How a financial creditor starts insolvency against a company under section 7 of the Insolvency and Bankruptcy Code

A financial creditor starts corporate insolvency against a company by an application under section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, resting on a default of at least INR 1 crore and, for allottees of a real estate project or creditors in a class under section 21(6A)(a) or (b), on a joint application by the lesser of 100 creditors or 10 per cent of the class. Since 26 May 2026 section 7(5) says the Tribunal shall pass its order within 14 days and must admit the application where a default, a complete application and a proposed resolution professional free of disciplinary proceedings are shown, with no other ground of rejection, and on admission the moratorium under section 14 and the interim resolution professional take effect.

What default must the creditor show?

INR 1 crore. Section 4(1) sets the minimum default for the corporate part of the Code at INR 1 lakh, and its proviso lets the Central Government specify a higher figure of not more than INR 1 crore. Notification S.O. 1205(E) of 24 March 2020 of the Ministry of Corporate Affairs specified INR 1 crore as the minimum amount of default for the purposes of section 4. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 amends sections 3, 5, 7, 9, 10, 12A, 14, 16 and others, but not section 4.

The Explanation to section 7(1) widens what counts: a default includes a default on a financial debt owed not only to the applicant but to any other financial creditor of the corporate debtor. The application goes in Form 1 under rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, carries a fee of INR 25,000 under the Schedule to those Rules, and a copy must be served on the registered office of the company and on the Board before filing.

The creditor-initiated process in Chapter IV-A, inserted by clause 40 of the 2026 Act, was not among the provisions notified on 26 May 2026, so the section 7 application stays the route for a financial creditor. The wider position is set out in the note on the half of the 2026 amendments now in force.

How many creditors must join?

One, for an ordinary financial creditor such as a bank. Two provisos to section 7(1) change that for two groups. The second proviso covers allottees: financial creditors who are allottees under a real estate project must file jointly, not fewer than 100 allottees of the same project or not less than 10 per cent of the allottees of that project, whichever is less. The first proviso applies the same test to the creditors described in clauses (a) and (b) of section 21(6A): a financial debt in the form of securities or deposits where a trustee or agent acts as authorised representative, and a debt owed to a class of creditors exceeding the number specified.

The arithmetic is a minimum of two numbers.

Allottees in one project       10 per cent       Joint applicants needed
  1,500                        150               100
  1,000                        100               100
    400                         40                40
     90                          9                 9

On a project with 400 allottees, 40 suffice. Above 1,000, the count of 100 is the cap. The text does not say how a fraction is rounded.

What record of default does the Tribunal read?

Section 7(3)(a) requires the creditor to furnish the record of default recorded with an information utility, or such other record or evidence of default as may be specified. An information utility is a person registered with the Board under section 210, as section 3(21) puts it. Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lists the other evidence: a certified copy of entries in the relevant account in the bankers' book, or an order of a court or tribunal that adjudicated on the non-payment, once the period of appeal has expired. Regulation 2D adds a chronology of the debt and default, with the date the debt fell due, the date of default, part payments, the last acknowledgment and the limitation applicable. Section 238A applies the Limitation Act, 1963 to proceedings before the Tribunal.

The 2026 Act inserts Explanation II into section 7(5). Where the applicant is a financial institution and furnishes a record of default recorded with an information utility, that record is sufficient for the Tribunal to ascertain the default.

What does the Tribunal decide in 14 days?

Section 7(5), as substituted from 26 May 2026 by Act 6 of 2026 and notification S.O. 2625(E), requires an order within 14 days of receipt either to admit, if it is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional, or to reject, if it is satisfied that default has not occurred or the application is incomplete or such a proceeding is pending. The earlier text said the Tribunal "may" admit; the new text says "shall".

Before rejecting, the Tribunal must give notice to the applicant to rectify the defect within seven days of receiving the notice. If no order is passed in 14 days, the Tribunal must record the reasons for the delay in writing. Explanation I says that where the requirements of clause (a) are met, no other ground is to be considered to reject the application.

In Catalyst Trusteeship Ltd. v. Ecstasy Realty Pvt. Ltd. (2026 INSC 186, 24 February 2026), an appeal by a debenture trustee, the Supreme Court held that the Tribunal need only examine that a financial debt exists and a default has occurred, and that a pre-existing dispute, which can defeat an operational creditor, does not bar a financial creditor.

The process begins on admission under section 7(6), and the insolvency commencement date in section 5(12) is the date of admission. Under the new proviso to section 5(11), where several applications are pending on that date, the initiation date is the date of the first.

What does the moratorium under section 14 stop?

Section 13 requires the Tribunal, after admission, to declare the moratorium, cause a public announcement and appoint the interim professional. Section 14(1) prohibits, from the insolvency commencement date: suits and pending proceedings against the company, including execution of decrees; transfer, encumbrance or disposal of its assets by the company; any action to foreclose or enforce security, including under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and recovery of property by an owner or lessor from the company's possession. Licences and similar grants may not be suspended or terminated on the ground of insolvency while current dues are paid, and essential supplies continue under section 14(2).

Section 14(3)(b) leaves a surety outside the prohibition, and the 2026 Act adds an Explanation that sub-section (1) also applies where the surety seeks to initiate or continue proceedings against the corporate debtor itself under the contract of guarantee. Under section 14(4) the moratorium runs to the end of the process, and ceases on approval of a resolution plan or an order for liquidation.

What does the interim resolution professional do?

Section 16(2), as substituted in 2026, appoints the professional proposed in the section 7 application as interim resolution professional if no disciplinary proceeding is pending against that person. From appointment, management of the company vests in the professional and the powers of the board are suspended (section 17). Section 18 lists the duties: collect information on assets, finances and operations, collate claims, constitute the committee of creditors, and monitor the assets until a resolution professional is appointed.

The announcement must follow "immediately", which regulation 6 of the Corporate Persons Regulations defines as not later than three days from appointment. The professional files a report certifying constitution of the committee within two days of verifying claims (regulation 17).

When can an admitted application be withdrawn?

Section 12A as substituted from 26 May 2026 lets the Tribunal allow withdrawal of an admitted application on an application by the resolution professional, with the approval of ninety per cent of the voting share of the committee of creditors. Sub-section (2) bars withdrawal before the committee is constituted and after the first invitation for submission of a resolution plan, and sub-section (3) requires an order within thirty days, with written reasons for delay. Regulation 30A, as substituted from 2 June 2026, requires the resolution professional to apply within three days of the committee's approval, with a bank guarantee or demand draft for estimated process costs.

What does the timeline look like?

An illustration. The company, the debt and the dates below are hypothetical. They apply the 14-day period in section 7(4) and the 180-day and 330-day periods in section 12, which the 2026 Act left unchanged.

A lender holds a term loan of INR 40 crore; INR 6 crore is overdue
  Default recorded with an information utility          1 July 2026
  Application received by the Tribunal (day 0)          1 March 2027 (Monday)
  Order admitting the application (day 11)              12 March 2027 (Friday)
    Insolvency commencement date; moratorium and interim professional take effect
  Public announcement, at latest (three days)           15 March 2027
  Last day for the Tribunal to decide (day 14)          15 March 2027
  180 days from admission                               8 September 2027
  330 days from the commencement date, outer limit      5 February 2028

A project with 400 allottees: joint application needs 40 (the lesser of 100 and 40)
A class of 2,000 debenture holders: needs 100 (the lesser of 100 and 200)

The INR 6 crore overdue is above the INR 1 crore floor; a default of INR 80 lakh would not support the application. A defect notice served on 10 March 2027 would give seven days running to 17 March 2027, past the fourteenth day. The 180 and 330 days count from the day after admission.

What remains unsettled?

Whether the seven-day cure period sits inside or outside the 14 days. The substituted section 7(5) places the notice proviso and the 14-day period side by side, and the text does not say that the clock stops while the applicant rectifies the defect.

What Explanation I leaves for the Tribunal to consider. It bars "any other ground" once default and a complete application are shown. How that reading sits with limitation under section 238A, which the Tribunal applies to the default alleged, is not answered by the text.

When withdrawal closes. Section 12A(2)(b) speaks of the first invitation for submission of a resolution plan, while regulation 30A(1) refers to the issue of an invitation for expression of interest under regulation 36A. The two formulations are not worded alike.

Whether an information utility record is conclusive. Explanation II calls it sufficient to ascertain default, but only for a financial institution applicant, and does not say how a record the corporate debtor disputes is to be treated.