Insolvency — IBC, NCLT and personal guarantors

Corporate insolvency

Financial creditors — Section 7. Banks, NBFCs, home buyers (in the prescribed numbers) and other financial creditors apply to the NCLT on proof of debt and default of at least ₹1 crore. The record of default with an information utility, the sanction and security documents and the account statements decide admission; the NCLT has limited discretion once debt and default are shown, but must consider the debtor’s objections (Vidarbha Industries Power Ltd. v. Axis Bank (2022)).

Operational creditors — Section 9. Suppliers, service providers and employees first serve a demand notice under Section 8; the corporate debtor has 10 days to pay or to raise a pre-existing dispute. A genuine dispute raised before the notice — a pending suit, arbitration or documented quality dispute — defeats the application (Mobilox Innovations v. Kirusa Software (2017)). The chambers drafts and replies to Section 8 notices with this test in mind.

Corporate debtors — defence and strategy. Contesting admission on grounds of dispute, limitation, threshold, or absence of default; negotiating settlement and withdrawal under Section 12A (with 90% approval of the committee of creditors after constitution); protecting the directors and the business through the moratorium; and representing suspended management before the resolution professional and the CoC.

After admission. Filing and pursuing claims before the interim resolution professional, challenging rejection of claims, objecting to resolution plans that treat a class unfairly, avoidance applications, and liquidation proceedings.

Personal guarantors — Section 95

Since the notification of the personal-guarantor provisions in 2019 (upheld in Lalit Kumar Jain v. Union of India (2021) and Dilip B. Jiwrajka v. Union of India (2023)), a creditor may initiate insolvency against a personal guarantor to a corporate debtor before the NCLT. The sequence:

1. A demand notice to the guarantor followed by an application under Section 95 (by the creditor) or Section 94 (by the guarantor).
2. An interim moratorium under Section 96 begins on the date of filing — all pending legal actions in respect of the debt are stayed and no fresh action may be initiated.
3. The NCLT appoints a resolution professional (Section 97), who examines the application and submits a report within 10 days (Section 99) recommending admission or rejection; the guarantor’s reply to the RP at this stage is critical.
4. The NCLT admits or rejects within 14 days (Section 100); on admission a moratorium under Section 101 begins, and the guarantor must propose a repayment plan (Section 105) with the RP.
5. If the plan fails, the creditor may apply for bankruptcy of the guarantor.

For guarantors the chambers prepares the reply on limitation, the extent and validity of the guarantee, discharge, and the correctness of the amount; negotiates repayment plans; and pursues appeals. For creditors it prepares the demand notice and application with the documents the RP will need.

Appeals

Orders of the NCLT are appealable to the NCLAT under Section 61 within 30 days (extendable by a maximum of 15 days on sufficient cause), and orders of the NCLAT to the Supreme Court under Section 62 within 45 days on a question of law. The chambers prepares the appeal paper book and appears before the NCLAT, New Delhi.

Documents to keep ready

• Loan agreements, sanction letters, guarantee deeds, security documents
• Account statements, record of default from the information utility, and the NPA or default communication
• Invoices, purchase orders, delivery proof and the ledger (for operational claims)
• Demand notices under Section 8 or to the guarantor, and replies
• Any pending suits, arbitrations or settlement correspondence evidencing a dispute
• Corporate records — board resolutions, financial statements, MCA filings

Frequently asked questions

What is the minimum default for filing under the IBC?

The threshold for initiating corporate insolvency is a default of ₹1 crore (raised from ₹1 lakh in 2020). Personal-guarantor applications under Section 95 are linked to the debt guaranteed and have a separate threshold of ₹1,000.

Does the moratorium in the company’s insolvency protect the personal guarantor?

No. The Supreme Court in State Bank of India v. V. Ramakrishnan (2018) held that the Section 14 moratorium does not extend to personal guarantors; creditors may proceed against guarantors under SARFAESI, the RDB Act and Section 95 IBC simultaneously.

Can an operational creditor file if the debt is disputed?

Only if there is no pre-existing genuine dispute. A dispute raised for the first time after the demand notice, or one that is a moonshine defence, does not bar admission; a documented dispute raised earlier does.

Can the parties settle after the NCLT admits the application?

Yes, through withdrawal under Section 12A with the approval of 90% of the committee of creditors, or, before the CoC is constituted, by an application to the NCLT. Settlement before admission is simpler.

Is limitation applicable to IBC applications?

Yes. The Limitation Act applies to applications under Sections 7, 9 and 95 (three years from the date of default, extendable by acknowledgement of debt or part payment), following B.K. Educational Services v. Parag Gupta (2018) and later decisions.

This page is general information about the area of practice, not legal advice. Last reviewed: 2026-09-22