Proof of financial debt and default is essential for Section 7 admission; settlement and missing records defeated insolvency claim.

An application under Section 7 of the Insolvency and Bankruptcy Code cannot be admitted unless the financial creditor proves, with reliable documentary evidence, both a subsisting financial debt and default. On the facts, alleged unsecured loans shown in earlier balance sheets were displaced by a later memorandum of understanding settling the consideration and liabilities arising from the transfer of the corporate debtor; the audited accounts and correspondence indicated that the claimed dues had been adjusted and no amount remained payable. The appellant also failed to produce contemporaneous proof of disbursal, agreed interest, payment mode, or any reliable record of default after settlement. The refusal to admit the insolvency application was therefore upheld.

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Issues: Whether the appellant established the existence of a financial debt and default so as to warrant admission of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The application was founded on alleged unsecured loans reflected in earlier balance sheets, but the record showed a subsequent memorandum of understanding between the parties settling the consideration and liabilities arising from the transfer of the corporate debtor. The correspondence and the audited financial statements for the later period indicated that the appellant's dues had been adjusted and that no amount remained payable as claimed. The appellant failed to produce contemporaneous documents showing disbursal of the alleged loan, agreed interest, the mode of transaction, or any reliable record proving the asserted default after the settlement arrangement. In proceedings under Section 7, the financial creditor must furnish evidence of default, and the materials on record did not satisfy that requirement.

Conclusion: The existence of financial debt and default was not proved; the refusal to admit the Section 7 application was and no interference was warranted.

Final Conclusion: The appeal failed because the appellant could not substantiate a legally enforceable unpaid financial liability after the settlement arrangement, and the dismissal of the insolvency application was upheld.

Ratio Decidendi: An application under Section 7 of the Insolvency and Bankruptcy Code, 2016 cannot be admitted unless the financial creditor proves, through reliable documentary evidence, both the subsisting financial debt and the occurrence of default.

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