### Informal Negotiations Cannot Override Contractually Mandated Procedures for Modifying Debt Terms Under Section 7 IBC

The Appellant (Debenture Trustee) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Respondent (Corporate Debtor) following a default in the repayment of Series A non-convertible debentures worth ₹600 crore.

The Respondent claimed that a restructuring proposal and an 18-month moratorium had been informally agreed upon via email exchanges with one debenture holder, ECL Finance Limited (ECLF), a member of the Edelweiss group.

Both the NCLT and NCLAT dismissed the Section 7 petition, holding that a moratorium was in place and that the Debenture Trustee’s conduct suggested acceptance of the restructuring.

The Debenture Trustee appealed, contending that the Debenture Trust Deed (DTD) required a formal "Special Resolution" and written consent from all parties for any modification, which never occurred.

Whether an informal email exchange with a single debenture holder can modify the terms of a Debenture Trust Deed (DTD) to negate a "default" under Section 7 of the IBC.

Whether the Adjudicating Authority can refuse a Section 7 application based on a "pre-existing dispute" or "legitimate expectation" regarding restructuring when the statutory requirements of debt and default are met.

The Court applied Section 7 of the IBC, which requires the Adjudicating Authority only to satisfy itself of the existence of a financial debt and a subsequent default.

It relied on *Innoventive Industries Ltd. v. ICICI Bank*, which established that the concept of a "pre-existing dispute" is irrelevant to Section 7 applications.

It further applied Section 62 of the Contract Act, 1872, requiring consensus among all parties for the novation of a contract.

The principle from *Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund*, stating a debtor must prove debt is not due to defeat a Section 7 plea.

The Court found that the NCLT and NCLAT committed a patent error by ignoring the mandatory procedure for modifying the DTD.

Under Clauses 33 and 37 of the DTD, any amendment or waiver required a "Special Resolution" (75% majority) and a signed written document.

The Respondent's negotiations were restricted to a single entity (ECLF) and did not bind other debenture holders or the Trustee.

The Court noted that a competent Civil Court had already refused to grant an injunction to the Respondent, observing that the DTD had not been legally modified.

The Court rejected the "legitimate expectation" argument, noting that ECLF’s emails specifically stated that any proposal was subject to internal approvals and compliance with the DTD.

Furthermore, the release of certain properties and funds was found to be independent transactions under Clause 28.3 of the DTD rather than evidence of a restructuring agreement.

The Court held that the perversity of the lower tribunals' findings—specifically reframing contract terms based on surmises rather than the DTD—justified interference at the second appellate stage.

The Court concluded that since the financial debt and default were clearly established and the DTD was not legally modified, the Section 7 application must be admitted.

The matter was restored to the NCLT, Mumbai Bench, with directions to pass a separate order for admission and initiate the insolvency process.