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 correspondence; this admission was upheld on appeal because the corporate debtor was properly represented and its reply was considered. The tribunal held that displacement of existing counsel under procedural rules was not justified. An interim order caused suspension of CIRP steps from 10.04.2024 and that period is to be excluded from the CIRP timeline; the interim deposit need not be further directed and the interim resolution professional shall resume CIRP proceedings in accordance with law.

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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.

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