IBC | Once Debt And Default Are Proved, Section 7 Must Follow: Supreme Court Reverses NCLT And NCLAT In Ecstasy Realty Insolvency Case

“Debenture Trust Deed Cannot Be Rewritten By E-Mails”, In a strong reaffirmation of the limited scope of adjudication under Section 7 of the Insolvency and Bankruptcy Code, 2016, the Supreme Court on 24 February 2026 set aside concurrent findings of the NCLT and NCLAT and directed admission of insolvency proceedings against the corporate debtor.

The Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran held that once a financial debt and default are established, the Adjudicating Authority is bound to admit the application under Section 7. The Court found that the tribunals had wrongly inferred the existence of an 18-month moratorium based on informal restructuring discussions with one debenture holder, ignoring the binding terms of the Debenture Trust Deed dated 27.03.2018.

Terming the concurrent findings “glaringly perverse,” the Court restored Company Petition (IB) 922/MB/C-I/2022 and directed the NCLT to admit the petition by a separate order and proceed in accordance with law. Adverse remarks made against the debenture trustee were also set aside.

Ecstasy Realty Pvt. Ltd. had proposed issuance of 850 redeemable non-convertible debentures worth ₹850 crore in two series. Series A debentures worth ₹600 crore were fully subscribed and disbursed in March 2018 under a Debenture Trust Deed executed between the company, Catalyst Trusteeship Ltd. as debenture trustee, and the mortgage provider.

In March 2022, facing repayment stress, the corporate debtor addressed an e-mail to ECL Finance Limited (ECLF), one of the debenture holders, proposing restructuring and seeking an 18-month principal and interest moratorium. ECLF responded that it was agreeable “subject to internal approval” and completion of certain transactions.

Crucially, these communications were neither marked to nor approved by the debenture trustee or the other debenture holders. Meanwhile, defaults occurred, and the debenture trustee issued demand and recall notices. Eventually, a Section 7 application was filed.

The NCLT dismissed the petition, holding that a moratorium had come into effect pursuant to restructuring discussions. The NCLAT affirmed, even going to the extent of observing that the trustee and debenture holders had engineered default to push the company into insolvency.

Scope Of Section 7: No ‘Pre-Existing Dispute’ Defence

Reiterating the law laid down in Innoventive Industries Ltd. v. ICICI Bank, the Supreme Court observed:

“For admission of an application under Section 7 of the Code, the adjudicating authority is only required to examine and satisfy itself that a financial debt exists and there is default in relation thereto.”

The Court emphasised that unlike Section 9 proceedings, the concept of “pre-existing dispute” has no application to Section 7. So long as the debt is due and payable and default is established, admission must follow.

The corporate debtor’s entire defence rested on an alleged restructuring that was never validly effected in accordance with the Debenture Trust Deed.

Modification Of Debenture Trust Deed: Mandatory Procedure Ignored

The Court undertook a detailed analysis of Clause 33 of the Debenture Trust Deed, which mandated that any amendment required prior written consent of the debenture trustee and debenture holders through “approved instructions” passed by a Special Resolution in a duly convened meeting.

Clause 33.4 expressly provided that no amendment would be effective unless in writing and signed by or on behalf of each party. Clause 37 barred implied waiver and required any waiver to be in writing.

Admittedly, no meeting of debenture holders was convened, no Special Resolution was passed, and no written amendment was executed.

The Court held that in the absence of compliance with the contractual procedure, no modification or moratorium could be inferred. The tribunals had erred in ignoring binding contractual stipulations.

Novation Under Section 62 Of Contract Act Rejected

Invoking Section 62 of the Indian Contract Act, the Court noted that novation requires consensus of all parties to the original contract.

Here, the debenture trustee and other debenture holders were neither privy to nor consenting parties to the alleged restructuring discussions. There was no written agreement evidencing substitution of contract.

The plea of novation was therefore untenable.

Single Debenture Holder Could Not Bind Others

The restructuring proposal was addressed only to ECLF. The corporate debtor contended that ECLF acted on behalf of the Edelweiss group.

The Court rejected this argument, observing that other debenture holders were distinct legal entities and no express authorisation was produced to show that ECLF could bind them.

A “bald assertion” that group entities had no independent volition was found insufficient. Without express authorisation, discussions with one debenture holder could not bind the entire body.

Release Of Bandra Property Not Evidence Of Restructuring

The tribunals had treated release of the Bandra property as evidence that restructuring had been accepted.

The Supreme Court clarified that the release was relatable to Clause 28.3 of the Debenture Trust Deed, which permitted release upon payment towards redemption. It had no nexus with the restructuring proposal.

Civil Court Findings Ignored

Significantly, the Bombay High Court had earlier refused interim injunction in a commercial suit filed by the corporate debtor seeking declaration that the Debenture Trust Deed stood amended by virtue of the e-mails.

The High Court held that no modification had taken place in accordance with Clause 33.

The Supreme Court observed that this order, which had attained finality, was casually brushed aside by the NCLT and NCLAT.

Adverse Remarks Against Trustee Set Aside

The NCLAT had made strong observations suggesting collusion between the trustee and debenture holders.

The Supreme Court found these remarks unsustainable, noting that the trustee was duty-bound to protect the interests of debenture holders under the Deed. There was no factual basis for alleging collusion or coercive design.

The adverse remarks were accordingly expunged.

Perversity Justifying Interference

While acknowledging that the Supreme Court is ordinarily slow to interfere with concurrent factual findings, the Bench held that the present case fell within the exception.

The tribunals had “reframed the terms” of the Debenture Trust Deed on the basis of surmises and conjectures, ignoring contractual provisions and binding civil court findings.

The perversity of the findings was described as “glaring and manifest.”

The Supreme Court has once again reinforced that Section 7 proceedings are summary in nature and confined to determining existence of financial debt and default. Contractual modification must strictly comply with agreed procedure, and informal correspondence cannot rewrite binding instruments.

By restoring the Section 7 petition and directing admission, the Court has sent a clear message that insolvency adjudication cannot be derailed by speculative defences rooted in unconsummated restructuring proposals.

Date of Decision: 24 February 2026