What evidentiary threshold must the Adjudicating Authority satisfy to ascertain 'default' under Section 7 of the Insolvency and Bankruptcy Code, 2016?

The Adjudicating Authority must ascertain the occurrence of default based on preponderance of probabilities from documentary material placed on record. It requires proof of the static historical event of non-payment when due, not the conclusive determination of the dynamic quantum of debt outstanding.

Is an Information Utility record alone sufficient to establish default under Section 7 of the IBC?

Yes, a Record of Default issued by an Information Utility is by itself sufficient to prima facie establish the occurrence of default under Section 7, carrying a presumption of high evidentiary value displaceable only by clear, cogent, credible and compelling material, not by bare denial or bookkeeping disagreement.

Information Utility Record Raises Presumption of Default Under IBC Section 7 | Quantum & Profitability Irrelevant : SC

Q: Can a financial creditor's profitability or positive EBITDA be used to argue against the existence of default under Section 7 of the IBC?

No, profitability is neither legally relevant to, nor economically probative of, the capacity to service debt under the IBC. The Code proceeds on timely intervention rather than terminal insolvency, and the Debt Service Coverage Ratio, not EBITDA, is the relevant metric for assessing debt service capacity.

The Supreme Court dismissed appeals challenging the admission of insolvency proceedings against two hotel companies, holding that the Adjudicating Authority need only ascertain the occurrence of default via preponderance of probabilities from documentary material, not quantify the exact debt. The Court affirmed that an Information Utility record creates a presumption of high evidentiary value, displaceable only by clear and cogent evidence, while profitability is irrelevant to debt service capacity under the Code.

Background & Facts

The Dispute

The appellants, Deepak Raheja and another, challenged the admission of Corporate Insolvency Resolution Process (CIRP) against GSTAAD Hotels Pvt. Ltd. (Corporate Debtor) and Neo Capricorn Plaza Pvt. Ltd. (Neo) initiated by Omkara Assets Reconstruction Pvt. Ltd. (Financial Creditor) under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Financial Creditor acquired rights via an Assignment Agreement dated 27.12.2022 from Piramal Capital and Housing Finance Ltd., which had extended loans to the Corporate Debtor and Neo as co-borrowers under a Loan Agreement dated 26.12.2017.

Key Facts

The Loan Agreement dated 26.12.2017 provided: a term loan of Rs.450 crores and Rolling Credit Facility (RCF) of Rs.50 crores to the Corporate Debtor; a term loan of Rs.100 crores to Neo
Corporate Debtor owns and operates JW Marriott Hotel at Bangalore; Neo owns and operates Crowne Plaza Hotel at Pune
A Cash Management Agreement (CMA) executed in January 2018 required 66% of gross revenue to Expense Account and 34% to Retention Account for debt servicing
Debt Service Reserve Account (DSRA) of Rs.8 crores for Corporate Debtor and Rs.2 crores for Neo mandated under Clause 9 read with Eleventh Schedule of Loan Agreement
Corporate Debtor availed ECLGS Facility -1 of Rs.98 crores (sanctioned 29.12.2020) and ECLGS Facility -2 of Rs.65 crores (sanctioned 11.03.2022); Neo received connected ECLGS facility of Rs.19.5 crores (sanctioned 30.12.2020)
On 27.12.2022, Piramal Finance assigned Term Loan, RCF, ECLGS-1 and ECLGS-2 to Omkara Assets Reconstruction Pvt. Ltd. under Clauses 27.1 and 27.2 of Loan Agreement
Four Form-D filings recording defaults were registered with National E-Governance Services Ltd. (NeSL) on 09.02.2023 for Term Loan, RCF, ECLGS-1 and ECLGS-2
On 15.02.2023, Omkara recalled outstanding amounts: Rs.666,53,26,968/- from Corporate Debtor and Rs.119,99,23,320/- from Neo within three days
Omkara filed CP (IB) No. 291 of 2023 against Corporate Debtor and CP (IB) No. 290 of 2023 against Neo on 09.03.2023 under Section 7 of IBC, stating date of default as 15.11.2022 and total claimed default of Rs.665,74,77,237/- as on 27.02.2023
The Adjudicating Authority (NCLT Mumbai Bench) admitted both petitions by orders dated 09.01.2024, initiated CIRP and declared moratorium under Section 14

Procedural History

09.03.2023: Omkara filed Section 7 applications (CP IB No. 291/290 of 2023) before NCLT Mumbai Bench
09.01.2024: NCLT Mumbai Bench admitted applications, initiated CIRP and appointed Interim Resolution Professional
08.01.2025: National Company Law Appellate Tribunal (NCLAT) framed eleven issues, allowed appeals, set aside admission orders and revived petitions for fresh consideration
08.07.2025: NCLT Mumbai Bench, after fresh hearing, again admitted both petitions recording existence of financial debt exceeding Section 4 threshold and occurrence of default
19.08.2025: NCLAT affirmed NCLT Mumbai Bench's order dated 08.07.2025
25.08.2025: Special Leave Petition challenging NCLAT's order dated 19.05.2024 (upholding Division Bench dismissal of Writ Appeal) dismissed by Supreme Court
15.10.2026: Present judgment delivered

Relief Sought

The appellants sought to set aside the orders dated 08.07.2025 of NCLT Mumbai Bench and 19.08.2025 of NCLAT, contending that no default occurred on 15.11.2022 due to proper application of DSRA and CMA mechanisms, and that the Financial Creditor status of Omkara was not validly established.

The Legal Issue

The central questions were: (I) What evidentiary threshold must the Adjudicating Authority satisfy to ascertain a 'default' under Sections 3(12) and 7 of the Insolvency and Bankruptcy Code, 2016? (II) What nature of documentary material may legitimately be relied upon by the Adjudicating Authority to record satisfaction of default occurrence under Section 7?

Arguments Presented

For the Appellant

The appellants contended that the NeSL Form-D filings recorded the full outstanding amount before recall, which could not treat a loan not yet recalled as wholly in default. They argued that the DSRA of Rs.8 crores and CMA mechanisms, if properly applied, would show debt-servicing obligations were being met through the Retention Account, and that excess withdrawal of Rs.10,35,88,444/- from Retention Account established no default on 15.11.2022. They asserted that the Section 7 application pleaded no facts of default in the Term Loan account, with default confined to ECLGS facilities not yet due and payable. Reliance was placed on Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to argue that discretion must not be exercised arbitrarily and that cash liquidity is relevant.

For the Respondent

The respondent contended that Omkara's status as a financial creditor was conclusively established by the Assignment Agreement read with Clauses 27.1 and 27.2 of the Loan Agreement, upheld by the High Court of Karnataka and affirmed by this Court. They argued that the Appellate Tribunal having refrained from conclusive opinion, the fresh consideration undertaken confirmed the Corporate Debtor never denied overdue principal or interest, only disputing quantum. The respondent submitted that total default as on 15.11.2022 was Rs.17,16,29,518/- for Corporate Debtor and minimum Rs.2,64,99,473/- for Neo, and that the CMA was merely a cash flow mechanism where Retention Account insufficiency meant borrowers were bound to pay from other funds. They relied on Innoventive Industries Ltd. v. ICICI Bank and related precedents to assert that an Information Utility record creates a presumption of high evidentiary value.

The Court's Analysis

The Court held that Section 62(1) of IBC restricts its jurisdiction to questions of law arising from the Appellate Tribunal's order, and where concurrent findings of fact and law exist, interference is warranted only if perverse, based on no evidence, ignoring material evidence, or founded on erroneous legal standard. It affirmed that the issue of Omkara's financial creditor status was settled by issue estoppel following the dismissal of the SLP challenging the Karnataka High Court's judgment on 25.08.2025.

Regarding the evidentiary threshold, the Court interpreted Section 3(12) defining 'default' as non-payment when whole or any part or instalment of debt has become due and payable. It emphasized that "the occurrence of default is a historical and static event which crystallises upon the date a debt became due and was not paid. The quantum of debt outstanding, by contrast, is dynamic, fluctuating upon account of accruing interest, default interest, charges, adjustments and part -repayments." The Court held that Section 7 concerns only the occurrence of default, not quantum determination, which belongs to the claims process during CIRP.

The Court found that Section 7(4) requires the Adjudicating Authority to ascertain default "from the records of an information utility or on the basis of other evidence" within fourteen days. It held that an Information Utility record (NeSL Form-D) is "by itself sufficient, carrying a presumption of high evidentiary value displaceable only by clear, cogent, credible and compelling material and not by bare denial or bookkeeping disagreement." Other documents enumerated in Part V of Form 1 of IBC Rules, 2016 (loan agreements, statements of account, balance confirmations etc.) collectively may establish default on the summary standard governing Section 7.

The Court rejected the appellants' profitability argument, stating: "Profitability is neither legally relevant to, nor economically probative of, the capacity to service debt. The metric relevant to that question is the Debt Service Coverage Ratio. The Corporate Debtor's own audited financial statements record a Debt Service Coverage Ratio of 0.12 for the financial year 2022-23, meaning that its internal accruals covered only 12 per cent of that year's debt obligations." It affirmed that the Code proceeds on timely intervention rather than terminal insolvency, adopting 'default' under Section 3(12) as the jurisdictional trigger.

The Verdict

The appeals were dismissed. The Court upheld the order dated 08.07.2025 of the National Company Law Tribunal, Mumbai Bench, Court-I in CP (IB) No. 291 of 2023, as affirmed by the judgment dated 19.08.2025 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi in Company Appeal (AT) (Insolvency) No. 1040 of 2025; and the order of even date in CP (IB) No. 290 of 2023, as affirmed in Company Appeal (AT) (Insolvency) No. 1039 of 2025. The Corporate Insolvency Resolution Process in respect of both Corporate Debtors shall proceed in accordance with law. No order as to costs was passed due to the death of the first appellant.

What This Means For Similar Cases

Information Utility Record Creates Evidentiary Presumption

A Record of Default issued by an Information Utility (like NeSL) is sufficient by itself to prima facie establish occurrence of default under Section 7 of IBC. Financial creditors need not furnish additional evidence at the admission stage unless the debtor displaces the presumption with clear, cogent, credible and compelling material. Mere bookkeeping disagreements or bare denials do not rebut this presumption.

Quantum Disputes Are Irrelevant to Admission

Disputes regarding the exact quantum of debt outstanding, interest calculations, or accounting entries do not negate the occurrence of default and do not arrest admission under Section 7, provided the statutory threshold under Section 4 is satisfied. Such disputes are to be resolved during the claims process under CIRP, not as a precondition to initiation.

Profitability Is Irrelevant to Debt Service Capacity

A company's profitability or positive EBITDA is legally irrelevant and economically unreliable as a proxy for solvency under IBC. The Debt Service Coverage Ratio, not EBITDA, determines capacity to meet debt obligations. Financial stress may exist despite profitability if debt servicing obligations exceed operating profits.

Financial Creditor Status Is Binding Once Established

The validity of an assignment transferring financial debt to a financial creditor, once conclusively established between the parties and attaining finality, cannot be reopened in subsequent proceedings under a different statute due to issue estoppel. The Adjudicating Authority under Section 7 is not empowered to re-examine the validity of such assignment.