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by sayum
16 January 2026 9:47 AM
“Section 7(5)(a) IBC leaves no discretion where default is established – Vidarbha Industries is a rare exception, not the rule”, In a significant judgment reiterating the limited scope of judicial discretion at the admission stage under the Insolvency and Bankruptcy Code, the Supreme Court on January 15, 2026, in the case of Elegna Co-operative Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and Takshashila Heights India Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., has firmly held that “once the existence of a financial debt and occurrence of default are established, admission under Section 7 is mandatory”.
Dismissing both civil appeals filed by the Corporate Debtor and the Co-operative Housing Society, the Bench of Justice J.B. Pardiwala and Justice R. Mahadevan affirmed the decision of the National Company Law Appellate Tribunal (NCLAT), which had admitted the real estate developer Takshashila Heights India Pvt. Ltd. into Corporate Insolvency Resolution Process (CIRP) and rejected the intervention application of the housing society representing 189 homebuyers.
The Court decisively ruled that “viability of the project, stage of completion, receivables, or apprehended prejudice to homebuyers are wholly extraneous considerations at the threshold of admission under Section 7 of the IBC”. The judgment significantly clarifies the limited role of Adjudicating Authorities under the IBC at the admission stage, reiterating that considerations of equity, hardship, or alleged misuse of insolvency cannot override the statutory triggers of “debt” and “default”.
“Vidarbha Industries Is a Narrow Exception Confined to Unique Facts; No General Discretion Survives Once Default Is Established”
Rejecting the Corporate Debtor's heavy reliance on the Vidarbha Industries case to argue against mechanical admission, the Court held:
“Vidarbha Industries has consistently been recognised as a narrow exception confined to its peculiar facts, namely, the existence of an adjudicated and realisable counter-claim exceeding the debt owed.”
The Court further reiterated that the binding precedent remains Innoventive Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., where the Court had conclusively held that “the moment debt and default are proved, admission under Section 7 follows as a matter of law”.
Referring to its earlier decision in M. Suresh Kumar Reddy v. Canara Bank, the Court warned that treating Vidarbha Industries as a carte blanche discretion would defeat the object of the Code. It clarified:
“Discretion under Section 7(5)(a) survives only in rare Vidarbha-type situations. Business viability or ongoing project status is not a legal defence against admitted default.”
Defaults, Restructuring Breakdown, and Invoking IBC
The case originated from a financial arrangement where Takshashila Heights India Pvt. Ltd., a real estate developer, had availed loans of ₹70 crores from ECL Finance Ltd., later assigned to Edelweiss Asset Reconstruction Company Ltd. (EARCL). Upon default in instalment payments and classification of the accounts as NPAs in December 2021, the Corporate Debtor entered a restructuring-cum-OTS agreement in May 2023. However, after paying only the first instalment and defaulting on the second, the agreement was revoked by EARCL.
EARCL thereafter invoked remedies under SARFAESI and filed a Section 7 IBC application before NCLT, Ahmedabad. The NCLT dismissed the petition, observing that IBC was being used as a recovery mechanism and that the project was 90% complete. The NCLAT reversed the NCLT’s decision, directed admission of CIRP, and rejected the intervention application filed by Elegna Co-operative Housing and Commercial Society Ltd., which claimed to represent 189 homebuyers.
“IBC Cannot Be Misused as a Recovery Tool” – But That Argument Doesn’t Apply Where Default is Admitted
The Corporate Debtor argued that EARCL had “manufactured” a default by refusing to issue NOCs for sale of inventory and was using IBC as a coercive recovery tool, already having pursued SARFAESI and DRT routes.
Rejecting these submissions, the Court observed:
“The pendency or initiation of recovery proceedings does not bar invocation of Section 7. Section 238 of the IBC accords overriding effect. Allegations of mala fide must be specifically pleaded and proved under Section 65, which was not done here.”
The Court clarified that the object of IBC is revival, not recovery, but also noted:
“What is excluded is abuse of insolvency as a pressure tactic, not recovery in the traditional sense.”
The Court referred to Kotak Mahindra Bank Ltd. v. A. Balakrishnan, GLAS Trust Co. v. Byju Raveendran, and Tottempudi Salalith v. SBI to reiterate that recovery proceedings and CIRP can co-exist unless abuse under Section 65 IBC is proved.
“Project Viability or Completion Status Is for the Committee of Creditors – Not a Threshold Admission Test”
On the argument that the project was substantially complete and CIRP would harm homebuyers, the Court was clear:
“Issues of feasibility, viability, project completion, or liquidation are squarely within the domain of the Committee of Creditors. Courts cannot pre-empt the commercial wisdom of the CoC at the admission stage.”
The Court relied on Essar Steel, K. Sashidhar, and Karad Urban Co-operative Bank to affirm that judicial review at the admission stage is limited to verifying the existence of debt and default.
“Society Has No Locus to Intervene – Representation of Homebuyers Must Be Through Statutory Route Only”
The intervention application filed by Elegna Co-operative Housing and Commercial Society Ltd.—which claimed to represent homebuyers—was dismissed by both NCLAT and the Supreme Court for want of locus standi.
The Court held:
“The Society is neither a financial creditor under Section 5(7) nor a recognised authorised representative under Section 21(6A) read with Regulation 16A. It is a maintenance society, not a creditor.”
It further observed:
“Collective representation of allottees is statutorily regulated and arises only after admission of CIRP, through authorised representatives. The Code does not contemplate ad hoc or self-appointed representation at the pre-admission or appellate stage.”
Relying on GLAS Trust Co. v. Byju Raveendran, the Court explained that proceedings under Section 7 remain in personam until admission, and only the financial creditor and the corporate debtor have a right of audience at that stage.
Even as it acknowledged the vulnerabilities of homebuyers, the Court held:
“The resolution mechanism under the IBC contains adequate safeguards for homebuyers. The appropriate course lies in constructive engagement with the CoC rather than pre-admission intervention.”
Rule 11 Powers Cannot Override IBC Scheme – No Inherent Right to Participate Exists
Rejecting the argument that NCLAT ought to have exercised inherent powers under Rule 11 to allow intervention, the Court cautioned:
“Inherent powers cannot override the statutory structure of the Code or create participatory rights where the statute deliberately excludes them.”
Citing Ebix Singapore v. Educomp and Ram Chand & Sons Sugar Mills v. Kanhayalal Bhargava, the Court reaffirmed the principle that “where an exhaustive statutory framework exists, inherent powers must be exercised with restraint.”
No Violation of Natural Justice – No Right Without Statutory Standing
On the claim that denial of hearing to the Society violated the principle of natural justice, the Court clarified:
“Violation of natural justice cannot be alleged in the absence of a legally vested right. No prejudice has been demonstrated by the appellant Society. Homebuyers’ rights are adequately safeguarded post-admission.”
Directions to CoC for Enhanced Transparency and Accountability
Acknowledging the wider concerns of homebuyers in real estate insolvency, the Court issued prospective directions to ensure accountability and transparency in CIRP:
“The Information Memorandum shall mandatorily disclose comprehensive details of all allottees.”
“Where the CoC declines handover of possession under Regulation 4E, or recommends liquidation, it shall mandatorily record cogent and specific reasons in writing.”
These directions aim to reinforce the obligation of the CoC to act responsibly and transparently while taking decisions that impact hundreds of homebuyers.
The Supreme Court has once again reaffirmed the non-negotiable statutory position under Section 7 of the IBC—that “debt” and “default” are the only relevant criteria for admission. Project viability, homebuyer interest, or alleged misuse of IBC are not threshold defences.
It has equally clarified that housing societies or unrecognised associations have no participatory right at the pre-admission stage, and any representation of homebuyers must be routed strictly through the statutory mechanism under the Code.
This judgment is a resolute endorsement of the core architecture of the IBC—certainty, speed, and sanctity of the insolvency resolution process.
Date of Decision: 15 January 2026
