Section 7 IBC requires proof of enforceable debt and default; undated cheque dishonour alone was insufficient.

A Section 7 IBC application requires proof of a legally enforceable financial debt and actual default. The tribunal found that the applicant did not establish a valid borrowing by the corporate debtor, lacked evidence of board authority, and did not show that the was received on behalf of the company; the claimed lending activity was also treated as unauthorised, and the underlying claim was held time-barred. It further held that dishonour of an undated cheque, filled in long after the alleged repayment period, and the cheque return memo did not by themselves prove default. The application was therefore held not maintainable on merits.

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Issues: (i) Whether the applicant established a legally enforceable financial debt due from the corporate debtor and whether the claim was barred by limitation. (ii) Whether dishonour of the cheque and the cheque return memo proved default under the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the applicant established a legally enforceable financial debt due from the corporate debtor and whether the claim was barred by limitation.

Analysis: The application under Section 7 of the Insolvency and Bankruptcy Code, 2016 required proof of a financial debt and default. The document relied on as acknowledgment did not show a proper borrowing by the corporate debtor, was unsupported by proof of authority from the board, and did not establish that the amount was received on behalf of the company. The record also showed an earlier loan transaction and part payment, with the balance having become stale by limitation. The claimed lending activity was further found to be unauthorised in the absence of registration required for money lending, so the debt asserted was not treated as a legally enforceable claim.

Conclusion: The applicant failed to establish a legally enforceable financial debt, and the claim was held to be barred by limitation and not maintainable.

Issue (ii): Whether dishonour of the cheque and the cheque return memo proved default under the Insolvency and Bankruptcy Code, 2016.

Analysis: Default under Section 3(12) must arise from failure to repay a debt when due. The cheque relied upon was undated and was filled in by the applicant long after the alleged repayment period. In these circumstances, dishonour of that cheque could not be treated as proof of default, and the cheque return memo was held insufficient to establish the occurrence of default for purposes of Section 7.

Conclusion: Dishonour of the cheque and the cheque return memo did not prove default.

Final Conclusion: The insolvency application was not admissible on merits because neither a legally enforceable financial debt nor default was proved.

Ratio Decidendi: A Section 7 application requires proof of a legally enforceable financial debt and actual default, and an undated cheque dishonour by itself does not establish default where the underlying claim is time-barred or otherwise not legally enforceable.

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