Does the NCLT have the discretion to reject an application for the

initiation of the Corporate Insolvency Resolution Process under the

IBC, if both 'debt' and 'default' are found to exist?

Yes, NCLT have the discretion to reject an application for the initiation of CIRP,
and it does not depend on whether the debt or default exist or not, it is a
discretionary power of the Adjudicating Authority to admit any application
filed under section-7 of the Insolvency and Bankruptcy Code, 2016.
This question was first discussed in the Vidarbha Industries Power Limited v.
Axis Bank Limited, popularly known as the Vidarbha Case, where the court
made an error in holding that the Adjudicating Authority would have no option
but to admit an application under Section 7 of the Code, once it found that a
debt existed, and a corporate debtor was in default in payment of the same.
After this case, literal interpretation of the statute was made and the emphasis
was laid on the word ‘may’ as it gives the choice or option to the Adjudicating
Authority to admit an application or not, as discussed by the jurist that if the
power of discretion was not meant to be given then the word ‘may’ would
have been replaced by ‘shall’.
In the recent judgement of NCLAT in 2022, in the case of Ocean Deity
Investment Holdings Limited, PCC v. Suraksha Asset Reconstruction Limited
and Anr.; the court held that National Company Law Tribunal as the
Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, can
admit or reject an application filed by a financial creditor to initiate a
corporate insolvency resolution process against a corporate debtor, and that
mere existence of debt and default does not imply that an application under
Section-7 of the IBC, 2016 is required to be admitted.