Insolvency Law · In ForceAct No. 31 of 2016Effective 28 May 2016

Insolvency and Bankruptcy Code

IBC 2016 · India's Unified Insolvency Framework

Consolidated law governing insolvency resolution and bankruptcy for companies, LLPs, and individuals in India. Replaced a patchwork of 12 prior legislations. Established NCLT as the adjudicating authority for corporate insolvency, with a strict 180/330-day timeline for resolution.

240+

Sections

Parts

330 days

CIRP Timeline

NCLT

Adjudicating Authority

CIRP — Corporate Insolvency Resolution Process

Step 01

Application

Financial creditor (S.7), operational creditor (S.9), or corporate debtor (S.10) files before NCLT

Step 02

Admission

NCLT admits within 14 days. Moratorium triggered under S.14. IRP appointed.

Step 03

CoC Constituted

Committee of Creditors (all financial creditors) constituted within 30 days. RP replaces IRP.

Step 04

Resolution Plans

RP invites plans. S.29A screens ineligible applicants. CoC approves by 66% vote.

Step 05

NCLT Order

NCLT approves plan (binding on all stakeholders) or orders liquidation under S.33.

Structure of the Code

IBC is organised into 4 Parts covering corporate and personal insolvency

Part IS. 1–3

Preliminary

Short title, extent, commencement, and key definitions.

Part IIS. 4–77

Insolvency Resolution & Liquidation — Corporate Persons

Corporate Insolvency Resolution Process (CIRP), liquidation, voluntary liquidation, fast-track CIRP, and pre-packaged insolvency for MSMEs.

Part IIIS. 78–187

Insolvency Resolution & Discharge — Individuals & Partnership Firms

Insolvency resolution and bankruptcy for individuals and partnership firms. Adjudicated by Debt Recovery Tribunal (DRT).

Part IVS. 188–240A

Regulation of Insolvency Professionals & Agencies

IBBI constitution, insolvency professional agencies, insolvency professionals, information utilities, and MSME provisions (S.240A).

Key Sections

Most litigated provisions at NCLT and NCLAT

S. 2

Applicability

The IBC applies to companies, LLPs, and partnership/proprietorship firms, as well as individuals and personal guarantors to corporate debtors. The Central Government can extend its applicability to other entities by notification.

Part I

S. 3

Definitions

This section is the dictionary of the IBC. Key definitions: a 'corporate debtor' is any company or LLP that owes a debt. A 'financial creditor' is typically a bank or financial institution owed money lent for consideration. An 'operational creditor' is owed money for goods, services, or statutory dues. 'Default' is simply non-payment when due. The 'insolvency commencement date' is when NCLT admits the application — this triggers the CIRP timeline and the moratorium.

Part I

S. 4

Application of this Part

To trigger CIRP against a company or LLP, the minimum unpaid debt must be INR 1 crore (Rs. 1,00,00,000). This threshold was raised from INR 1 lakh to INR 1 crore by the Central Government in March 2020 (and kept elevated). Smaller defaults cannot initiate CIRP.

Part II

S. 5

Definitions — CIRP

This section defines terms specific to the CIRP process. The Committee of Creditors (CoC) is made up of all financial creditors. The insolvency resolution process period is 180 days from commencement (extendable by 90 days). The Resolution Professional manages the process and can raise interim finance to keep the business running.

Part II

S. 6

Persons who may initiate corporate insolvency resolution process

Three categories of applicants can trigger CIRP: (1) a financial creditor (bank, lender), (2) an operational creditor (vendor, employee, government for dues), or (3) the corporate debtor itself (voluntary insolvency). Each has a different application mechanism under Sections 7, 9, and 10 respectively.

Part II

S. 7

Initiation of corporate insolvency resolution process by financial creditor

A bank or financial institution files an application at NCLT. Within 14 days, NCLT must ascertain default from records (NeSL or other evidence). If default is established and the application is complete, NCLT admits the application — this is the insolvency commencement date and the moratorium kicks in. Financial creditors do not need to serve a demand notice; they file directly at NCLT. Multiple financial creditors can file jointly.

Key cases: Innoventive Industries Ltd v. ICICI Bank (2018) 1 SCC 407 — SC held that NCLT has limited scope to reject a Section 7 application once default is proved. The corporate debtor cannot raise defences available under State law. · Swiss Ribbons Pvt Ltd v. Union of India (2019) 4 SCC 17 — SC upheld constitutional validity of IBC; affirmed that financial creditors and operational creditors form different classes and can be treated differently.

Part II

S. 9

Application for initiation of corporate insolvency resolution process by operational creditor

An operational creditor (vendor, employee, government) must first serve a demand notice under Section 8. If payment or notice of a genuine pre-existing dispute is not received within 10 days, the creditor can file at NCLT. Critically, if the corporate debtor raises a dispute — even a spurious one — NCLT cannot admit the application. This is the key difference from Section 7: the dispute shield is available only to operational creditors.

Key cases: Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd (2018) 1 SCC 353 — SC clarified that 'dispute' under Section 8(2) must be pre-existing and not a mere afterthought to defeat CIRP. NCLT must examine whether a plausible dispute exists.

Part II

S. 10

Initiation of corporate insolvency resolution process by corporate applicant

A company or LLP that is itself in default (i.e., unable to pay its debts) can voluntarily file for CIRP at NCLT. This is the corporate applicant route — a form of voluntary insolvency. The board/designated partners authorise the filing. It is uncommon in practice but used when promoters want to preserve value or prevent hostile creditor actions.

Part II

S. 11

Persons not entitled to make application

You cannot file for CIRP if the corporate debtor is already undergoing CIRP, completed one within the last 12 months, violated a resolution plan in the last 12 months, or is already being liquidated. This prevents abuse and repeated filings.

Part II

S. 12

Time-limit for completion of insolvency resolution process

The CIRP must finish in 180 days. The CoC can vote (with 66% of votes) to seek a 90-day extension from NCLT. But there is an absolute hard cap of 330 days from the insolvency commencement date — inclusive of legal proceedings, extensions, and litigation delays. After 330 days, if no plan is approved, NCLT must pass a liquidation order.

Key cases: Essar Steel India Ltd v. Satish Kumar Gupta (2020) 8 SCC 531 — SC upheld the 330-day hard cap but clarified that time consumed in bona fide litigation before courts/NCLAT/SC can be excluded when computing the 330 days.

Part II

S. 13

Declaration of moratorium and public announcement

On the day NCLT admits the application, three things happen simultaneously: (1) a moratorium is declared (automatic stay on all proceedings), (2) a public announcement is made and creditors are asked to submit claims, and (3) an IRP is appointed to take over management of the corporate debtor.

Part II

S. 14

Moratorium

The moratorium is an automatic stay-all order. Once CIRP begins, no one can sue the company, execute decrees against it, enforce security interests (SARFAESI actions stop), or repossess leased assets. However, personal guarantors and sureties are NOT protected by the moratorium — creditors can proceed against them separately. Essential supplies (electricity, water, internet) cannot be cut off during CIRP.

Key cases: Power Finance Corporation Ltd v. Pramod Kumar Bhasin (2021) — NCLAT held that moratorium under Section 14 does not extend to personal guarantors; a separate process under Part III applies.

Part II

S. 16

Appointment and tenure of interim resolution professional

An Interim Resolution Professional (IRP) is appointed on the insolvency commencement date. The applicant can propose an IRP; if none is proposed, IBBI nominates one within 10 days. The IRP serves for 30 days and is then either confirmed or replaced as the Resolution Professional (RP) by the CoC.

Part II

S. 17

Management of affairs of corporate debtor by interim resolution professional

From the moment an IRP is appointed, the existing management (board of directors, promoters, partners) loses control. All their powers are suspended. The IRP steps in as de facto CEO. Banks must follow IRP instructions. All employees, managers, and officers report to the IRP. This is one of the most dramatic features of IBC — near-instant displacement of existing management.

Part II

S. 18

Duties of interim resolution professional

The IRP's primary duties are: gather all financial information (2 years of operations), collate creditor claims after public announcement, constitute the CoC (Committee of Creditors), and manage the business. The IRP is effectively an information-gathering and stabilisation officer — not a restructurer. The RP takes over the restructuring function.

Part II

S. 20

Management of operations of corporate debtor as going concern

The IRP must keep the business running as a going concern — employees stay, contracts continue, operations proceed. This is vital to preserving enterprise value for creditors. The IRP can hire professionals, amend contracts, and give operational instructions. Interim finance (DIP financing equivalent) requires CoC approval.

Part II

S. 21

Committee of creditors

The Committee of Creditors (CoC) is the real decision-making body in CIRP. It consists exclusively of financial creditors (banks, NBFCs, bondholders). Operational creditors do NOT vote in the CoC (though they may attend meetings). Related party creditors are excluded. Voting shares are proportional to debt. Most decisions need 51% majority; key decisions (like approving a resolution plan or extending CIRP) require 66%.

Key cases: Swiss Ribbons Pvt Ltd v. Union of India (2019) 4 SCC 17 — SC upheld the differentiation between financial creditors (who have voting rights in CoC) and operational creditors (who do not) as constitutionally valid.

Part II

S. 22

Appointment of resolution professional

At the first CoC meeting, creditors decide (by 66% vote) whether to keep the IRP as the RP or replace them. The RP is the key officer — they run the full resolution process, invite resolution plans, and manage the corporate debtor through CIRP.

Part II

S. 25

Duties of resolution professional

The RP is the full manager of the CIRP. Key duties: prepare an Information Memorandum (IM) about the corporate debtor, invite prospective buyers/investors (resolution applicants) to submit resolution plans, present all plans to the CoC, and file avoidance applications for suspicious pre-insolvency transactions.

Part II

S. 29A

Persons not eligible to be resolution applicant

The promoters/management who caused the company's insolvency are generally barred from buying back the company through a resolution plan. This prevents the 'evergreening' problem where defaulting promoters could reacquire assets at a discount. Key disqualifications: NPA classification (without clearing dues), wilful defaulter tag, criminal conviction, SEBI debarment, and invoked guarantors. This section was heavily litigated after it was inserted in 2017.

Key cases: Essar Steel India Ltd v. Satish Kumar Gupta (2020) 8 SCC 531 — SC clarified the scope of Section 29A and upheld ARCIL's eligibility as a resolution applicant. · Arcelor Mittal India Pvt Ltd v. Satish Kumar Gupta (2019) 2 SCC 1 — SC interpreted 'person acting jointly or in concert' broadly; Arcelor Mittal had to shed its NPA-linked entity before submitting a resolution plan.

Part II

S. 30

Submission of resolution plan

Resolution applicants submit their plan with an eligibility affidavit. The RP screens each plan to ensure it pays CIRP costs first, pays operational creditors at least liquidation value (floor protection), and does not violate law. The plan must also address post-approval management. The RP then presents all compliant plans to the CoC for voting.

Key cases: Essar Steel India Ltd v. Satish Kumar Gupta (2020) 8 SCC 531 — SC held that the CoC has the commercial wisdom to distribute resolution plan proceeds and that courts cannot substitute their views for the CoC's commercial judgment.

Part II

S. 31

Approval of resolution plan

Once the CoC approves a plan (66% vote), it goes to NCLT for approval. NCLT's role is limited to checking legal compliance — not commercial merit. Once NCLT approves, the plan binds everyone: the company, its employees, all creditors (including dissenting ones, government tax authorities), and guarantors. This is the 'clean slate' feature of IBC — the approved buyer gets the company free of most claims.

Key cases: Essar Steel India Ltd v. Satish Kumar Gupta (2020) 8 SCC 531 — SC confirmed that NCLT/NCLAT cannot interfere with the commercial wisdom of the CoC in approving or rejecting a resolution plan. · Ghanashyam Mishra v. Edelweiss ARC (2021) 9 SCC 657 — SC held that once a resolution plan is approved, all claims not included in the plan are extinguished — including government tax claims.

Part II

S. 33

Initiation of liquidation

Liquidation is triggered when: no plan is received, NCLT rejects the plan, CoC does not approve any plan, the 330-day hard cap expires without a plan, or the CoC votes (66%) to liquidate directly. Once the liquidation order is passed, the CIRP ends and the company enters the liquidation process under the RP (who becomes the liquidator).

Part II

S. 35

Powers and duties of liquidator

The liquidator (usually the RP who ran the CIRP) has broad powers to sell assets, verify claims, and wind up the business. Asset sales can be by public auction or private treaty. The liquidator can run the business for a short period if it helps achieve better value ('beneficial winding up'). Proceeds are distributed per the Section 53 waterfall.

Part II

S. 43

Preferential transactions and relevant time

If in the period before insolvency, the company paid off one creditor (e.g., a promoter-related lender) preferentially, ahead of others, that payment can be challenged and reversed. Look-back period: 2 years for related-party transactions, 1 year for arm's length. This prevents asset stripping before insolvency.

Part II

S. 45

Avoidance of undervalued transactions

If the company sold assets below fair value (or gifted them) before insolvency, those transactions can be unwound. The RP or liquidator applies to NCLT. The look-back period mirrors Section 43: 2 years for related parties, 1 year for others. This prevents asset stripping by selling property to promoter-linked entities at token prices.

Part II

S. 53

Distribution of assets

The IBC waterfall: CIRP costs first, then workmen dues (24 months) and secured creditors who surrendered security (equal rank), then other employees (12 months wages), then unsecured financial creditors, then government dues, then all other dues, then preference shareholders, and finally equity shareholders. Government dues are deliberately ranked below unsecured financial creditors — a major departure from pre-IBC law. Secured creditors who enforce security outside liquidation rank even higher.

Key cases: Essar Steel India Ltd v. Satish Kumar Gupta (2020) 8 SCC 531 — SC confirmed that the Section 53 waterfall is the floor for resolution plan distributions to dissenting creditors. · State Tax Officer v. Rainbow Papers Ltd (2022) 13 SCC 1 — SC initially held that State tax dues are secured creditors (subsequently doubted/distinguished in later decisions).

Part II

S. 60

Adjudicating authority for corporate insolvency

NCLT (National Company Law Tribunal) is the court for all IBC corporate insolvency matters. Jurisdiction is based on the registered office of the corporate debtor. NCLT has exclusive, comprehensive jurisdiction — all suits, claims, and disputes related to the CIRP or liquidation are decided by NCLT, not civil courts. This centralisation of disputes is a key IBC design feature.

Part II

S. 61

Appeals and appellate authority

NCLT orders are appealed to NCLAT (National Company Law Appellate Tribunal) within 30 days. NCLAT can condone delay for sufficient cause. Beyond NCLAT, the Supreme Court hears appeals on questions of law. The appeal chain is NCLT → NCLAT → Supreme Court.

Part II

S. 76

Insolvency resolution process for personal guarantors to corporate debtors

The moratorium on the corporate debtor under Section 14 does NOT protect personal guarantors. Creditors can separately initiate insolvency proceedings against personal guarantors (directors/promoters who gave personal guarantees) — even while the CIRP is ongoing or completed. This was a significant clarification post-2019 amendment and was upheld by the Supreme Court.

Key cases: Lalit Kumar Jain v. Union of India (2021) 9 SCC 321 — SC upheld the constitutional validity of provisions making personal guarantors liable under IBC separately from the corporate debtor. The approval of a resolution plan for the corporate debtor does not extinguish the personal guarantor's liability.

Part III

S. 94

Application by debtor to initiate insolvency resolution process

For individuals (other than personal guarantors of corporate debtors) and partnership/proprietorship firms, insolvency proceedings are filed before the Debt Recovery Tribunal (DRT), not NCLT. The debtor can apply voluntarily for a fresh start (debt relief) under Chapter II of Part III.

Part III

S. 240A

Application of this Code to micro, small and medium enterprises

MSMEs get special treatment under IBC. The most significant concession is the Pre-Packaged Insolvency Resolution Process (PPIRP) introduced by the IBC Amendment Ordinance 2021 for MSMEs. PPIRP allows MSMEs to prepare a base resolution plan before CIRP begins, reducing disruption. The 29A bar (promoter ineligibility) is relaxed for MSMEs — existing promoters can submit resolution plans. The threshold for MSMEs under PPIRP is INR 1 crore.

Part IV

IBC Glossary

Key terms used in CIRP proceedings

CIRP

Corporate Insolvency Resolution Process — the formal insolvency process under IBC Part II

CoC

Committee of Creditors — all financial creditors of the corporate debtor, the decision-making body in CIRP

IRP

Interim Resolution Professional — appointed on insolvency commencement date, manages the company for 30 days

Resolution Professional — appointed by the CoC, runs the full CIRP and invites resolution plans

NCLT

National Company Law Tribunal — the adjudicating authority for corporate insolvency under IBC

NCLAT

National Company Law Appellate Tribunal — hears appeals from NCLT orders

Liquidator

Insolvency professional who winds up the corporate debtor when CIRP fails

Moratorium

Automatic stay on all suits, executions, and security enforcement from insolvency commencement date

Resolution Plan

A plan by a resolution applicant to take over and rehabilitate the corporate debtor as a going concern

Information Memorandum

Document prepared by RP containing all material information about the corporate debtor for prospective resolution applicants

PPIRP

Pre-Packaged Insolvency Resolution Process — a faster, less disruptive insolvency process for MSMEs

Adjudicating Authority

NCLT for corporate persons; DRT for individuals and partnerships

IBBI

Insolvency and Bankruptcy Board of India — the regulatory body governing IBC processes and professionals

Financial Debt

Debt disbursed against consideration for time value of money — includes loans, bonds, debentures, lease obligations

Operational Debt

Debt for goods/services, employment dues, or statutory government dues

Insolvency Commencement Date

Date NCLT admits the CIRP application — triggers moratorium and starts the 180/330-day clock

Waterfall

Section 53 priority order for distributing liquidation proceeds

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