Financial debt under insolvency law: debenture subscription and proven default justified admission of the section 7 petition.

Subscription to non-convertible debentures carrying fixed returns and a repayment schedule was treated as financial debt under the Insolvency and Bankruptcy Code. The record showed interest payments up to 31.10.2016, followed by non-payment, repeated requests for extension of time, and letters acknowledging that repayment had not begun; the corporate debtor also filed no reply or factual dispute. On that basis, default was established and the section 7 application was fit for admission, because the adjudicating authority's enquiry is limited to whether default has occurred and does not extend to a broader merits review. Financial statements likewise indicated inability to repay debts.

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Issues: Whether the debt arising from subscription to non-convertible debentures constituted a financial debt, whether default was established, and whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was fit to be admitted for commencement of the Corporate Insolvency Resolution Process.

Analysis: The debt claimed arose from debenture subscriptions carrying a fixed return and a structured repayment schedule, which brought the liability within the definition of financial debt. The record showed payment of interest up to 31.10.2016, subsequent non-payment, repeated requests by the corporate debtor for extension of time, and letters acknowledging that repayment had not commenced. The corporate debtor did not file a reply or dispute the material facts. On that basis, default stood established. The scope of enquiry under section 7 is limited to satisfaction that default has occurred, and once default is shown, the petition is liable to be admitted. The financial statements and balance-sheet figures also indicated that the corporate debtor was not in a position to repay its debts.

Conclusion: The application was maintainable and the debt and default were proved; admission of the petition and initiation of CIRP were warranted.

Final Conclusion: The insolvency petition was allowed, CIRP was commenced against the corporate debtor, an interim resolution professional was appointed, and moratorium directions were issued.

Ratio Decidendi: Where the applicant establishes a financial debt and a continuing default, the adjudicating authority must admit a section 7 application, as its enquiry is confined to the occurrence of default and not a broader merits review.

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