ENCO Legal | Legal Insights | 22 October 2026
Quick Answer: Can a Profitable Company Be Taken to NCLT?
Yes. A company may face corporate insolvency resolution proceedings even if it reports positive operating earnings, provided the statutory conditions for financial debt and default are met. In Deepak Raheja and Another v. Omkara Assets Reconstruction Private Ltd. and Another, 2026 INSC 1134, decided on 15 October 2026, the Supreme Court upheld insolvency proceedings involving two hotel-operating companies. The Court distinguished profitability from the ability to service debt: the trigger under the Insolvency and Bankruptcy Code, 2016 (IBC), is a qualifying default, not terminal commercial insolvency.
What Happened in the Supreme Court Case?
The appeals concerned GSTAAD Hotels Pvt. Ltd. and Neo Capricorn Plaza Pvt. Ltd., associated with hotel properties in Bengaluru and Pune. Their financing arrangements included substantial term loans and other credit facilities. After alleged repayment defaults, Omkara Assets Reconstruction Private Ltd., as assignee financial creditor, initiated proceedings under Section 7 of the IBC. The National Company Law Tribunal admitted the applications; the National Company Law Appellate Tribunal upheld admission. The companies appealed to the Supreme Court.
What did the companies argue?
The corporate debtors contested aspects of the debt calculations and the handling of contractual debt-service reserve and cash-management arrangements. They also relied on positive operating earnings and the commercial viability of the hotels.
What did the Supreme Court decide?
The Supreme Court dismissed the appeals and upheld commencement of the corporate insolvency resolution process. The judgment explains that the occurrence of a qualifying default is distinct from the precise quantum of the debt remaining outstanding, and that positive profitability does not negate a demonstrated failure to repay when due.
Case details: Deepak Raheja and Another v. Omkara Assets Reconstruction Private Ltd. and Another, Civil Appeal No. 12195 of 2025 with connected appeal; 2026 INSC 1134; judgment dated 15 October 2026; bench of Justices Dipankar Datta and Augustine George Masih. Supreme Court of India.
What Is Section 7 of the Insolvency and Bankruptcy Code?
Section 7 provides a route for an eligible financial creditor to apply for initiation of the corporate insolvency resolution process against a corporate debtor. The adjudicating authority considers whether the applicable requirements are met, including financial debt, occurrence of default, the monetary threshold and completeness of the application.
What is financial debt?
Section 5(8) defines financial debt. The definition includes debt disbursed against consideration for the time value of money and other specified financing arrangements. Not every unpaid trade invoice is financial debt.
What is default?
Section 3(12) concerns non-payment of a debt when the whole or part or an instalment has become due and payable and remains unpaid. A financial creditor must establish a qualifying default, not simply that a business is experiencing difficulty.
Do all creditors use Section 7?
No. Section 7 applies to eligible financial creditors. Operational creditors ordinarily follow the distinct statutory framework in Sections 8 and 9.
Why Does Profitability Not Prevent Insolvency?
Profitability and liquidity are different. Profitability concerns earnings; liquidity concerns the availability of funds to meet obligations as they fall due. A company can own valuable assets, operate successfully and report positive EBITDA while lacking sufficient cash to pay scheduled principal and interest.
Why can EBITDA be misleading?
EBITDA means earnings before interest, taxes, depreciation and amortisation. It is an operating-performance measure, not proof that debt repayments can be made. Consider a hypothetical business with annual EBITDA of ₹20 crore, annual debt-service obligations of ₹30 crore and only ₹15 crore of cash available for debt service. Positive EBITDA does not eliminate the repayment shortfall. These are illustrative figures, not facts of the Supreme Court case.
What financial evidence did the Court examine?
The Court referred to a debt-service coverage ratio of 0.12 for FY 2022–23, reflecting internal accruals covering only about 12% of relevant debt-service obligations. The financial evidence undermined the argument that positive operating earnings established adequate repayment capacity.
What Is an Information Utility Record of Default?
Information Utilities operate under the IBC framework to receive, store and authenticate financial information. Their records can provide significant evidence of a financial obligation and default.
What did the Supreme Court say about the evidence?
The judgment gives substantial evidentiary weight to an authenticated Information Utility record of default. The presumption is rebuttable, but a bare denial or unsupported accounting disagreement will not ordinarily suffice. Other relevant documentary material can include loan agreements, statements of account, balance confirmations, acknowledgements and contemporaneous correspondence.
Can a company dispute the exact amount owed?
Yes, but a dispute over the final amount does not necessarily negate the occurrence of an otherwise established qualifying default. The Court distinguished the historical event of default from the amount outstanding, which can change over time.
What Is the Effect of the 2026 IBC Amendments?
The judgment considers amendments to the Section 7 admission framework introduced in 2026, including the statutory conditions for admission and the evidentiary treatment of specified Information Utility records. The Court emphasised that admission turns on satisfaction of the statutory criteria, rather than a broad discretion to refuse a complete application merely because the company remains commercially viable. Any reliance on a particular amended provision should be checked against its operative commencement and text.
Does the company lose the right to defend itself?
No. A corporate debtor may still contest whether a qualifying financial debt or default exists, whether the statutory threshold is met and whether the application satisfies applicable requirements. What the judgment rejects is using profitability alone as a substitute for the statutory inquiry.
Why Does This Matter for Solar and Infrastructure Companies?
Renewable-energy and infrastructure projects often operate through project-specific companies financed by long-term loans. A solar plant can generate power and recognise revenue yet face a cash-flow shortage when purchasers delay payments or other costs arise. Positive project economics do not automatically excuse repayment defaults under financing agreements.
Does a DISCOM payment delay automatically excuse loan default?
Not necessarily. The answer depends on the financing agreements, contractual relief provisions and applicable law. Project companies should monitor receivables, actual liquidity, repayment dates and debt-service coverage separately.
What Should Directors and Promoters Do When Repayment Becomes Difficult?
Review repayment schedules and covenants
Maintain an accurate record of principal, interest, reserve requirements, security obligations and contractual default triggers.
Monitor liquidity, not only profit
Use forward-looking cash-flow forecasts to identify repayment shortfalls before due dates.
Examine Information Utility records promptly
Review requests for authentication and preserve credible evidence of any discrepancy, including payment records and bank statements.
Consider restructuring early
Commercial restructuring or settlement may be available, but discussions alone do not automatically suspend repayment obligations or statutory proceedings.
What Remedies Are Available When a Company Faces a Section 7 Application?
A corporate debtor should examine whether the applicant qualifies as a financial creditor, whether financial debt exists, whether default occurred, whether the monetary threshold is satisfied and whether the documentary evidence is accurate. Relevant records include agreements, repayment schedules, statements, receipts and correspondence. Genuine disputes may be raised before the adjudicating authority in accordance with the IBC.
Can the company appeal an adverse order?
The IBC provides statutory appellate mechanisms. Further appeals to the Supreme Court under Section 62 are confined to questions of law, subject to statutory requirements. An appeal is not a guarantee of a stay or reversal.
Does Every Loan Default Automatically Lead to Insolvency?
No. The creditor must satisfy the relevant statutory requirements, including eligibility, threshold and evidence of default. The adjudicating authority must determine whether admission is warranted under the applicable law. The ruling does not remove genuine statutory defences.
A Separate Lesson: Verify AI-Generated Court Citations
The Supreme Court also recorded concern about an allegation that a compilation filed during the proceedings included AI-generated, non-existent judicial authorities. The Court considered exemplary costs but made no order as to costs. Legal researchers and publishers should independently verify case names, citations and quotations against authentic court records. AI-assisted research cannot substitute for source verification.
Frequently Asked Questions
Can a profitable company face insolvency proceedings in India?
Yes, if the applicable statutory requirements concerning financial debt and default are met.
What did the Supreme Court decide in Deepak Raheja?
It upheld the initiation of insolvency proceedings and held that profitability does not negate an established qualifying default.
What is the judgment citation?
2026 INSC 1134, decided 15 October 2026.
What is Section 7 of the IBC?
It allows an eligible financial creditor to seek initiation of corporate insolvency resolution proceedings upon a qualifying default.
Does positive EBITDA prevent insolvency?
No. EBITDA is not proof of sufficient cash to meet debt-service obligations.
What is an Information Utility record?
It is a regulated record of financial information that can provide significant evidence of debt and default.
Can an Information Utility record be challenged?
Yes, with credible contrary evidence; unsupported denial is unlikely to suffice.
Must the exact outstanding amount be finally determined at admission?
Not necessarily. The Court distinguished the occurrence of default from precise reconciliation of the outstanding amount.
What do the 2026 IBC amendments address?
Among other matters, they address the Section 7 admission framework and evidentiary treatment of specified records.
Can a company negotiate with its lender after default?
Yes, subject to the circumstances, but negotiations do not automatically stop proceedings.
Does this ruling matter to renewable-energy companies?
The general statutory principles can apply to eligible project companies, depending on their financing and defaults.
Can an unpaid supplier invoice be pursued under Section 7?
Not merely because it is unpaid. Section 7 concerns financial debt; operational creditors follow a separate statutory route.
Conclusion
The Supreme Court’s October 2026 judgment reinforces the difference between commercial profitability and timely repayment of financial debt. A company may continue operating and earning revenue while experiencing a qualifying default under the IBC. Directors, lenders and project-financed businesses should therefore assess liquidity, debt-service capacity and documentary evidence independently of operating profit. Early attention to repayment stress and contractual options is important.
Legal Authorities and Sources
Supreme Court of India — official judgments; Full reproduced judgment: Deepak Raheja v. Omkara Assets Reconstruction, 2026 INSC 1134; Insolvency and Bankruptcy Code, 2016, particularly Sections 3(12), 4, 5, 7, 8, 9 and 62; Insolvency and Bankruptcy Board of India. The authentic Supreme Court judgment should be preferred for legal reliance.
Legal Disclaimer
This article is intended solely for general legal information and educational purposes. It is not legal advice, an invitation to engage legal services or an advocate-client relationship. The initiation, admission and outcome of insolvency proceedings depend on applicable legislation, financial records, contracts and individual circumstances. No litigation or commercial outcome is guaranteed.
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