Financial debt and default established, so failed settlement talks did not stop admission of the insolvency petition.

Existence of financial debt and default, supported by loan documents, account statements, debt acknowledgements, CIBIL material and balance-sheet records, justified admission of the section 7 insolvency petition. The corporate debtor did not meaningfully dispute the borrowing or liability, and the account was found irregular, non-performing and in default. Earlier settlement discussions and a one-time settlement arrangement did not bar admission because they were not complied with in full and the creditor was entitled to revoke them. The NCLT held that the debt was a financial debt and default was established on the record, so the petition was maintainable and admitted.

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Issues: Whether the petition under section 7 of the Insolvency and Bankruptcy Code, 2016 was liable to be admitted on proof of financial debt and default, notwithstanding the parties' settlement discussions and one time settlement arrangements.

Analysis: The financial creditor produced the loan documents, account statements, acknowledgement of debt, CIBIL material and other records showing sanction of facilities, outstanding liability and persistent default. The corporate debtor did not dispute the existence of the borrowing or the liability in substance. The Bench found that the account had become irregular and was declared non-performing, and that the debt stood acknowledged in the debit balance confirmation and balance sheet. It further held that the earlier settlement and subsequent OTS arrangement had not been complied with in full, and that the creditor was justified in revoking them. On the material before it, the Bench concluded that the debt was a financial debt and that default had been established.

Conclusion: The section 7 petition was maintainable and was admitted.

Ratio Decidendi: Where existence of financial debt and default is established on the record, the pendency or failure of settlement negotiations does not prevent admission of a section 7 insolvency petition.

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