2026 (2) TMI 191 - AT - IBC

Admission of corporate insolvency petition upheld despite settlement proposals; interim period excluded and CIRP to resume.

Adjudicating authority found debt and default proved by the financial creditor and admitted the insolvency petition despite settlement proposals and prior ... Admission of Section 7 application - debt and default - acknowledgement of debt by OTS proposals - limitation and extension by Supreme Court suo motu order - representation of corporate debtor and power under NCLT Rules (Rule 120) - effect of interim deposit on continuation of CIRP and exclusion of period - HELD THAT:- There is no dispute with regard to the sanction of the loan, agreement entered with the Corporate Debtor by the Financial Creditor. Counsel for the Respondent has referred to letters written on behalf of the Appellant on 09.05.2016 and 26.05.2016. The Corporate Debtor was already represented and filed reply under Section 7 application represented through a Counsel. Present was not the case where Counsel representing could have been allowed to be displaced by the Adjudicating Authority in excise the power of under Rule 120 as claimed by the Appellant. The Corporate Debtor has also filed the reply which has been noticed and considered by the Adjudicating Authority. The Adjudicating Authority being satisfied of the debt and taking note of various OTS proposals given by the Corporate Debtor admitting its liability, had not committed any error in admitting Section 7 application in the CIRP proceeding. IRP submitted that in view of the interim order operating from 10.04.2025, no further steps except collation of claims were made by the IRP. We are of the view that the Adjudicating Authority by giving valid reasons and findings admitted Section 7 application, which does not warrant any interference by this Court in excise of our Appellate Jurisdiction. Appellant submitted that the amount which was deposited under the order of the Court has already lapsed and no further steps have to be taken. However, the Appellant submits that no direction needed with regard to deposited amount. The period from 10.04.2024 till date shall be excluded from the CIRP period. The IRP shall now proceed further in the CIRP in accordance with law. Appeal is dismissed subject to above. Issues: (i) Whether the Adjudicating Authority erred in admitting the Section 7 petition by finding existence of debt and default based on OTS proposals, payments and admissions; (ii) Whether the Adjudicating Authority was required to displace the counsel on record under Rule 120 of NCLT Rules, 2016 and permit substitute counsel to represent the corporate debtor.Issue (i): Whether the Section 7 petition satisfied the twin conditions of debt and default and whether the Adjudicating Authority could admit the petition relying on OTS proposals, part payments and admissions.Analysis: The record included loan agreements, ledger statements, dates of disbursement and default, multiple OTS proposals and correspondence indicating acceptance of liability and part payments/deposits made pursuant to interim orders. The timeline of dues, the ledger entries and the OTS proposals were treated as evidencing acknowledgement of liability and established the existence of debt and default. Consideration was given to limitation extension by the Supreme Court suo motu order related to COVID-19 and the effect of interim deposits and admissions on the claim of debt.Conclusion: The Section 7 petition was properly admitted on the basis that debt and default were established by the documents and acknowledgements relied upon; admission of the Section 7 application was upheld (against the Appellant).Issue (ii): Whether substitution or discharge of counsel for the corporate debtor should have been permitted by the Adjudicating Authority under Rule 120.Analysis: The corporate debtor was already represented and had filed a substantive reply to the Section 7 petition through counsel on record. No NOC from the existing counsel was placed on record by the inducting counsel; the Adjudicating Authority declined to exercise jurisdiction to displace the existing counsel where the counsel on record opposed discharge. The Adjudicating Authority also refrained from adjudicating disputes solely between counsels in that forum.Conclusion: The Adjudicating Authority did not err in refusing to displace the counsel on record and in declining to permit substitution without the required NOC; the request under Rule 120 was correctly rejected (against the Appellant).Final Conclusion: The appellate challenge to admission of the Section 7 petition and to the denial of substitution of counsel fails; the admission stands and the insolvency resolution process may proceed in accordance with law.Ratio Decidendi: Evidence of one time settlement proposals, part payments and contemporaneous admissions in the record can constitute acknowledgement of liability sufficient to satisfy the debt and default requirement under Section 7 of the Insolvency and Bankruptcy Code, 2016, and a substitution of counsel will not be permitted absent appropriate NOC when counsel on record opposes discharge.