2026 Supreme(Online)(NCLAT) 645

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan (Chairperson) , Mr. Barun Mitra (Member (Technical)) ,
SANJEEV KUMAR JAIN – Appellant
Versus
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED – Respondent
900/ND/2026 COMPANY APPEAL(AT)(INS)

Admission of a Section 7 IBC petition depends solely on proof of debt and default, not on pending settlement talks or counter-claims, which can be raised later during the resolution process.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Initiation of Corporate Insolvency Resolution Process (CIRP) - Debt and default - Admission of Section 7 application - Withdrawal and revival of application - Settlement between parties - CIRP can be initiated upon proof of debt and default - Mere pendency of settlement talks or counter-claims does not preclude admission - A financial creditor is entitled to revival of a Section 7 application if the debtor defaults on a settlement schedule - The adjudicating authority must only ascertain the existence of a debt and a default. (Paras 8, 10, 14, 15)

(B) Insolvency and Bankruptcy Code, 2016 - Sections 7 and 5(8) - Corporate guarantor - CIRP can be initiated against a corporate guarantor upon default by the principal borrower and issuance of a recall notice, even if the principal borrower's CIRP is separately initiated. (Para 15)

(C) Insolvency and Bankruptcy Code, 2016 - Set-off and Counter-claim - At the stage of admission of a Section 7 application, questions of set-off and counter-claim are not to be considered; they may be raised during the resolution process when filing proofs of claim. (Paras 13, 23, 24)

Facts of the case:
Two appeals were filed by the suspended directors of two corporate debtors: the principal borrower and its corporate guarantor. The financial creditor (an Asset Reconstruction Company) had filed Section 7 petitions which were initially withdrawn after the corporate debtor paid ₹75 crore and agreed to a settlement schedule. The financial creditor later sought revival of the petitions, alleging default on the settlement. The corporate debtor argued that no default had occurred, that it was ready and willing to settle, and that the financial creditor had unilaterally backed out. The adjudicating authority (NCLT) allowed the revival and admitted the Section 7 petitions. The corporate debtor also relied on ongoing talks before the High Court and sought multiple deferments of the NCLT's order. The NCLT finally passed the orders admitting the CIRP, which were challenged in these appeals.

Findings of Court:
The appellate tribunal (NCLAT) held that the existence of debt and default was well proven from the material on record, including the corporate debtor's own admissions and efforts to settle. The tribunal noted that the corporate debtor itself had sought deferments of the pronouncement of the order by stating that settlement was being discussed, which was an implicit admission of default. The court further held that the question of set-off and counter-claim, concerning reconciliation of loan accounts, was to be considered only at the stage of filing proof of claims during the resolution process, not at the admission stage. The court also found no error in admitting the CIRP against the corporate guarantor.

Issues: The main issues were whether, on the facts, the debt and default were proven for the purpose of admitting a Section 7 petition, and whether the pendency of settlement talks or counter-claims could be a valid ground to deny admission.

Ratio Decidendi: The court ruled that for the admission of a Section 7 petition, the adjudicating authority is only required to ascertain the existence of a 'debt' and a 'default'. The fact that the debtor was negotiating a settlement or was pursuing a counter-claim does not detract from the existence of a default. The debtor's own actions of seeking adjournments to facilitate settlement were considered an acknowledgment of the default. The court also held that a revival of a Section 7 petition is permissible if the debtor fails to adhere to a settlement schedule. Result : Both appeals dismissed.