Case: Innoventive Industries Ltd. v. ICICI Bank and Ors.

Court: Supreme Court of India

Bench: Rohinton Fali Nariman and Sanjay Kishan Kaul, JJ.

Decided on: 31.08.2017

Law Involved: Section 7, Insolvency & Bankruptcy Code, 2016.

 The Supreme Court of India in this case has delivered its first extensive ruling on the
operation and functioning of the Insolvency and Bankruptcy Code, 2016.

 The Hon’ble National Company Law Appellate Tribunal on 17th January 2017 in

Company Appeal (AT)(insolvency) No. 1 and 2 of 2017 in the matter of M/s.
Innovative Industries Ltd. Vs. ICICI Bank &Ans, held that in an application filed by
the Financial Creditor under Section 7 for initiation of Corporation Insolvency
Process, the Adjudicating Authority is required to satisfy-
(a) Whether a default has occurred;
(b) Whether an application is complete;
(c) Whether any disciplinary proceeding is against the proposed Insolvency
Resolution Professional?
 The Supreme Court dismissed the appeal filed on behalf of Innoventive Industries
Limited and confirmed the decision of the National Company Law Appellate
Tribunal.
 The issue before the Supreme Court was: what is the concept of default under the
Insolvency Code and how it must be ascertained?
 The Supreme Court observed the following: 
o The concept of default under the Insolvency Code is very wide. It is simply a non-
payment of debt when the same becomes due and includes non-payment of even a
part thereof. Even non-payment of a disputed financial debt when due would
constitute a default under the Code. In other words, as long as the debt is due it
does not matter if the same is disputed.
o The Court noticed that the difference in the scheme of initiation of insolvency
proceedings at the instance of a financial creditor (under Section 7) and by an
operational creditor (under Section 8) of the Insolvency Code. Under Section 7 the
Court found that, in the case of a corporate debtor who commits a default of a
financial debt, the adjudicating authority has merely to see the records of the
information utility or other evidence produced by the financial creditor to satisfy
itself that a default has occurred. The scope of enquiry before the adjudicating
authority is therefore limited to assessing the records provided by the financial
creditor to satisfy itself that the default has occurred.
o It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable
unless interdicted by some law or has not yet become due in the sense that it is
payable at some future date. It is only when this is proved to the satisfaction of the
adjudicating authority that the adjudicating authority may reject an application and
 not otherwise. The adjudicating authority may therefore only reject an application
on a defence taken by the corporate debtor that the debt was not due and not
otherwise.
o Whilst noticing the provisions of the Section 7 of the Insolvency Code, the Court
found that “The speed, within which the adjudicating authority is to ascertain the
existence of a default from the records of the information utility or on the basis of
evidence furnished by the financial creditor, is important. This it must do within
14 days of the receipt of the application.
o It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied
that a default has occurred, that the corporate debtor is entitled to point out that a
default has not occurred in the sense that the “debt”, which may also include a
disputed claim, is not due. A debt may not be due if it is not payable in law or in
fact. The moment the adjudicating authority is satisfied that a default has
occurred, the application must be admitted unless it is incomplete, in which case it
may give notice to the applicant to rectify the defect within 7 days of receipt of a
notice from the adjudicating authority.”