IBC | Mere Pendency Of Restructuring Arrangements Cannot Stall CIRP : Supreme Court

The Supreme Court on Tuesday (February 24) has observed that merely because an arrangement of restructuring a debt-laden corporate debtor is in place, would not bar initiation of a CIRP under the Insolvency and Bankruptcy Code.

A bench of Justices Sanjay Kumar and K Vinod Chandran set aside the NCLAT's decision, which had rejected a Section 7 IBC application on the premise that a restructuring arrangement was in place.

“for admission of an application under Section 7 of the Code, the adjudicating authority is only required to examine and satisfy itself that a financial debt exists and there is default in relation thereto.”, the court said, pointing out that internal communication regarding the restructuring would have no significance to resist CIRP, when the debt and default are established.

The case arose from a large debenture-backed financing transaction for a residential-cum-retail real estate project in Mumbai. Under a Debenture Trust Deed executed in March 2018, the corporate debtor issued Series A redeemable non-convertible debentures aggregating ₹600 crore, with Appellant-Catalyst Trusteeship Ltd. appointed as the debenture trustee. The deed laid down a strict contractual framework for any amendment, waiver, or restructuring—requiring prior written consent of the debenture trustee, approval of debenture holders through “approved instructions”, and a special resolution passed by a 3/4th majority.

Following defaults, the corporate debtor claimed that a restructuring had been agreed upon through e-mail correspondence with ECL Finance Ltd. (ECLF), one of the debenture holders belonging to the Edelweiss group. On this basis, it argued that no default subsisted and that the Section 7 application was not maintainable.

Aggrieved by the NCLT and NCLAT's decision to reject the Section 7 CIRP application, led to filing of an appeal before the Supreme Court.

Setting aside the concurrent impugned findings, the judgment authored by Justice Sanjay Kumar stated that while a corporate debtor may show that a debt is not “due” in law, it cautioned that this cannot be done indirectly by relying on informal, non-binding negotiations that fall short of contractual or statutory requirements.

The Court noted that merely because the Respondent-Corporate Debtor was in talks with the ECLF regarding the restructuring, it would not bind other debenture holders, even if they belonged to the same corporate group, in the absence of express authorization.

“…the respondent company could not have assumed that ECLF had already agreed to the restructuring proposal without further ado and that the same was binding upon all concerned. In this regard, the observations made by the NCLAT against ECLF are without basis as the aforestated communication from ECLF to the respondent company demonstrates that no promise was held out by it as to the restructuring and all that was stated was that the proposal would be considered as per due procedure.”, the Court observed.

Accordingly, the appeal was allowed, and the Appellant's CIRP application was directed to be admitted.

Cause Title: CATALYST TRUSTEESHIP LTD. versus ECSTASY REALTY PVT. LTD.

Citation : 2026 LiveLaw (SC) 192

Click here to download judgment

Appearance:

For Appellant(s) : Mr. Aryama Sundaram, Sr. Adv. Ms. Akanksha Mehra, AOR Mr. Himanshu Tyagi, Adv. Mr. Lakshay Saini, Adv. Ms. Rohini Musa, Adv.

For Respondent(s) : Mr. Ashwani Kumar, Sr. Adv. Mr. Amit Sharma, AOR Mr. Virag Gupta, Adv. Mr. Dipesh Sinha, Adv. Ms. Pallavi Barua, Adv. Ms. Aparna Singh, Adv.