Financial debt proof is essential under Section 7; disbursal alone and supporting entries did not establish default.

For admission under Section 7 of the Insolvency and Bankruptcy Code, 2016, a financial creditor must establish both the existence of a financial debt and default. Mere proof that money was disbursed, or reliance on bank entries, balance sheets, cheque dishonour material, TDS-related material and alleged acknowledgements, was found insufficient where the transaction's character remained disputed and the contractual terms of repayment, interest and tenure were not reliably proved. In the absence of proof that the amount was a loan advanced against time value of money, the dishonoured cheques and TDS deductions did not by themselves establish default. On the facts proved, the Section 7 application was not maintainable.

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Issues: Whether the amount of Rs. 70,00,000 disbursed to the corporate debtor constituted a financial debt and whether default was established so as to admit the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The disbursal of Rs. 70,00,000 was not in dispute, but the parties gave conflicting versions as to its character, one asserting it was a loan and the other asserting it was a long-term investment repayable after 10 years. The documents placed on record, including bank entries, balance sheets, cheque dishonour material, TDS-related material and alleged acknowledgements, were treated only as corroborative and were found insufficient to prove the existence of a written or otherwise established financial contract setting out the terms of repayment, interest and tenure. The burden lay on the financial creditor to establish a legally recoverable financial debt and corresponding default. In the absence of reliable proof that the transaction was a loan disbursed against time value of money, the dishonoured cheques and TDS deduction did not, by themselves, establish default of a financial debt.

Conclusion: The application under Section 7 was not maintainable on the facts proved, as the financial debt and default were not established.

Ratio Decidendi: For admission under Section 7 of the Insolvency and Bankruptcy Code, 2016, the financial creditor must prove both the existence of a financial debt and default, and mere disbursal of money or corroborative entries without proof of the contractual terms and the nature of the transaction is insufficient.

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