The Supreme Court has ruled that a Section 7 insolvency application under the Insolvency and Bankruptcy Code (IBC) cannot be rejected merely because the affidavit filed along with it is defective. The Court made it clear that such a mistake is curable and does not make the application invalid or non est. This decision came in the case Livein Aqua Solutions Private Limited vs. HDFC Bank Limited, where the core issue was a mismatch between the dates of the verification of the application and the supporting affidavit.
In this case, HDFC Bank had extended a loan of ₹5.5 crore to Livein Aqua Solutions, which later turned into a non-performing asset on 4 August 2019. To recover the dues, the bank approached the National Company Law Tribunal (NCLT) by filing a Section 7 application. When the NCLT scrutinized the application, it found defects, including an affidavit dated earlier than the date of verification. A consolidated notice was issued by the Joint Registrar to multiple applicants, including HDFC Bank, asking them to rectify defects within seven days. Since the bank failed to refile in time, the Joint Registrar refused to register the application.
Though the bank’s appeal was allowed once, the application was eventually rejected again for non-removal of defects. The National Company Law Appellate Tribunal (NCLAT) later restored the application, holding that a defective affidavit is a curable defect. However, it restored the case without first asking the bank to fix the defect, which led Livein Aqua Solutions to appeal before the Supreme Court.
The Supreme Court examined the statutory framework and noted that neither Rule 4(1) of the IBC Rules nor Form 1 requires a Section 7 application to be supported by an affidavit. Instead, it is Rule 34(4) of the NCLT Rules that calls for an affidavit in Form NCLT-6. More importantly, the Court pointed out that Section 7(5)(b) of the IBC requires the NCLT to issue a specific notice to the applicant, giving it seven days to correct any defect before the application is rejected. The consolidated notice issued by the Registrar was not considered proper notice because it did not refer to Section 7(5)(b) and was not addressed directly to the applicant, as the law mandates.
The Court held that the absence of proper notice under Section 7(5)(b) was a serious procedural lapse. It emphasized that procedural rules cannot override substantive rights, and a defect in an affidavit is neither fundamental nor incurable. Referring to earlier judgments like Dena Bank vs. C. Shivakumar Reddy and Uday Shankar Triyar vs. Ram Kalewar Prasad Singh, the bench reiterated that procedure is meant to enable justice, not obstruct it.
While agreeing with the NCLAT that the defective affidavit did not make the application invalid, the Supreme Court noted that the appellate tribunal should have first required HDFC Bank to cure the defect before restoring the petition. Therefore, the Court directed the bank to cure all defects, including the affidavit issue, within seven days. After curing the defects, the NCLT must hear the application on its merits.
This judgment reinforces the principle that insolvency proceedings should not fail over technical issues and that the notice requirement under Section 7(5)(b) is mandatory. It ensures that applicants are given a fair opportunity to correct procedural errors so that substantive justice is not compromised.
Case Title: Livein Aqua Solutions Private Limited vs. HDFC Bank Limited
