Kiran Raj

The Supreme Court Division Bench of Justices Sanjay Kumar and K. Vinod Chandran held that the existence of an informal debt restructuring arrangement between a corporate debtor and one of its debenture holders does not preclude initiation of corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code. The Court set aside concurrent orders of the NCLT and NCLAT, which had declined to admit a Section 7 application filed by a debenture trustee on the ground that a restructuring arrangement with an 18-month moratorium was already in operation, finding those conclusions unsustainable on facts and in law.

The appeal arose from refusal to initiate corporate insolvency resolution process under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a real estate company. The appellant, acting as debenture trustee on behalf of debenture holders, had filed an application seeking initiation of insolvency proceedings alleging default in repayment of amounts due under a Debenture Trust Deed executed on 27.03.2018. Under the arrangement, 850 redeemable non-convertible debentures worth ₹850 crore were proposed, of which Series A debentures amounting to ₹600 crore were subscribed and disbursed.

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In March 2022, the respondent company entered into email correspondence with one debenture holder proposing restructuring of repayment and seeking an 18-month moratorium. The debenture trustee was not initially privy to these communications. A demand letter was issued by the trustee claiming overdue amounts of ₹65,49,72,125/-. The restructuring proposal was subsequently placed before the debenture holders and rejected by 94.84% of them. A recall notice demanding ₹1,203.55 crore was thereafter issued. The insolvency application filed by the trustee was dismissed by the adjudicating authority and the dismissal was affirmed in appeal, leading to the present proceedings.

The Court recorded the legal position governing admission of a Section 7 application and observed “On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is ‘due’ i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

With respect to the restructuring proposal, the Court stated “In the absence of express authorization of Saahil Dugar to act on behalf of the other debenture holders, which include a company, an LLP and individuals, his actions could not bind them.”

It further recorded “The bald statement by the respondent company that the subsidiaries had no independent volition of their own, therefore, cannot be accepted.”

On the requirement of modification under the Debenture Trust Deed (DTD), the Court observed “Clause 33.4 is of crucial importance and states that no amendment, modification or termination of any provision of the DTD or debenture documents shall be effective unless the same is in writing and signed by or on behalf of each of the parties.”

The Court also noted “There is no escaping the fact that the entire case of the respondent company is built on the so-called restructuring of the loan facility under the DTD, but it is an admitted fact that the procedure prescribed under the DTD for such modification and variation of the terms thereunder was not adhered to.”

The Court further observed: “…the respondent company could not have assumed that ECLF had already agreed to the restructuring proposal without further ado and that the same was binding upon all concerned. In this regard, the observations made by the NCLAT against ECLF are without basis as the aforestated communication from ECLF to the respondent company demonstrates that no promise was held out by it as to the restructuring and all that was stated was that the proposal would be considered as per due procedure.”

On findings of collusion recorded by the appellate tribunal, the Court stated “The adverse remarks made against the debenture trustee are, accordingly, set aside.”

Regarding interference at the second appellate stage, the Court observed “We find the present case to be one such case, where the perversity of the findings recorded by the NCLT and by the NCLAT is glaring and manifest, beseeching interference by this Court at the second appellate stage.”

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The Court directed “In consequence, the order dated 03.02.2023 passed by the National Company Law Tribunal, Mumbai Bench-I, and the judgment dated 16.04.2025 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, are set aside.”

“Company Petition (IB) 922/MB/C-I/2022 is restored to the file of the National Company Law Tribunal, Mumbai Bench-I, and the same shall be admitted by way of a separate order. Necessary further steps shall be initiated thereafter as per due procedure. The appeal is allowed in the aforestated terms.”

Advocates Representing the Parties:
For the Petitioners: Mr. Aryama Sundaram, Sr. Adv. Ms. Akanksha Mehra, AOR Mr. Himanshu Tyagi, Adv. Mr. Lakshay Saini, Adv. Ms. Rohini Musa, Adv.
For the Respondents: Mr. Ashwani Kumar, Sr. Adv. Mr. Amit Sharma, AOR Mr. Virag Gupta, Adv. Mr. Dipesh Sinha, Adv. Ms. Pallavi Barua, Adv. Ms. Aparna Singh, Adv.

Case Title: Catalyst Trusteeship Ltd. v. Ecstasy Realty Pvt. Ltd.
Neutral Citation: 2026 INSC 186
Case Number: Civil Appeal No. 7424 of 2025