Section 7 insolvency admission upheld where debt and default were proved and the MSME restructuring plea lacked cooperation.

In a section 7 insolvency context, financial debt and default were treated as established on the basis of loan documents, security papers, account statements, and an authenticated default record, and the corporate debtor's acknowledgement of non-payment reinforced that finding. Once default above the statutory threshold was shown, admission of the application followed. The debtor's MSME restructuring request did not bar or defer admission because the restructuring framework required cooperation with stock audit and inspection, and the record showed repeated non-cooperation and silence to audit-related communications. The belated restructuring plea was therefore not accepted as a basis to stop CIRP admission, and the admission order was affirmed.

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Issues: (i) Whether debt and default were established so as to warrant admission of the section 7 application under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the corporate debtor's MSME restructuring request barred or deferred admission of the insolvency petition.

Issue (i): Whether debt and default were established so as to warrant admission of the section 7 application under the Insolvency and Bankruptcy Code, 2016.

Analysis: The creditor produced loan documents, security documents, account statements and a record of default with authenticated status. The corporate debtor did not dispute availing the facilities. The restructuring request dated 02.09.2024 also acknowledged the invocation of bank guarantees and non-payment, which was treated as an admission of the outstanding debt and default. In a section 7 proceeding, once default exceeding the statutory threshold is shown, the application has to be admitted.

Conclusion: The debt and default were held to be proved, and admission of the section 7 application was upheld.

Issue (ii): Whether the corporate debtor's MSME restructuring request barred or deferred admission of the insolvency petition.

Analysis: The MSME revival framework and the ratio in Pro Knits require banks to consider restructuring requests, but the MSME must also comply with the procedural requirements and cooperate in stock audit and inspection. The record showed repeated requests by the creditor for stock audit and access to secured assets, but the corporate debtor did not cooperate and remained silent to later audit-related communications. The restructuring plea was therefore treated as a belated afterthought and not a ground to prevent admission of the section 7 application.

Conclusion: The MSME restructuring plea did not defeat or postpone admission of the insolvency petition.

Final Conclusion: The order admitting the corporate debtor into CIRP was affirmed and the appeal failed.

Ratio Decidendi: In a section 7 proceeding, once financial debt and default above the statutory threshold are established, admission follows; an MSME borrower seeking restructuring must also cooperate with the procedural requirements of the restructuring framework, and a belated non-cooperative plea cannot admission.

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