellant company borrowed ₹5.5 crores from the respondent-bank and its account was classified as a non-performing asset on 04.08.2019. The bank filed a Section 7 petition in Form 1 under the IBC; Form 1 and Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 did not prescribe an affidavit but Rule 34(4) of the NCLT Rules required every petition or application to be verified by an affidavit in Form NCLT.6. The NCLT scrutiny section flagged defects in several filings and the Joint Registrar issued a consolidated notice dated 10.10.2023 calling upon parties to remove defects within seven days; the bank did not cure the defects and the Registrar refused registration by order dated 18.10.2023. The bank’s appeal under Rule 63 succeeded before the President of the NCLT Principal Bench on 08.02.2024, and it was given another opportunity to cure defects. Ultimately, however, the NCLT rejected the Section 7 petition on 18.06.2024 for non-compliance and the bank appealed to the NCLAT.

The NCLAT concluded that the NCLT had not complied with the proviso to Section 7(5)(b) and that the defective affidavit was curable; it restored the company petition and remanded the matter to the NCLT for hearing on merits without expressly requiring cure of the affidavit. The company challenged the NCLAT order in this Court. This Court found that notices placed on the NCLT website and cause list were insufficient to satisfy the statutory proviso which required notice to the applicant, and reiterated that procedural rules must further justice and not defeat substantive rights. While it upheld that the NCLAT correctly held the rejection unsustainable for want of the proviso notice, the Court held that the NCLAT erred in not directing the bank to cure the defective affidavit before remand. The appeal was disposed directing the bank to cure defects within seven days, after which the NCLT was to proceed to hear the petition in accordance with law; parties were to bear their respective costs. The Court had earlier stayed further proceedings in the NCLT matter by order dated 15.09.2025.

Case Details: Case No.: Civil Appeal No. 11766 of 2025 Case Title: Livein Aqua Solutions Private Limited … Appellant versus HDFC Bank Limited … Respondent Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment