IBC| Scope Of Inquiry At CIRP Admission Stage Limited To Existence Of Default Of A Debt Due And Payable And Nothing More: Supreme Court

The Court clarified that its earlier judgment in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022) 8 SCC 352 was confined to its peculiar facts and does not dilute the binding position laid down in Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407. The Bench also rejected the corporate debtor’s plea that the proceedings were barred by the COVID moratorium under Section 10A.

The judgment came in an appeal filed by the promoter of Hiranmaye Energy Ltd., challenging the admission of a Section 7 application initiated by REC Ltd.

CJI Surya Kant, Justice Joymalya Bagchi and Justice Vipul M. Pancholi observed, “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."

Senior Advocate Joy Saha appeared for the appellant and Senior Advocate Arvind Nayar appeared for the respondent.

In the matter, the company had availed loans exceeding ₹2,000 crore for setting up a thermal power plant in West Bengal, and after classification of the account as NPA in 2018, restructuring proposals were discussed in 2020. However, key pre-implementation conditions including tariff approvals, creation of a DSRA, and demonstration of plant viability were not fulfilled.

REC initiated CIRP recording the default date as 31-03-2018. The NCLT admitted the petition, and subsequent to which the NCLAT upheld it.

Now the Supreme Court had to examine:

1. Whether the CIRP was barred under Section 10A (COVID suspension period)?

2. Whether restructuring proposals novated the original loan agreement?

3. Whether NCLT ought to have exercised discretion based on corporate viability under Vidarbha?

4. Whether higher settlement offers by the promoter justified stalling CIRP?

The appellant in the matter argued that the default fell within the COVID-19 suspension window under Section 10A (25-03-2020 to 24-03-2021).

The Court rejected this contention holding that the original default occurred in March 2018, the restructuring proposals never crystallised into binding agreements. And even otherwise, the revised instalment schedule extended beyond the protected period. Accordingly, the CIRP was not barred under Section 10A (COVID suspension period).

The Court held that the restructuring proposals did not novate the original loan agreement, as they were contingent upon fulfilment of pre-implementation conditions that were admittedly not satisfied. Mere receipt of part payments did not amount to acceptance of restructuring or extinguishment of the original debt.

The promoter relied heavily on Vidarbha to argue that the NCLT must consider the corporate debtor’s financial viability before admitting a Section 7 petition.

However, the Court rejected the broad reading, noting that in Vidarbha, the corporate debtor had a regulatory award in its favour exceeding the debt claim, and those extraordinary circumstances informed the decision.

Furthermore, that in review proceedings and subsequently in M. Suresh Kumar Reddy v. Canara Bank (2023) 8 SCC 387, the Court clarified that Vidarbha does not override Innoventive. Therefore, reiterating Innoventive, the Court held that at the Section 7 stage, the Adjudicating Authority is only required to ascertain, existence of a financial debt; and occurrence of default. Once these are established, admission must follow. The Code does not require the NCLT to assess the corporate debtor’s commercial viability or ability to pay.

The Court emphasised that IBC proceedings are distinct from winding-up proceedings under the Companies Act, 1956, where “inability to pay” was a relevant consideration. Under the IBC, default, not commercial insolvency is the trigger, the bench said.

During the pendency of proceedings, the promoter made multiple settlement offers, allegedly higher than the successful resolution plan approved by the Committee of Creditors (CoC). The Court, however, declined to interfere, reiterating that the commercial wisdom of the CoC is non-justiciable, as withdrawal under Section 12A requires 90% CoC approval, which was absent.

"“Even otherwise on facts, Vidarbha (supra) does not come to the aid of the Appellant. In Vidarbha (supra), this Court had taken note of an award passed by APTEL35 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”, the bench further observed.

Accordingly, the appeal was dismissed and the interim stay earlier granted on CIRP vide order dated 12-09-2025 was vacated.

Cause Title: Power Trust (Promotor Of Hiranmaye Energy Ltd.) v. Bhuvan Madan (Interim Resolution Professional Of Hiranmaye Energy Ltd.) & Anr. [Neutral Citation: 2026:INSC:166]

Appearances:

Appellant: Joy Saha, Sr. Adv., Pranjit Bhattacharya, Vaibhav Niti, AOR, Salonee Shukla, Sachin Jain, Advocates.

Respondent: Arvind Nayar, Sr. Adv., Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, Aditya Tanay Pandey, Vikash Kumar Jha, M/S. Cyril Amarchand Mangaldas, AOR. S.S. Shroff, AOR, Avinash B. Amarnath, AOR, Sanjay Sen, Sr. Adv., Mandakini Ghosh, AOR, Aakanksha Bhola, Sayandeep Chakraborty, Shivansh Baghel, Advocates.

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