India’s top court has delivered a sharp rebuke to the insolvency tribunals, overturning their twin rulings in Catalyst Trusteeship vs Ecstasy Realty and restoring a high-stakes corporate insolvency plea.
A Bench led by Justices PV Sanjay Kumar and K Vinod Chandran found the conclusions of the National Company Law Tribunal and the National Company Law Appellate Tribunal to be fundamentally flawed—rooted, it said, in “surmises, conjectures and assumptions” that could not survive legal scrutiny.
The dispute traces back to a Section 7 insolvency application filed by Catalyst Trusteeship Ltd, acting as a debenture trustee. The plea sought initiation of the corporate insolvency resolution process against Ecstasy Realty Pvt Ltd over an alleged default involving ₹600 crore in redeemable non-convertible debentures issued in 2018 to finance a Mumbai residential-cum-retail development.
The NCLT had dismissed the insolvency plea in early 2023. The NCLAT affirmed that decision two years later. Both forums accepted the developer’s argument that restructuring talks with one lender had effectively created an 18-month moratorium, wiping out the alleged default.
The Supreme Court disagreed—decisively.
It held that the tribunals had sidestepped the binding terms of the Debenture Trust Deed dated March 27, 2018. Any modification to that deed, the Court underscored, required formal approval and written consent from debenture holders through a prescribed procedure. That process, the Court noted, was admittedly never followed.
By inferring a moratorium from restructuring discussions without contractual backing, the tribunals had effectively rewritten the terms of the agreement. That, the Bench made clear, was impermissible.
The Court also faulted the tribunals for brushing aside an earlier order of the Bombay High Court, which had declined to restrain lenders from enforcing the debenture trust deed. The order had attained finality, yet was treated casually in the insolvency proceedings.
Even more pointed was the Court’s rejection of the NCLAT’s suggestion that the trustee and debenture holders had colluded to manufacture a default. The apex court found no basis for such adverse remarks and ordered them to be set aside.
Clarifying the law, the Bench stated that the concept of “pre-existing disputes” — often invoked in operational creditor cases — has no bearing on applications filed by financial creditors under Section 7 of the Insolvency and Bankruptcy Code.
With that, the Court set aside both tribunal rulings and directed that the insolvency petition be admitted by the NCLT. The matter now returns to the tribunal for further steps in accordance with law—this time under the Supreme Court’s watchful correction.
