Bankruptcy and Insolvency Advice for Creditors, Debtors and Guarantors

Should I file under the IBC or go to DRT, a civil court or arbitration?

File under the IBC only if you would be satisfied with a collective outcome, because that is what the Code delivers. An application under section 7 or 9 asks the NCLT to put the whole company into a resolution process in which every creditor files a claim, a committee of financial creditors takes the decisions, and you are paid according to a resolution plan or the liquidation order of priority. If what you want is your own money with interest, the better route is often a recovery suit, an Order 37 summary suit, an arbitration, a DRT application if you are a bank, or a cheque bounce complaint.

The IBC still makes sense in three situations. The debt is undisputed and large, and the company can pay but is choosing not to; the threat of losing the company often brings a promoter to the table within weeks. The company is genuinely insolvent and you would rather have a professional take control than watch assets disappear. Or you are a financial creditor with security and want a process that binds the other creditors too.

Advocate B.K. Singh's first question to any creditor is simple: if the company went into liquidation tomorrow, what would you get? If the honest answer is very little, the IBC is a lever for settlement, not a route to payment, and you should plan for that. Banks and financial institutions have one more choice: the Debts Recovery Tribunal for claims of ₹20 lakh and above, or enforcement of security under SARFAESI, both of which run against the borrower and guarantors without handing control of the company to anyone. Our DRT lawyer in Delhi page explains that side.

IBC compared with other recovery routes

Some of these can run together. A supplier can send a section 8 demand notice while a cheque case is pending, and a lender can pursue a guarantor in DRT while the company is in CIRP. What you cannot do is keep suing the company once a moratorium is in force. Our cheque bounce and commercial court pages cover those routes.

What does insolvency under the IBC actually mean for a company?

It means that, for a limited time, the company's fate is decided by its creditors instead of its promoters. When the NCLT admits an application, it appoints an interim resolution professional, the powers of the board are suspended, and a moratorium under section 14 stops suits, recovery and enforcement against the company. The professional runs the business as a going concern, collects claims, forms a committee of creditors and invites resolution plans from anyone eligible to bid.

If the committee approves a plan with 66 per cent of the voting share and the NCLT accepts it under section 31, the plan binds everyone: creditors, employees, guarantors and government authorities. Claims not covered by the plan are generally extinguished. If no plan is approved in time, the company goes into liquidation under section 33 and its assets are sold. Promoters who expect to keep the company through this process are often surprised, because section 29A bars many of them from bidding.

So the IBC is a serious step for both sides. For a creditor it is a way to force a decision. For a promoter it is the point at which the company may leave the family for good. Advice taken before the first notice is sent, by either side, is usually worth more than anything done after admission.

Sections 7, 9 and 10: who files and what they must show

There are three ways into the corporate insolvency resolution process. The minimum default for each is ₹1 crore, raised from ₹1 lakh in March 2020, and the application goes to the NCLT bench that has jurisdiction over the company's registered office.

How we prepare a creditor's insolvency petition

Most creditor petitions that fail do so on papers that could have been fixed before filing. This is the order in which we work.

1. Check the debt and the limitation

   We read the loan agreement, purchase orders, invoices, ledgers and correspondence to classify the debt as financial or operational and fix the date of default. An IBC application must generally be filed within three years of default, though written acknowledgements of debt, including entries in the company's balance sheets, can extend that period.

2. Look for a dispute trail

   For operational debts we search the emails and letters for anything the company could call a pre-existing dispute: complaints about quality, short supply, delay or rates. If we find it, we tell you plainly that a section 9 petition may fail and suggest a suit or arbitration instead.

3. Send the right notice

   An operational creditor sends a section 8 notice to the registered office and to the email address on the MCA record, keeping proof of delivery. A financial creditor usually issues a loan recall notice and records the default with an information utility.

4. Draft the petition and annexures

   We prepare Form 1 or Form 5 with a clear list of dates, the computation of the claim, the documents proving debt and default, and the written consent of the proposed insolvency professional. Advocate Sadhna Singh checks every annexure against the index, because missing pages are the usual reason for defects at the registry.

5. File, serve and press for admission

   The petition is e-filed with the NCLT, a copy is served on the company, and the matter is listed. We argue admission and deal with objections, and where the company offers to pay, we record the settlement properly instead of simply withdrawing.

How the Delhi benches list and hear these cases, and how homebuyer and guarantor petitions are run, is covered on the insolvency lawyer in Delhi page.

I have received a section 8 demand notice. What should I do in 10 days?

Answer it in writing within 10 days. If the debt is genuinely disputed, the reply should set out the dispute and attach the earlier emails, letters, quality complaints, debit notes or the plaint of any pending suit or arbitration that show the dispute existed before the notice. A dispute invented for the first time in the reply rarely survives, but a real one, properly documented, usually ends the section 9 route.

If the money is owed, use the 10 days to propose a payment schedule. An operational creditor's real aim is payment, and most will accept a written settlement with dated instalments over a petition that could take months. Pay what you promise. A broken settlement followed by a fresh notice leaves you with no story to tell the NCLT.

Check the notice itself. It should come from the creditor or a person authorised by it, it should reach the registered office, and the amount should be an operational debt. Defects in the notice can be argued later, but they are a weak defence on their own. In Advocate B.K. Singh's view, the reply to a demand notice is the cheapest piece of insolvency defence a company will ever buy, so it should be drafted with the future petition in mind.

Should my company file for insolvency under section 10?

File under section 10 only when the business has a future that its present debt is preventing, and the promoters accept that someone else may end up owning it. The process gives the company a moratorium against all creditors at once and a structured way to find an investor. For a company facing a dozen recovery suits, SARFAESI notices and cheque cases at the same time, that can be the only way to stop the bleeding.

The costs are real. The board is suspended on admission and the resolution professional takes over. Promoters whose accounts have been non-performing assets for a year or more are barred by section 29A from submitting a plan unless they clear the overdue amounts, though section 240A relaxes this for MSMEs. The professional will examine transactions of the past years, and preferential or undervalued deals with related parties can be reversed.

Before a section 10 filing, we look at whether a negotiated restructuring with the main lenders, a one-time settlement, a pre-pack for an MSME, or voluntary liquidation for a solvent company that simply wants to close, would serve better.

What happens once the CIRP starts?

From the date of admission, the clock runs. The interim resolution professional makes a public announcement inviting claims, takes control of the company's bank accounts and records, and the board's powers are suspended. Creditors file claims in the prescribed forms with supporting documents. The public announcement gives the last date, and although late claims are sometimes admitted, you should not rely on that.

The committee of creditors is made up of the financial creditors, excluding related parties, with votes in proportion to their debt. It decides whether to keep or replace the professional, approves major decisions and finally votes on resolution plans. Operational creditors, workers, and homebuyers through their authorised representative take part in the ways the Code allows, but the financial creditors decide.

The process is meant to finish in 180 days, extendable by 90, with an outer limit of 330 days including time lost to litigation. In practice many processes run longer because of challenges before the NCLT and the NCLAT. If no plan is approved, or the approved plan is rejected, the company goes into liquidation.

What the moratorium stops, and what it does not

• Suits against the company stop. No new suit or proceeding can be started and pending ones cannot continue, including arbitrations and execution of decrees.
• Security cannot be enforced. Banks cannot take possession under SARFAESI or sell the company's mortgaged property while the moratorium lasts.
• The company cannot dispose of its assets. Only the resolution professional can deal with assets, in the ordinary course or with the committee's approval.
• Essential supplies continue. Electricity, water and similar supplies cannot be cut off for past dues during the moratorium.
• Guarantors are not protected. Section 14(3) makes clear that the moratorium does not cover personal guarantors or other sureties, so a bank can proceed against a promoter's own property.
• Cheque cases against directors usually continue. A section 138 complaint against the company is generally held up, but proceedings against the directors who signed or were in charge normally go on.
• Criminal investigations are not stopped. Police, EOW, CBI or ED investigations continue, because the moratorium is about recovery, not crime.

Can the promoter keep the company or buy it back?

Sometimes, but not as easily as most promoters assume. Section 29A disqualifies a long list of people from submitting resolution plans, including promoters and connected persons of a company whose account has been a non-performing asset for a year or more, wilful defaulters, and people convicted of certain offences. An MSME promoter is exempt from the NPA bar under section 240A, which is why the MSME route deserves attention before anything is filed.

For other promoters, the realistic way to keep the company is to settle before admission or, within the narrow window the Code now allows, to settle after admission and withdraw under section 12A. A plan from an outsider that the promoter has quietly arranged will be tested closely for connection, and the committee is entitled to prefer a higher bid.

How do you settle an insolvency case? Section 12A explained

Before the NCLT admits the petition, settlement is simple: the debtor pays or agrees a schedule, and the creditor withdraws with the tribunal's permission. Many section 9 petitions end this way. Draft the settlement so that a default revives the claim, set out the instalments and bank details, and ask for the terms to be recorded in the order.

After admission, the CIRP is no longer a private matter between two parties. Section 12A allows withdrawal only with the approval of 90 per cent of the voting share of the committee of creditors. After the 2026 amendment that window is narrow: withdrawal can be sought only after the committee is constituted and before the first invitation for resolution plans is issued, and the NCLT is expected to decide within 30 days. A promoter who wants to settle with all financial creditors therefore has to move in the first weeks of the process. Check the current regulations for the form and timing, because the procedure changed with the amendment.

A settlement after admission must also cover the costs of the process and the fees of the resolution professional. The financial creditors whose approval is needed will want to be paid, or offered something credible, not just the creditor who filed.

Pre-packaged insolvency for MSMEs under section 54A

A pre-pack lets a micro, small or medium enterprise in default negotiate a resolution plan with its financial creditors first and then ask the NCLT to approve it, while the existing management keeps running the business. It is open to a corporate debtor registered as an MSME, for a default of ₹10 lakh or more, that has not been through a pre-pack or CIRP in the previous three years and is itself eligible under section 29A, read with the MSME relaxation.

The debtor prepares a base resolution plan, obtains a declaration from a majority of its directors and a special resolution from its shareholders, and must get the approval of a prescribed share of its unrelated financial creditors before filing. The 2026 amendment lowered that approval threshold, so confirm the current figure before you plan around it. Once the NCLT admits the application, the process must close within 120 days, and a plan that impairs operational creditors faces a Swiss challenge, in which outside bidders may better it.

The pre-pack is underused, mostly because lenders are cautious and because many MSMEs come to a lawyer only after a section 7 petition is already on file. If your company is an MSME and you can see a default coming, the time to discuss a pre-pack is before the bank does.

My bank has called on me as personal guarantor. Can it take me to the NCLT?

Yes. Since December 2019 the IBC's provisions on personal guarantors to corporate debtors have been in force, and a creditor can file against you under section 95 before the NCLT that deals with the company. You can also apply yourself under section 94. A resolution professional is appointed, examines the claims and your finances, and reports to the tribunal, which then decides whether to admit the application. Once it is admitted, a moratorium applies to your debts and the creditors consider a repayment plan.

Two points are often misunderstood. First, your liability as guarantor is co-extensive with the company's, and approval of a resolution plan for the company does not by itself discharge you; lenders can still pursue you for the unpaid balance. Second, the interim moratorium that used to begin as soon as a guarantor's case was filed was used by many guarantors to hold off DRT and SARFAESI action. The 2026 amendment changed how that interim protection works, so check the current position before treating it as a shield.

If a repayment plan is approved by the creditors and the NCLT, you pay under it and are discharged at the end. If it fails, the creditors can move for bankruptcy, which brings in a bankruptcy trustee, restrictions on your dealings and disqualifications. For many guarantors a negotiated settlement with the lender, through a one-time settlement or a structured sale of property, is the better outcome. The lender side of these cases often runs in DRT, covered under banking and insurance laws.

Can an individual or a partnership firm file for bankruptcy in India?

Not under the IBC yet, except personal guarantors of companies. The parts of the Code on insolvency and bankruptcy of other individuals and of partnership firms have been enacted but not brought into force, so a salaried person with credit card and personal loan debt, or a trader running a proprietorship, cannot file for a fresh start under it today. Check the current notification, because this may change.

For such people the practical answer is negotiation: one-time settlements with banks, restructuring where the lender offers it, complaints to the RBI Ombudsman about recovery agents who cross the line, and defending recovery suits on their merits. We advise on those, and we say frankly when a settlement is the best that can be done.

Liquidation and voluntary closure of a company

Liquidation follows when the committee of creditors decides to liquidate, when no plan is approved in time, or when an approved plan fails. The NCLT passes an order under section 33, a liquidator takes charge, claims are collected again, and the assets are sold, sometimes as a going concern. Proceeds are distributed in the order fixed by section 53: process costs first, then workmen's dues and secured creditors who have given up their security, then other employees, unsecured financial creditors, government dues and the shortfall of secured creditors, with shareholders last. The 2026 amendment reworked parts of the liquidation chapter, including the committee's power to supervise the liquidation and replace the liquidator.

A solvent company that simply wants to close can choose voluntary liquidation under section 59. The directors file a declaration of solvency, the shareholders pass a special resolution, creditors holding two thirds of the debt approve if there are debts, and a liquidator winds up the affairs and applies to the NCLT for dissolution. For a dormant company with no assets or liabilities, striking off through the Registrar of Companies is usually cheaper and quicker.

Directors' exposure: avoidance transactions and wrongful trading

Insolvency puts the company's recent past under a professional's eye. The resolution professional or liquidator must look for preferential transactions (section 43), undervalued transactions (section 45), transactions meant to defraud creditors, and extortionate credit (section 50), and apply to the NCLT to reverse them. The 2026 amendment redefined some look-back periods and lets creditors apply where the professional fails to act.

Directors can also be ordered to contribute to the company's assets under section 66 for fraudulent trading, or for wrongful trading where they knew, or ought to have known, that insolvency could not be avoided and did not take care to reduce losses to creditors. A director who sees trouble coming should keep board minutes that show the options considered, take advice in writing, and stop paying favoured creditors or related parties. Serious frauds can also lead to an investigation by the Serious Fraud Investigation Office, covered on our SFIO case lawyer page.

Papers we need to advise you

Bring copies, not originals, to the first meeting. If the papers are scattered, bring what you have and we will tell you what is missing.

How long does an insolvency case take, and what does it cost?

Admission of a contested section 7 or 9 petition at the NCLT in Delhi usually takes some months, despite the 14 day target in the Code. A section 9 matter that settles can close in two or three hearings. A full CIRP, from admission to an approved plan, has an outer statutory limit of 330 days but often runs beyond it when claims, plans or the process itself are challenged at the NCLAT.

Our fees are discussed at the first meeting and agreed in writing, stage by stage: advice and notice, petition and admission, and participation in the CIRP. NCLT filing fees, the insolvency professional's fees and the costs of the process, which the applicant may have to fund at the start, are separate. Ask early who will fund the interim resolution professional, because processes without funding stall.

When the IBC is the wrong choice

Do not use the IBC to recover a small or disputed sum from a company that has a real answer to your claim. The petition will fail on the dispute, and you will have lost months that could have gone into a suit or an arbitration. Do not use it against a company with no assets and no business, where liquidation will yield nothing and you may be asked to fund the process. And do not use it as a debtor to escape a single creditor, because a moratorium that costs you your company is an expensive way to delay one case.

The IBC also does not suit family or partnership quarrels dressed up as debt. Disputes about control of a company belong in an oppression and mismanagement petition, explained on our NCLT lawyer in Delhi page, and disputes among partners belong in a civil suit or an arbitration.

What to do this week

• Work out the date of default and check that three years have not passed
• Collect every email and letter that mentions the debt or a complaint
• If you received a section 8 notice, mark the tenth day and reply before it
• If you are a guarantor, find the document you signed and every notice from the bank
• Do not transfer property, pay related parties or sign new security without advice
• Write a one-page note of what you want: payment, time, control or closure
• Send the papers through our online enquiry and fix a meeting

How we handle insolvency advice

Advocate B.K. Singh reads the core documents himself and gives a written view on the route, the risks and the likely course before anything is filed. Advocate Sadhna Singh runs the matter day to day: notices, annexures, client updates and the calendar of NCLT dates. Where a case needs a chartered accountant, a registered valuer or an insolvency professional, we work with independent professionals whom you appoint directly. You can read more about Advocate B.K. Singh and the firm's other consultancy services.