Summary: This article examines the comprehensive trajectory of the Vidarbha decision, beginning with a judgement based on exceptional circumstances that expanded the discretion of the Ld. NCLT(s) and contributed to delays in insolvency admissions. It further discusses the judicial limitation imposed by the Hon’ble Supreme Court and concludes with the legislative correction provided by the Insolvency and Bankruptcy Code (Amendment) Act, 2026.
When the Hon’ble Supreme Court of India (“Supreme Court”) pronounced its decision in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.[1] (“Vidarbha”), the Indian insolvency regime was divided. To a few, Vidarbha served as a reminder that the Insolvency and Bankruptcy Code, 2016 (“Code” or “IBC”), was not a blunt instrument for recovery. To most, it was a catastrophe, one that would arm corporate debtors with ammunition to delay IBC proceedings, potentially resulting in divergent rulings.
But the narrow factual context in which the decision was rendered was overlooked. The debtor in Vidarbha had secured an order, which if executed or adhered to, would substantially exceed the financial debt claimed by the creditor. The debtor’s inability to service this debt was due to delays associated with an appeal pending before the Supreme Court. The circumstances that led the Supreme Court to recognise a limited discretion in admitting applications under Section 7 of the Code was unusual. However, over time, the decision was applied well beyond its factual confines, frequently by debtors seeking to resist or delay corporate insolvency resolution proceedings on grounds that are far from the exceptional facts that had informed the Supreme Court’s reasoning.
In our earlier blog, “The Vidarbha Aftermath“[2], we had analysed how the National Company Law Tribunal (“NCLT”)/ National Company Law Appellate Tribunal have been interpreting the Supreme Court’s decision in Vidarbha. While this was never intended to be a three-part series, the Supreme Court in its review of the Vidarbha judgement clarified that the decision was limited to the facts and circumstances of that case. Around the same time, the Supreme Court in M. Suresh Kumar Reddy v. Canara Bank[3] (“Suresh Kumar”) further clarified the application of Vidarbha and the law that was earlier laid down in Innoventive Industries v. ICICI Bank[4] (“Innoventive”). This led to the second blog on this issue: “The Course Correction – Vidarbha Judgment Clarified”[5].
This concluding blog aims to address how ambiguity in interpreting IBC provisions has been addressed, and the significance of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (“2026 Amendment”).
A Rule Undone – Leading to Institutional Fallout
As discussed in “The Vidarbha Aftermath”, corporate debtors, armed with Vidarbha, began treating applications filed under Section 7 of the Code as an opportunity for full-blown contest on financial viability/ financial health and started categorising every application as a recovery tool. It also fuelled attempts to push Section 7 disputes into parallel proceedings. What was supposed to be a summary, time-sensitive hearing, expanded into protracted evidentiary contest, with affidavits on business health, pending receivables, employment impact and solvency ratios being debated and argued. This resulted in proliferation of threshold litigation, eroding both creditor confidence and the Code’s institutional reputation. More fundamentally, it created an avenue for managements of poorly performing companies to defer insolvency proceedings and remain in control for longer periods, even where the existence of debt and default was not in dispute.
This was precisely the kind of enquiry that the Code was designed to eliminate. Innoventive had settled the Code’s core purpose – a unified insolvency law aimed at accelerating outcomes. The Bankruptcy Law Reform Committee[6] had a simple principle: the longer an insolvent company stays trapped in legal proceedings, the less it is worth. Speed, therefore, was not merely a procedural preference, it was the economic backbone and essence of the entire framework.
The Course Correction
Our blog “The Course Correction – Vidarbha Judgment Clarified”, discusses the Supreme Court’s decision in Suresh Kumar, which reaffirmed the framework established in Innoventive and E.S. Krishnamurthy v. Bharath Hi-Tech Builders Private Limited[7] (“E.S Krishnamurthy”). It held that once default is established, there is hardly any discretion to refuse admission under Section 7. Critically, the Supreme Court clarified that Vidarbha could not be read as contrary to Innoventive and that the view taken in Innoventive still holds good.
Recently, the Supreme Court in Power Trust v. Bhuvan Madan[8] reiterated that the NCLT’s role is confined to ascertaining default from information utility records and evidence and not examining disputes about debts. The Supreme Court also rejected the contention that the corporate debtor’s operational viability or revenue metrics provided any legal basis to resist an admission under Section 7 of the Code.
Similarly, in Elegna Co-op Housing and Commercial Society Ltd v. Edelweiss Asset Reconstruction Co. Ltd. and Another[9], the Supreme Court treated the debt and default test from Innoventive and E. S. Krishnamurthy as the governing rule for Section 7 applications and described Vidarbha as a narrow exception confined to its peculiar facts, specifically, an adjudicated and realisable claim in the corporate debtor’s favour exceeding the creditor’s debt. The Supreme Court held that projected receivables, business viability, project completion status and similar considerations do not constitute legally cognisable good reasons to deny admission once default is established.
Together, these decisions substantially improved the interpretation and application of the Code. However, the Vidarbha judgement was never explicitly overruled, but merely watered down to be applied in “exceptional circumstances”. The law, in short, required a more durable fix.
The Fix – 2026 Amendment
Immediately after Vidarbha, the legislature invited public comments in January 2023 on a proposal to amend the Code to clarify that the NCLT was not required to examine solvency or financial health factors during admission of an application seeking corporate insolvency resolution by a financial creditor. In fact, admission should follow once default is established, effectively reversing the discretion to an adjudicating authority that was attributed due to Vidarbha.
The fix arrived in the form of the 2026 Amendment[10], which confronted the Vidarbha problem at its statutory source. The 2026 amendment substituted Section 7(5)(a) to make admission and rejection a tighter, rule-based determination within 14 days. The adjudicating authority “shall” admit if satisfied that default has occurred, the application is complete and no disciplinary proceedings are pending and “shall” reject if default has not occurred or application is incomplete. Crucially, Explanation I to the amended provision clarifies that where the requirements of clause (a) are complied with, no other ground shall be considered to reject a Section 7 application.
By substituting “may” in Section 7(5)(a) with “shall” and by expressly barring rejection on any ground other than the statutory conditions, the legislature closed the interpretive space that Vidarbha had opened.
Conclusion: The final chapter
While the judicial course correction was necessary, it was the 2026 Amendment that supplied the final remedy by substituting Section 7(5) in mandatory terms and foreclosing any scope of extraneous grounds for rejection. Vidarbha is a story that has come a full circle, where a judgement is rendered on highly exceptional facts, which is interpreted by lawyers in an “Innoventive” manner to defend badly managed entities when questioned, the very antithesis of the Code. Come to think of it, all it took was one broadly interpreted word by the judiciary to disrupt the very object of the Code, for the legislature to then step in and put the debate to rest.
*Authors would like to acknowledge inputs received from Abhijna Somashekara.
For further information, please contact:
Sharan Kukreja, Cyril Amarchand Mangaldas
sharan.kukreja@cyrilshroff.com
[1] (2022) 8 SCC 352 (Supreme Court, decided on July 12, 2022).
[2] The Vidarbha Aftermath | India Corporate Law.
[3] Civil Appeal No. 7121 of 2022 (Supreme Court, decided on May 11, 2023).
[4] (2018) 1 SCC 407 (Supreme Court, decided on August 31, 2017).
[5] Course Correction – The Vidarbha judgment clarified | Dispute Resolution Blog.
[6] The Report of the Bankruptcy Law Reforms Committee (November 2015).
[7] (2022) 3 SCC 161 (Supreme Court, decided on December 14, 2021).
[8] (2026) 5 SCC 38 (Supreme Court, decided on February 18, 2026).
[9] (2026) SCC OnLine SC 82(Supreme Court, decided on January 25, 2026).
[10] Notification S.O. 2625(E), Ministry of Corporate Affairs, Gazette of India, Extraordinary (May 22, 2026).
