Section 7 IBC – RBI Framework or Prior Dismissal No Bar to Admission | NCLAT
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REEDLAW Legal News Network reports: In a significant ruling on the scope of Section 7 of the Insolvency and Bankruptcy Code, 2016, the Appellate Tribunal reaffirmed that once financial debt and default are established under Section 7 of the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority is mandatorily required to admit the application. It held that considerations relating to corporate viability, alleged non-compliance with RBI resolution frameworks, or prior dismissal of a petition not decided on merits cannot defeat admission when the statutory requirements of debt and default stand satisfied.
A Bench comprising Justice Mohammad Faiz Alam Khan (Judicial Member) and Mr. Naresh Salecha (Technical Member), by order dated 27 February 2026, dismissed the appeal. The Tribunal found that the Financial Creditor had established crystallised debt exceeding ₹872 crores, NPA classification with effect from 30.06.2018, and repeated acknowledgements through revival letters and audited balance sheets. It distinguished Vidarbha Industries and followed Innoventive Industries as reaffirmed in subsequent Supreme Court decisions, holding that admission under Section 7(5)(a) is mandatory once debt and default are proved. The plea of res judicata was rejected since the earlier dismissal followed the quashing of the RBI Circular dated 12.02.2018 in Dharani Sugars and was not on merits.
The Appellant, an ex-director of the Corporate Debtor, challenged the admission of a Section 7 application filed by the Financial Creditor. It was contended that the Corporate Debtor was viable, that the default arose due to the arbitrary conduct of consortium banks, that the second Section 7 petition was barred by res judicata, and that the RBI Prudential Framework dated 07.06.2019 had been violated.
The Appellate Tribunal examined the financial documents and recorded that the debt and default were crystallised and repeatedly acknowledged through revival letters, acknowledgement letters, and audited balance sheets. The account had been classified as NPA with effect from 30.06.2018. The Tribunal rejected the plea of viability, holding that no concrete material was produced to demonstrate unencumbered receivables or sufficient assets to discharge liabilities exceeding ₹872 crores. Reliance placed on Vidarbha Industries Power Limited v. Axis Bank Limited, REEDLAW 2022 SC 07529 was distinguished, and the Tribunal followed Innoventive Industries Limited v. ICICI Bank and Another, REEDLAW 2017 SC 08563, as reaffirmed in M. Suresh Kumar Reddy v. Canara Bank and Others, REEDLAW 2023 SC 05532 and Power Trust (Promoter of Hiranmaye Energy Ltd.) v. Bhuvan Madan (Interim Resolution Professional of Hiranmaye Energy Ltd.) and Others, REEDLAW 2026 SC 02571, holding that once debt and default are established, admission cannot be refused on viability grounds.
On res judicata, the Tribunal held that the earlier dismissal of the Section 7 petition was consequent to the quashing of the RBI Circular dated 12.02.2018 in Dharani Sugars and Chemicals Limited v. Union of India and Others, REEDLAW 2019 SC 04005, and not on merits; hence, a fresh petition based on the subsequent legal framework was maintainable. The Tribunal further held that the RBI Circular dated 07.06.2019 permitted lenders to initiate insolvency proceedings and that acceptance or rejection of resolution plans under RBI guidelines falls within the commercial domain of lenders and is non-justiciable.
Considering that the Resolution Plan had already been approved by the CoC with the requisite majority under Section 30(4), and an application for approval under Section 31 was pending, the Tribunal declined interference and dismissed the appeal, reiterating the limited scope of judicial review at the admission stage under Section 7.
Mr. Malak Bhatt, Ms. Neeha Nagpal, Ms. Samridhi and Mr. Shreyansh Chopra, Advocates, represented the Appellant.
Mr. Prakash Shinde and Ms. Ruchita Jain, Advocates, appeared for the Respondent No. 1.
Mr. Varun Kalra, Advocate, appeared for the Respondent No. 2/RP.
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