Financial debt and default under insolvency law established through loan records, mortgage-backed restructuring, and complete Section 7 documentation.

A loan facility disbursed against interest was treated as financial debt because it involved consideration for the time value of money and the commercial effect of borrowing, making the bank a financial creditor. The Section 7 application was found complete as it contained the required debt particulars, default evidence, and a valid consent and eligibility declaration from the proposed interim resolution professional. Limitation was held not to bar the claim, given the mortgage-backed restructuring and the demerger-linked liability, and default was established on the loan records and account statements. Admission of the corporate insolvency resolution process followed, together with moratorium and interim resolution professional directions.

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Issues: (i) Whether the applicant bank was a financial creditor and the debt claimed constituted financial debt under the Code; (ii) Whether the Section 7 application was complete and the proposed interim resolution professional was eligible; (iii) Whether the claim was barred by limitation and whether default was established for admission.

Issue (i): Whether the applicant bank was a financial creditor and the debt claimed constituted financial debt under the Code.

Analysis: The applicant had sanctioned and disbursed loan facilities against interest under loan agreements. The debt included principal and interest and arose from facilities extended for the power division that continued with the corporate debtor after demerger. A loan disbursed against consideration for time value of money with a commercial effect of borrowing falls within the statutory definition of financial debt, and the lender becomes a financial creditor.

Conclusion: The issue was answered in favour of the applicant bank.

Issue (ii): Whether the Section 7 application was complete and the proposed interim resolution professional was eligible.

Analysis: The application was supported by the required documents, particulars of financial debt, and evidence of default. Technical objections to the form were held to be insignificant. The proposed interim resolution professional had furnished the required consent, disclosures, and declaration of eligibility, and no disciplinary proceeding was pending against him.

Conclusion: The issue was answered in favour of the applicant bank.

Issue (iii): Whether the claim was barred by limitation and whether default was established for admission.

Analysis: The account had been restructured and secured by mortgage, attracting the longer limitation period applicable to mortgage-backed claims. The demerger order also fixed liability in relation to the power division and supported a fresh period of limitation. The adjudicating authority is required in a Section 7 proceeding to ascertain the existence of default and not the exact quantification of the claim. The record contained sanction letters, loan documents, statements of account, and other evidence sufficient to establish default.

Conclusion: The issue was answered in favour of the applicant bank.

Final Conclusion: The application satisfied the requirements for admission of a corporate insolvency resolution process, the default stood established, and moratorium and interim resolution professional directions followed as a consequence of admission.

Ratio Decidendi: In a Section 7 proceeding, the adjudicating authority must ascertain the existence of financial debt, default, and completeness of the application, and need not determine the exact quantum of the claim.

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