Insolvency

Here is what you should know about insolvency under the ibc: petitions, claims and resolution before you act or reply to anyone. Legals365 is the legal platform of Advocate B.K. Singh and associates, based in Delhi NCR.

In short. The Insolvency and Bankruptcy Code 2016 lets a financial creditor (s.7), an operational creditor (s.9) or the company itself (s.10) start a corporate insolvency resolution process before the NCLT once a default of at least Rs 1 crore occurs. A moratorium follows, creditors file claims, and a resolution plan must be approved within the statutory timeline or the company goes into liquidation.

The Insolvency and Bankruptcy Code changed the balance between borrowers and creditors in India. Once the National Company Law Tribunal admits a petition, the board of directors is suspended, an insolvency professional takes charge, every pending recovery case against the company is frozen, and the creditors decide whether the business is rescued or sold off. Promoters who thought of insolvency as a distant threat often discover how quickly it moves.

This page explains how insolvency petitions are filed and defended, how creditors lodge and protect claims, how resolution plans and liquidation work, what changes for MSMEs and personal guarantors, and how the 2026 amendments affect the process. It is written for creditors, company directors, MSME owners, homebuyers and employees alike, because each sees the same proceeding from a different side. The law described is the position as of October 2026.

Law

Insolvency and Bankruptcy Code 2016 as amended, including the IBC (Amendment) Act 2026; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016; IBBI (Liquidation Process) Regulations 2016

Forum

National Company Law Tribunal bench with jurisdiction over the registered office of the company; NCLAT on appeal; Supreme Court on a question of law

Minimum default

Rs 1 crore for initiating CIRP against a company (since March 2020); Rs 10 lakh for MSME pre-packaged insolvency

Time limits

CIRP within 180 days, extendable by 90 days, outer limit 330 days including litigation; appeal to NCLAT within 30 days plus up to 15 (s.61); to the Supreme Court within 45 days plus up to 15 (s.62)

Limitation

The Limitation Act applies through s.238A; a petition generally lies within 3 years from the date of default, subject to written acknowledgments of debt

Documents

Loan or supply agreements, invoices, ledgers, default record from an information utility, s.8 demand notice and proof of delivery, bank certificate, board resolution, proposed IRP's consent in Form 2

What corporate insolvency under the IBC actually is

Corporate insolvency resolution under the IBC is a time-bound process for a company or LLP that has defaulted on a debt. It is not a recovery suit. The question before the NCLT at the admission stage is narrow: is there a debt, has there been a default of at least the threshold amount, and is the application complete. If the answer is yes, the corporate insolvency resolution process (CIRP) begins and the company's fate passes to its creditors.

The process has a clear aim: find a resolution plan that keeps the business running as a going concern, and only if that fails, liquidate it and distribute the proceeds. Because the whole company is affected, the Supreme Court and the NCLAT have repeatedly said the IBC is not a forum to pressure a solvent company into paying a disputed bill. Operational creditors with genuinely disputed invoices are turned away, and the 2026 amendment added penalties for frivolous or vexatious proceedings.

The IBC also covers personal guarantors to corporate debtors (heard by the NCLT) and, in principle, individuals and partnership firms (heard by the Debts Recovery Tribunal), although the provisions for individuals other than personal guarantors have not been fully brought into force. For ordinary individual and firm debts, recovery still runs through civil courts and the Debts Recovery Tribunal.

Who can file an insolvency petition, and how

Section 7: a financial creditor's petition

A financial creditor files a section 7 petition in Form 1 with proof of the financial debt and the default. The best evidence is a record of default from an information utility (in practice, NeSL), together with the loan agreement, sanction letter, statement of account and any acknowledgments of debt. The creditor proposes an interim resolution professional, whose written consent is filed with the petition. A group of financial creditors can file jointly.

The 2026 amendment tightened the admission stage. The NCLT is now required to admit or reject a section 7 application within 14 days, and must record reasons if it takes longer. Where the financial creditor has proposed an insolvency professional against whom no disciplinary proceeding is pending, that professional is appointed as IRP. In practice, a well-documented petition by a bank is hard to resist on merits: once debt and default are shown, the debtor's financial difficulties, a pending settlement offer or a counterclaim are rarely enough.

Homebuyers count as financial creditors, but since 2020 they need either 100 allottees of the same project or 10% of its total allottees, whichever is less, to file together. Many buyers do better with a RERA complaint or consumer case for their own flat; our page on RERA complaints and builder disputes compares those routes.

How an operational creditor files under sections 8 and 9

Suppliers, contractors and service providers follow a two-stage route, and most petitions fail at the first stage because of a defective notice or an existing dispute.

1. Check the amount and the dispute history

   Total the undisputed principal and interest due from the company. If it is under Rs 1 crore, the IBC is closed to you; look at a commercial suit, MSME council claim or arbitration instead. Look back through emails for any complaint about quality, short supply or delay, because that is what the debtor will rely on.

2. Serve the demand notice under section 8

   Send the demand notice in Form 3 (or a copy of the invoice in Form 4) to the registered office and the directors, by a method that gives proof of delivery. State the amount, the invoices and the date of default precisely.

3. Wait ten days

   The company has 10 days from receipt to pay or to bring to your notice a dispute that existed before the notice, such as a pending suit, arbitration or recorded complaint. A dispute invented after the notice does not count, but a plausible pre-existing one ends the petition.

4. File the section 9 application

   If neither payment nor a genuine dispute comes, file Form 5 before the NCLT with the notice, proof of delivery, an affidavit that no dispute was raised, and a copy of the relevant bank records showing non-payment. Propose an IRP if you wish; otherwise the NCLT will take one from the IBBI panel.

5. Admission hearing

   The NCLT hears the company and decides whether there is an operational debt, a default and no pre-existing dispute. If satisfied, it admits the petition, declares a moratorium and appoints the IRP. The 2026 amendment requires reasons to be recorded if no order is passed within 14 days.

Settlement often happens between notice and admission. Once a petition is admitted, withdrawal becomes harder and depends on the Committee of Creditors, so an operational creditor's real bargaining power sits in the weeks before the first hearing.

Section 10: when the company files for itself

A company in default can start its own CIRP under section 10. The board must place full books of account, a list of assets and liabilities and the proposed insolvency professional before the NCLT, backed by a special resolution of shareholders or, for an LLP, approval of three-fourths of the partners. The 2026 amendment expanded the information required and asks the NCLT to seek the IBBI's recommendation on the professional, so promoters cannot simply choose a friendly IRP.

Directors sometimes consider section 10 to stop a SARFAESI sale or a winding-up threat. That is legitimate if the company really cannot pay, but it carries a cost: control passes immediately to the IRP, and the promoters themselves may be ineligible to bid for the company under section 29A unless they qualify for the MSME relaxation. Before filing, it is worth looking at a negotiated loan settlement or restructuring with lenders, which leaves management in place.

The moratorium and what it stops

On admission, section 14 imposes a moratorium. No suit or proceeding can be started or continued against the corporate debtor, no decree or award can be executed, no secured creditor can enforce its security (including under SARFAESI), and no owner or lessor can recover property occupied by the company. Pending cases in civil courts, the DRT and arbitral tribunals are stayed. Essential supplies such as electricity and water cannot be cut off for non-payment during the moratorium.

The moratorium protects the company, not its promoters. Personal guarantors can still be sued, and a bank can proceed against the guarantor's own property or initiate insolvency against the guarantor under section 95. Criminal proceedings against directors, such as cheque bounce complaints under section 138 of the NI Act, continue against the individuals even if they may be stayed against the company itself. Our page on cheque bounce complaints covers that interaction.

Filing a claim in a CIRP

Every creditor must file its claim with the IRP or RP, whether or not it filed the petition. The public announcement, made within days of admission and published in newspapers and on the IBBI website, fixes the last date for claims, usually 14 days from the announcement. Claims are filed in the prescribed form: Form B for operational creditors, Form C for financial creditors, Form CA for financial creditors in a class such as homebuyers, Form D for workmen and employees, and Form F for other creditors. Proof of the debt goes with it.

File on time and file completely. The regulations allow late claims in limited circumstances, but a claim that is not included in the approved resolution plan is extinguished when the NCLT approves the plan, and the Supreme Court has held that the successful resolution applicant takes the company on a clean slate. A creditor who stays silent hoping to sue later usually loses the claim altogether. After the 2026 amendment, the IRP must verify and determine claims, not merely collect them, so a rejected or reduced claim should be challenged quickly before the NCLT.

Government departments, tax authorities and statutory bodies are operational creditors for their dues and must also lodge claims. Workmen and employees can file individually or through an authorised representative. Homebuyers in a real estate CIRP are grouped into a class and vote through an authorised representative chosen from the IBBI panel.

IBC provisions that decide most cases

Committee of Creditors, resolution plans and the clean slate

The Committee of Creditors is made up of unrelated financial creditors, voting in proportion to their admitted debt. Operational creditors can attend meetings without a vote if their dues together are at least 10% of the total debt. The CoC decides almost everything that matters: whether to replace the IRP, which plans to consider, and whether to approve a plan or vote for liquidation. Courts give its commercial wisdom wide deference and rarely interfere with how it distributes money, provided the plan meets the legal minimums.

The resolution professional prepares an information memorandum, invites expressions of interest, and places compliant resolution plans before the CoC. A plan may involve a fresh investor taking over, a merger, a sale of assets (the 2026 amendment confirms that one or more assets can be sold through one or more plans), or even the old management where section 29A allows. After the CoC approves a plan by 66%, the NCLT checks it for compliance and approves it. Claims not included in the plan cannot be pursued against the company afterwards.

For dissenting financial creditors, the plan must give them at least the liquidation value of their claim. For operational creditors, the minimum is the greater of liquidation value or what they would receive if the plan money were distributed under the liquidation waterfall. In practice operational creditors often receive a small fraction of their claim, which is why suppliers should think twice before pushing a viable customer into CIRP.

Liquidation: what happens when resolution fails

If no plan is approved within the timeline, if the CoC votes to liquidate by 66%, or if the NCLT rejects the plan, the company goes into liquidation. A liquidator takes over the assets (excluding items such as employees' provident fund and gratuity funds), sells them, ideally as a going concern, and distributes the proceeds in the order set by section 53. CIRP costs and liquidation costs come first, then workmen's dues for 24 months alongside secured creditors who give up their security, then other employees' dues, unsecured financial debt, government dues and secured creditors' shortfall, and so on down to shareholders.

The 2026 amendment restructured the liquidation chapter. The same professional can no longer act as both resolution professional and liquidator, the CoC supervises the liquidation and can replace the liquidator, and stricter timelines apply, including for voluntary liquidation under section 54. Secured creditors can still choose to realise their security outside the liquidation, but must pay their share of workmen's dues and costs. Check the current regulations for the deadlines that apply to a given liquidation, because the transitional rules depend on the stage the case had reached.

MSME insolvency and the pre-packaged route

MSMEs feature in insolvency on both sides. As creditors, small suppliers often hold unpaid invoices against larger companies; they can file under section 9 if the dues cross Rs 1 crore, but many are better served by a claim before the MSME Facilitation Council under the MSMED Act, which carries compound interest. Our page on MSME delayed payment claims explains that route.

As debtors, MSMEs get two special benefits. Section 240A relaxes some section 29A bars, so the promoter of a micro, small or medium enterprise is not automatically disqualified from bidding for its own business merely because the account is an NPA. And the pre-packaged insolvency resolution process under section 54A, available for defaults of Rs 10 lakh and above, lets an MSME prepare a base resolution plan with the support of its financial creditors before going to the NCLT. The debtor stays in management, the process is meant to finish within 120 days, and the plan can be challenged by a better offer if it hurts operational creditors.

An MSME liquidation follows the general rules, but the small size of most such companies means the cost of the process can eat a large share of the assets. When Advocate B.K. Singh advises an MSME owner facing a section 7 or section 9 petition, he first looks at whether the pre-pack, a one-time settlement or a section 12A withdrawal is realistically available, because those options close quickly once the CoC is formed.

Personal guarantors and promoters

Most promoters sign personal guarantees for their company's bank loans. Since 2019, insolvency against personal guarantors to corporate debtors runs under Part III of the IBC before the NCLT. A creditor files under section 95; an interim moratorium starts on filing and protects the guarantor from other legal action on the debt. A resolution professional examines the application and reports, after which the NCLT admits or rejects it. If admitted, the guarantor's creditors vote on a repayment plan; if that fails, bankruptcy may follow.

Guarantors cannot rely on the company's moratorium, and the approval of the company's resolution plan does not by itself release them from the guarantee. Banks frequently run a section 7 petition against the company, a section 95 petition against the guarantors, a DRT case and SARFAESI action against mortgaged personal property all at once. The defence has to be coordinated across forums, and our pages on section 17 SARFAESI applications and NCLT company matters cover the parallel tracks.

Defending an insolvency petition

A good defence is specific. To a section 7 petition, the useful answers are that there is no financial debt (for example, the money was an investment or a trade advance, not a loan), that no default occurred, that the claim is time-barred because the last acknowledgment was more than three years before filing, that the default is below Rs 1 crore once wrongly added interest is removed, or that the debt has been restructured or settled. Promises to pay soon, and arguments that the company is otherwise viable, rarely stop admission.

To a section 9 petition, the main defence is a genuine pre-existing dispute. Emails complaining about quality, a pending civil suit, an invoked arbitration clause, or a debit note sent before the demand notice can all show one. The NCLT does not decide who is right in that dispute; it only checks whether the dispute is real rather than a feigned afterthought. A defective demand notice, notice sent to the wrong address, or an amount below the threshold are also common grounds.

Where a petition looks likely to succeed, the time before admission is best used to negotiate. After admission, settlement needs CoC approval under section 12A. In petitions that reach Advocate B.K. Singh's office, the weak point on the creditor's side is often the paper trail of the debt, and on the debtor's side it is a dispute that was raised orally and never written down.

The 2026 amendments in brief

The Insolvency and Bankruptcy Code (Amendment) Act 2026, which received assent on 6 April 2026, is the largest overhaul of the Code so far. It introduces the creditor-initiated insolvency resolution process for notified financial institutions, under which the debtor stays in possession and the process runs on a shorter timeline, converting to regular CIRP if it fails. It lays the statutory base for group insolvency and cross-border insolvency, with details left to rules.

Other changes affect day-to-day practice: a 14-day admission timeline for section 7 petitions, IRP verification of claims, tighter conditions for section 12A withdrawal, restructured liquidation, penalties for frivolous proceedings and for suppression of facts, and a direction that the NCLAT dispose of appeals within three months. Several provisions depend on rules and regulations still being notified. Before relying on any of the new procedures, check which parts are in force on the date you file.

Documents for an IBC petition or claim

Mistakes creditors and companies make

• Treating IBC as a recovery suit. An operational creditor with a disputed bill wastes months and may face penalties; a commercial suit or arbitration is often the right forum.
• Missing the claim deadline. Claims left out of an approved plan are extinguished.
• Weak demand notices. Wrong amount, wrong address or no proof of delivery can sink a section 9 petition.
• Ignoring limitation. Check the date of default and the last written acknowledgment before filing.
• Promoters assuming the company's moratorium protects them. It does not cover personal guarantees or personal property.
• Disputes raised only by phone. A quality complaint that was never written down cannot be shown as a pre-existing dispute.

What to do this week

• Work out the exact principal and interest due, and whether it crosses Rs 1 crore.
• Find the date of default and the most recent written acknowledgment of the debt.
• Collect agreements, invoices, ledgers and every email about quality or delivery.
• If you are a creditor and CIRP has started, find the public announcement and the claim deadline.
• If you are a director, list every personal guarantee and every pending case against the company.
• If you have received a section 8 notice, reply within 10 days with any genuine dispute and documents.
• If an NCLT order has gone against you, note the date: the NCLAT appeal clock is 30 days.

How the answer changes by party, company and place

For a bank or NBFC the IBC is one tool among several, alongside DRT, SARFAESI and settlement, and the choice depends on whether the business has going-concern value. For a supplier, the threshold, the dispute history and the likely recovery decide whether IBC is worth it. For homebuyers, a project-level CIRP can protect the project from piecemeal litigation but also delays possession. For employees, salary and gratuity claims are lodged with the professional, and gratuity and provident fund balances sit outside the estate.

The NCLT bench depends on the registered office. Companies registered in Delhi go to the New Delhi benches; those registered in Uttar Pradesh, including Noida and Ghaziabad, go to the Allahabad bench; those registered in Haryana, including Gurugram and Faridabad, go to the Chandigarh bench. Appeals from all go to the NCLAT in New Delhi and then to the Supreme Court on a question of law.

If you want the papers checked before you act, the team of Advocate B.K. Singh at Legals365 can review them and tell you the next step: talk to a lawyer.

Frequently asked questions

What is the minimum amount for filing insolvency against a company?

The default must be at least Rs 1 crore under section 4 of the IBC, a threshold in force since March 2020. For MSME pre-packaged insolvency the threshold is Rs 10 lakh. Smaller debts have to be pursued through suits, arbitration, the DRT or MSME councils.

Can an operational creditor file insolvency for unpaid invoices?

Yes, after serving a section 8 demand notice and waiting 10 days, if the unpaid amount is at least Rs 1 crore and the company has not shown a genuine dispute that existed before the notice. If such a dispute exists, the NCLT will reject the section 9 application.

How long does the corporate insolvency process take?

The Code sets 180 days, extendable once by 90 days, with an outer limit of 330 days including time spent in litigation. In practice many cases take longer because of appeals and interim applications. The 2026 amendment added further timelines to reduce delay.

What happens to pending cases against a company once insolvency starts?

The section 14 moratorium stops new suits, pending proceedings, execution of decrees and enforcement of security against the company. Cases in civil courts, the DRT and arbitration are stayed. Criminal proceedings against directors personally and actions against guarantors are not covered.

Do I lose my claim if I do not file it in the CIRP?

Very likely. Once the NCLT approves a resolution plan, claims not included in it are extinguished and cannot be pursued against the company. File within the deadline in the public announcement with full proof.

Can a company withdraw from insolvency after admission?

Yes, under section 12A with the approval of 90% of the Committee of Creditors' voting share. After the 2026 amendment, such withdrawal is allowed only after the CoC is constituted and before the first invitation for resolution plans.

Can the promoter bid for the company in insolvency?

Usually not, if section 29A applies, for example because the account has been an NPA beyond the prescribed period. Section 240A relaxes some of these bars for MSMEs, so MSME promoters can often bid for their own business.

What is MSME pre-packaged insolvency?

It is a process under section 54A for MSMEs with a default of Rs 10 lakh or more. The debtor, with the backing of unrelated financial creditors, prepares a base resolution plan before applying to the NCLT, stays in management, and aims to finish within 120 days.

Can a bank file insolvency against a personal guarantor?

Yes. Under section 95 of the IBC, a creditor can initiate insolvency against a personal guarantor to a corporate debtor before the NCLT. An interim moratorium begins on filing, and the guarantor's creditors later vote on a repayment plan.

Which NCLT bench hears my case in Delhi NCR?

The bench is decided by the company's registered office. Delhi companies go to the New Delhi benches, Uttar Pradesh companies including those in Noida and Ghaziabad go to the Allahabad bench, and Haryana companies go to the Chandigarh bench.

What is the time limit to appeal an NCLT order?

An appeal to the NCLAT must be filed within 30 days, extendable by up to 15 days for sufficient cause, under section 61. An appeal from the NCLAT to the Supreme Court lies on a question of law within 45 days, extendable by 15 days.

Are homebuyers financial creditors in insolvency?

Yes. Homebuyers are financial creditors and file claims in Form CA as a class, voting through an authorised representative. To initiate CIRP themselves, they need at least 100 allottees or 10% of the allottees of the project, whichever is less.