How does a financial creditor initiate CIRP under Section 7 of the IBC?

Question

My company lent money to a borrower who has now defaulted. How do I initiate the corporate insolvency resolution process as a financial creditor? I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

How does a financial creditor initiate CIRP under Section 7 of the IBC? is governed in India primarily by Insolvency and Bankruptcy Code 2016, Section 7, Insolvency and Bankruptcy Code 2016, Section 5 and Insolvency and Bankruptcy Code 2016, Section 14. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Section 7 allows a financial creditor, either alone or jointly with other financial creditors, to file an application before the NCLT to initiate the corporate insolvency resolution process upon a default by the corporate debtor.

A financial debt is defined under Section 5 to include money disbursed against consideration for the time value of money, such as loans, debentures and guarantees, and the applicant must furnish the record of default along with the name of the proposed interim resolution professional.

The Supreme Court has clarified that the NCLT's role at the admission stage is limited to verifying the existence of debt and default, and it cannot go into the merits of any counterclaim raised by the corporate debtor.

Once admitted, a moratorium under Section 14 is imposed prohibiting suits, execution of decrees, and recovery actions against the corporate debtor's assets during the resolution process.

The threshold for filing under Section 7, currently one crore rupees for a default, must be verified against the applicable notification in force at the time of filing.

What to do next: 1) Compile documentary proof of the financial debt and the date and amount of default; 2) Identify and obtain written consent from a proposed interim resolution professional; 3) File Form 1 along with the application before the NCLT bench having jurisdiction; 4) Engage insolvency counsel to represent the creditor at the admission hearing.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Insolvency and Bankruptcy Code 2016, Section 7 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.