Insolvency admission is mandatory upon proof of debt and default notwithstanding claims of corporate viability.

The Appellant, an ex-director of Frost International Ltd. (Corporate Debtor/CD), challenged the order dated 09.02.2023 passed by the NCLT Mumbai, which admitted a Section 7 IBC application filed by Bank of India (Respondent No. 1).

The CD had availed credit facilities totaling Rs. 756.75 crores, which were classified as Non-Performing Assets (NPA) on 30.06.2018 following defaults in Letter of Credit (LC) devolvements.

A previous Section 7 petition (CP 3608/2018) had been dismissed as non-est following the Supreme Court’s quashing of the RBI Circular dated 12.02.2018 in Dharani Sugars.

The Respondent No. 1 filed a fresh petition in 2022 claiming a default of approximately Rs. 872 crores.

While the appeal was pending, the Committee of Creditors (CoC) approved a Resolution Plan with a 69.26% majority and rejected the Appellant’s Section 12A withdrawal proposal.

The Court primarily applied Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, which mandates admission of an application upon satisfaction of the existence of a financial debt and a default.

It relied on the landmark judgment in Innoventive Industries Ltd. v. ICICI Bank, establishing that the NCLT must trigger CIRP once debt and default are proven.

Regarding judicial discretion, the Court followed M. Suresh Kumar Reddy v. Canara Bank and Power Trust v. Bhuvan Madan, which clarified that the discretionary "viability" rule in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. is restricted to its specific facts and does not override the mandatory nature of Section 7 when a default is undisputed.

It further applied the principle that the commercial wisdom of the CoC in approving a plan or rejecting a settlement is non-justiciable.

The Tribunal found that the debt and default were undisputed and reflected in NeSL reports and audited balance sheets.

The plea of res judicata was rejected because the first petition was dismissed on technical grounds (quashing of an RBI circular) rather than on merits.

Regarding the Vidarbha argument, the Court noted the Appellant failed to provide concrete financial evidence proving the CD had sufficient unencumbered liquid assets to pay the debt.

The Tribunal emphasized that under current jurisprudence, the NCLT is not required to conduct a deep inquiry into a company’s inability to pay once default is established.

On the RBI Circular of 07.06.2019, the Tribunal held that lenders have the discretion to choose between restructuring or initiating insolvency, and the CD had failed to even submit a plan under said framework.

Finally, the Tribunal noted that the CIRP had reached an advanced stage with a CoC-approved Resolution Plan, which should not be stalled by ex-promoters.

The Tribunal dismissed the appeal, affirming that the viability of the Corporate Debtor is not a sufficient ground to refuse admission under Section 7 when a clear default exists.

The NCLAT refused to interfere with the ongoing CIRP or the commercial wisdom of the CoC.

Appeal dismissed; no order as to costs.