NPA Resolution & IBC

Detailed Legal Framework

In-depth notes on the substantive law, procedural framework, and strategic considerations for this practice area. Written by Advocate Subodh Bajpai for clients, junior counsel, and others researching this area of Indian law.

The Insolvency and Bankruptcy Code 2016

The Insolvency and Bankruptcy Code 2016 (IBC) governs insolvency resolution and liquidation of corporate persons and, in Part III, the insolvency and bankruptcy of individuals and partnership firms. Part III has so far been brought into force only for personal guarantors of corporate debtors. The Code has been amended several times since 2016, most recently by the Insolvency and Bankruptcy Code (Amendment) Act 2026 (Act 6 of 2026), most of whose provisions came into force on 26 May 2026 under notification S.O. 2625(E) of 22 May 2026. The provisions not yet in force include the creditor-initiated insolvency resolution process (Chapter IV-A) and group insolvency.

The Code provides for a time-bound corporate insolvency resolution process (CIRP); makes the National Company Law Tribunal (NCLT) the Adjudicating Authority for corporate persons and their personal guarantors; establishes the Insolvency and Bankruptcy Board of India (IBBI) as the regulator; and provides for insolvency professionals to conduct the process. Work in this area covers admission, the conduct of and challenges within the CIRP, resolution plans, liquidation, personal-guarantor proceedings, and appeals before the NCLAT.

Section 7 — Financial Creditor Applications

Section 7 allows a financial creditor to apply to the NCLT to initiate the CIRP against a corporate debtor that has committed a default of at least the threshold under Section 4 (currently ₹1 crore). The application must include a record of the default and the name of the proposed interim resolution professional.

Section 7(5), as substituted by the 2026 amendment with effect from 26 May 2026, requires the NCLT to pass an order within fourteen days: to admit the application if it is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional, and otherwise to reject it, after first giving the applicant notice to rectify the defect within seven days. If no order is passed within fourteen days, the NCLT must record its reasons for the delay. Explanation I states that where those requirements are met, no other ground is to be considered for rejection; Explanation II provides that a record of default with an information utility, furnished by a financial institution with its application, is sufficient to ascertain the default. The questions a corporate debtor can raise at admission are therefore whether the debt is a financial debt within Section 5(8), whether a default has occurred, and whether the application is complete; Section 238A separately applies the Limitation Act 1963 to applications under the Code. The 'pre-existing dispute' test belongs to Section 9, not to Section 7.

On admission, the CIRP begins: an interim resolution professional is appointed and takes over management, the powers of the board are suspended (Section 17), a public announcement is made and claims are collected, the Committee of Creditors (CoC) is constituted, and the moratorium under Section 14 bars suits, proceedings and enforcement against the corporate debtor.

Section 9 — Operational Creditor Applications

Section 9 allows an operational creditor — a person to whom an operational debt is owed, such as a supplier of goods or services — to apply for the CIRP after first delivering a demand notice or invoice under Section 8. Within ten days of receiving it, the corporate debtor may bring to the creditor's notice the existence of a dispute, or the record of a suit or arbitration filed before receipt of the notice, or may pay the debt (Section 8(2)).

Under Section 9(5) the NCLT rejects the application if, among other things, a notice of dispute has been received by the operational creditor or there is a record of dispute with an information utility. It is settled that the dispute must have existed before the demand notice and must be more than a bare assertion; the NCLT does not decide the merits of the disputed claim at the admission stage. Work in this area includes applications by operational creditors and responses by corporate debtors on these grounds.

Section 10 — Application by the Corporate Debtor

Section 10 allows a corporate debtor that has committed a default to apply for the CIRP itself. Admission has the same consequences as on a creditor's application: the moratorium under Section 14 takes effect, and the powers of the board are suspended and vest in the interim resolution professional.

Under Section 10(3), as amended with effect from 26 May 2026, the application must be accompanied by the corporate debtor's books of account and any other information specified, and a special resolution of the shareholders (or a resolution of at least three-fourths of the total number of partners) approving the filing. The 2026 amendment omitted the former requirement, in Section 10(3)(b), that the corporate debtor propose its own interim resolution professional. Instead, under the new Section 16(3A), the NCLT refers the matter to the Insolvency and Bankruptcy Board of India for the recommendation of an insolvency professional to act as interim resolution professional. Defects in the Section 10(3) requirements can lead to rejection.

Committee of Creditors and Resolution Plans

The Committee of Creditors (CoC) is the decision-making body in the CIRP. It consists of the financial creditors of the corporate debtor, other than related parties, with voting shares in proportion to their financial debt. Operational creditors do not vote, though they may attend meetings in the circumstances the Code provides. The CoC approves or rejects resolution plans, decides on any extension of the CIRP period, and may replace the resolution professional.

Resolution plans are submitted by resolution applicants. Under Section 30(2) a plan must, among other things, provide for payment of the insolvency resolution process costs in priority, provide minimum payments to operational creditors and to dissenting financial creditors as that section prescribes, and provide for the management, implementation and supervision of the plan. A plan requires the approval of at least sixty-six per cent of the voting share of the CoC, which since 26 May 2026 must record its reasons for approval (Section 30(4)), and is then placed before the NCLT.

Under Section 31 the NCLT approves the plan if it is satisfied that the plan meets the requirements of Section 30(2); since 26 May 2026 it is to pass its order within thirty days of receiving the plan, recording reasons for any delay (Section 31(2A)). It is settled that the commercial merits of a plan approved by the CoC are a matter for the CoC, while compliance with the Code remains open to review. An appeal against an order approving a plan lies to the NCLAT only on the grounds listed in Section 61(3). Work in this area includes advice to creditors and resolution applicants on plan requirements and proceedings on approval or rejection of plans.

Liquidation Under the IBC

If no resolution plan is received within the time allowed, or the plan is rejected, or the CoC resolves to liquidate, the NCLT orders liquidation under Chapter III of Part II of the Code. Since 26 May 2026, before passing a liquidation order on the first two grounds the NCLT must consider any application by the CoC, by at least sixty-six per cent of the voting share, to restore the CIRP once, for not more than 120 days (Section 33(1A) and (1B)). The liquidator is an insolvency professional recommended by the IBBI, other than the resolution professional who conducted the CIRP (Section 34(1) and (4)); the liquidator realises the assets under the supervision of the CoC (Section 35(2)) and distributes the proceeds in the order set out in Section 53.

Under Section 53, the proceeds are applied in the following order: the insolvency resolution process and liquidation costs; then workmen's dues for the twenty-four months before liquidation together with debts owed to secured creditors who have relinquished their security (since 2026, only to the value of the security relinquished, the balance ranking as unsecured); then wages and unpaid dues of other employees for twelve months; then financial debts owed to unsecured creditors; then government dues for up to two years and the unpaid balance of secured creditors who enforced their security; then remaining debts and dues; and finally preference and equity shareholders or partners. Where a creditor stands in this order often determines its likely realisation.

Personal Guarantor Insolvency

The provisions of Part III of the Code relating to personal guarantors of corporate debtors came into force on 1 December 2019. Under Section 60(1), the Adjudicating Authority for the insolvency resolution and bankruptcy of a personal guarantor of a corporate debtor is the NCLT bench that has jurisdiction over the corporate debtor — whether or not a CIRP or liquidation of the corporate debtor is pending.

A creditor may apply under Section 95, or the guarantor may apply under Section 94. Section 96(4), in force from 26 May 2026, provides that the Section 96 interim moratorium does not apply where the debtor is a personal guarantor to a corporate debtor, so filing does not by itself stay other proceedings. Under Section 97 the Adjudicating Authority appoints a resolution professional, who examines the application and submits a report under Section 99 before the Adjudicating Authority decides whether to admit it under Section 100. On admission a moratorium applies under Section 101, a repayment plan may be prepared and placed before the creditors, and if the process fails the guarantor or a creditor may apply for bankruptcy.

Section 14(3)(b) provides that the corporate debtor's moratorium does not protect a surety, so proceedings against a personal guarantor can continue during the corporate debtor's CIRP. The Explanation added to Section 14(3)(b) in 2026 makes clear that the moratorium does bar a surety from initiating or continuing proceedings against the corporate debtor under the contract of guarantee. Work in this area includes promoter and director guarantees given for corporate-debtor loans.

NCLAT Appeals and Further Appeal

An appeal from an NCLT order under the IBC lies to the National Company Law Appellate Tribunal under Section 61, within thirty days; the NCLAT may allow up to fifteen further days for sufficient cause. Since 26 May 2026, Section 61(6) directs the NCLAT to dispose of the appeal within three months of its receipt. An appeal from an NCLT order under the Companies Act 2013 lies under Section 421, within forty-five days, extendable by up to forty-five days.

An appeal from the NCLAT lies to the Supreme Court of India on a question of law — under Section 62 of the IBC within forty-five days (extendable by up to fifteen days), and under Section 423 of the Companies Act within sixty days (extendable by up to sixty days).

Considerations in IBC and NPA Matters

IBC and NPA matters involve choices beyond procedure: which of the available remedies — SARFAESI enforcement, a DRT Original Application, or an IBC application — fits the creditor's objective; how the Section 14 moratorium affects proceedings already pending; how a personal guarantor's exposure relates to the corporate debtor's proceedings; and, for a corporate debtor, whether an application under Section 10 or a negotiated restructuring is more suitable.

Withdrawal of an application after admission is governed by Section 12A, as substituted with effect from 26 May 2026. The application for withdrawal is made by the resolution professional with the approval of ninety per cent of the voting share of the CoC; it cannot be made before the CoC is constituted or after the first invitation for resolution plans has been issued; and the NCLT is to decide it within thirty days, recording reasons for any delay.