What Section 7 requires
A financial creditor — a person to whom a financial debt is owed — may apply to the NCLT to initiate the corporate insolvency resolution process (CIRP) of a corporate debtor when a default of at least ₹1 crore has occurred. A financial debt is a debt disbursed against the consideration for the time value of money: loans, debentures, lease finance, and — by the 2018 amendment — amounts raised from allottees of real-estate projects, who apply jointly in the numbers prescribed (100 allottees or 10% of allottees of the project, whichever is less).
The application (Form 1 under the Adjudicating Authority Rules, 2016) must annex the record of default — the information utility record (NeSL) or the financial contract, account statements and the bank’s classification — and propose an interim resolution professional.
The NCLT’s inquiry
The NCLT ascertains the existence of a default from the records of the information utility or other evidence, and must decide within 14 days of receipt (a timeline treated as directory). If satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed IRP, it admits the application; otherwise it rejects it, after giving the applicant seven days to rectify defects.
Innoventive Industries v. ICICI Bank (2017) established that the inquiry is confined to debt and default; but Vidarbha Industries Power Ltd. v. Axis Bank (2022) recognised that the NCLT has a discretion, in appropriate cases, to consider the corporate debtor’s objections and overall position before admitting, and the Supreme Court has since clarified that this discretion is narrow and does not permit the NCLT to overlook a proven default.
Grounds on which corporate debtors resist admission
- No default, or default below the threshold — the amount claimed includes disputed charges, or the account was regularised before the application.
- Limitation — the application is filed more than three years after the date of default, without an acknowledgment of debt (a balance sheet entry, a restructuring proposal, a one-time settlement offer or part payment can extend limitation under Sections 18 and 19 of the Limitation Act — Dena Bank v. C. Shivakumar Reddy (2021)).
- Not a financial debt — the transaction lacks the time value of money (for example, certain advances or security deposits).
- Defective application — missing documents, incorrect authorisation, or a proposed IRP who is ineligible.
- Settlement in progress — the NCLT may adjourn or, on a settlement before admission, permit withdrawal.
These objections must be raised by a reply with documents; the NCLT does not conduct a trial.
Home buyers
Allottees of a real-estate project are financial creditors and can file jointly under Section 7 where the developer has defaulted on possession or refund. The application must satisfy the numerical threshold and should be supported by the builder-buyer agreements, payment receipts and the RERA record; a strong Section 7 application by allottees often produces a settlement or a resolution plan that completes the project.
Settlement and withdrawal
Before admission, the applicant may withdraw with the NCLT’s permission. After admission but before the committee of creditors is constituted, withdrawal is permitted on an application through the IRP; after the CoC is constituted, Section 12A requires the approval of 90% of the CoC by voting share. Settlement terms should be recorded so that the withdrawal is not challenged by other creditors.
What admission means
On admission, a moratorium under Section 14 stops all suits, executions and recovery actions against the corporate debtor; the board is suspended and the IRP takes over management; a public announcement invites claims; the CoC is constituted from financial creditors; and the process moves to resolution plans or, if none is approved within the statutory period (180 days, extendable to 330), liquidation. Directors and promoters should take advice immediately on their duties, on personal guarantees (which the moratorium does not protect), and on avoidance transactions that the RP may examine.
Appeals
An order admitting or rejecting a Section 7 application is appealable to the NCLAT within 30 days, extendable by 15 days on sufficient cause, and further to the Supreme Court under Section 62 within 45 days on a question of law.
Documents to organise
Creditor — sanction letter, loan agreement, security documents, account statements, NPA classification, NeSL record of default, board resolution authorising the application, the proposed IRP’s written consent (Form 2).
Corporate debtor — the same loan record from its side; correspondence on restructuring, settlement or disputes; evidence of payments and of any acknowledgment relied on for limitation; financial statements; and details of pending proceedings.
Frequently asked questions
Can a Section 7 application be filed for an amount below ₹1 crore?
No. The threshold of ₹1 crore, notified in March 2020, applies to applications filed after that date; multiple creditors may join to meet it in some circumstances, subject to the law on joint applications.
Does a pending civil suit or arbitration stop a Section 7 application?
No. Unlike Section 9, a pre-existing dispute is not a defence to a financial creditor’s application; the questions are debt and default.
Is the corporate debtor entitled to a hearing before admission?
Yes. The NCLT issues notice and hears the corporate debtor’s objections on the record before admitting the application, though the scope is confined to debt, default and maintainability.
Can the promoters submit a resolution plan for their own company?
Section 29A disqualifies persons whose accounts are NPAs for more than a year, wilful defaulters and related persons, among others, from submitting plans; MSME promoters have a limited exemption.
Talk about your matter
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