Supreme Court on Section 7 IBC Applications: Defective Affidavit Not Fatal.

Headnote:

The Supreme Court held that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), even if accompanied by a defective affidavit, cannot be treated as non est and rejected outright. The Court emphasized that the proviso to Section 7(5)(b) mandates that notice must be given to the applicant to rectify defects before rejection. Procedural defects that are curable should not defeat substantive rights. The Court directed the respondent-bank to cure defects, including the defective affidavit, within seven days, after which the NCLT shall proceed with the hearing on merits.

Background:

1. The appellant-company had availed a loan of ₹5.5 crores from the respondent-bank, later classified as a non-performing asset. The respondent-bank filed an application under Section 7 IBC to initiate Corporate Insolvency Resolution Process (CIRP).
2. The application was verified on 26.07.2023 but supported by an affidavit dated 17.07.2023. The NCLT, Ahmedabad Bench, rejected the application on 18.06.2024 due to procedural defects, without issuing notice under the proviso to Section 7(5)(b).
3. The respondent-bank’s subsequent appeals before the NCLAT were allowed, remanding the matter for hearing on merits. The company challenged this order before the Supreme Court.

Court’s Observations:

1. Rule 4(1) of IBC does not require an affidavit for Section 7 applications; Rule 34(4) of the NCLT Rules prescribes verification by affidavit.
2. NCLT rejected the application without giving notice under Section 7(5)(b), which was mandatory for curable defects. Notices issued under NCLT Rules alone were insufficient.
3. Filing a defective affidavit does not render an application non est if the defect is curable. Procedural defects should not defeat substantive rights.
4. The NCLAT was correct in observing that lack of notice under Section 7(5)(b) vitiated the rejection; however, it erred by not directing the bank to cure the defective affidavit before remand.

Legal Provisions Discussed:

1. Section 7, Insolvency and Bankruptcy Code, 2016 – Application by financial creditor to initiate CIRP; proviso to Section 7(5)(b) mandates notice for curable defects before rejection.
2. Rule 4(1), Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – Application format by financial creditor.
3. Rules 20–28, 34, 38, NCLT Rules, 2016 – Procedural norms, scrutiny, verification, and service of notices.
4. Judicial Precedents: Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330; Vidyawati Gupta v. Bhakti Hari Nayak (2006) 2 SCC 777; Uday Shankar Triyar v. Ram Kalewar Prasad Singh (2006) 1 SCC 75 – Principles regarding procedural defects and curability.

Disposition:

1. Respondent-bank directed to cure all defects, including defective affidavit, within seven days.
2. NCLT, Ahmedabad Bench, to hear the matter on merits thereafter.
3. Costs to be borne by respective parties.

Citation: 2025 INSC 1349

Case: Livein Aqua Solutions Private Limited v. HDFC Bank Limited

Court: Supreme Court of India

Coram: Sanjay Kumar, J & Alok Aradhe, J

Date of Decision: 24 November 2025

Civil Appeal No.: 11766 of 2025