Dhanlaxmi Bank Ltd. vs Mohammed Javed Sultan and Ors. - This Court has underscored that where object behind the invocation of Code is to compel payment rather than to address genuine financial distress, such invocation would amount to an abuse of process. The Code must not be used as a tool for coercion and debt recovery by individual creditors.

 SCI (2026.05.07) in Dhanlaxmi Bank Ltd. vs Mohammed Javed Sultan and Ors. [(2026) ibclaw.in 244 SC, Civil Appeal No. 7184 of 2022] held that;-

• The NCLAT by an order dated 02.08.2022, inter alia, held that the Bank did not directly disburse the amount to the CD and, therefore, the Bank cannot be termed as “Financial Creditor” under Section 7 of the Code.

• It was further held that the Bank had indulged in forum shopping and the provisions of the Code could not be used as recovery mechanism. Accordingly, NCLAT set aside the order passed by the NCLT and allowed the appeal.

• This Court has underscored that where object behind the invocation of Code is to compel payment rather than to address genuine financial distress, such invocation would amount to an abuse of process2. The Code must not be used as a tool for coercion and debt recovery by individual creditors3.

• The present case does not involve a straightforward financial debt- default scenario warranting initiation of CIRP. The facts disclose a dispute which is predominantly contractual in nature and is subject matter of the proceedings before the DRT-the appropriate forum for recovery.

• Therefore, permitting invocation of the Code in cases such as the present one, would amount to converting insolvency proceedings into a coercive mechanism for recovery which is impermissible.

Excerpts of the Order;

# 1. This appeal assails the order dated 02.08.2022 passed by the National Company Law Appellate Tribunal (NCLAT), whereby order dated 20.02.2020 passed by National Company Law Tribunal (NCLT), was set aside.

FACTS

# 2. The relevant facts giving rise to the present appeal, as discernible from the record are set out in the following chronology of events:

• (i) On 06.04.2011, M/s. Emerald Mineral Exim Pvt. Ltd. [(Corporate Debtor, (CD)] and Bengal Shrachi Housing Development Ltd. (Builder) entered into an agreement for sale of unit bearing No. SBP-9C(A) measuring 5893.5 sq. ft. which was to be constructed in the building, namely “Synthesis Business Park” New Town, Rajarhat, Kolkata (subject property).

• (ii) On 27.06.2011, the appellant (Bank) sanctioned loan of Rs.1.50 Crores in favour of CD for purchasing the subject property.

• (iii) On 29.06.2011, facility agreement was executed between the Bank and the CD. On the same day, a quadripartite agreement was executed between the Bank, CD, the Builder and the West Bengal Housing Infrastructure Development Corporation Limited (WBHIDCL). Under the said agreement, the CD instructed the Bank to disburse the loan amount directly to the Builder, subject to terms of the facility agreement. Pursuant thereto,

• (iv) On 13.09.2011, an amount of Rs.1.34 crores was disbursed directly to the Builder.

• (v) As on 12.04.2014, CD paid a sum of Rs.54,13,999.87/- to the Bank.

• (vi) On 31.03.2013, the CD executed a nomination agreement with the Builder to transfer the subject property to Jupiter Pharmaceuticals Limited (JPL) for Rs.2,26,77,250/-.

• (vii) On 22.04.2013 a copy of nomination agreement was furnished to the Bank.

• (viii) On 10.06.2013, a deed of conveyance was executed by the CD in favour of the Builder and WBHIDCL, for transfer of the subject property for Rs.2,26,77,250/-.

• (ix) On 25.04.2014, the CD executed an acknowledgement of liability.

• (x) On 05.07.2014, the account of the CD was classified as a Non-Performing Asset (NPA).

• (xi) On 22.07.2014, the CD again acknowledged its liability.

• (xii) On 07.09.2015, the CD proposed one time settlement of Rs.74 Lakhs. The cheques issued by the CD towards repayment of the loan were dishonoured due to insufficient funds.

• (xiii) On 28.01.2016 the Bank initiated proceedings under the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (1993 Act), before the Debt Recovery Tribunal (DRT) against the CD, Builder and Guarantors for the recovery of an amount of Rs.1,80,32,125.50/- as on 11.12.2015 along with interest at the rate of 14.25 % per annum.

• (xiv) By an order dated 20.09.2016, the DRT held that Bank’s charge is existing and continues irrespective of the sale deed executed by the Builder in favour of the third party and appointed a receiver to take possession of the subject property from the third party. The DRT further directed the Builder to deposit a sum of Rs. 1.50 crores within two days from the date of the order, which was directed to be treated as security provided by the Builder. The Builder, on 27.09.2016, deposited a sum of Rs.1.50 crores.

• (xv) On 28.09.2016, the Bank filed a winding up petition against the CD under Sections 433, 434 and 439 of the Companies Act, 1956 (1956 Act).

• (xvi) Pursuant to the Central Government notification dated 07.12.2016, the matter was transferred to NCLT on 19.04.2019 and treated as a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code).

# 3. The NCLT, by an order dated 20.02.2020, inter alia, held that the debt and default are proved beyond reasonable doubt. The NCLT, therefore, admitted the petition and initiated Corporate Insolvency Resolution Process (CIRP) against the CD.

# 4. The suspended Director of the CD challenged the aforesaid order in an appeal. The NCLAT by an order dated 02.08.2022, inter alia, held that the Bank did not directly disburse the amount to the CD and, therefore, the Bank cannot be termed as “Financial Creditor” under Section 7 of the Code. It was further held that the Bank had indulged in forum shopping and the provisions of the Code could not be used as recovery mechanism. Accordingly, NCLAT set aside the order passed by the NCLT and allowed the appeal.

SUBMISSIONS

# 5. Learned senior counsel for the Bank submitted that there is a valid debt against the CD, as it is referred to as the borrower of the quadripartite agreement dated 29.06.2011. Our intention has been invited to Clauses 2 & 19 of the aforesaid agreement. It is also urged that facility agreement discloses that true borrower is the CD who had paid interest on the loan and had executed acknowledgment of liability. It is argued that NCLAT has incorrectly recorded a finding that the Bank has recovered a sum of Rs.1.50 crores and ought to have appreciated that the amount is still lying in deposit with the DRT. It is contended that the Bank has taken recourse to different statutory remedies which does not amount to forum shopping.

# 6. On the other hand, learned counsel for the respondent nos. 1 & 2 submitted that the Bank had disbursed the loan amount to the Builder and there was no enforceable default by the CD in the manner alleged by the Bank. It is contended that under the quadripartite agreement, the Builder had obligations concerning payment and transfer of subject property. It is argued that the dispute is essentially contractual involving questions of transfer of property and obligations of the Builder rather than a pure insolvency default under the Code. It is contended that the order passed by the NCLAT does not call for any interference in this appeal.

# 7. We have considered the rival submissions and perused the record.

# 8. It is well settled that condition precedent invocation of Section 7 of the Code is the existence of a ‘financial debt’ and a ‘default’ in its repayment. The scheme of the Code is to ensure that when a debt becomes due and is not paid, the Insolvency Resolution Process begins1. The Code operates as a collective insolvency resolution mechanism and not as a forum for the adjudication of individual contractual claims. This Court has underscored that where object behind the invocation of Code is to compel payment rather than to address genuine financial distress, such invocation would amount to an abuse of process2. The Code must not be used as a tool for coercion and debt recovery by individual creditors3.

# 9. In the instant case from the perusal of clauses 7 to 14, 16, 17 to 20 and 25 of the quadripartite agreement following facts emerge:-

• (a) An amount of Rs.1.50 crore was to be paid by the Bank upfront/in multiple tranches to the Builder.

• (b) The CD had instructed the Bank to disburse the loan amount directly to the Builder subject to terms and conditions of the facility agreement.

• (c) On completion of construction of subject property, the Builder was required to give seven days prior notice before execution of sale deed in favour of the CD.

• (d) In case, CD desires to withdraw its application for allotment of subject property or its application is cancelled by the Builder or if the CD fails to deposit the balance amount representing the difference between the loan amount sanctioned by the CD and the actual purchase price of the subject property or in the case of death of CD or in case the agreement for sale of subject property is cancelled, the Builder shall refund the amount after deducting all its dues and charges to the Bank.

• (e) The amount which may be received by the Builder on account of provisional sale price of subject property was required to be paid to the Bank.

• (f) The Builder had assured and confirmed the Bank that the subject property is free from any encumbrances and it has taken necessary permissions/approvals/sanctions for construction of the building from all competent authorities.

• (g) The Builder had given his consent that Bank shall have lien on the subject property and CD shall furnish the same as security of loan to the Bank and create a mortgage in favour of Bank as and when sale deed/lease deed is executed in its favour.

• (h) The Builder had undertaken not to mortgage the subject property to any financial institution for raising any loan.

• (i) The Builder had agreed and undertaken not to transfer the subject property to any other member or other person without previous consent of the Bank.

# 10. It is an admitted position that the loan amount was directly disbursed to the Builder. The quadripartite agreement indicates that the Builder had significant obligation concerning the construction, delivery and transfer of subject property. The structure of transaction reveals that Bank’s disbursement was intrinsically linked to performance of Builder’s obligation. In such circumstances, the transaction cannot be viewed in isolation as a simple financial lending arrangement between the Bank and the CD.

# 11. The material on record indicates that obligations arising out of the transaction are intertwined with Builder’s performance. The dispute between the parties is predominantly contractual in character involving competing claims relating to transfer of property and associated obligations.

CONCLUSION

# 12. The present case does not involve a straightforward financial debt- default scenario warranting initiation of CIRP. The facts disclose a dispute which is predominantly contractual in nature and is subject matter of the proceedings before the DRT-the appropriate forum for recovery. The deposit made pursuant to order of the DRT further indicates that the matter is actively being adjudicated in appropriate proceeding. Therefore, permitting invocation of the Code in cases such as the present one, would amount to converting insolvency proceedings into a coercive mechanism for recovery which is impermissible.

# 13. For the aforementioned reasons, we are not inclined to interfere with the judgment passed by the NCLAT.

# 14. In the result, appeal fails and is hereby dismissed. There shall be no order as to costs.

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References:

1. Innovative Industries Ltd. v. ICICI Bank & Anr.; [(2017) ibclaw.in 02 SC] : (2018) 1 SCC 407

2. Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India & Ors.; [(2019) ibclaw.in 13 SC] : (2019) 8 SCC 416

3. Glas Trust Company LLC v. BYJU Raveendran & Ors.; [(2024) ibclaw.in 275 SC] : (2025) 3 SCC 625 and Anjani Technoplast Ltd v. Shubh Gautam; [(2026) ibclaw.in 209 SC] : 2026 INSC 410

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Imp. Rulings - "Doctrine of Debt & default" and Solvency of Co.

Imp. Rulings - "Doctrine of Debt & default" and Solvency of Co.

Index;

1. SCI (2026.04.23) in Anjani Technoplast Ltd. Vs. Shubh Gautam [(2026) ibclaw.in 209 SC, Civil Appeal No. 8247 of 2022] [Solvent Company - Debt & Default, Decree Holder]

2. SCI (2026.01.15) in Elegna Co-Op Housing And Commercial Society Ltd. & Anr. Vs.  Edelweiss Asset Reconstruction Company Ltd.  [2026 INSC 58, (2026) ibclaw.in 17 SC, Civil Appeal No. 10261 of 2025 with Civil Appeal No. 10012 of 2025] [Debt & Default and Solvency of the Project]

3. SCI (2023.05.11) In M. Suresh Kumar Reddy Vs. Canara Bank & Ors. [Civil Appeal No. 7121 of 2022] [Debt & Default, Section 7(5)(a)]

4. SCI (2022.07.12) in Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. [Civil Appeal No. 4633 of 2021] [Solvent Company - Debt & Default, Section 7(5)(a)]

5. SCI (2021.12.14) in E S Krishnamurthy & Ors. Vs. Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No 3325 of 2020] [Debt & Default, Section 7(5)(a)]

6. SCI (2017.08.31) in Innoventive Industries Ltd. v. ICICI Bank & Anr.(Civil Appeal Nos. 8337 - 8338 of 2017) [Debt & Default, Section 7(5)(a)]

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1).  SCI (2026.04.23) in Anjani Technoplast Ltd. Vs. Shubh Gautam [(2026) ibclaw.in 209 SC, Civil Appeal No. 8247 of 2022] held that;-

• The Code was enacted to provide for the reorganisation and insolvency resolution of corporate persons in a time-bound manner for the maximisation of the value of assets. It is not a debt recovery legislation. 

• this Court held that a decree for money in favour of a financial creditor would give rise to a fresh cause of action for initiating proceedings under Section 7 of the IBC. We do not doubt that proposition as a general statement of law.

• However, that principle does not operate in a vacuum. It does not mean that every decree holder who also happens to be a financial creditor is entitled, as a matter of right, to invoke the insolvency process in preference to execution. The question of whether, in each case, the invocation of the IBC amounts to misuse of the process or to the use of the Code as a recovery mechanism remains a question to be examined on the facts.

• The insolvency process is a remedy with far-reaching consequences and must be reserved for cases of genuine insolvency or financial distress, not for the enforcement of money decrees.

[Link Synopsis]

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2). SCI (2026.01.15) in Elegna Co-Op Housing And Commercial Society Ltd. & Anr. Vs.  Edelweiss Asset Reconstruction Company Ltd.  [2026 INSC 58, (2026) ibclaw.in 17 SC, Civil Appeal No. 10261 of 2025 with Civil Appeal No. 10012 of 2025] 

• The legal position is now well settled. In Innoventive Industries, this Court held that once the Adjudicating Authority is satisfied that a financial debt exists and a default has occurred, it must admit the application unless it is incomplete. The inquiry under Section 7(5)(a) is confined strictly to the determination of debt and default, leaving no scope for equitable or discretionary considerations.

• The reliance placed by the Corporate Debtor on Vidarbha Industries is wholly misconceived. That decision has consistently been recognised as a narrow exception confined to its peculiar facts, namely the existence of an adjudicated and realisable claim in favour of the corporate debtor exceeding the debt owed.

• This position now stands authoritatively clarified in M. Suresh Kumar Reddy, wherein this Court held that Vidarbha Industries does not dilute the binding ratio of Innoventive Industries and E.S. Krishnamurthy. Admission under Section 7 thus remains mandatory once debt and default are established, with Vidarbha Industries operating only in exceptional circumstances.

• Resolution of real estate insolvency should, as a rule, proceed on a project specific basis rather than the entire corporate debtor, unless circumstances justify otherwise. This would protect solvent projects and genuine homebuyers from collateral prejudice. IBBI shall also devise a mechanism to enable handover of possession to willing allottees where substantial units in a project are complete.

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3). Supreme Court (11.05.2023) In M. Suresh Kumar Reddy Vs. Canara Bank & Ors. [Civil Appeal No. 7121 of 2022] held that;

• 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.

• The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively.

• Hence, the decision in the case of Vidarbha Industries12 cannot be read and understood as taking a view which is contrary to the view taken in the cases of Innoventive Industries13 and E.S.,Krishnamurthy14. The view taken in the case of Innoventive,Industries15 still holds good.

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4). Supreme Court of India (2022.07.12) in Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. [Civil Appeal No. 4633 of 2021] held that;

• # 61. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management.

• # 63. The meaning and intention of Section 7(5)(a) of the IBC is to be ascertained from the phraseology of the provision in the context of the nature and design of the IBC. This Court would have to consider the effect of the provision being construed as directory or discretionary.

• # 64. Ordinarily the word “may” is directory. The expression ‘may admit’ confers discretion to admit. In contrast, the use of the word “shall” postulates a mandatory requirement. The use of the word “shall” raises a presumption that a provision is imperative. However, it is well settled that the prima facie presumption about the provision being imperative may be rebutted by other considerations such as the scope of the enactment and the consequences flowing from the construction.

• # 75. Significantly, Legislature has in its wisdom used the word ‘may’ in Section 7(5)(a) of the IBC in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor but has used the expression ‘shall’ in the otherwise almost identical provision of Section 9(5) of the IBC relating to the initiation of CIRP by an Operational Creditor.

• # 76. The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor.

• # 78. The Legislature has consciously differentiated between Financial Creditors and Operational Creditors, as there is an innate difference between Financial Creditors, in the business of investment and financing, and Operational Creditors in the business of supply of goods and services. Financial credit is usually secured and of much longer duration. Such credits, which are often long term credits, on which the operation of the Corporate Debtor depends, cannot be equated to operational debts which are usually unsecured, of a shorter duration and of lesser amount. The financial strength and nature of business of a Financial Creditor cannot be compared with that of an Operational Creditor, engaged in supply of goods and services. The impact of the non-payment of admitted dues could be far more serious on an Operational Creditor than on a financial creditor.

• # 79. As observed above, the financial strength and nature of business of Financial Creditors and Operational Creditors being different, as also the tenor and terms of agreements/contracts with financial creditors and operational creditors, the provisions in the IBC relating to commencement of CIRP at the behest of an Operational Creditor, whose dues are undisputed, are rigid and inflexible. If dues are admitted as against the Operational Creditor, the Corporate Debtor must pay the same. If it does not, CIRP must be commenced. In the case of a financial debt, there is a little more flexibility. The Adjudicating Authority (NCLT) has been conferred the discretion to admit the application of the Financial Creditor. If facts and circumstances so warrant, the Adjudicating Authority can keep the admission in abeyance or even reject the application. Of course, in case of rejection of an application, the Financial Creditor is not denuded of the right to apply afresh for initiation of CIRP, if its dues continue to remain unpaid.

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5). Supreme Court of India (2021.12.14) in E S Krishnamurthy & Ors. Vs. Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No 3325 of 2020] held that;

• # 25 In Innoventive Industries (supra), a two-judge Bench of this Court has explained the ambit of Section 7 of the IBC, and held that the Adjudicating Authority only has to determine whether a “default” has occurred, i.e., whether the “debt” (which may still be disputed) was due and remained unpaid. If the Adjudicating Authority is of the opinion that a “default” has occurred, it has to admit the application unless it is incomplete. Speaking through Justice Rohinton F Nariman, the Court has observed:

• “28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor — it need not be a debt owed to the applicant financial creditor. . . . . . . . . . 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. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.

• 30. On the other hand, as we have seen, 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. 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.”

• # 27 The Adjudicating Authority has clearly acted outside the terms of its jurisdiction under Section 7(5) of the IBC. The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.

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6). Supreme Court of India (2017.08.31) in Innoventive Industries Ltd. v. ICICI Bank & Anr.(Civil Appeal Nos. 8337 - 8338 of 2017) held that;

• # 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a “claim” and for the meaning of “claim”, we have to go back to Section 3(6) which defines “claim” to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5 (21) means a claim in respect of provision of goods or services.

• “28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor — it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. 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. 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. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.

• # 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration  proceedings, which is pre existing – i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

• # 30. On the other hand, as we have seen, 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. 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.

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