“Rejection of Application is allowed under Insolvency and Bankruptcy Code when debtor is earning sufficient income”

Insolvency and Bankruptcy Code (hereinafter “IBC”) is a masterpiece and major tool against the problem of NPA. It provides the right to operational creditor, financial creditor and corporate debtor itself to take action for the viability of industrial concern and in case viability does not seem to be a course of action, after leaving no stone unturned for that matter, dissolution of the Companies may be allowed by adjudicating authority.

The right to initiate action before NCLT for the viability of corporate concern comes with the question as to when can an application under IBC be rejected by adjudicating authority?

Various grounds for the rejection of application are provided under IBC such as “The existence of dispute”, fraudulent application, applications with intention of mere debt recovery etc. This list is “Not Exhaustive” in nature; hence discretion lies with adjudicating authority.


Taking recourse of such discretion NCLAT in case namely “Vyomit Shares Stock & Investment Pvt. Ltd. v. Securities and Exchange Board of India (Decided on 15-May-2019) held that Application under section 10 of IBC can be rejected on the ground that “the Corporate Debtor is earning sufficient income”
The said appeal was filed against the order of NCLT ‘Mumbai Bench’ where it was held that it is wring to initiate a CIRP against a corporate debtor since corporate debtor is earning sufficient income.

Therefore, on the very face of it, it appears that there is no reason for the Appellant or the corporate debtor to declare itself eligible for filling an application under section 10 of IBC.

NCLAT rejected the appeal and upheld the order of NCLT while observing that although counsel appearing on behalf of Appellant submitted that the Company is in loss and is not in position to pay the amount. However, from the records, it appears that income and profit has been generated in preceding financial year.


NCLAT took this instance taking harmonious road to the preamble of the Code and intention of legislature. Code was brought into the picture for finding each possibility of viability of Corporate concern and only when there is no scope available corporate debtor is allowed to take the recourse of dissolution. Adjudicating authority is not a mere debt recovering tribunal and is given larger responsibility to find solution of NPA. Hence in the above case it is right to reject the applicable for mere generation of loss in a financial year where on the other hand corporate debtor is earning sufficient income and is available to function in future.
IBC, in no case, can be allowed to bear the brunt of debt recovery problem.

Shalu Goyal

Content Writer, Law Corner, BBA-LLB (Hons.) from the ICFAI Law School, ICFAI University Dehradun

Leave a Comment