Insolvency & Bankruptcy Services

Under Section 4 of the Insolvency and Bankruptcy Code 2016, the minimum default threshold for initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor is ₹1 crore. This threshold was revised from ₹1 lakh to ₹1 crore by MCA notification S.O. 1205(E) dated March 24, 2020, to protect MSMEs during COVID-19, and has remained at ₹1 crore since. A financial creditor files under Section 7, an operational creditor under Section 9, and the corporate debtor itself can also initiate under Section 10. The NCLT must admit or reject the application within 14 days under Section 7(4) or Section 9(5), though in practice timelines vary. For MSMEs, a separate Pre-Packaged Insolvency Resolution Process (PPIRP) under Sections 54A–54P permits a lower threshold of ₹10 lakh.

Upon admission of the CIRP application, the NCLT passes an order imposing a moratorium under Section 14 of the Insolvency and Bankruptcy Code 2016. The moratorium prohibits the institution of suits, the execution of judgments, the transfer or encumbrance of assets, and the termination of essential contracts by counterparties. The moratorium remains in force for the entire duration of the CIRP, which has a statutory maximum of 330 days under Section 12 (including extensions and litigation time excluded by the Supreme Court in Essar Steel v Satish Kumar Gupta). During the moratorium, the resolution professional takes over management under Section 17, and the board of directors' powers are suspended under Section 17(1)(b). Secured creditors cannot enforce security interests during this period.

An operational creditor must first serve a demand notice under Section 8 of the Insolvency and Bankruptcy Code 2016 in the format prescribed by Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016, using Form 3 or Form 4. The corporate debtor then has 10 days to either repay the debt or raise a genuine dispute. If no payment is made and no pre-existing dispute is raised, the operational creditor may file an application under Section 9 before the NCLT using Form 5. The application must include a certificate of non-payment from the operational creditor's bank under Section 9(3)(c). If the corporate debtor establishes a pre-existing dispute (one that arose before the demand notice), the NCLT must reject the application under Section 9(5)(ii)(d) — so ensuring invoices are undisputed and well-documented is critical before filing.

The distribution waterfall under Section 53 of the Insolvency and Bankruptcy Code 2016 governs liquidation priority, while the Committee of Creditors (CoC) composition governs resolution plan negotiation. The CoC under Section 21 consists exclusively of financial creditors, meaning operational creditors have no vote on the resolution plan. However, Section 30(2)(b) requires that the resolution plan must provide operational creditors at least the liquidation value of their claims. Financial creditors receive amounts as agreed in the resolution plan, which may be above or below face value. In liquidation under Section 53, the waterfall prioritises CIRP costs, then secured financial creditors (up to the security extent), then workmen dues (24 months), then government dues, then unsecured financial creditors, and finally operational creditors — making early resolution plan acceptance typically superior for operational creditors compared to liquidation.

Promoters and related parties are restricted from submitting resolution plans under Section 29A of the Insolvency and Bankruptcy Code 2016 if they are classified as non-performing asset promoters, wilful defaulters under RBI guidelines, or are undischarged insolvents. Section 29A(c) bars any person who has an NPA account that remains overdue for over one year as of the insolvency commencement date, subject to limited exceptions for MSMEs under the third proviso to Section 29A. The Supreme Court in Chitra Sharma v Union of India (2018) and ArcelorMittal India Pvt Ltd v Satish Kumar Gupta (2018) confirmed the strict application of Section 29A. If a promoter is not caught by Section 29A (for example, because the company's default arose from genuine business failure and the promoter has no NPA history), they may submit a resolution plan as a resolution applicant, subject to NCLT and CoC approval.