ISSUES OF LAW

(i) What is the evidentiary threshold required to satisfy the Adjudicating Authority (“NCLT”) that a “default” within the meaning of Sections 3(12) and 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has occurred? (ii) What nature of documentary material may legitimately be relied upon by the Adjudicating Authority for recording satisfaction that a “default” under Section 7 has occurred? (iii) Whether a corporate debtor’s profitability (positive EBITDA) or commercial solvency acts as a bar to initiating the Corporate Insolvency Resolution Process (“CIRP”) under Section 7 when an un-remedied default exists?

FACTUAL MATRIX

Piramal Capital and Housing Finance Ltd. (“PCHFL”) extended term loans and credit facilities totaling ?600 crore to GSTAAD Hotels Pvt. Ltd. (owner of JW Marriott, Bangalore) and Neo Capricorn Plaza Pvt. Ltd. (owner of Crowne Plaza, Pune) as co-borrowers in December 2017. Additional loans under the Emergency Credit Line Guarantee Scheme (ECLGS) were also availed. PCHFL assigned these debt facilities to Omkara Assets Reconstruction Pvt. Ltd. (Omkara) via an Assignment Agreement on 27.12.2022. Omkara registered defaults with the Information Utility (NeSL) and issued recall notices in February 2023, subsequently filing Section 7 petitions claiming over ?665 crore in default. The Corporate Debtors challenged the assignment before the High Court of Karnataka, but the assignment was upheld up to the Supreme Court. Before the NCLT/NCLAT, the Corporate Debtors argued that no default occurred on 15.11.2022 if amounts under the Cash Management Agreement (“CMA”) and Debt Service Reserve Account (“DSRA”) were properly applied, and that both running hotels were profit-earning entities with positive EBITDA. The NCLT admitted the Section 7 petitions and initiated CIRP, which was affirmed by the NCLAT. The promoters appealed to the Supreme Court under Section 62 of the IBC.

JUDGMENT

The Supreme Court dismissed the statutory appeals and upheld the initiation of CIRP against both Corporate Debtors. The Court held that the occurrence of default is a static historical event, whereas the quantum of outstanding debt is dynamic. For Section 7 admission, the NCLT only needs to be satisfied on a summary, prima facie standard (preponderance of probabilities) that an un-remedied default exceeding the statutory threshold occurred. Precise forensic reconciliation of accounts is meant for the claims verification stage by the Resolution Professional during CIRP, not at admission. An authenticated Record of Default from an Information Utility (“IU”) carries a presumption of very high evidentiary value, displaceable only by clear, cogent, credible, and compelling material (not by bare denials or bookkeeping disputes). Other documentary evidence (loan agreements, banker’s book entries, balance confirmations, OTS proposals, correspondence) taken collectively can establish default on a summary standard. Profitability (e.g., positive EBITDA) is legally irrelevant and economically unreliable as a proxy for solvency. The IBC trigger is “default” under Section 3(12), not balance-sheet or commercial insolvency. The Court noted that the 2026 amendments to Section 7(5) (making admission mandatory upon proof of default and confirming IU records as “sufficient”) explicitly align with this established legal framework.

The Court also noted with concern that the appellants submitted a compilation containing AI-generated non-existent case law. While exemplary costs were initially contemplated, the Court refrained from imposing costs solely due to the death of the first appellant.

LINK TO ACCESS THE JUDGMENT HERE

CASE NAME

Deepak Raheja and Another v. Omkara Assets Reconstruction Private Ltd. and Another

COURT NAME

Supreme Court of India

JUDGES NAME

Dipankar Datta, J. and Augustine George Masih, J. (Judgment authored by Augustine George Masih, J.)

DATE OF JUDGMENT

October 15, 2026

CITATION / NEUTRAL CITATION

2026 INSC 1134 | Civil Appeal No. 12195 of 2025 (With Civil Appeal arising out of Diary No. 58001 of 2025)