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 would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Insolvency and Bankruptcy Code 2016, Section 7 is the starting point for this corporate law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

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 this means for you: 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.

Where the facts are disputed, what usually decides a section 7 ibc financial creditor matter is the paper trail — dated complaints, acknowledgments and written replies under Insolvency and Bankruptcy Code 2016, Section 7. 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 corporate law.