Section 7 insolvency admission upheld where an enforceable arbitral award proved admitted debt and default against the corporate debtor.

A Section 7 application under the Insolvency and Bankruptcy Code was found maintainable where an arbitral award had become enforceable under Section 36 of the Arbitration and Conciliation Act and the record showed an admitted, crystallised liability. The Tribunal applied the settled position that, at admission stage, it must verify the existence of financial debt and default and can consider the corporate debtor's objections only within the limited scope permitted by the Code. Objections that the claim arose from a share-purchase transaction and that liability was denied on the facts were rejected, as debt and default were established. Corporate insolvency resolution process was directed to commence, with moratorium and an interim resolution professional.

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Issues: Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable on proof of financial debt and default, and whether the corporate debtor could resist admission on the ground that the liability arose from an arbitral award and the underlying transaction.

Analysis: The application was supported by an arbitral award which had become enforceable under Section 36 of the Arbitration and Conciliation Act, 1996, and the record showed an admitted and crystallised liability. The Tribunal relied on the settled position that, at the stage of Section 7, it must ascertain the existence of default and be satisfied that the debt is due, while the corporate debtor may dispute the claim only to the limited extent recognised by the Code. The objections that the amount was part of a share-purchase transaction and that the respondent was not liable were rejected on the facts, and the Tribunal found that the debt and default were established.

Conclusion: The application was held maintainable and the corporate insolvency resolution process was directed to be initiated against the corporate debtor with appointment of an interim resolution professional and declaration of moratorium.

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