Case at a glance: The Supreme Court has upheld admission of two hotel companies into insolvency on Section 7 petitions by an asset reconstruction company. It explained a two-tier approach to proving default, with an authenticated Information Utility record carrying strong weight. It also criticised the filing of a compilation containing AI-generated, non-existent judgments and an Advocate-on-Record's attempt to blame the client.
In 2017 a lender advanced Rs 600 crore to two companies owning a JW Marriott in Bengaluru and a Crowne Plaza in Pune. The loans were assigned to Omkara ARC in December 2022, which recorded the defaults with the Information Utility (NeSL), recalled the loans and filed Section 7 petitions claiming about Rs 665.74 crore.
NCLT Mumbai admitted the petitions; NCLAT remanded; NCLT admitted again in July 2025 and NCLAT affirmed in August 2025. The promoters appealed.
The Key Question Before the Court
How is default proved at the Section 7 admission stage, and what weight does an Information Utility record carry?
Two Tiers of Evidence, and a Warning on AI
The Court held that Omkara's status as financial creditor was settled by earlier writ proceedings. Admission requires only a summary, prima facie finding of default on a preponderance of probabilities; exact quantum is for the claims process. An authenticated Information Utility record of default is sufficient by itself unless displaced by clear and compelling material; otherwise the Part V documents are assessed together. The debtors' profitability was irrelevant, and their own debt service coverage ratio was 0.12.
The Court also noted that the appellants' compilation contained AI-generated, non-existent judgments, criticised the Advocate-on-Record for blaming the client, and recorded senior counsel's apology. It proposed exemplary costs but did not impose them because the first appellant had died.
What the Court Actually Held
- Appeals dismissed; NCLT admission orders and NCLAT judgment upheld; CIRP to proceed.
- Information Utility records of default carry strong evidentiary weight.
- Quantum disputes go to the claims process.
- Concern recorded about AI-generated fake citations; no costs imposed.
Why This Judgment Matters
- It strengthens the evidentiary value of Information Utility records.
- It is a strong judicial warning about unverified AI-generated citations.
- It reaffirms that profitability does not defeat proved default.
What Should Advocates Take Away From the Judgment?
For All Advocates
- Verify every authority cited, especially from AI tools, against official reports.
- Do not shift responsibility for filings to clients.
For Creditors' Counsel
- Record defaults with an Information Utility to strengthen Section 7 petitions.
Key Takeaways
- Prima facie default suffices for admission.
- IU records carry strong weight.
- Profitability is irrelevant to default.
- AI-generated fake judgments drew the Court's censure.
Frequently Asked Questions
It flagged non-existent, AI-generated judgments in the appellants' compilation and criticised the Advocate-on-Record for blaming the client.
The Court treated an authenticated IU record as sufficient unless displaced by clear and compelling material.
Exemplary costs were proposed but not imposed because the first appellant had died.
Conclusion
The judgment combines a firm restatement of IBC admission law with a timely warning to the Bar about AI tools.
Practical takeaway: Check every citation against the official report before filing, whatever tool produced it.