Supreme Court: a corporate debtor's profitability is irrelevant to 'default' under Section 7 of the IBC

The Supreme Court has dismissed appeals by the promoters of two hotel-owning companies against the admission of Corporate Insolvency Resolution Process (CIRP) applications under Section 7 of the Insolvency and Bankruptcy Code, 2016. The companies had defaulted on loans from Piramal Finance, later assigned to Omkara Assets Reconstruction, and argued that their hotels remained profitable and that the debt figures were disputed. Dismissing this, the Court held that Section 7 creates a summary jurisdiction, where the evidentiary threshold for establishing default is preponderance of probabilities on the documentary record, not a forensic reconciliation of accounts; the occurrence of a default is a static historical fact, while the quantum of outstanding debt is dynamic.

It laid down a hierarchy of proof: a record of default from an Information Utility is by itself sufficient and carries a high-value presumption, displaceable only by clear, cogent and compelling material, not bare denial; failing that, documents such as loan agreements, statements of account and acknowledgements of liability may collectively establish default. Crucially, the Court held that profitability is neither legally relevant to, nor economically probative of, a debtor's capacity to service debt, since the Code's jurisdictional trigger is 'default' under Section 3(12), not commercial or balance-sheet insolvency. Finding a default above the Section 4 threshold established, it upheld the CIRP against both companies.