Demerger-linked debt liability and proven default supported section 7 insolvency admission against the transferee company.

A demerger scheme can transfer liabilities of the demerged undertaking to the transferee company, making it liable for the loan debt and bringing the claim within the meaning of financial debt where the facilities carried interest. For admission under section 7 of the Insolvency and Bankruptcy Code, the Tribunal examined whether default was shown and whether the application was complete, including supporting records and the absence of any disciplinary proceeding against the proposed interim resolution professional. On the stated facts, the documents established default and statutory compliance, supporting admission of the insolvency petition and commencement of the interim resolution process.

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Issues: (i) Whether the applicant bank was a financial creditor in respect of the respondent corporate debtor and whether the debt claimed constituted a financial debt. (ii) Whether default was established and the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was complete so as to warrant admission and appointment of an interim resolution professional.

Issue (i): Whether the applicant bank was a financial creditor in respect of the respondent corporate debtor and whether the debt claimed constituted a financial debt.

Analysis: The loan facilities had originally been sanctioned to the demerged company, but pursuant to the approved demerger scheme the liabilities relatable to the demerged undertaking stood transferred to the respondent. The respondent also acknowledged that the assets and liabilities of the relevant unit had been transferred to it and requested loan documentation accordingly. The debt arose from disbursal of loan facilities carrying interest, which brought it within the statutory concept of financial debt.

Conclusion: The applicant bank was a financial creditor of the respondent corporate debtor and the claim constituted a financial debt.

Issue (ii): Whether default was established and the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was complete so as to warrant admission and appointment of an interim resolution professional.

Analysis: The respondent's admission letter, the statement of account, supporting loan documents, charge records and financial statements showed outstanding dues and non-payment. The application was filed in the prescribed form with the required particulars and there was no pending disciplinary proceeding against the proposed interim resolution professional. The Tribunal held that for admission under section 7, it is sufficient to ascertain the existence of default and compliance with the statutory requirements.

Conclusion: Default was proved, the application was complete, and admission of the insolvency petition with appointment of the proposed interim resolution professional was justified.

Final Conclusion: The insolvency process was triggered against the corporate debtor, moratorium followed, and the interim resolution process was directed to commence.

Ratio Decidendi: Where a demerger scheme transfers the relevant undertaking and its liabilities to the respondent, the transferee becomes liable for the debt, and once default, completeness of the application, and absence of disciplinary proceedings are shown, admission under section 7 follows.

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