Supreme Court Sends Profitable Companies To Insolvency, Says Profit Proves Nothing
NEW DELHI, October 15, 2026: Two companies that told the Supreme Court they were profitable, running businesses were still sent into the Corporate Insolvency Resolution Process. A Bench of Justice Dipankar Datta and Justice Augustine George Masih dismissed their promoters' appeals and held that profit says nothing about the ability to pay lenders on the due date. The ruling, Deepak Raheja and Another v. Omkara Assets Reconstruction Pvt. Ltd. and Another (2026 INSC 1134), also sets a two-tier hierarchy of proof for default under Section 7 of the Insolvency and Bankruptcy Code, 2016.
Case at a Glance
Case: Deepak Raheja and Another v. Omkara Assets Reconstruction Pvt. Ltd. and Another
Citation: 2026 INSC 1134, Civil Appeal No. 12195 of 2025
Bench: Justice Dipankar Datta and Justice Augustine George Masih
Challenged orders: NCLT Mumbai order dated 08.07.2025 (CP (IB) Nos. 290 and 291 of 2023), affirmed by NCLAT Principal Bench on 19.08.2025 (Company Appeal (AT) (Insolvency) Nos. 1039 and 1040 of 2025)
Date of judgment: October 15, 2026
Outcome: Appeals dismissed, CIRP of both corporate debtors to proceed in accordance with law, no order as to costs
Background of the Dispute
Omkara, an asset reconstruction company, filed Section 7 petitions against a corporate debtor and its related company (referred to as Neo) after taking an assignment of their loan facilities from the original lenders on 27.12.2022. The NCLT admitted both petitions on 08.07.2025 and the NCLAT upheld the admissions on 19.08.2025. The promoters then came to the Supreme Court under Section 62 of the Code.
Timeline
15.11.2022: date of default pleaded in the petitions, with Rs.17,16,29,518 shown as the total default for the corporate debtor and a minimum of Rs.2,64,99,473 for Neo
23.12.2022: the companies' own letter to their lenders seeking a settlement on the footing of an admitted shortfall
27.12.2022: Assignment Agreement in favour of Omkara
11.01.2023: a further letter seeking settlement
09.02.2023: four Form-D default records registered with NeSL, the information utility
08.07.2025: NCLT Mumbai admits both petitions
19.08.2025: NCLAT dismisses the appeals
15.10.2026: Supreme Court dismisses the appeals
What the Appellants Argued
Omkara was not a valid financial creditor because the assignment was open to challenge
The alleged default had been cured through proper application of the Debt Service Reserve Account (DSRA) and the Cash Management Account (CMA) mechanisms
A loan not yet recalled could not be treated as wholly in default, and the NeSL figures did not match the smaller date-specific figures in the petition
Both companies were profitable businesses, so admitting them into CIRP defeated the object of the Code
Issue 1: Can a Settled Assignment Be Reopened?
The Court held that Omkara's status as a financial creditor under Section 5(7) stood conclusively established by the Assignment Agreement dated 27.12.2022. Its validity had already been upheld by the High Court of Karnataka and affirmed by the Supreme Court. The Court held that the fresh challenge was barred by the principles of issue estoppel.
Issue 2: How Is Default Proved at the Admission Stage?
The Court described Section 7 as a summary jurisdiction. The standard is preponderance of probabilities on the documents placed on record, and not a forensic reconciliation of accounts.
The occurrence of a default is a static historical event whereas the quantum of a debt outstanding is dynamic.
The Court then set out a hierarchy of proof, the central legal holding of the judgment:
Tier One: The Information Utility Record
A record of default issued by an information utility is by itself sufficient. It carries a presumption of high evidentiary value, which can be displaced only by clear, cogent, credible and compelling material, and not by bare denial or bookkeeping disagreement. The Court noted that the four NeSL Form-D filings of 09.02.2023 stood deemed authenticated and went unchallenged.
Tier Two: Other Documents Taken Together
Where the information utility record is unavailable, contested on grounds needing more than a bare denial, or not the creditor's only plank, the Part V documents of Form 1 of the Adjudicating Authority Rules, 2016 come in. These include loan agreements, statements of account, balance confirmations, acknowledgements of liability, bankers' book entries and contemporaneous correspondence. None is sufficient alone in the way an information utility record is, but taken collectively they may establish default on the summary standard.
On the facts, the Court found both tiers working as designed. The NeSL record confirmed that a default was registered and went unchallenged. The quantum was properly drawn from the Statement of Accounts produced by the corporate debtor itself, the two review reports, the recall notice and the companies' own letters. Both figures comfortably exceeded the threshold under Section 4, so exact reconciliation with each NeSL entry was immaterial to admission and was a matter for the claims process during CIRP.
The Twist: The Companies' Own Letter and Their Own Books
This is where the answer to the title lies. The Court relied on the companies' own letter of 23.12.2022, written before any litigation, which said that the higher interest rate had absorbed the entire surplus cash flow, revenues had fallen by more than ninety per cent during the pandemic, about four hundred employees had been retrenched and the Pune hotel had stayed closed from May 2021 to January 2022. The Court held that this document could not be reconciled with the case that nothing was due on 15.11.2022. It also noted an admission recorded by the High Court of Karnataka in proceedings the corporate debtor itself had started.
The Court further noted the finding that cash accruals stayed insufficient to service the facilities right up to December 2023, which independently undercut the claim that the default was curable.
Why Profit Is Not the Test
The Court said the profitability argument confuses two distinct concepts. A company with positive EBITDA may still be unable to service debt if repayments falling due exceed operating profit. EBITDA is computed before interest and says nothing about the capacity to meet cash obligations to lenders. The relevant metric is the Debt Service Coverage Ratio, and the corporate debtor's own audited statements recorded a DSCR of 0.12 for FY 2022-23, meaning its internal accruals covered only 12 per cent of that year's debt obligations.
Profitability is accordingly not merely legally irrelevant to the existence of default under Section 7 but an economically unreliable proxy for solvency.
The Court added that the Code proceeds on timely intervention rather than terminal insolvency, and uses default under Section 3(12), not commercial or balance-sheet insolvency, as the trigger.
The 2026 Amendment to Section 7(5)
The Court noted the Insolvency and Bankruptcy Code (Amendment) Act, 2026, notified in April 2026, which substitutes "shall" for "may" in Section 7(5)(a), bars any other ground for rejection once the conditions are met (Explanation I) and declares a record of default from an information utility sufficient to ascertain default (Explanation II). The Court held that the explanations create no new law and only make explicit what was already implicit in the Code, so its reasoning would have been identical without the amendment.
What the Court Did Not Do
It did not decide the final quantum of the debt, which is left to the claims process in CIRP
It did not reopen concurrent findings of fact of the NCLT and NCLAT, absent perversity or an erroneous legal standard
It did not impose costs, even though exemplary costs had been proposed over a compilation of judgments the respondents said contained AI generated non-existent cases
A Warning on AI Generated Citations
In paragraph 74 the Bench recorded that the appellants' compilation of judgments was objected to as containing AI generated non-existent judgments. The Advocate-on-Record tried to shift blame while feigning ignorance of the contents, and senior counsel took the blame on himself and sought forgiveness. Exemplary costs were proposed, but because the first appellant died, the order for costs was deleted as "no order as to costs". The Court also held that, under Order XXII Rule 6 CPC, the appeal did not abate.
What It Means Going Forward
For Financial Creditors
File the information utility record of default with the Section 7 application. It is sufficient and the burden then shifts to the debtor.
For Corporate Debtors
A bare denial, a profitability plea or a bookkeeping dispute will not displace the record. Only clear, cogent, credible and compelling material will.
For Lawyers
Verify every citation before filing. Courts are now recording AI generated authorities in judgments.
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FAQs
Can a profitable company be admitted into CIRP?
Yes. The Court held profitability is neither legally relevant to default nor economically probative of the capacity to service debt.
Is an information utility record enough to prove default?
Yes. It is by itself sufficient and carries a presumption of high evidentiary value, displaceable only by clear, cogent, credible and compelling material.
What if there is no information utility record?
The Part V documents of Form 1, such as loan agreements, statements of account and acknowledgements, may be taken collectively to establish default on the summary standard.
Must the exact amount of default be reconciled at admission?
No. Default is a static event, while the quantum is dynamic and is dealt with in the claims process during CIRP.
Does the 2026 amendment to Section 7(5) change this reasoning?
No. The Court held the explanations only clarify what was already implicit, and its reasoning would have been the same without them.
Keywords
Supreme Court insolvency judgment, Section 7 IBC, information utility record of default, profitability no defence to insolvency, Debt Service Coverage Ratio, EBITDA, Deepak Raheja v Omkara Assets Reconstruction, 2026 INSC 1134, CIRP admission, AI generated judgments
Read the judgment: Download the Supreme Court judgment (PDF) | Google Drive copy
Case Title: Deepak Raheja and Another v. Omkara Assets Reconstruction Pvt. Ltd. and Another
Case No.: Civil Appeal No. 12195 of 2025
Citation: 2026 INSC 1134
Bench: Justice Dipankar Datta and Justice Augustine George Masih
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