1. Corporate insolvency — Initiation of resolution process against debtor company — Challenge based on debt restructuring, moratorium, and alleged business viability. (Para 1 , 2 , 3 , 4 , 5 , 6 , 9 )
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2026 Supreme(SC) 177
SUPREME COURT OF INDIA
SURYA KANT, CJI., JOYMALYA BAGCHI, VIPUL M. PANCHOLI, JJ.
Power Trust (Promoter of Hiranmaye Energy Ltd.) – Appellant
Versus
Bhuvan Madan (Interim Resolution Professional of Hiranmaye Energy Ltd.) & Ors. – Respondents
Civil Appeal No(s). 2211 of 2024
Decided On : 18-02-2026
The admission of a Section 7 application under the IBC is lawful if a default predated any applicable bar, and merely having restructuring proposals does not negate the existence of said default.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 7 and 10A - Corporate insolvency resolution process initiated against Corporate Debtor due to default in repaying loans by 2nd Respondent - Appellant claims restructuring proposals during pandemic bar admission under Section 10A - NCLAT and NCLT find default on 31.03.2018, prior to the bar - Appellant's arguments regarding novation of loan agreements rejected - Evidence of ongoing corporate viability held insufficient to block admission of Section 7 application - Adjudicating Authority did not err in admitting the application. (Paras 24-40)
Facts of the case:
Power Trust challenged CIRP initiation based on alleged defaults in loan obligations towards a financial creditor. Subsequent restructuring proposals with conditions were not met, leading to classification of assets as non-performing. (Paras 1-10)
Findings of Court:
The admission was lawful, as the default predated Section 10A's provision, and the arguments based on restructuring proposals lacked merit. (Paras 40-44)
Issues: Whether the alleged date of default was within the period barred by Section 10A; whether restructuring proposals represented binding contracts; whether the corporate viability could block initiation of CIRP. (Paras 23-24)
Ratio Decidendi: The court emphasized the limited scope of inquiry regarding corporate viability in Section 7 applications, adhering to established principles that a default existed, necessitating CIRP admission. (Paras 30-35)
Result: Appeal dismissed and stay on CIRP vacated.
Judgement Key Points
Key Points: - Admission of a Section 7 application is lawful if the default predates the bar under Section 10A, even if restructuring proposals exist (!) (!) . - A financial creditor may initiate insolvency process on default of any financial debt, based on evidence of default without needing to prove inability to pay (!) (!) . - Corporate viability evidence alone cannot block admission of a Section 7 application at the adjudication stage (!) (!) (!) . - Restructuring proposals that fail to meet pre-implementation conditions do not nullify the default or shift the date of default (!) (!) (!) . - The commercial wisdom of the Committee of Creditors in rejecting settlement proposals is not subject to court interference (!) (!) .
How to determine the validity of admitting a Section 7 insolvency application when a default predates the applicable bar under Section 10A?
What are the rights of a financial creditor in initiating a corporate insolvency resolution process upon default?
What is the role of corporate viability evidence in the admission stage of a Section 7 application?
Legal Category Hierarchy
- insolvency and bankruptcy
- contract law
- practice and procedure
Table of Contents
2. Appellant claims insolvency initiation was barred by restructuring agreements and moratorium, while Respondents contend debt remains in default due to non-fulfilment of pre-conditions. (Para 15 , 16 , 17 , 19 , 20 , 21 , 22 )
3. Court held restructuring failed due to unmet conditions, rendering debt due from initial default, and affirmed that summary insolvency proceedings focus only on default existence, not business viability. (Para 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 39 )
4. Adjudicating authority is limited to verifying debt and default Existence; neither business viability nor equitable considerations allow refusal of initiation absent specific legal grounds. (Para 32 , 33 , 34 , 38 )
5. Appeal dismissed, stay on insolvency resolution process vacated, and request for refund of deposited funds directed to the registry. (Para 45 , 46 )
6. Can an insolvency application be rejected because a proposed debt restructuring indicates future viability or repayment?
No. The Adjudicating Authority's scope at the admission stage is limited to verifying the existence of debt and default. It cannot enter into a broad inquiry regarding business viability, equities, or surrounding circumstances to refuse admission once a default on a financial debt is proven. (Para 21 , 29 , 30 , 32 , 34 )
7. Does a restructuring proposal that includes pre-implementation conditions effect a novation of the original loan agreement if those conditions remain unfulfilled?
No. A restructuring proposal contingent upon pre-implementation conditions does not result in novation unless those conditions are successfully fulfilled. Absent fulfillment, the proposal does not supersede the original loan terms, and the original date of default remains relevant for the purpose of the insolvency initiation. (Para 20 , 26 , 27 , 28 )
8. Can the Adjudicating Authority compel parties to settle a dispute during the admission stage of an insolvency process?
No. The Adjudicating Authority lacks jurisdiction to force settlements under Section 7 of the Code. Its mandate is restricted to either admitting or rejecting the application based on whether a valid default occurred, and it cannot expand its powers to oversee settlement negotiations. (Para 33 )
9. Is the commercial wisdom of the Committee of Creditors in rejecting settlement proposals justiciable?
No. The commercial wisdom of the Committee of Creditors in approving or rejecting resolution plans or settlement proposals is not subject to judicial review. The court cannot second-guess the committee's decision-making process regarding the viability of a proposal. (Para 42 )
JUDGMENT :
Joymalya Bagchi, J.
1. Present appeal has been instituted by Power Trust,1[Hereinafter “Appellant”.] a promoter of Hiranmaye Energy Ltd.2[Hereinafter “Corporate Debtor”.] under Section 62 , Insolvency and Bankruptcy Code, 20163[Hereinafter “IBC/The Code”.], challenging order dated 25.01.2024 by National Company Law Appellate Tribunal, Principal Bench, New Delhi4[Hereinafter “NCLAT”.]. By the impugned order, NCLAT has upheld order dated 02.01.2024 by National Company Law Tribunal, Kolkata Bench5[Hereinafter “NCLT/Adjudicating Authority”], whereby the NCLT admitted an application filed under Section 7 , IBC6[Hereinafter “ Section 7 application”.] by REC Ltd. 7[Hereinafter “2nd Respondent/Financial Creditor”.] and initiated the corporate insolvency resolution process8[Hereinafter “CIRP”.] against the Corporate Debtor.
FACTS GIVING RISE TO THE APPEAL
2. A common loan agreement dated 19.06.2013 was entered into between the Corporate Debtor and 2nd Respondent to avail a term loan of Rs. 1859 crore for setting up of a thermal power plant at Haldia, West Bengal. Due to cost overruns, on 30.10.2015, the Corporate Debtor availed an additional term loan facility of Rs.446.97 crore. Subsequently, the Corporate Debtor entered into a power purchase agreement9[Hereinafter “PPA”.] with the West Bengal State Electricity Distribution Company Ltd. 10[Hereinafter “WBSEDCL”.]
3. On 30.06.2018, 2nd Respondent classified the accounts of Corporate Debtor as non-performing assets due to alleged default committed by the Corporate Debtor in making due payments.
4. Pursuant to negotiations, on 21.02.2020, 2nd Respondent approved a loan restructuring plan (restructuring without change in ownership) wherein the Corporate Debtor was to commence repayment from 31.12.2020 and interest payment on monthly basis was to commence from 30.06.2020. Further revisions led to a second restructuring proposal dated 29.09.2020 which envisaged repayment of loan in instalments from 31.03.2021 till 31.12.2042.
5. Implementation of the restructuring proposals was subject to certain pre-implementation conditions to be fulfilled by the Corporate Debtor. Such conditions inter alia included obtaining a favourable tariff order from West Bengal Electricity Regulatory Commission11[Hereinafter “WBERC”.] by 28.02.2021, creating an initial Debt Service Revenue Account12[Hereinafter “DSRA”.], demonstrating Corporate Debtor’s power plant successfully running at installed capacity continuously for 72 hours, making available a priority debt of Rs. 83 crore and working capital of Rs.125 crore. However, the tariff order was not approved by WBERC by the stipulated date. Further, the Corporate Debtor also failed to comply with other vital pre-implementation conditions within the agreed deadline, i.e., 28.02.2021 as recorded in the consortium meeting dated 17.02.2021.
6. Consequently, financial creditor filed the Section 7 application before the NCLT recording the date of default as 31.03.2018 on an outstanding claim of Rs. 21,83,19,16,896 as on 05.06.2021. The proceedings were assailed before the High Court at Calcutta and Single Judge vide order dated 02.07.2021 dismissed the writ petition inter alia holding that there was no arbitrary or unfair cancellation of the restructuring offer and that initiation of proceedings under the IBC before the Adjudicating Authority could not be faulted.
7. Matter was carried in appeal to the Division Bench. The Division Bench took note of the tariff order dated 31.05.2021 and partly modified the order passed by Single Judge.13[MAT 626/2021, order dated 07.10.2021.] The Bench directed the financial creditors of the Corporate Debtor to consider the afore- mentioned tariff order with regard to fulfilment of pre-implementation conditions of the restructuring proposal.
8. However, in the lenders’ meeting on 11.11.2021 pursuant to such directions of the Division Bench, the request to revive the restructuring proposal was rejected as the Corporate Debtor had re
