Unimplemented Restructuring Does Not Reset “Default” or Attract Section 10A; Section 7 Admission Governed by Innoventive, Not a Broad “Viability” Inquiry
1. Introduction
The Supreme Court in Power Trust (Promoter of Hiranmaye Energy Ltd.) v. Bhuvan Madan (Interim Resolution Professional of Hiranmaye Energy Ltd.) & Ors.
(2026 INSC 166, decided on 18-02-2026) considered a promoter’s challenge to admission of a
Section 7 Insolvency and Bankruptcy Code, 2016 (“IBC”) application filed by
REC Ltd. (financial creditor) against Hiranmaye Energy Ltd. (corporate debtor).
The challenge centred on: (i) whether Section 10A barred the CIRP because alleged default
“shifted” into the COVID window due to restructuring; (ii) whether restructuring proposals
novated the original loan so no “debt due and payable” existed; (iii) whether “viability”
and ongoing operations should have led the NCLT to refuse admission under a reading of
Vidarbha Industries Power Ltd. v. Axis Bank Ltd.; and (iv) whether repeated settlement
proposals by the promoter warranted keeping CIRP in abeyance.
2. Summary of the Judgment
- Section 10A plea rejected: The default pleaded in the Section 7 application was 31.03.2018—outside Section 10A; unimplemented restructuring could not shift the default date into the protected period.
- No novation / no binding restructuring: Restructuring proposals were conditional upon pre-implementation requirements that were not met; part-payments did not amount to acceptance or novation.
- Admission under Section 7 upheld: Reaffirmed the limited admission-stage inquiry under Innoventive Industries Ltd. v. ICICI Bank; “viability” arguments did not displace proof of financial debt and default.
- Vidarbha confined: Held that M. SURESH KUMAR REDDY v. CANARA BANK & Ors. settles that Innoventive remains the governing law and Vidarbha was fact-specific.
- Settlement/CIRP stalling refused: The CoC’s repeated rejection of promoter’s proposals and approval of DVC’s plan could not be second-guessed; further stalling would prejudice timely resolution.
- Deposit refund; SEFL intervention rejected: The Rs.125 crore deposit (condition for interim stay) was ordered refunded to the promoter; SEFL’s claim was not crystallised by award and the deposit was not security for SEFL.
3. Analysis
3.1 Precedents Cited
The Court relied on Innoventive Industries Ltd. v. ICICI Bank to restate the core rule:
at the admission stage the Adjudicating Authority examines whether a financial debt exists and whether a default has occurred
(from information utility records or other evidence). It is immaterial that the debt is “disputed” so long as it is “due” and payable,
unless interdicted by law.
This precedent directly shaped the Court’s rejection of promoter-led arguments urging the NCLT to conduct a broader merits/viability inquiry.
(b) Limits of NCLT’s jurisdiction and no compelled settlements: ES Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd.
Citing ES Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., the Court reiterated that under Section 7(5)
the NCLT must either admit (if default exists) or reject (if default does not exist); it cannot compel settlement.
This supported the Court’s refusal to convert admission proceedings into negotiations or equitable balancing.
(c) Financial vs operational creditors and IBC design: Swiss Ribbons (P) Ltd. v. Union of India
Swiss Ribbons (P) Ltd. v. Union of India was used to explain the legislative architecture:
financial creditors typically hold documented, scheduled repayment instruments and restructuring options; operational debts are more dispute-prone.
This distinction justifies the summary nature of Section 7 admission as compared to the dispute-filtering mechanism under Sections 8/9.
The promoter invoked Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to argue NCLT discretion to consider feasibility/viability.
The Court, however, relied on:
- Axis Bank Ltd. v. Vidarbha Industries Power Ltd. (review) to underscore that Vidarbha observations were fact-bound;
- M. SURESH KUMAR REDDY v. CANARA BANK & Ors. to conclusively state that Vidarbha does not override Innoventive and that Innoventive “still holds good”.
This trio of authorities was pivotal: it allowed the Court to reject the invitation to enlarge Section 7 admission into an assessment of business viability.
(e) CoC commercial wisdom and non-justiciability: Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta and Others and Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC)
In rejecting the promoter’s plea that its settlement offer was “better” than the successful resolution applicant’s plan,
the Court relied on the settled doctrine that the CoC’s commercial decision is largely non-justiciable, citing:
Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta and Others and
Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC).
(f) Withdrawals/settlements post-admission: Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem, Lokhandwala Kataria Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP, and GLAS Trust Co. LLC v. BYJU Raveendran
The Court traced the evolution from pre-Section 12A Article 142 interventions (e.g.,
Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem and
Lokhandwala Kataria Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP)
to the statutory pathway under Section 12A/Regulation 30A, and relied on
GLAS Trust Co. LLC v. BYJU Raveendran to state that, given the statutory architecture,
routine resort to Rule 11 inherent powers or Article 142 for post-admission withdrawal/settlement “no longer arises” (while still noting Article 142’s plenary nature in exceptional cases).
3.2 Legal Reasoning
(A) Section 10A does not apply where default is pre-25.03.2020; conditional restructuring cannot “shift” default
Section 10A bars initiation of CIRP for defaults arising on or after 25.03.2020 up to 24.03.2021, but its Explanation preserves action for defaults before 25.03.2020.
Here, the Section 7 application recorded 31.03.2018 as the default date.
The promoter attempted to relocate default into the Section 10A window by pointing to repayment timelines in restructuring proposals (first interest due 30.06.2020; instalments from 31.12.2020 / 31.03.2021).
The Court rejected this because:
- Even on the promoter’s own narrative, the later restructuring contemplated first instalment on 31.03.2021, i.e., beyond the protected window;
- More fundamentally, the restructuring proposals were conditional and did not become binding due to non-fulfilment of key pre-implementation conditions (tariff order timelines, DSRA creation, priority debt/work-capital availability, and 72-hour plant run demonstration).
Therefore, the original default remained operative and Section 10A was inapplicable.
(B) No novation absent fulfilment of conditions precedent; part-payments do not imply deemed acceptance
The Court endorsed the NCLAT’s finding that the restructuring proposals did not “fructify into valid agreements novating the original contract”.
It treated the pre-implementation conditions as true conditions precedent: without compliance, there was no enforceable restructuring and therefore no novation of the 2013 common loan agreement.
The promoter’s reliance on a December 2021 payment and a “deemed acceptance” formulation in its letter was rejected:
receipt of part-payments, in the face of lenders consistently insisting on unfulfilled conditions, could not amount to acceptance of restructuring or full satisfaction of the debt.
(C) “Viability” is not an admission-stage defence under Section 7; Vidarbha is fact-specific
The Court reasserted that Section 7 admission is a narrow inquiry into (i) financial debt and (ii) default on a debt due and payable.
It contrasted this IBC approach with the older “inability to pay” winding-up standard under the Companies Act, 1956.
The promoter’s viability points—long-term PPA, substantial bills raised, fuel supply arrangements, and EBITDA—were treated as insufficient in law,
and in any case unpersuasive on facts given the magnitude of outstanding liabilities (noted by NCLAT at Rs. 3103.31 crore as on 02.01.2024).
On precedent, the Court held that M. SURESH KUMAR REDDY v. CANARA BANK & Ors. settles that
Innoventive remains controlling; Vidarbha cannot be read as a general discretion to deny admission once debt and default are shown.
(D) Settlement proposals cannot derail CIRP absent statutory thresholds; CoC choice is non-justiciable
The promoter repeatedly presented settlement proposals; the CoC rejected them and approved DVC’s resolution plan with 99.92% voting.
The Court refused to stall CIRP further, emphasising:
- Section 12A requires 90% CoC voting for withdrawal after constitution of CoC;
- CoC commercial wisdom (including preferring one plan over another) is insulated from merits review under
Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta and Others and
Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC);
- Further stalling would prejudice timely insolvency resolution, particularly after plan approval and pending Section 31 approval proceedings.
(E) Treatment of the stay deposit: purpose-bound and not transferable to promoter’s personal creditor
The Court rejected SEFL’s application for release of the Rs.125 crore deposit because:
(i) no award (interim or final) crystallising SEFL’s claim was produced; and
(ii) the deposit was furnished to secure a conditional stay in the corporate debtor’s CIRP, not to secure the promoter’s personal liabilities.
The deposit (with interest) was ordered to be refunded to the promoter.
3.3 Impact
- Conditional restructurings: Reinforces that term sheets/restructuring “approvals” dependent on conditions precedent do not, without compliance, novate the original loan or reset the default date.
- Section 10A litigation: Narrows attempts to invoke the COVID window by “recharacterising” an earlier default through later, unimplemented restructuring schedules.
- Section 7 admission discipline: Strengthens predictability by reiterating that Innoventive governs; “viability”, “equities”, and “business potential” are not admission-stage defences.
- Vidarbha containment: Adds to the post-review jurisprudence confining Vidarbha to its special facts and discouraging expansive readings.
- Settlement strategy limits: Signals judicial reluctance to pause CIRP repeatedly for promoter settlements once CoC has decisively voted and a resolution plan is approved, unless Section 12A thresholds are met.
- Deposits as litigation conditions: Clarifies purpose-specific nature of court-ordered deposits in insolvency matters; they are not fungible securities for unrelated creditor claims against promoters.
4. Complex Concepts Simplified
- “Default” (IBC): Non-payment of a debt when due; even missing a single instalment can qualify.
- Section 10A bar: A temporary COVID-era shield preventing new CIRP filings for defaults arising within the specified window; it does not protect defaults that occurred before 25.03.2020.
- Restructuring proposal vs binding restructuring agreement: If a restructuring is subject to conditions precedent (e.g., DSRA, tariff order, operational milestones), it becomes enforceable only when those conditions are met.
- Novation: Replacement of an old contract by a new one; here, the Court held novation does not occur if the new arrangement never becomes binding.
- CoC “commercial wisdom”: The CoC’s business decision about which plan to accept is generally not re-evaluated by courts on merits.
- Section 12A withdrawal: Post-CoC constitution, CIRP can be withdrawn only with 90% CoC voting approval (subject to procedural compliance).
5. Conclusion
This decision cements a pragmatic insolvency rule-set: unimplemented, condition-laden restructuring proposals cannot be used to reset the date of default,
cannot attract Section 10A protection for earlier defaults, and cannot defeat admission of a Section 7 petition once financial debt and default are shown.
It also fortifies the post-2023 position that Innoventive Industries Ltd. v. ICICI Bank remains the governing framework,
with Vidarbha Industries Power Ltd. v. Axis Bank Ltd. confined to its distinctive facts as clarified through
Axis Bank Ltd. v. Vidarbha Industries Power Ltd. and M. SURESH KUMAR REDDY v. CANARA BANK & Ors..
On process, the Court signalled that repeated promoter settlements cannot be used to prolong CIRP contrary to the Code’s time-bound design,
and it protected the integrity of court-ordered deposits by refusing to repurpose them to secure unrelated promoter-level creditor claims.