Kiran Raj

The Supreme Court of India, Three Judge Bench of Chief Justice Surya Kant and Justice Joymalya Bagchi and Justice Vipul M. Pancholi, dismissed a civil appeal filed by a promoter trust challenging the initiation of Corporate Insolvency Resolution Process against a thermal power company based in West Bengal. The Court affirmed that once a financial creditor establishes the existence of a debt and a corresponding default, the adjudicating authority is left with no discretion to decline admission of an application under the Insolvency and Bankruptcy Code — making the initiation of insolvency proceedings a mandatory consequence rather than an optional remedy.

The appeal arose from admission of a financial creditor’s application under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiating corporate insolvency resolution process against a power generation company. The appellant, a promoter of the corporate debtor, challenged the order of the appellate tribunal affirming admission by the adjudicating authority.

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A common loan agreement executed in 2013 provided term loans for establishing a thermal power plant, followed by an additional facility in 2015. The account was classified as non-performing in 2018. Restructuring proposals were approved in February and September 2020, subject to pre-implementation conditions including a favourable tariff order, creation of a debt service reserve account, operational benchmarks, and infusion of specified funds. The corporate debtor failed to fulfil these conditions.

The financial creditor filed the Section 7 application recording default in March 2018. The promoter contended that restructuring novated the original agreement and shifted the default date within the protection period under Section 10A. It also argued that the company was viable and that settlement proposals exceeded the resolution plan approved by the committee of creditors. The respondents disputed novation, applicability of Section 10A, and maintainability of the settlement plea.

On the scope of inquiry permissible at the admission stage under Section 7 of the Insolvency and Bankruptcy Code, the Court observed that "when the financial creditor initiates the insolvency process for the purposes of admission, the Adjudicating Authority is only to ascertain the existence of a default from the records of the information utility or the evidence furnished by the financial creditor within fourteen days from the receipt of such application."

Citing Innoventive Industries Ltd. v. ICICI Bank, the Court further recorded that "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 disputed so long as 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."

On the limited jurisdiction of the adjudicating authority, the Court noted the position settled in E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., stating that "the adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute."

On the corporate debtor's inability to pay, the Court observed that "the Adjudicating Authority is not required to go into the inability of a corporate debtor to pay its debt. This is a clear departure from the scheme of winding up envisaged under Section 433(e) of the erstwhile Companies Act, 1956 which required the Adjudicating Authority to come to a finding with regard to the inability of the company to pay the debt and thereby arrive at a requisite satisfaction whether it is just and equitable to wind up the company. The Code restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more."

On the apparent tension between Vidarbha Industries Power Ltd. v. Axis Bank Ltd. and earlier precedents, the Court stated that the dichotomy was set at rest in M. Suresh Kumar Reddy v. Canara Bank, wherein it was recorded that "the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. The view taken in Innoventive Industries still holds good."

On the corporate debtor's reliance on Vidarbha to argue that the adjudicating authority ought to have examined commercial viability before admitting the insolvency application, the Court observed that "in Vidarbha (supra), this Court had taken note of an award passed by APTEL in favour of the corporate debtor which far exceeded the claim of the financial creditor, and held in the setting of such facts, initiation of CIRP was unwarranted. In the present case, Appellant's contention regarding Corporate Debtor's viability is highly dubious. Though the Corporate Debtor strenuously demonstrates its commercial viability, the NCLAT has noted that the extent of outstanding liability as on 02.01.2024 was Rs. 3103.31 crore, which far exceeds the bills raised on WBSEDCL to the tune of Rs 906 crore and EBITDA of Rs. 20 crore per month during the CIRP."

On the restructuring proposals and the shifting of the default date, the Court agreed with the Respondents' position that "once the restructuring failed at that threshold stage, the date of default cannot be shifted by referring to repayment schedules contemplated under those unimplemented proposals."

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On the settlement proposals pressed by the promoter, the Court observed that directing any further stalling of the insolvency process "would be prejudicial to the interest of a swift and timely resolution of insolvency process."

The Court directed, “In light of the aforesaid discussion, the appeal is dismissed and the stay on CIRP vide order dated 12.09.2025 is vacated.”

On the application filed by the secured creditor seeking release of the deposited amount, the Court recorded that it was “unwilling to accede to such plea as no award, final or interim, crystallising SEFL’s claim against the Appellant has been placed on record and the aforesaid deposit was made as a condition to stay the CIRP of the Corporate Debtor and not to secure any claim against the Appellant.” Accordingly, it directed that “SEFL’s application stands rejected. Registry is directed to refund the amount of Rs.125 crore kept as fixed deposit along with interest accrued thereon to the Appellant.” It also ordered that “Pending application(s), if any, also shall stand disposed of.”

Case Title: Power Trust (Promoter of Hiranmaye Energy Ltd.) v. Bhuvan Madan & Ors.
Neutral Citation: 2026 INSC 166
Case Number: Civil Appeal No(s). 2211/2024
Bench: Chief Justice Surya Kant, Justice Joymalya Bagchi, Justice Vipul M. Pancholi