Corporate Insolvency Resolution Under the Insolvency and Bankruptcy Code

The corporate insolvency resolution process (CIRP) under Part II of the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016) is a time-bound, creditor-driven process for rescuing a company that has defaulted on a debt of at least one crore rupees. A financial creditor, an operational creditor or the company itself applies to the National Company Law Tribunal (NCLT), a resolution professional takes over management, and the committee of creditors decides whether to approve a resolution plan or let the company go into liquidation. Since 26 May 2026, most of the changes made by the IBC (Amendment) Act, 2026 are in force, so older notes and guides need updating.

This explainer is written for B.A. LL.B. and LL.B. students preparing for company law and insolvency papers, and for readers who simply want to know what happens when a company cannot pay its debts. Picture a small supplier in Nagercoil whose invoices to a Chennai manufacturer have gone unpaid for months. Whether that supplier can use the Code, and what it can expect, depends on the rules set out below.

Where does the law come from?

The Code itself is the main source, read with the regulations framed by the Insolvency and Bankruptcy Board of India (IBBI). Three points set the frame:

• Threshold: Section 4 fixes the minimum default at one lakh rupees, but allows the Central Government to raise it up to one crore rupees. Notification S.O. 1205(E) dated 24 March 2020 raised it to one crore rupees, so smaller defaults fall outside Part II.
• Overriding effect: Section 238 gives the Code priority over inconsistent laws.
• The 2026 amendment: The IBC (Amendment) Act, 2026 (Act 6 of 2026) received assent on 6 April 2026. By notification S.O. 2625(E) dated 22 May 2026, most of its provisions came into force on 26 May 2026, but not all. The new creditor-initiated insolvency resolution process (Chapter IV-A) and the group insolvency chapter (Chapter VA) were not among the provisions notified, so check the IBBI website before treating them as live law.

Who can start the process, and how?

1. Financial creditor (section 7): a person owed a "financial debt", meaning money disbursed against the consideration for the time value of money (section 5(8)), such as a bank loan. It files directly with the NCLT once a default occurs. Homebuyers and similar classes must file jointly, with at least one hundred allottees or ten per cent of them, whichever is less.
2. Operational creditor (sections 8 and 9): a person owed money for goods, services, employment or government dues (section 5(21)). It must first serve a demand notice. The company has ten days to pay or point to an existing dispute. Only if neither happens can the creditor apply under section 9.
3. Corporate applicant (section 10): the company itself, through its board or members.

Applications go to the NCLT bench with territorial jurisdiction over the company's registered office (section 60). NCLT has a bench in Chennai.

What changed at the admission stage in 2026?

The substituted section 7(5) now says the NCLT shall admit or reject a financial creditor's application within fourteen days. Before rejecting, it must give the applicant seven days to cure defects. If it misses the fourteen days, it must record reasons for the delay in writing. Sections 9 and 10 carry the same fourteen-day rule.

The new Explanation I to section 7(5) matters most for exams. It states that once the conditions in clause (a) are met (a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional), "no other ground shall be considered to reject" the application. Explanation II makes a default record from an information utility, filed by a financial institution, sufficient proof of default.

What happens after admission?

• Moratorium (section 14): on the insolvency commencement date, the NCLT declares a moratorium, which bars suits, recovery and enforcement of security against the company.
• Resolution professional: an interim resolution professional takes charge, collects claims and forms the committee of creditors.
• Eligibility of bidders (section 29A): certain persons, such as those whose accounts have been non-performing assets for a year or more, cannot submit a resolution plan.
• Approval: the committee of creditors approves a plan by at least sixty-six per cent of the voting share (section 30(4)). Since 2026 it must record reasons. Dissenting financial creditors must receive at least the lower of their liquidation value or their entitlement under the plan's distribution (new section 30(2)(ba)). The NCLT must then decide on the plan within thirty days (section 31(2A)).
• Time limit (section 12): 180 days from admission, extendable once by up to 90 days on a sixty-six per cent vote, with an outer limit of 330 days including litigation.
• Withdrawal (section 12A, substituted in 2026): needs ninety per cent of the committee's voting share, is not allowed before the committee is formed or after the first invitation for resolution plans, and must be decided within thirty days.

If no plan is approved, the company goes into liquidation under section 33.

Which Supreme Court cases should you know?

• Innoventive Industries Ltd. v. ICICI Bank (2017): the first major reading of the Code, stressing speed and a time-bound, collective process.
• Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2017): an operational creditor's application fails if a dispute existed before the demand notice was received.
• Swiss Ribbons Pvt. Ltd. v. Union of India (2019): the Court upheld the Code's constitutional validity against challenges to several provisions, including section 29A and the classification of creditors.
• K. Sashidhar v. Indian Overseas Bank (2019) and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2019): the commercial wisdom of the committee of creditors is largely beyond judicial review, and all creditors need not be treated identically.
• Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss ARC Ltd. (2021): once a plan is approved, claims not included in it, including government dues, stand extinguished. A successful bidder should not face surprise claims. The new section 31(6) now puts this into the statute.
• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022): held that the word "may" in section 7(5)(a) gave the NCLT discretion to refuse admission even where default was proved. M. Suresh Kumar Reddy v. Canara Bank (2023) is a later Supreme Court decision on the same provision that you should read alongside it. Read both against the 2026 Explanation I, which appears to close that discretion.

I could not confirm a leading Madras High Court ruling on CIRP for this article. Most CIRP disputes go from the NCLT to the NCLAT and then to the Supreme Court, so High Court rulings are rarer here.

How should you write about CIRP in an exam?

1. Open with the purpose: time-bound resolution and maximising asset value.
2. State the threshold and the three routes to filing, with section numbers.
3. Walk through the stages in order: admission, moratorium, resolution professional, committee of creditors, plan approval, liquidation.
4. Cite at least three cases accurately, with years.
5. End with the 2026 amendment, saying clearly which parts were notified on 26 May 2026 and which were not.

Students who want to see how debt disputes affect ordinary people can also spend time at the college legal aid clinic.

Sources

• IBC (Amendment) Act, 2026 (Act 6 of 2026): Gazette text of the amendment.
• Notification S.O. 2625(E): brings most of the 2026 amendment into force from 26 May 2026.
• Notification S.O. 1205(E), 24 March 2020: raises the section 4 threshold to one crore rupees.
• IBBI: The Code and amendments: official list of the Code, amendment Acts and consolidated texts.
• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022): Supreme Court judgment on section 7(5).
• IBBI: Supreme Court orders: searchable collection of Supreme Court IBC judgments.