Who can trigger the process, and how
A financial creditor, typically a lender, can apply under Section 7 of the Insolvency and Bankruptcy Code 2016 directly to the National Company Law Tribunal on establishing a default, generally supported by records from an information utility or other clear evidence of the debt and default. An operational creditor, such as a supplier or service provider, must first send a demand notice under Section 8; only if the company does not pay, and does not raise a pre-existing dispute about the debt within the notice period, can the operational creditor then apply under Section 9. A genuine, pre-existing dispute about the debt is a real obstacle to admission for an operational creditor, and companies frequently rely on this to resist applications.
The minimum default threshold
An application generally cannot be filed unless the default is at least one crore rupees, a threshold that was raised some years ago from a much lower figure and applies to most corporate debtors. Smaller defaults, however genuine, fall outside this route entirely and must be pursued through a civil suit, arbitration or, where the debt is secured, SARFAESI or the Debts Recovery Tribunal instead.
Admission and the moratorium
Once the Tribunal admits an application, it appoints an interim resolution professional and, under Section 14, imposes a moratorium that suspends most suits, arbitration and recovery proceedings against the company, and prevents it from transferring or disposing of its assets. Control effectively passes to the resolution professional, and later to a committee of creditors formed from the company’s financial creditors, who decide whether to approve a resolution plan submitted by a prospective resolver within the timeline set by the Code, or move toward liquidation if no viable plan emerges.
Why the Code is not a recovery shortcut
Courts, including the Supreme Court, have repeatedly cautioned that the Code exists to rescue and resolve viable businesses in financial distress, not to serve as a pressure tactic or a substitute for ordinary debt recovery by a creditor who simply wants payment. An application filed principally to intimidate a solvent company into paying, rather than because the company is genuinely unable to pay, risks being dismissed and can expose the applicant to costs. For a creditor with a straightforward, undisputed claim against a company that is otherwise solvent, a civil suit, arbitration or a SARFAESI action, where security exists, is usually the more appropriate route.
