Section 7 insolvency admission follows proved default; restructuring and uncrystallised receivables did not defeat the petition.

A section 7 insolvency application remained maintainable despite the RBI-directed stressed-account process and prior restructuring proceedings, because those steps did not displace the financial creditor's statutory remedy. Financial debt and continuing default were found on the basis of disbursement records, repeated defaults, NPA classification, information utility material, and unpaid principal and interest; the unimplemented debt realignment plan and pending scheme for Bucket 2B facilities did not extinguish the default. Reliance on Vidarbha Industries Power Ltd. was rejected because the claimed receivables were not crystallised and did not negate proven default. The petition was admitted, CIRP was initiated, moratorium was declared, and an IRP was appointed.

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Issues: (i) Whether the section 7 application was maintainable in light of the RBI direction and the challenge based on prior restructuring proceedings; (ii) Whether a financial debt and default existed despite the debt restructuring under the debt realignment plan and the pending scheme of arrangement for Bucket 2B facilities; (iii) Whether the decision in Vidarbha Industries Power Ltd. warranted refusal of admission despite proof of default.

Issue (i): Whether the section 7 application was maintainable in light of the RBI direction and the challenge based on prior restructuring proceedings?

Analysis: The application was filed pursuant to the RBI direction issued after the Supreme Court permitted the RBI to proceed in relation to the stressed account. The pending proceedings relating to restructuring did not denude the financial creditor of its statutory remedy under the insolvency code. The tribunal treated the maintainability objection as already answered against the corporate debtor and held that the earlier challenge could not prevent consideration of the section 7 petition on merits.

Conclusion: The application was held to be legally maintainable.

Issue (ii): Whether a financial debt and default existed despite the debt restructuring under the debt realignment plan and the pending scheme of arrangement for Bucket 2B facilities?

Analysis: The record showed disbursement of financial facilities, repeated defaults, classification of the account as SMA-II and thereafter as NPA, and supporting default records from information utility and credit reporting materials. The tribunal held that the restructuring plan and the proposed scheme of arrangement had not been implemented so far as Bucket 2B was concerned, and therefore they did not extinguish the existing default. The sanction letter and internal correspondence relied upon by the corporate debtor were treated as insufficient to displace the admitted default, particularly because the principal and interest remained unpaid and the debt continued to be due.

Conclusion: Financial debt and continuing default were held to be established against the corporate debtor.

Issue (iii): Whether the decision in Vidarbha Industries Power Ltd. warranted refusal of admission despite proof of default?

Analysis: The tribunal held that the cited decision did not assist the corporate debtor on the facts because the claimed receivables were not crystallised or sufficient to negate the existing default. Relying on the later clarification that Vidarbha turned on its own facts, the tribunal applied the settled rule that once default is proved and the application is complete, admission under section 7 ordinarily follows, subject only to the limited statutory checks. No sufficient ground was found to withhold admission on considerations of feasibility, viability, financial health or expediency.

Conclusion: The tribunal rejected the reliance on Vidarbha Industries Power Ltd. and proceeded to admit the petition.

Final Conclusion: The section 7 petition was allowed, CIRP was initiated against the corporate debtor, moratorium was declared, and an interim resolution professional was appointed to take further steps under the code.

Ratio Decidendi: Once the adjudicating authority is satisfied from the record that a financial debt is due and a default has occurred, and the application is otherwise complete, the section 7 petition must ordinarily be admitted and restructuring proposals or uncrystallised receivables do not by themselves extinguish the default.

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