Cash collateral adjustment does not cure prior default, and a Section 7 application remains maintainable if debt and default are disclosed.

A subsequent adjustment of dues from cash collateral does not retrospectively erase an earlier default or change the date on which non-payment first occurred; default under the Insolvency and Bankruptcy Code arises when debt becomes due and remains unpaid. The discussion further notes that a Section 7 application is not incomplete merely because the default date or dues are later disputed, so long as the pleadings disclose the facility documents, date of default, demand notice, recall notice, and outstanding liability. On that reasoning, the objection that the application was defective was rejected and the matter was restored for fresh consideration.

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Issues: (i) Whether adjustment of dues from cash collateral could erase the earlier default or alter the date of default; (ii) Whether the Section 7 application was inherently defective and incomplete for want of a correct default date and computation of dues.

Issue (i): Whether adjustment of dues from cash collateral could erase the earlier default or alter the date of default.

Analysis: The default had occurred when the instalment fell due and remained unpaid. The subsequent recoupment from cash collateral was only a mode of recovery under the contractual security arrangement and affected computation of the outstanding amount, not the historical fact of default. A default under Section 3(12) of the Insolvency and Bankruptcy Code, 2016 is non-payment when debt has become due and payable, and later adjustment does not retrospectively cure that default.

Conclusion: The adjustment from cash collateral did not extinguish the earlier default or change the date of default; the finding to the contrary was incorrect.

Issue (ii): Whether the Section 7 application was inherently defective and incomplete for want of a correct default date and computation of dues.

Analysis: The pleadings in Part IV of the Section 7 application contained the facility documents, the date of default, the demand notice, the loan recall notice, and the outstanding amount. The application disclosed the material particulars necessary to show financial debt and default, and the alleged post-default adjustment did not render the application incomplete. The objection based on Section 7(3)(a) of the Insolvency and Bankruptcy Code, 2016 was therefore unsustainable.

Conclusion: The Section 7 application was not defective or incomplete on the grounds found by the Adjudicating Authority.

Final Conclusion: The impugned rejection order was set aside and the Section 7 application was restored for fresh consideration in accordance with law.

Ratio Decidendi: A subsequent adjustment from security does not retrospectively cure a default already committed, and a Section 7 application remains maintainable if it otherwise discloses the debt, default, and outstanding liability.

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