The Insolvency and Bankruptcy Code 2016 has, in less than a decade, transformed how India resolves corporate distress. The Code replaced a patchwork of overlapping statutes with a unified framework — time-bound, creditor-led, court-supervised.
For creditors owed money by a company that has stopped paying, for directors of a company facing genuine distress, and for operational partners contemplating action — a practical toolkit from the corporate restructuring practice.
The Foundational Logic
Under the Code, insolvency is initiated by application to the National Company Law Tribunal (NCLT). The petitioner may be a financial creditor (banks, debenture-holders), an operational creditor (suppliers, employees, government), or the corporate debtor itself.
Upon admission, a moratorium descends: all litigation freezes, no enforcement actions may proceed, the board is suspended, and an Interim Resolution Professional (IRP) takes operational control. The Committee of Creditors (CoC) is constituted, financial creditors hold the votes, and the company's fate — resolution plan or liquidation — must be decided within 180 days (extendable by 90 more).
For Creditors — When to File
The threshold for operational creditors is now Rs. 1 crore (raised from Rs. 1 lakh in 2020). For financial creditors, Rs. 1 crore also applies, but a default of any amount may suffice if other conditions are met.
Before filing under the IBC, ask: is the debt undisputed? If the corporate debtor has raised a genuine dispute (litigation, arbitration, commercial disagreement) before the demand notice, IBC is the wrong forum — the NCLT will reject the petition. Civil recovery or arbitration is the right route.
The IBC is not a debt collection mechanism. It is a corporate resolution mechanism that happens to result in debt repayment. The distinction matters — wrong filing wastes a year and signals weakness to other creditors.
For Directors — The Distress Window
For directors of a genuinely distressed company, the IBC offers a corporate-debtor-initiated path. Filing under Section 10 admits insolvency upfront, prevents creditor land-grab, and centralises the resolution.
The window is narrow. Once admitted, control is lost — the IRP assumes operational management. Directors continue in advisory capacity but cannot transact business. Personal guarantees survive the company's resolution; directors who guaranteed bank debt remain liable post-CIRP.
The MSME-specific Pre-Pack Insolvency Resolution Process, introduced in 2021, allows MSME corporate debtors to propose a resolution plan to creditors before formal filing — preserving going-concern status and management continuity if approved.
For Operational Partners — The Section 8 Notice
Before filing, an operational creditor must serve a Section 8 demand notice. The debtor has 10 days to either pay or raise a dispute. The dispute, if raised, must be \"pre-existing\" — not concocted post-notice. The standard is exacting; lower court precedents on what qualifies as a pre-existing dispute have been settled by the Supreme Court (Mobilox v Kirusa, 2018).
NCLAT and Beyond
From the NCLT, appeals lie to the NCLAT — within 30 days, on questions of law and fact. From NCLAT to the Supreme Court — within 45 days, on questions of law only. The appellate ladder is engaged at every stage of the process: admission, CoC decisions, resolution plan approval, liquidation orders.
Senior counsel briefing is the norm in significant matters. Our practice handles both creditor-side and debtor-side mandates, with a strict separation when both sides of the same matter are involved.
When IBC Is Not the Answer
For disputed debts: arbitration or civil recovery. For partnership disputes: arbitration or partition. For oppression and mismanagement of a healthy company: NCLT under Section 241–242 of the Companies Act, not IBC. For winding up on just-and-equitable grounds: NCLT under Section 271, not IBC. The IBC is one of several tools; choosing the right one is half the case.