Time-barred insolvency claims cannot be admitted under section 7, even where financial debt and default are established.

A section 7 insolvency application requires proof of financial debt and default, and a loan advanced under credit facilities secured by mortgage and carrying interest qualifies as financial debt. The respondent's project-related defence did not defeat the debt claim, and default was established. However, the application was filed more than three years after the stated date of default, so the residuary limitation period applied and the debt was time-barred for insolvency purposes. On that basis, the petition could not be admitted, even though debt and default were otherwise shown.

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Issues: (i) Whether the respondent owed a financial debt to the petitioners and had defaulted in repayment; (ii) Whether the application under section 7 was barred by limitation and, therefore, not admissible.

Issue (i): Whether the respondent owed a financial debt to the petitioners and had defaulted in repayment.

Analysis: The respondent had availed credit facilities from the consortium of lenders on the basis of loan agreements and mortgage by deposit of title deeds. The debt carried interest and was advanced against consideration for the time value of money, bringing it within the definition of financial debt. The respondent had not repaid the loan, and its defence based on the failure of the underlying project was irrelevant in proceedings under the Code.

Conclusion: The issue was answered in the affirmative.

Issue (ii): Whether the application under section 7 was barred by limitation and, therefore, not admissible.

Analysis: The date of default was stated to be 16.03.2015, while the application was filed on 25.09.2018, beyond three years from the date of default. The governing principle applied was that an application under section 7 is subject to the residuary limitation period and a time-barred debt cannot be revived for insolvency proceedings. Since the claim was barred by limitation, admission of the petition was not permissible.

Conclusion: The issue was answered in the negative, and the application could not be admitted.

Final Conclusion: Although the debt and default were established, the insolvency application failed because it was filed beyond limitation and was therefore rejected.

Ratio Decidendi: A section 7 application under the Insolvency and Bankruptcy Code, 2016 cannot be admitted on the basis of a debt that is already time-barred.

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