Power Trust v. Bhuvan Madan 2026 INSC 166 -IBC - Financial Creditor - CIRP

Insolvency and Bankruptcy Code, 2016 - Section 7-9 - Initiation of CIRP by financial creditor under Section 7, IBC and an operational creditor under Section 8 and 9 - Distinction- Unlike an operational creditor, a financial creditor may trigger an insolvency process under Section 7 in respect of default of any financial debt, whether owed to itself or to any other financial creditor. While the financial creditor may directly file an application under Section 7 setting out the particulars of the financial debt and evidence of default, the operational creditor, on the occurrence of a default, is to first deliver a demand notice of the unpaid debt to a corporate debtor and the latter may within 10 days of receipt of such demand notice bring to the notice of the operational creditor the existence of a dispute or record the pendency of a pre-existing suit or arbitration proceeding in respect of such debt. Once a corporate debtor demonstrates a dispute regarding the existence of the debt, the insolvency process stands aborted visà-vis the operational creditor. But when the financial creditor initiates the insolvency process for the purposes of admission, the Adjudicating Authority is only to ascertain the existence of a default from the records of the information utility or the evidence furnished by the financial creditor within fourteen days from the receipt of such application. At this stage, neither is a corporate debtor entitled nor is the Adjudicating Authority required to examine any dispute regarding the existence of such debt. This significantly reduces the scope of enquiry at the stage of a time-bound admission of an insolvency process by a financial creditor. In the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.(Para 32)

Insolvency and Bankruptcy Code, 2016 - Section 7 -Acceptance of various sums of money paid by the Corporate Debtor purportedly under restructuring proposals - SC held: Receipt of various sums of money would not amount to acceptance of the restructuring proposals, thereby novating the earlier loan agreement. Neither would such part payments constitute full satisfaction of the existing debt so as to render the Section 7 application inadmissible. (Para 28)

Insolvency and Bankruptcy Code, 2016 - Section 10A- In the backdrop of outbreak of COVID-19 pandemic, as an ameliorative measure, Section 10A was incorporated in the IBC. The provision barred initiation of CIRP against a corporate debtor in the event the default arose on or after 25.03.2020, for a period of 6 months or such period not exceeding one year as may be notified. It may be noted that by notification the government extended the embargo till 24.03.2021. Explanation to the Section, however, clarified that the bar will not apply to any default committed before 25.03.2020. (Para 25)

Insolvency and Bankruptcy Code, 2016 - Section 12A ; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulation 30A: Regulation 30A was amended to provide for a detailed procedure for withdrawal/ settlement of claims after admission but prior to appointment of CoC. In light of such statutory architecture in place, reference to inherent powers under Rule 11, NCLT/NCLAT Rules,40 or under Article 142 to direct post-admission withdrawal/settlement of claims no longer arises. However,this may not be construed as a complete bar on the plenary powers under Article 142 to pass directions during CIRP in appropriate cases to do complete justice. (Para 43)