Insolvency admission cannot stand when pre-admission payments reduce the corporate debtor’s default below the statutory threshold.

Respondents 1–3 filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Raja Udyog Private Limited, alleging that they had advanced financial assistance of ₹1 crore and ₹1.25 crore, respectively, to the Corporate Debtor during the COVID-19 pandemic. Interest and TDS payments were made until 30 April 2022, after which payments stopped. Demand notices were issued, but cheques issued towards part-payment were dishonoured. The respondents claimed a default of ₹3,15,78,482 and total dues of ₹3,18,88,305.66 as on 28 April 2025

The NCLT, Kolkata Bench admitted the Section 7 application on 20 July 2026, holding that a financial debt and default existed and that the debt exceeded the statutory threshold. An Interim Resolution Professional was appointed

During the appellate proceedings, the parties entered into a settlement. The Corporate Debtor had paid ₹2.25 crore to the respondents between 20 June 2026 and 20 July 2026, leaving ₹93,88,310 due as on the date of the impugned order. The parties thereafter filed a joint affidavit and memorandum of settlement recording full and final settlement of the claims

1. Whether the NCLT was justified in admitting the Section 7 application when, by the date of the impugned order, payments of ₹2.25 crore had reduced the outstanding amount to ₹93,88,310, below the statutory threshold of ₹1 crore?

2. Whether the subsequent settlement and satisfaction of the respondents’ claims warranted setting aside the NCLT’s admission order and terminating the insolvency proceedings?

The Tribunal applied Section 7 of the IBC, under which a financial creditor may initiate corporate insolvency resolution proceedings upon establishment of a financial debt and default, subject to the minimum default threshold prescribed under Section 4 of the IBC. The applicable threshold was ₹1 crore.

The Tribunal also applied the principle that insolvency proceedings cannot validly continue where the debt attracting the statutory jurisdiction has been discharged or reduced below the prescribed threshold before the admission order.

The Tribunal relied on the parties’ admitted settlement and payments; no judicial precedent was cited in the order

The Tribunal accepted that the respondents had initially demonstrated a financial debt and default. However, it treated the payments made between 20 June and 20 July 2026 as material to determining the amount due when the NCLT passed the admission order. Since ₹2.25 crore had already been paid, only ₹93,88,310 remained outstanding on 20 July 2026, which was below the ₹1 crore statutory threshold

The Tribunal further noted that the respondents ought to have disclosed receipt of these payments to the NCLT before the order was pronounced; had the fact been disclosed, the admission order might not have been passed

In light of the admitted payments, the settlement, and the reduced outstanding amount, the Tribunal concluded that the admission order could not withstand legal scrutiny

Any CIRP costs were directed to be borne by the appellant, with no order as to costs; pending applications were disposed of