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by sayum
19 February 2026 7:31 AM
“The Adjudicating Authority Has Merely to See… That a Default Has Occurred”, Supreme Court of India delivered a significant ruling dismiss the promoter’s challenge to the admission of insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016.
A Full Bench comprising Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice Vipul M. Pancholi upheld the orders of the NCLT and NCLAT, ruling that once financial debt and default are established, the Adjudicating Authority has limited jurisdiction and cannot examine viability, restructuring negotiations, or equitable considerations. The Court rejected the plea of protection under Section 10A, dismissed the argument of novation through restructuring proposals, refused to interfere with the commercial wisdom of the Committee of Creditors, and vacated the stay on CIRP.
The judgment firmly restores doctrinal clarity on the scope of Section 7 admission and the limited role of judicial intervention once default is proved.
Hiranmaye Energy Ltd. entered into a common loan agreement dated 19.06.2013 for a term loan of Rs. 1859 crore for setting up a thermal power plant at Haldia, West Bengal. Due to cost overruns, an additional loan of Rs. 446.97 crore was availed on 30.10.2015.
On 30.06.2018, the account was classified as NPA. The date of default was recorded as 31.03.2018.
Subsequently, restructuring proposals dated 21.02.2020 and 29.09.2020 were approved in principle by lenders. These proposals envisaged repayment schedules extending till 2042. However, implementation was subject to pre-implementation conditions including obtaining a favourable tariff order from WBERC, creation of a Debt Service Reserve Account, demonstration of plant capacity for 72 hours, and infusion of priority debt and working capital.
These conditions were not fulfilled within the stipulated timeline.
The financial creditor filed a Section 7 application before the NCLT, Kolkata, which was admitted on 02.01.2024. The NCLAT upheld the admission on 25.01.2024. The promoter challenged the order before the Supreme Court.
During pendency, multiple settlement proposals were submitted by the promoter but were rejected by the CoC, which ultimately approved the resolution plan of Damodar Valley Corporation with 99.92% voting share.
The Supreme Court considered the following issues: whether Section 10A barred the proceedings; whether restructuring resulted in novation of the original agreement; whether viability of the corporate debtor ought to have been examined at the admission stage; and whether higher settlement proposals justified stalling CIRP.
Bar under Section 10A – “A Non-Starter”
The appellant argued that the restructuring proposals reset the repayment schedule and shifted the date of default into the COVID-19 suspension window between 25.03.2020 and 24.03.2021 under Section 10A.
The Court rejected this plea outright.
“In our considered view, the plea of bar under Section 10A, IBC is a non-starter.”
The Court observed that the Section 7 application recorded the date of default as 31.03.2018, which was prior to the Section 10A window. Even assuming the restructuring proposals were accepted, the first instalment under the second proposal fell due on 31.03.2021, beyond the statutory embargo period.
Further, the Court agreed with the NCLAT that the restructuring proposals never fructified into binding agreements as the pre-implementation conditions were not fulfilled.
“In such view of the matter, the date of default would relate to 31.03.2018… and the proceeding cannot be held to be barred.”
Novation and Loan Restructuring – Mere Acceptance of Part Payment Is Not Enough
The promoter contended that acceptance of Rs. 50 crore by the lender amounted to deemed approval of the restructuring and novation of the original contract.
The Court firmly rejected this argument.
“Receipt of various sums of money would not amount to acceptance of the restructuring proposals, thereby novating the earlier loan agreement.”
The restructuring proposals were expressly contingent upon fulfilment of pre-implementation conditions. Since those conditions were not satisfied, the proposals never crystallised into enforceable agreements. Mere part payments did not extinguish the original debt nor constitute full satisfaction.
Thus, the original default survived.
Scope of NCLT’s Jurisdiction at Admission Stage
The Court undertook a detailed analysis of Sections 3(12), 5(7), 5(8), 7 and the scheme of the Code.
Reaffirming Innoventive Industries Ltd. v. ICICI Bank, the Court quoted:
“In the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see… that a default has occurred. It is of no matter that the debt is disputed so long as the debt is ‘due’.”
The Court clarified that at the admission stage, the Adjudicating Authority is only required to ascertain the existence of financial debt and default. It is not required to examine disputes, viability, inability to pay, or equities.
“The Code restricts the scope of enquiry for admission… merely to the existence of default of a debt due and payable and nothing more.”
Addressing reliance on Vidarbha Industries Power Ltd. v. Axis Bank Ltd., the Bench clarified that its observations were confined to peculiar facts involving a large regulatory award in favour of the corporate debtor. Referring to M. Suresh Kumar Reddy v. Canara Bank, the Court observed:
“The decision in Vidarbha Industries cannot be read… as taking a view which is contrary to Innoventive Industries.”
Thus, Innoventive continues to lay down the correct legal position.
Viability of Corporate Debtor – Legally Irrelevant at Admission Stage
The appellant emphasised that the power plant was operational, had a 25-year PPA, raised bills of Rs. 906 crore, and earned EBITDA of Rs. 20 crore per month during CIRP.
The Court held that such factors are irrelevant at the admission stage. It also noted that outstanding liability exceeded Rs. 3103.31 crore, far surpassing the projected revenues.
The Court reiterated that unlike winding up under the Companies Act, the IBC does not require a finding of inability to pay. Default alone is sufficient.
Settlement Proposals and Commercial Wisdom of CoC
The appellant submitted five settlement proposals, the highest being Rs. 1,671.86 crore, claiming it was more viable than the successful resolution plan.
The Court declined to interfere.
“It is trite law that the commercial wisdom of the CoC to accept one resolution plan over another cannot be second-guessed by the Court.”
Referring to Section 12A and Regulation 30A, the Court held that post-admission withdrawal requires approval of 90% voting share of the CoC. Since the CoC rejected the settlement proposals and approved DVC’s plan with 99.92% voting share, judicial interference was impermissible.
The Bench further noted that after introduction of Section 12A, recourse to Article 142 to withdraw CIRP “no longer arises” in ordinary circumstances, though plenary powers remain in exceptional cases.
The stay granted earlier was vacated.
The appeal was dismissed and the stay on CIRP vacated.
SEFL’s application seeking release of Rs. 125 crore deposited as a condition of stay was rejected, as no crystallised award existed and the deposit was not meant to secure its claims. The Registry was directed to refund the amount along with accrued interest to the appellant.
The Supreme Court’s judgment reinforces three cardinal principles of insolvency law. First, Section 10A cannot be invoked by artificially shifting the date of default through unimplemented restructuring proposals. Second, novation requires strict compliance with contractual conditions; part payments do not extinguish original debt. Third, at the admission stage under Section 7, the Adjudicating Authority’s inquiry is confined strictly to the existence of financial debt and default.
By upholding the primacy of “default” and the sanctity of CoC’s commercial wisdom, the Court has once again strengthened the time-bound and creditor-driven framework of the IBC.
Date of Decision: 18 February 2026
