Proof of debt and default is mandatory for Section 7 insolvency admission where pledged security weakens the claim.

Admission of a Section 7 petition under the Insolvency and Bankruptcy Code depends on proof of both a financial debt due and payable and an actual default. On the facts, the creditor had invoked pledged shares, received interest payments, and did not establish the value realised from the security, while the debtor contended that the pledged shares exceeded the claimed liability. The Tribunal treated these surrounding facts as undermining the existence of a live recoverable debt on the filing date. Pending arbitration and recovery proceedings were not decisive; the application failed because debt and default were not affirmatively proved.

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Issues: Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable in the absence of a proved debt due and default, particularly after invocation of the pledged shares and in the background of pending arbitration and recovery proceedings.

Analysis: The application was examined on the footing that, in a proceeding under Section 7, the Adjudicating Authority must be satisfied that a financial debt exists and that a default has occurred. The definition of "debt" and "default" under the Code was applied to test whether the principal sum of Rs. 30 crores had remained due and payable. The record showed that the financial creditor had invoked the pledged shares in 2015, had received interest payments over time, and had not established the value realised from the pledged securities at the relevant time. On the corporate debtor's case, the pledged shares were valued far above the claimed liability, and the Tribunal treated the invocation of the security as materially affecting the claim of subsisting debt. The pendency of arbitration and other proceedings was not treated as the decisive ground; the determinative question remained whether a live debt and default were proved on the date of filing.

Conclusion: The financial creditor failed to establish the existence of a debt due and payable and the consequent default, so the application under Section 7 was rejected.

Ratio Decidendi: For admission of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, the financial creditor must affirmatively establish both the subsistence of a debt due and payable and the occurrence of default; where the creditor's own invocation of pledged security and surrounding facts negate a live recoverable debt, admission cannot be ordered.

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