![Debt and default establish a mandatory basis for Section 7 admission regardless of alleged corporate viability.. Uday J. Desai v. Bank of India & Anr. [Comp. App. (AT) (Ins) No. 187 of 2023]. NCLAT. LawLens](/stories/thumbnails/debt-and-default-establish-a-mandatory-basis-for-section-7-admission-regardless-of-alleged-3eb4deb9ea4e45b7ba7039359592d5cd.webp)
01Facts
The Appellant, an ex-director of Frost International Ltd. (Corporate Debtor), challenged the Adjudicating Authority’s order dated 09.02.2023 admitting a Section 7 IBC application filed by Bank of India (Respondent No. 1).
p. 2The Corporate Debtor had availed credit facilities aggregating to ₹756.75 crores, which were classified as NPA on 30.06.2018 following defaults on LC devolvements.
p. 10A prior Section 7 petition (CP 3608/2018) had been dismissed on 14.10.2019 following the Supreme Court’s striking down of the RBI Circular dated 12.02.2018 in Dharani Sugars.
p. 6Respondent No. 1 filed the fresh petition in 2022 claiming a total default of ₹872.58 crores.
p. 7During the pendency of the appeal, the CoC approved a Resolution Plan with a 69.26% majority and rejected the Appellant’s Section 12A proposal.
p. 1302Issues
i.Whether the Section 7 application was barred by the principle of res judicata due to the dismissal of the earlier petition.
p. 7 / para. 16ii.Whether the Adjudicating Authority was bound to reject the application based on the "viability" of the Corporate Debtor as per the ratio in Vidarbha Industries.
p. 8 / para. 20iii.Whether the Financial Creditor violated the RBI Stressed Assets Framework dated 07.06.2019 by failing to consider restructuring or OTS proposals.
p. 8 / para. 1803Law Applied
The Tribunal applied Section 7 of the IBC, which mandates admission of an application upon satisfaction of the existence of a financial debt and a default.
p. 12It relied on Innoventive Industries Ltd. v. ICICI Bank, establishing that the NCLT must only verify debt and default.
p. 27Regarding res judicata, the Tribunal noted that the prior dismissal was based on the technical striking down of an RBI circular and not on merits.
p. 27Most significantly, the Tribunal applied the Supreme Court’s recent clarification in Power Trust v. Bhuvan Madan (2026), which held that the discretionary "viability" check in Vidarbha Industries was fact-specific and did not override the mandatory nature of Section 7 as established in Innoventive and M. Suresh Kumar Reddy v. Canara Bank.
p. 31, 3404Reasoning
The Tribunal found that the debt and default were undisputed and reflected in NeSL reports and balance sheets.
p. 10, 27It rejected the res judicata plea because the second petition was based on a fresh cause of action under the 07.06.2019 RBI Framework.
p. 27Regarding viability, the Appellant failed to provide concrete financial evidence to prove the Corporate Debtor could pay its current dues, distinguishing it from the facts in Vidarbha.
p. 19The Tribunal emphasized that under Section 7, the Adjudicating Authority is not required to conduct a broad inquiry into business viability or "inability to pay".
¶ 34Furthermore, the commercial decision of lenders to reject resolution plans or OTS under RBI guidelines is non-justiciable.
p. 27Since the Resolution Plan was already CoC-approved, the ex-promoters had no vested right to stall the process.
p. 1505Holding
The NCLAT held that the admission of the Section 7 application was lawful as the debt and default were established.
¶ 61The principles of Vidarbha Industries regarding viability were deemed inapplicable to the facts.
p. 20The appeal was dismissed, and the Impugned Order dated 09.02.2023 was upheld, allowing the CIRP (and the pending approval of the Resolution Plan in IA No. 135/2025) to proceed.
p. 36Original Court PDF
Uday J. Desai v. Bank of India & Anr. [Comp. App. (AT) (Ins) No. 187 of 2023]
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