Proof of default in section 7 insolvency needs reliable material; disputed demand letters and balance-sheet entries are insufficient.

For admission of a section 7 insolvency petition, default must be proved on reliable material. Where the alleged demand letter is seriously disputed and its authenticity is under challenge in parallel proceedings, the adjudicating authority will not conduct a summary trial of contested evidence. A balance-sheet entry by itself is insufficient to establish default, and the absence of the underlying agreement for an inter-corporate deposit weakens the creditor's case. The discussion also notes the debtor's reliance on section 10A, with the unresolved authenticity dispute going to the root of maintainability.

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Issues: (i) Whether debt and default were established so as to justify initiation of corporate insolvency resolution process under section 7 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the application warranted rejection in view of the dispute regarding the authenticity of the demand letter and the effect of section 10A of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether debt and default were established so as to justify initiation of corporate insolvency resolution process under section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The parties were in dispute about the very basis of default. The financial creditor relied on a letter dated 09 January 2019, while the corporate debtor disputed its genuineness and asserted that the only demand letter was of 08 May 2020. The record also showed that the transaction was an inter-corporate deposit, but no agreement was placed on record to establish the contractual terms. The balance sheet entry by itself was held insufficient to prove default. Since proof of default is a foundational requirement for admission under section 7, and the authenticity of the relied-upon letter was already under scrutiny before the criminal court, the adjudicating authority declined to undertake a trial of disputed evidence in a summary proceeding.

Conclusion: Debt and default were not proved. The issue was decided against the financial creditor and in favour of the corporate debtor.

Issue (ii): Whether the application warranted rejection in view of the dispute regarding the authenticity of the demand letter and the effect of section 10A of the Insolvency and Bankruptcy Code, 2016.

Analysis: The corporate debtor relied on the later demand communication and on section 10A to contend that the proceeding could not be maintained on a default arising within the protected period. The adjudicating authority noted the pending criminal proceedings concerning the alleged forged letter dated 09 January 2019 and held that the unresolved authenticity dispute went to the root of the alleged default. In the circumstances, the authority found that the ingredients necessary for admission under section 7 were absent.

Conclusion: The application was not maintainable on the facts proved before the authority, and the petition was dismissed in favour of the corporate debtor.

Final Conclusion: The insolvency petition failed for want of established default, while the connected application concerning charge entries was also closed on the basis of the explanations accepted from the corporate debtor.

Ratio Decidendi: For admission of a section 7 insolvency petition, default must be established on the basis of reliable material, and where the alleged demand foundation itself is seriously disputed and cannot be adjudicated in a summary proceeding, CIRP cannot be initiated.

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