Monday, February 23, 2026

Insolvency and Bankruptcy Code, 2016 — S. 7 — Admission — Scope of enquiry — Limited to existence of financial debt and default — Viability of corporate debtor irrelevant at admission stage — Innoventive reaffirmed — Vidarbha confined to facts. (Paras 30–40) At admission stage under S. 7, Adjudicating Authority must only ascertain existence of financial debt and default. It cannot conduct a roving enquiry into commercial viability or feasibility of revival. Observations in Vidarbha Industries confined to peculiar facts; ratio in Innoventive Industries continues to govern.

advocatemmmohan

Insolvency and Bankruptcy Code, 2016 — S. 7 — Admission — Scope of enquiry — Limited to existence of financial debt and default — Viability of corporate debtor irrelevant at admission stage — Innoventive reaffirmed — Vidarbha confined to facts.

(Paras 30–40)

At admission stage under S. 7, Adjudicating Authority must only ascertain existence of financial debt and default. It cannot conduct a roving enquiry into commercial viability or feasibility of revival. Observations in Vidarbha Industries confined to peculiar facts; ratio in Innoventive Industries continues to govern.

IBC — S. 10A — COVID-19 Suspension — Applicability — Default prior to 25.03.2020 — Bar not attracted.

(Paras 25–27)

Where default occurred on 31.03.2018 under original loan agreement, proceedings are not barred by S. 10A. Unimplemented restructuring proposals do not shift the date of default.

Contract — Novation — Restructuring proposals subject to pre-implementation conditions — Failure to satisfy conditions — No novation — Original debt survives.

(Paras 27–28)

Restructuring proposals contingent on fulfilment of specified conditions (tariff order, DSRA, 72-hour plant run, priority debt etc.). Non-fulfilment prevents crystallisation into binding agreements. Acceptance of part payments does not amount to novation or deemed approval.

IBC — S. 12A — Withdrawal of CIRP — 90% CoC approval mandatory — Commercial wisdom non-justiciable.

(Paras 41–44)

Settlement post-admission requires approval of 90% voting share of CoC. Rejection of promoter’s higher offer cannot be interfered with by Court. Commercial wisdom of CoC paramount.

IBC — Article 142 — Limited intervention — No routine stalling of CIRP once statutory framework under S. 12A exists.

(Paras 43–44)

After statutory incorporation of S. 12A and Regulation 30A, recourse to inherent powers or Article 142 for post-admission withdrawal ordinarily unnecessary, though plenary power remains in exceptional cases.

Arbitration & Conciliation Act, 1996 — S. 9 — Interim restraint — No crystallised award — Deposit made in SC not available for third-party creditor.

(Para 46)

Deposit of ₹125 crore made as condition of stay in Supreme Court cannot be released to secured creditor of promoter absent crystallised arbitral award.

ISSUES

Whether CIRP was barred under Section 10A of the IBC?
Whether restructuring proposals novated the original loan agreement?
Whether viability of the Corporate Debtor must be examined at S. 7 admission stage?
Whether promoter’s higher settlement proposal justified stalling CIRP?

HELD

A. Section 10A — Not Attracted

Default recorded as 31.03.2018, prior to COVID suspension window.
Even assuming restructuring acceptance, second proposal made instalment due 31.03.2021, outside S. 10A window.
Explanation to S. 10A excludes defaults prior to 25.03.2020.
Plea termed a “non-starter.”

B. No Novation of Loan Agreement

Restructuring conditional upon:

Favourable tariff order from WBERC
Creation of DSRA
72-hour continuous plant operation
Priority debt ₹83 crore
Working capital ₹125 crore

Non-fulfilment prevented crystallisation.
Part payments ≠ acceptance.
Original financial debt remained due and payable.

C. Scope of Section 7 Admission

Court reaffirmed:

Innoventive Industries Ltd. v. ICICI Bank — default is determinative.
M. Suresh Kumar Reddy v. Canara Bank — Vidarbha does not dilute Innoventive.
Swiss Ribbons Pvt. Ltd. v. Union of India — legislative objective of IBC.

Adjudicating Authority:

Cannot test solvency or business viability.
Cannot compel settlement.
Must admit once debt + default established.

Vidarbha confined to unique factual matrix involving APTEL award exceeding creditor claim.

D. Settlement Proposals — Rejection Upheld

Promoter’s proposals:

₹1,101.56 crore
₹1,450 crore
₹1,601.29 crore
₹1,606.86 crore
₹1,671.86 crore

All rejected by CoC.
Resolution plan of Damodar Valley Corporation approved with 99.92% voting share.

Court reiterated:

Commercial wisdom of CoC non-justiciable.
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta governs.
Section 12A requires 90% CoC approval.

Further stalling of CIRP would defeat time-bound resolution objective.

E. SEFL Application — Rejected

No arbitral award crystallising claim.
Deposit made only to secure interim stay of CIRP.
₹125 crore directed to be refunded to Appellant with accrued interest.

RATIO DECIDENDI

Default date under original loan governs unless restructuring validly novates contract.
Conditional restructuring proposals do not shift default absent fulfilment of conditions.
Section 7 enquiry confined to debt and default — viability irrelevant.
Vidarbha does not dilute Innoventive; it is fact-specific.
Promoter’s higher settlement offer cannot override CoC’s commercial wisdom.
Article 142 cannot be routinely invoked to bypass statutory withdrawal mechanism under S. 12A.

FINAL ORDER

Appeal dismissed.
Stay on CIRP vacated.
SEFL’s application rejected.
₹125 crore deposit to be refunded to Appellant with interest.

ADVOCATEMMMOHAN