CIRP To Proceed On Prima Facie Threshold: Supreme Court Clarifies Evidence Required Under Section 7 IBC

The Supreme Court has held that the threshold for establishing default under Section 7 of the Insolvency and Bankruptcy Code (IBC) at the stage of admission of an insolvency petition is a summary, prima facie one, to be determined on the preponderance of probabilities from the documentary material on record.

A Bench of Justices Dipankar Datta and Augustine George Masih clarified that the adjudicating authority is required to determine whether a default has occurred, and not undertake a conclusive reconciliation of the exact amount of debt outstanding.

Section 7 of the IBC allows a financial creditor, such as a bank or financial institution, to initiate insolvency proceedings against a corporate debtor when it defaults on repayment of its debt. The National Company Law Tribunal (NCLT) admits the application upon being satisfied that a financial debt and default exist.

What is the evidentiary threshold under Section 7 IBC?

Court said the occurrence of default is a “static historical event”, while the quantum of debt outstanding may change over time. Therefore, a dispute regarding the exact amount payable does not by itself negate the existence of default or prevent admission of a Section 7 petition, provided the statutory threshold under Section 4 of the Code is met.

“The evidentiary threshold for ascertaining default is that of preponderance of probabilities upon the documentary material placed on record, and not a forensic reconciliation of accounts,” the Bench said.

Court further held that the role of the adjudicating authority at the admission stage is confined to ascertaining the existence of debt and default.

The Bench also explained the evidentiary hierarchy applicable in Section 7 proceedings. It said a record of default issued by an information utility occupies the first tier and is sufficient to raise a presumption of default. Such presumption can be displaced only through clear, cogent, credible and compelling material.

Other documentary evidence, including loan agreements, account statements and balance confirmations, forms the second tier of evidence and, when considered collectively, may establish default on the summary standard applicable under Section 7.

Can profitability prevent insolvency proceedings?

Court rejected the argument that a company's profitability or Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) can prevent its admission into the Corporate Insolvency Resolution Process (CIRP).

The Bench said profitability is neither legally relevant to the existence of default nor an economically reliable indicator of a company's ability to service its debt.

“The Code proceeds upon the principle of timely intervention rather than terminal insolvency, and adopts ‘default’ under Section 3(12) of the Code, not commercial or balance-sheet insolvency, as the jurisdictional trigger,” it said.

Court found that, on the material available in the present case, default above the threshold prescribed under Section 4 of the Code had been established.

Case in brief

The observations came while the Court was hearing appeals filed by Deepak Raheja and another against a common judgment dated August 19, 2025, passed by the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi.

The NCLAT had upheld two orders passed on July 8, 2025, by the National Company Law Tribunal (NCLT), Mumbai Bench, admitting petitions under Section 7 and initiating CIRP against GSTAAD Hotels Pvt Ltd and Neo Capricorn Plaza Pvt Ltd respectively.

Court noted that its jurisdiction under Section 62 of the Code is confined to questions of law arising from an order of the appellate tribunal.

It held that where the adjudicating authority and the appellate tribunal have concurrently recorded findings of fact and law on the same material, such findings cannot ordinarily be disturbed unless they are shown to be perverse, based on no evidence, arrived at by ignoring material evidence, or founded on an erroneous legal standard.

Court also noted that Omkara Assets Reconstruction Private Limited and another had conclusively established their status as financial creditors under Section 5(7) of the Code through an assignment agreement dated December 27, 2022. The validity of the assignment had already been upheld by the Karnataka high court and affirmed by the Supreme Court.

Accordingly, Court held that the challenge to the assignment was barred by the principle of issue estoppel.

Finding no merit in the appeals, Court dismissed them and directed that the CIRP in respect of both corporate debtors proceed in accordance with law.

AI-generated non-existent judgments

During the hearing, Court was informed that a compilation of judgments filed on behalf of the appellants contained AI-generated judgments that did not exist.

The Advocate-on-Record sought to attribute the error to the appellants, while the senior advocate appearing in the matter sought to take responsibility for the lapse.

Court proposed imposing high costs and came down heavily on the appellants. However, after being informed about the death of the first appellant, the Bench deleted the direction imposing costs and ordered “no order as to costs”.

Case Title: Deepak Raheja And Another Vs Omkara Assets Reconstruction Private Ltd And Another

Bench: Justices Dipankar Datta and Augustine George Masih

Date of Judgment: October 15, 2026