Understanding the IBC Process at NCLT: A Practical Guide for Creditors

The IBC: A Paradigm Shift in Creditor Rights

The Insolvency and Bankruptcy Code, 2016 fundamentally changed the balance of power between creditors and defaulting debtors in India. Before the IBC, a creditor's journey to recovery was a multi-year odyssey through civil courts and High Courts — often outlasting the creditor's patience and sometimes the debtor's assets. The IBC introduced a time-bound, creditor-controlled process that has transformed debt recovery for institutional creditors. Subodh Bajpai, who has represented creditors before the NCLT Principal Bench, Delhi, shares a practitioner's guide to navigating this process.

Who Can File: Financial vs. Operational Creditors

Under the IBC, there are two types of creditors who can initiate insolvency proceedings against a corporate debtor. A Financial Creditor is an entity to whom a financial debt is owed — primarily banks, bond holders, and debenture holders. A financial creditor can file under Section 7 of the IBC. An Operational Creditor is an entity to whom an operational debt is owed — typically suppliers, vendors, service providers, and employees. An operational creditor files under Section 9, but only after issuing a demand notice and waiting 10 days for the debtor's response.

The Default Threshold

The minimum default amount required to trigger CIRP is ₹1 crore (increased from ₹1 lakh to protect small businesses from frivolous insolvency filings). This threshold applies to both financial and operational creditors.

Filing the Application: Documents Required

A complete NCLT application under Section 7 requires: certified copies of all loan documents (sanction letter, facility agreement, mortgage deed), the account statement showing the default and outstanding amount, a certificate from a financial institution confirming the default, a declaration by the creditor that no insolvency process is pending against the applicant, and a proposed Interim Resolution Professional (IRP) from the IBBI-registered insolvency professionals list.

The CIRP Process: 180 Days to Resolution

Once the NCLT admits the application, the CIRP begins. The Interim Resolution Professional (IRP) takes control of the debtor company within 7 days. The IRP identifies and invites Resolution Applicants (typically strategic or financial buyers) to submit Resolution Plans. The Committee of Creditors (CoC) — comprising all financial creditors — oversees the process and votes on the submitted Resolution Plans. The entire process must be completed within 180 days (extendable by 90 days with CoC approval). If no viable resolution plan is approved, the NCLT orders liquidation.

Liquidation: The Creditor's Last Resort

In liquidation, assets of the corporate debtor are sold and proceeds distributed in the priority waterfall established by the IBC: insolvency resolution costs first, then secured financial creditors, then unsecured financial creditors, then government dues, then operational creditors, and finally equity shareholders. Subodh Bajpai advises creditors that liquidation typically results in lower recovery than a going-concern resolution plan, and every effort should be made to attract viable resolution applicants before reaching this stage.