Section 7 insolvency claims require reliable debt proof; suspicious documents and alleged fraud defeat indoor management protection.

Where foundational documents for an asserted financial debt are materially inconsistent and the surrounding circumstances suggest unauthorised routing of funds or prima facie fraud, mere assertion of debt and default is insufficient for admission under Section 7 of the Insolvency and Bankruptcy Code. The record showed conflicting versions of the facility agreement and corporate guarantee, mismatched dates and signatures, and board resolutions not aligning with company records; on that basis, the debt was not treated as established and insolvency admission was refused. The doctrine of indoor management was also held inapplicable because suspicious circumstances, disputed authority, and allegations of fabrication required inquiry rather than reliance on ostensible internal compliance.

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Issues: Whether the alleged financial debt and default under Section 7 of the Insolvency and Bankruptcy Code, 2016 could be treated as established despite serious discrepancies in the transaction documents and allegations that the facility was routed through an unauthorised or fraudulent bank account; and whether the doctrine of indoor management could protect the financial creditor in the face of suspicious circumstances surrounding the execution of the facility agreement, corporate guarantee, and board resolutions.

Issue (i): Whether the alleged financial debt and default under Section 7 of the Insolvency and Bankruptcy Code, 2016 could be treated as established despite serious discrepancies in the transaction documents and allegations that the facility was routed through an unauthorised or fraudulent bank account.

Analysis: The documentary record disclosed multiple versions of the facility agreement and corporate guarantee, inconsistencies in dates and signatures, and board resolutions that did not align with the company records. The surrounding circumstances also included criminal complaints, civil proceedings, and forensic material suggesting that the funds were not received and utilised by the borrower in the ordinary course, but were diverted through a disputed account. In such a setting, the mere existence of asserted debt and default could not be viewed in isolation, because the foundational issue was whether there was a valid disbursement giving rise to a financial debt at all.

Conclusion: The alleged debt and default were not treated as sufficient for admission under Section 7, and the rejection of the application was upheld.

Issue (ii): Whether the doctrine of indoor management could protect the financial creditor in the face of suspicious circumstances surrounding the execution of the facility agreement, corporate guarantee, and board resolutions.

Analysis: The protection of indoor management is unavailable where the surrounding circumstances are suspicious and call for inquiry. Here, the inconsistencies in the foundational documents, the disputed authority of the executing individual, and the allegations of fabrication and fraud made the transaction inherently suspect. In such circumstances, the creditor could not rely on ostensible internal compliance to sustain a claim based on disputed corporate authorisations.

Conclusion: The doctrine of indoor management did not assist the appellant.

Final Conclusion: The appeal failed because the Tribunal found no basis to interfere with the order refusing insolvency admission under Section 7, the disputed transaction being clouded by serious fraud-related inconsistencies and unauthorised documentation.

Ratio Decidendi: Where the foundational documents of a claimed financial debt are materially inconsistent and the surrounding circumstances prima facie indicate fraud or unauthorised routing of funds, the adjudicating forum may decline admission under Section 7 without treating asserted debt and default as established.

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