Supreme Court: NeSL Record of Default Suffices for Section 7 IBC Admission; Profit No Defence
The Supreme Court on 15 October 2026 dismissed two appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016 and let the corporate insolvency resolution process against GSTAAD Hotels Private Limited and Neo Capricorn Plaza Private Limited continue, in Deepak Raheja and Another v. Omkara Assets Reconstruction Private Limited and Another, Civil Appeal No. 12195 of 2025, reported as 2026 INSC 1134. A bench of Justice Dipankar Datta and Justice Augustine George Masih, in a judgment authored by Justice Masih, held that the standard for ascertaining default at the admission stage of a Section 7 application is preponderance of probabilities on the documentary record, that an authenticated record of default from an information utility is on its own sufficient to establish default unless displaced by clear, cogent, credible and compelling material, and that a profitable company with positive EBITDA can still be in default because profitability says nothing about the capacity to service debt.
The judgment matters to anyone who prepares, contests or examines a Section 7 petition: lenders and asset reconstruction companies deciding what to file, promoters and their advisers deciding what defence is worth running, and the chartered accountants and insolvency professionals who certify or reconcile statements of account in the process. The two questions the Court framed in paragraph 34 are the ones that arise in almost every contested admission. What evidentiary threshold must be met before the Adjudicating Authority is satisfied that a default under Sections 3(12) and 7 has occurred, and what documentary material may it rely on to reach that satisfaction.
The ₹600 crore Piramal facilities and the default of 15 November 2022
Piramal Finance Limited lent ₹600 crore under a loan agreement of 26 December 2017 to the two companies as co-borrowers: a ₹450 crore term loan and a ₹50 crore revolving credit facility to GSTAAD Hotels, and a ₹100 crore term loan to Neo Capricorn Plaza. A Cash Management Agreement of January 2018 split the hotel's gross revenue 66 per cent to operating expenses and 34 per cent to a Retention Account for debt service. Debt Service Reserve Accounts of ₹8 crore for GSTAAD and ₹2 crore for Neo were agreed, of which ₹3 crore remained undisbursed as of 15 November 2022. Two ECLGS facilities of ₹98 crore (29 December 2020) and ₹65 crore (11 March 2022) were added for GSTAAD, and ₹19.5 crore for Neo on 30 December 2020.
The facilities were assigned to Omkara Assets Reconstruction on 27 December 2022. Four Form-D defaults were registered with National E-Governance Services Limited on 9 February 2023, one each for the term loan, the revolving facility and the two ECLGS facilities, and these stood deemed authenticated under the IBBI (Information Utilities) Regulations then in force. A recall notice of 15 February 2023 demanded ₹666,53,26,968 from GSTAAD and ₹119,99,23,320 from Neo. Section 7 petitions filed on 9 March 2023 stated the date of default as 15 November 2022 and the amount claimed as ₹665,74,77,237 as on 27 February 2023.
The NCLT Mumbai bench admitted both petitions on 9 January 2024. The NCLAT remanded the matters on 8 January 2025 for fresh consideration of the statements of account, the cash management arrangement and the DSRA, after which the Adjudicating Authority re-admitted both petitions on 8 July 2025 and the NCLAT affirmed on 19 August 2025. In parallel, the corporate debtors challenged the assignment to Omkara before the Karnataka High Court and lost before the single judge on 28 February 2024 and the division bench on 19 May 2024; the Supreme Court dismissed the special leave petition on 25 August 2025. On that footing, the Court held in paragraphs 30 to 32 that Omkara's status as a financial creditor under Section 5(7) was conclusively established and that a renewed challenge to the assignment inside the Section 7 proceeding was barred by issue estoppel, since the Adjudicating Authority is not an appellate forum over decisions of constitutional courts.
Why the cash management and DSRA arguments failed
The appellants' case was that there was no default on 15 November 2022 once the mechanics of the Cash Management Agreement and the DSRA were applied. They pointed to an excess withdrawal of ₹10,35,88,444 by the lender from the Retention Account beyond the 34 per cent ratio, and argued that the DSRA existed precisely to cover term-loan shortfalls and ECLGS interest, so the lender should have drawn on it rather than treated the account as in default. They also relied on EBITDA of ₹81 crore and ₹10 crore for the two companies to show that the businesses were viable, and on a revised one-time settlement offer of ₹743.71 crore.
The Court accepted the concurrent findings of the two tribunals on each point. Clause 18.39 of the loan agreement, and the identical clause 17.39 of the ECLGS agreements, make the cash management and escrow arrangement a channel through which an agreed share of revenue is applied to debt service, not an exhaustive arrangement that discharges the repayment obligation from other sources acceptable to the lender. The overdrawn amounts related to April and May 2023, after the date of default, and were in any case appropriated towards GSTAAD's own obligations. On the ECLGS facilities, interest and instalments remained in default even after ₹1,54,93,481.68 was appropriated from the Retention Account on 24 November 2022, and those agreements contain no DSRA provision at all. Even if the undisbursed ₹3 crore of DSRA were applied and default interest ignored, a default remained. The default computation that survived all of this was ₹17,16,29,518 for GSTAAD and a minimum of ₹2,64,99,473 for Neo, both comfortably above the ₹1 crore threshold under Section 4.
Default is a static historical event; quantum is for the claims process
The first question is answered in paragraphs 42 to 47. Section 3(12) defines default as non-payment of a debt, or any part or instalment of it, that has become due and payable. The whole debt need not be due, and the final figure need not be undisputed. The occurrence of default is, in the Court's words, a historical and static event, whereas the quantum outstanding is dynamic and moves with interest, charges and part-payments. Section 7 concerns only the first. The Court read the 14-day period in Section 7(4) as confirming this: a timeline of that length is unintelligible if it requires reconciliation of every ledger entry, and is explicable only as a window for a summary determination of a historical fact. The Adjudicating Authority is not required to fix the exact outstanding liability to the last rupee; that precision belongs to the claims process under Section 18 once the CIRP begins.
The standard, stated in paragraph 44, is preponderance of probabilities on the documentary material, and paragraph 47 completes the answer: disputes as to quantification do not negate default and do not arrest admission where the Section 4 threshold is met. This sits alongside the Court's reading of the same definition in August, when it held that time-barred EPC dues could not found an insolvency application because a continuing contract does not create a fresh cause of action for each unpaid amount. Limitation goes to whether a default exists in law at all; a quarrel over interest or charges does not.
Two tiers of evidence: the NeSL record of default first, Part V documents second
The second question produced the part of the judgment practitioners will cite most. Paragraphs 50 to 58 build a two-tier hierarchy of documentary material. The Court described the information utility process by which a creditor files information of default, the utility seeks the debtor's confirmation, sends three reminders at seven-day intervals and issues a record of default if the debtor confirms or stays silent, and treated authentication as a statutory acknowledgement of default, though not conclusive proof of quantum. Paragraph 55 holds that an authenticated record is not irrebuttable but creates a presumption of very high evidentiary value, displaceable only by clear, cogent, credible and compelling material. A bare denial, a bookkeeping disagreement or an unsupported assertion will not do. In this case the four NeSL filings went unchallenged through the authentication process, and the Court drew on Sections 31 and 115 of the Indian Evidence Act in treating the debtor's silence as supporting both acknowledgement and estoppel.
The table below sets out the two tiers as paragraph 58 and paragraph 71(iv) describe them.
| Tier | Material | Weight at admission | How it is displaced |
|---|---|---|---|
| First | Authenticated record of default issued by an information utility (NeSL Form-D filing that the debtor confirmed or left unanswered) | Sufficient on its own to establish default prima facie; presumption of very high evidentiary value | Only by clear, cogent, credible and compelling material; not by bare denial or a quantum dispute |
| Second | Documents listed in Part V of Form 1 under the IBBI (Application to Adjudicating Authority) Rules, 2016: loan agreements, statements of account, balance confirmations, acknowledgements of liability, bankers' books, recall notices, contemporaneous correspondence | No single document is sufficient by itself; collectively they may establish that a financial debt became due and remained unpaid | By showing, on the documents as a whole, that no amount above the Section 4 threshold was due and unpaid on the stated date |
The second tier is reached where no information utility record exists, where the record is contested on grounds that call for examination beyond a bare denial, or where the record is not the creditor's sole basis. Omkara's case was of the last kind. Alongside the NeSL records it had undisputed statements of account, the recall notice of 15 February 2023, review reports in which the debtors disputed the interest rate but not the computation of default, and settlement correspondence acknowledging a shortfall. The Court found no inconsistency between the information utility records and the wider documentary record, and in paragraph 62 held that once default is shown by material not genuinely disputed, further precision in quantification is a matter for the claims process in CIRP.
For a creditor the practical sequence is now clear. File the information of default with NeSL early, follow the authentication cycle through, and keep the Part V documents consistent with what was filed. For a debtor the lesson runs the other way: the time to contest an information utility filing is during authentication, not after a record of default has issued and a Section 7 petition relies on it. A reconciliation prepared after the event that merely re-computes interest or re-characterises an appropriation will not meet the clear, cogent, credible and compelling standard, and a dispute over the rate of interest will be read as conceding the default itself.
EBITDA of ₹81 crore against a debt service coverage ratio of 0.12
Paragraph 65 deals with the argument that a profitable business should not be put into insolvency. The Court held that EBITDA says nothing about a company's capacity to meet cash obligations to its lenders. A profitable company may be unable to service its debt and a loss-making company may have the liquidity to do so, which makes profitability an economically unreliable proxy for solvency. GSTAAD's own audited financial statements showed a Debt Service Coverage Ratio of 0.12 for the financial year 2022-23, meaning the cash available for debt service covered about 12 per cent of the principal and interest falling due in that year. Paragraph 71(v) records the conclusion in one sentence: profitability is neither legally relevant to, nor economically probative of, the capacity to service debt. The Code uses default, not commercial or balance-sheet insolvency, as the trigger, and that is a deliberate legislative choice traceable to the Bankruptcy Law Reforms Committee report the Court had earlier discussed in Swiss Ribbons.
An illustration shows why the ratio and not the profit figure decides the question. Suppose a hotel company reports EBITDA of ₹81 crore for a year. Its scheduled debt service for the same year is ₹120 crore of principal instalments and ₹60 crore of interest, a total of ₹180 crore. If only ₹21.6 crore of cash was actually available for debt service after working-capital outflows, taxes and the 66 per cent of revenue applied to operating expenses under a cash management agreement, the DSCR is 21.6 divided by 180, or 0.12. The company is profitable on an EBITDA view and in default on a cash view, and under this judgment the second view is the only one that counts at admission.
The April 2026 amendment to Section 7(5) and why the Court said it changes nothing
Paragraphs 67 to 69 address the amendment to Section 7(5) notified in April 2026. In the amended provision the word "shall" replaces "may", so that the Adjudicating Authority must admit the application once it is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional. Explanation I provides that no other ground shall be considered to reject an application under the section. Explanation II provides that a record of default from an information utility filed with an application by a financial institution shall be considered sufficient for the Adjudicating Authority to ascertain the existence of default. The Court held that neither explanation creates new law: both clarify the position the Court had already reached on the unamended text, and its reasoning would be the same without them. The relevance for pending matters is direct. Petitions filed before April 2026 and still at the admission stage will be decided on the same two-tier hierarchy and the same preponderance standard, and the discretion the appellants sought to draw from Vidarbha Industries Power (cited at paragraph 23) is not available where default above the threshold is established on the record.
AI-generated judgments in the appellants' compilation
Paragraph 74 records an incident the Court described as undesirable. The respondents objected that the compilation of judgments filed on behalf of the appellants was replete with AI-generated, non-existent judgments. When the Court asked the Advocate-on-Record to explain, he sought to shift responsibility to the appellants and said he did not know what the compilation contained; senior counsel then took responsibility and apologised on the appellants' behalf. The Court had proposed exemplary costs, but was later informed that the first appellant had died. It deleted the costs direction, recorded that in view of Order XXII Rule 6 of the Code of Civil Procedure, 1908 the appeal did not abate, and disposed of the applications for substitution as redundant. The exchange in open court, reported by Bar and Bench on 15 October 2026, is a warning for every professional who files a compilation of authorities, including chartered accountants appearing before the NCLT and ITAT: the person who signs the filing answers for what is in it.
The CIRPs of GSTAAD Hotels and Neo Capricorn Plaza now proceed under the admission orders of 8 July 2025. The judgment contains no direction to the resolution professional or the committee of creditors, and the ₹743.71 crore settlement offer recorded at paragraph 21 remains a matter for the committee under Section 12A if the promoters pursue it. The next point to watch is how NCLT benches apply the first tier in petitions where the debtor did dispute the NeSL filing during authentication, since the Court's presumption attaches to an authenticated record and the judgment leaves the weight of a disputed filing to be worked out on the material in each case.
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