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Informist, Thursday, Feb. 19, 2026

 

NEW DELHI – The Supreme Court has observed that the National Company Law Tribunal is not required to examine a corporate debtor's inability to pay its debt while admitting insolvency proceedings. The Insolvency and Bankruptcy Code, 2016 restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default on a debt due and payable and nothing more, said the top court.

 

The legislative intent behind such prompt and summary intervention is to ensure the revival and continuation of the corporate debtor by protecting it from its own management and from a corporate death through liquidation, the court said. The current law is different from earlier when the scheme of winding up envisaged under Section 433(e) of the erstwhile Companies Act, 1956 required the adjudicating authority to come to a finding with regard to the inability of the company to pay the debt and thereby arrive at a requisite satisfaction whether it is just and equitable to wind up the company.

 

When the financial creditor initiates the insolvency process for the purposes of admission, the tribunal is only required to ascertain the existence of a default from the records of the information utility or the evidence furnished by the financial creditor within 14 days from the receipt of such an application, said the top court. At this stage, neither is a corporate debtor entitled nor is the tribunal required to examine any dispute regarding the existence of such debt, said the court. This significantly reduces the scope of enquiry at the stage of a time-bound admission of an insolvency process by a financial creditor, it added.

 

The top court rejected Power Trust's argument that Hiranmaye Energy Ltd. is an ongoing concern and does not lack the ability to repay the debt and therefore no insolvency proceedings should be initiated against the company. The Supreme Court upheld the admission of REC Ltd.'s insolvency plea against debt-ridden Hiranmaye Energy for dues of INR 21.8 billion. The top court rejected the plea of Power Trust, the promoter of Hiranmaye Energy, to settle the case by paying money to REC and Power Finance Corp. Ltd., another creditor of Hiranmaye Energy.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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