Section 7 insolvency petition fails when alleged default and NPA classification are inconsistent with the record and lack bona fides.

An application under section 7 of the Insolvency and Bankruptcy Code was found unsustainable where the alleged default and NPA classification were not consistently supported by the documentary record. The Tribunal noted repeated enhancement of credit facilities, fresh consortium documentation, and inconsistencies in the asserted dates of default and NPA, which undermined the claimed basis for insolvency initiation. It also relied on the surrounding circumstances and prior proceedings to conclude that the petition was not filed with clean hands and that the asserted default appeared collusive and mala fide. On that footing, the insolvency petition was dismissed and CIRP was not triggered.

---

---

Issues: (i) Whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable on the alleged default and classification of the account as a non-performing asset. (ii) Whether the surrounding circumstances showed that the petition was filed with mala fide intent and collusion, rendering the claim of default unreliable.

Issue (i): Whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable on the alleged default and classification of the account as a non-performing asset.

Analysis: The record showed repeated enhancement of credit facilities and execution of fresh consortium documents shortly before the asserted date of default and NPA classification. The dates of alleged default and NPA were found inconsistent and inadequately explained. The material placed did not satisfactorily establish that the claimed default had arisen in the manner asserted for initiating corporate insolvency proceedings.

Conclusion: The application was not maintainable on the basis of the alleged default and NPA classification.

Issue (ii): Whether the surrounding circumstances showed that the petition was filed with mala fide intent and collusion, rendering the claim of default unreliable.

Analysis: The Tribunal relied on the background of the parties' earlier proceedings, the conduct reflected in the record, and the circumstances surrounding the filing of the petition to hold that the default set up was not true and correct. It found that the financial creditor had not approached the Tribunal with clean hands and that the surrounding circumstances supported an inference of collusion and a lack of bona fides.

Conclusion: The petition was found to have been filed with mala fide intent and the asserted default was disbelieved.

Final Conclusion: The intervention application was allowed and the insolvency petition was dismissed, leaving the corporate debtor outside CIRP.

Ratio Decidendi: Where the claimed default and NPA classification are materially inconsistent with the documentary record and the surrounding circumstances show lack of bona fides, the Tribunal may refuse to admit a section 7 insolvency petition.

---