Proof of debt against the corporate debtor is essential; an unregistered and doubtful memorandum could not trigger insolvency proceedings.

A Section 7 Insolvency and Bankruptcy Code claim cannot proceed unless reliable material shows a legally enforceable financial debt due from the corporate debtor. The Tribunal found that the loan was transferred to the managing director's personal account, the mortgage deed reflected personal borrowing secured by his individual property, and the record did not prove disbursement to the company. It also treated the unregistered memorandum of understanding as doubtful in genuineness and unsafe to rely on in summary insolvency proceedings. As debt and default against the corporate debtor were not established, the document could not support initiation of insolvency action.

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Issues: Whether the unregistered memorandum of understanding dated 05.07.2019 could be relied upon to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate debtor, in the absence of proof that the loan was advanced to the company and not to its director in his personal capacity.

Analysis: The Tribunal found that the money was transferred to the personal account of the managing director and that the mortgage deed showed a personal borrowing secured by his individual property. The record did not establish that the loan amount was disbursed to the corporate debtor. The memorandum of understanding was also treated as doubtful in genuineness and, being unregistered, could not be safely relied upon for commencement of insolvency proceedings in a summary jurisdiction. In these circumstances, the Tribunal held that the alleged financial contract between the appellant and the corporate debtor was not proved and that the requirement of debt and default against the company was not established.

Conclusion: The unregistered memorandum of understanding could not be acted upon for initiation of insolvency proceedings against the corporate debtor, and the appeal failed.

Ratio Decidendi: For initiation of proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, the existence of a legally enforceable financial debt due from the corporate debtor must be shown by reliable material, and a doubtful unregistered document unsupported by proof of disbursement to the company cannot establish debt and default.

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