The Supreme Court of India has dismissed an appeal filed by Power Trust, the promoter of Hiranmaye Energy Ltd., challenging the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The Bench, comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi, and Justice Vipul M. Pancholi, upheld the orders of the National Company Law Appellate Tribunal (NCLAT) and the National Company Law Tribunal (NCLT), Kolkata Bench.
The Court held that the restructuring proposals relied upon by the appellant had not fructified into binding agreements due to the non-fulfillment of pre-implementation conditions, and therefore, the date of default remained 31.03.2018, falling outside the bar under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016.
Background of the Dispute
The case originated from a common loan agreement dated 19.06.2013 between Hiranmaye Energy Ltd. (Corporate Debtor) and REC Ltd. (Financial Creditor) for a term loan of Rs. 1,859 crore to set up a thermal power plant in Haldia, West Bengal. An additional loan of Rs. 446.97 crore was availed in 2015.
On 30.06.2018, the Financial Creditor classified the account as a Non-Performing Asset (NPA). Subsequently, restructuring proposals were discussed in February and September 2020. These proposals were subject to pre-implementation conditions, including obtaining a favourable tariff order, creating a Debt Service Revenue Account (DSRA), and demonstrating the plant’s capacity.
However, the Corporate Debtor failed to meet these conditions by the stipulated deadline of 28.02.2021. Consequently, REC Ltd. filed an application under Section 7 of the IBC, claiming an outstanding amount of Rs. 21,831 crore. The NCLT admitted the application on 02.01.2024, initiating CIRP. The NCLAT upheld this admission on 25.01.2024, prompting the present appeal.
Arguments of the Parties
The Appellant, Power Trust, argued that the CIRP was barred by Section 10A of the IBC, which prohibits the initiation of insolvency proceedings for defaults occurring between 25.03.2020 and 24.03.2021. The Appellant contended that the restructuring agreement dated 21.02.2020 reset the repayment schedule, placing the default within the Section 10A window. They further argued that the loan agreement was novated by the restructuring proposals and that the Corporate Debtor, being a viable ongoing concern with a 25-year Power Purchase Agreement (PPA), should not be dragged into insolvency.
The Respondents countered that the restructuring proposals never crystallized into binding agreements because the pre-implementation conditions were never satisfied. They maintained that the default date remained 31.03.2018. The Respondents argued that the Adjudicating Authority’s role at the Section 7 admission stage is limited to verifying the debt and default, citing the Supreme Court’s decision in Innoventive Industries Ltd. v. ICICI Bank.
Court’s Analysis and Observations
Justice Joymalya Bagchi, delivering the judgment, addressed the key issues of the Section 10A bar, novation of contract, and the viability of the Corporate Debtor.
On Section 10A Bar and Novation
The Court rejected the Appellant’s reliance on Section 10A, terming it a “non-starter.” The Bench observed that the restructuring proposals were “underpinned on pre-implementation conditions” which the Corporate Debtor failed to fulfill. Consequently, the proposals did not result in a valid novation of the original loan agreement.
The Court noted: “In such view of the matter, the date of default would relate to 31.03.2018 as per the Section 7 application, and the proceeding cannot be held to be barred in light of the Explanation to Section 10A, IBC.”
Even assuming the restructuring proposals were valid, the Court pointed out that under the second proposal dated 29.09.2020, the first instalment fell due on 31.03.2021, which is beyond the Section 10A protection period.
On Viability and Admission of Section 7 Application
Addressing the Appellant’s argument regarding the commercial viability of the Corporate Debtor, the Court reiterated the settled legal position that the Adjudicating Authority’s scope under Section 7 is limited to ascertaining the existence of a default.
The Court distinguished the present case from the judgment in Vidarbha Industries Power Ltd. v. Axis Bank Ltd., clarifying that the observations in Vidarbha were fact-specific. Relying on M. Suresh Kumar Reddy v. Canara Bank & Ors., the Court affirmed that the ratio in Innoventive Industries holds the field.
The judgment stated: “The Code restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more.”
Regarding the factual viability, the Court noted that the outstanding liability of over Rs. 3,103 crore far exceeded the revenue generated by the Corporate Debtor, rendering the viability argument “dubious.”
On Settlement Proposals
During the pendency of the appeal, the Appellant submitted multiple settlement proposals, all of which were rejected by the Committee of Creditors (CoC). The CoC subsequently approved a resolution plan by Damodar Valley Corporation (DVC).
The Court refused to interfere with the CoC’s “commercial wisdom” in rejecting the settlement offers. It observed that stalling the CIRP for further settlement proposals would be prejudicial to the timely resolution of the insolvency process.
Decision
The Supreme Court dismissed the appeal and vacated the stay on the CIRP granted on 12.09.2025.
Additionally, the Court rejected an application by SREI Equipment Finance Ltd. (SEFL) seeking the release of Rs. 125 crore deposited by the Appellant with the Court’s Registry. SEFL claimed dues from the Appellant, but the Court held that no award or decree had crystallized this claim. The Court directed the Registry to refund the Rs. 125 crore deposit, along with accrued interest, to the Appellant.
- Case Title: Power Trust v. Bhuvan Madan (Interim Resolution Professional of Hiranmaye Energy Ltd.) & Ors.
- Case No.: Civil Appeal No(s). 2211/2024
