Statutory insolvency inquiry cannot be bypassed by an equitable payment direction under a rehabilitation scheme.

A claim treated in a rehabilitation scheme and financial records as a contingent liability could not be finally converted into a scheme-bound debt by an equitable payment direction, especially where the claimant was not shown as an unsecured creditor in the scheme. The tribunal held that the Adjudicating Authority was required to examine whether operational debt existed, whether default had occurred, and whether any pre-existing dispute survived before dealing with a section 9 petition. Because that statutory inquiry was bypassed and payment was directed instead, the impugned order was set aside and the insolvency petition was restored for fresh consideration on merits.

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Issues: (i) Whether the appellant's claim was only a contingent liability bound by the rehabilitation scheme, or whether the corporate debtor was obliged to make payment in terms of the scheme and the appellant remained entitled to invoke section 9 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the Adjudicating Authority was required to examine existence of debt, default, and pre-existing dispute and admit the section 9 petition instead of directing payment under the scheme.

Issue (i): Whether the appellant's claim was only a contingent liability bound by the rehabilitation scheme, or whether the corporate debtor was obliged to make payment in terms of the scheme and the appellant remained entitled to invoke section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The claim of the appellant was shown in the rehabilitation scheme and in the financial records as contingent liability, not as an unsecured creditor's admitted dues. The scheme itself contemplated payment to unsecured creditors in five instalments where the creditor was treated as such, but the appellant was not shown in the unsecured creditor list. The corporate debtor's own treatment of the claim as contingent did not justify treating the appellant as finally bound by the scheme in the manner directed by the Adjudicating Authority.

Conclusion: The appellant was not bound to accept the belated payment direction as a substitute for its insolvency remedy, and the claim could not be finally treated as concluded merely by reference to the rehabilitation scheme.

Issue (ii): Whether the Adjudicating Authority was required to examine existence of debt, default, and pre-existing dispute and admit the section 9 petition instead of directing payment under the scheme.

Analysis: The appellate tribunal held that the Adjudicating Authority was duty bound to determine whether operational debt existed, whether default had occurred, and whether any pre-existing dispute survived. Instead of conducting that statutory inquiry, it directed payment of a quantified sum on equitable considerations linked to the scheme. The proper course, if debt and default were established and no pre-existing dispute existed, was admission of the section 9 petition.

Conclusion: The impugned order could not stand, and the section 9 petition ought to be considered afresh in accordance with law.

Final Conclusion: The appeal was allowed, the impugned order was set aside, and the original insolvency petition was restored to the Adjudicating Authority for fresh decision on merits.

Ratio Decidendi: Where a claim is treated as contingent rather than as admitted unsecured debt, the Adjudicating Authority cannot bypass the statutory insolvency inquiry under sections 8 and 9 of the Code by issuing an equitable payment direction under a rehabilitation scheme; it must first determine debt, default, and pre-existing dispute in accordance with the Code.

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