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The Insolvency and Bankruptcy Code, 2016 (IBC) fundamentally transformed the Indian insolvency landscape by establishing a time-bound, creditor-driven Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal (NCLT). For banks and financial institutions, IBC — particularly Section 7 — is a powerful complementary tool alongside SARFAESI and DRT proceedings.
Unified Chambers and Associates, led by Advocate Subodh Bajpai (LLM, MBA Finance XLRI), advises financial creditors on Section 7 strategy, CoC representation, and coordinating IBC with SARFAESI and DRT enforcement.
Section 7
Financial creditors (banks, NBFCs, bondholders) can file CIRP petition proving default of ₹1 crore or above. No prior demand notice required. Allottees under a real estate project and class creditors under Section 21(6A)(a)/(b) must file jointly — not less than one hundred of them or ten per cent of the class, whichever is less.
Section 9
Operational creditors must first send a demand notice under Section 8. If unpaid and no dispute raised within 10 days, Section 9 petition can be filed.
Section 14
Automatic stay on all suits, SARFAESI enforcement, DRT proceedings, and asset transfers upon CIRP admission. Continues until CIRP conclusion.
Section 17
Interim Resolution Professional (IRP) takes management control of the corporate debtor upon appointment. Board suspended during CIRP.
Section 21
CoC comprising all financial creditors. Makes all critical decisions by voting (66% threshold for resolution plan approval under Section 30(4), reduced from 75% by the 2018 amendment).
Section 29A
Lists, in clauses (a) to (j), the persons ineligible to submit a resolution plan, including those acting jointly or in concert with them — e.g. an undischarged insolvent, a wilful defaulter, and (clause (c)) a person with an account classified as NPA where at least one year has lapsed from classification till the commencement of the CIRP, curable by paying all overdue amounts with interest and charges before submitting the plan. There is no blanket bar on promoters. Controversial provision — extensive litigation.
Section 30
Resolution applicant submits plan to RP. CoC approves by 66% vote. NCLT approves if plan complies with IBC requirements.
Section 53
Priority of payments in liquidation — CIRP and liquidation costs; workmen's dues (24 months) equally with secured creditors who relinquish security; other employees (12 months); unsecured financial creditors; Government dues (2 years) equally with secured creditors' unpaid balance after enforcement; remaining debts; preference and equity shareholders.
Section 95
Creditors can initiate insolvency proceedings against personal guarantors of corporate debtors under Part III IBC — separate from corporate CIRP.
The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive legislation consolidating laws relating to insolvency and bankruptcy of companies, limited liability partnerships, partnership firms, and individuals in India. It introduced a time-bound Corporate Insolvency Resolution Process (CIRP) with a target of 330 days, replacing the earlier fragmented framework under the Companies Act, SICA, and the Presidency Towns Insolvency Act.
Section 7 is used by Financial Creditors (banks, NBFCs, debenture holders, home buyers) to initiate CIRP against a corporate debtor who has defaulted on a financial debt. Section 9 is used by Operational Creditors (suppliers, service providers, employees, workmen) to initiate CIRP for non-payment of operational debt. The threshold for both is ₹1 crore (as revised). The procedure and burden of proof differ — Section 7 requires only proof of debt and default; Section 9 requires service of a demand notice first.
Upon admission of a CIRP petition, the NCLT declares a moratorium under Section 14 of IBC. During the moratorium: (a) All suits, legal proceedings, and enforcement actions against the corporate debtor are stayed; (b) SARFAESI enforcement is stayed; (c) DRT proceedings are stayed; (d) Assets of the corporate debtor cannot be transferred or encumbered. The moratorium continues until CIRP concludes (resolution plan approval or liquidation order).
In liquidation under IBC, the waterfall under Section 53(1) provides: (a) insolvency resolution process costs and liquidation costs, paid in full first; (b) workmen's dues for the 24 months preceding the liquidation commencement date and debts owed to secured creditors who have relinquished their security under Section 52, ranking equally; (c) wages and unpaid dues of other employees for the preceding 12 months; (d) financial debts owed to unsecured creditors; (e) Central and State Government dues for the two years preceding the liquidation commencement date, ranking equally with debts owed to a secured creditor for any amount unpaid following enforcement of its security interest; (f) any remaining debts and dues; (g) preference shareholders; (h) equity shareholders or partners. Since 26 May 2026, where the security relinquished is worth less than the debt, the secured creditor ranks at (b) only "to the extent of the value of such security interest" and is an unsecured creditor for the balance (Explanation to Section 53(1)(b)).
SARFAESI enforcement against the secured assets of a corporate debtor is automatically stayed upon imposition of IBC moratorium under Section 14. SARFAESI enforcement can resume if the IBC application is dismissed. If the CIRP ends in liquidation, the position is different: before passing a liquidation order the NCLT must consider any Committee of Creditors application to restore the CIRP (Section 33(1A)), and the liquidation order itself declares a moratorium on suits and on enforcement of security interests, subject to Section 52 (Section 33(1)(iv)). In liquidation, a secured creditor may enforce only by electing under Section 52 to realise its security interest: in a liquidation initiated after 26 May 2026 it must inform the liquidator and identify the asset within fourteen days of the liquidation commencement date, failing which the security is deemed relinquished (Section 52(2)), and it must deduct the insolvency resolution process costs, liquidation costs and workmen's dues from the proceeds and transfer them to the liquidator (Section 52(8)). Strategic coordination between SARFAESI and IBC filings is critical.
Advocate Subodh Bajpai · Unified Chambers and Associates · Delhi High Court