Who Can File Insolvency: IBC Sections 7, 9 and 10

When a company stops paying, its lenders, suppliers and sometimes the company itself begin to ask the same question: who can file insolvency, and on what footing? The Insolvency and Bankruptcy Code, 2016 (IBC) opens three doors into the corporate insolvency resolution process (CIRP) before the National Company Law Tribunal (NCLT). Section 7 is for financial creditors, Section 9 for operational creditors and Section 10 for the corporate debtor itself. Each route has its own preconditions, its own common defences and its own pitfalls. Choosing the wrong door, or walking through the right one unprepared, can lead to dismissal at the threshold.

The common threshold: a default of at least Rs 1 crore

Section 4 of the IBC provides that Part II, which governs corporate insolvency, applies where the minimum amount of default is Rs 1 crore. The Central Government raised the threshold from Rs 1 lakh to Rs 1 crore by notification dated 24 March 2020. The threshold applies to all three routes.

“Default” is defined in Section 3(12) as non-payment of a debt, in whole or in part, when it has become due and payable and is not paid by the debtor or the corporate debtor. The applicant must therefore show not only that money is owed, but that it is due and has not been paid.

Section 7: financial creditors

A financial creditor is a person to whom a financial debt is owed, that is, a debt disbursed against the consideration for the time value of money. Banks and financial institutions are the obvious examples, but the category also includes holders of debentures, lessors under finance leases, and, since the 2018 amendments, allottees in real estate projects, whose payments are deemed to have the commercial effect of a borrowing.

A financial creditor may apply alone or jointly with other financial creditors. The application must show the existence of the financial debt and a default of at least Rs 1 crore. The default need not be to the applicant itself; under Section 7(1), a default to any financial creditor is enough.

Homebuyers and the 100 or 10% rule

The Insolvency and Bankruptcy Code (Amendment) Act, 2020 added provisos to Section 7(1) for certain classes of financial creditors. Allottees of a real estate project must file jointly, by not less than one hundred allottees under the same real estate project or not less than ten per cent of the total number of allottees under the same project, whichever is less. Similar provisos apply to creditors holding securities or deposits through a trustee or agent.

The Supreme Court upheld these provisos in Manish Kumar v. Union of India (19 January 2021), holding that they furthered the objects of the Code and were a reasonable classification.

When must the NCLT admit a Section 7 application?

In Innoventive Industries Ltd v. ICICI Bank (Supreme Court, 31 August 2017), the Court held that at the Section 7 stage the NCLT is to see whether a financial debt exists and a default has occurred, on the records placed before it; it is not expected to examine every dispute about the debt in detail.

A later decision, Vidarbha Industries Power Ltd v. Axis Bank Ltd (2022), was read by some as giving the NCLT discretion to refuse admission even where a default was shown. In M. Suresh Kumar Reddy v. Canara Bank (Supreme Court, May 2023), the Court clarified that Vidarbha turned on its own facts, and that once the NCLT is satisfied that a default has occurred, it must admit the application unless it is incomplete.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026, assent 6 April 2026) has now written this position into Section 7 itself. Section 4 of the Amendment Act, which was among the provisions brought into force from 26 May 2026, substitutes Section 7(5). The NCLT must, within fourteen days of receipt of the application, admit it if satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional, or reject it if any of those conditions is not met. An Explanation adds: “where the requirements under clause (a) have been complied with, no other ground shall be considered to reject an application filed under this section.” A further Explanation provides that where a financial institution files a record of default recorded with an information utility, that record is sufficient for the NCLT to ascertain the existence of default.

Section 9: operational creditors

An operational creditor is owed an operational debt: a claim for goods or services, employment dues, or dues to government arising under law. Suppliers, contractors, landlords and service providers usually fall here.

The Section 8 demand notice

An operational creditor cannot go straight to the NCLT. Under Section 8, it must first deliver a demand notice (or a copy of the invoice) demanding payment of the unpaid operational debt. The corporate debtor then has ten days to:

• bring to the creditor’s notice the existence of a dispute, if any, or the record of a pending suit or arbitration filed before receipt of the notice; or
• pay the unpaid debt.

Only if, after ten days, the creditor has neither received payment nor a notice of dispute may it file under Section 9.

The pre-existing dispute defence

The leading decision is Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd (Supreme Court, 21 September 2017). The Court held that the NCLT must reject a Section 9 application if a dispute existed before the demand notice was received. The NCLT does not decide whether the defence will succeed; it asks only whether there is a plausible contention requiring further investigation, as opposed to a patently feeble argument or an assertion that is spurious, hypothetical or illusory. The Court also read “and” in Section 8(2)(a) as “or”, so that a dispute need not be the subject of a pending suit or arbitration.

The Supreme Court reaffirmed this approach in GLS Films Industries Pvt Ltd v. Chemical Suppliers India Pvt Ltd (2026 INSC 344, April 2026), setting aside a decision of the NCLAT that had examined the merits of an alleged pre-existing dispute about defective supplies.

This is why operational creditors whose claims are contested, for example on quality or quantity, often find Section 9 an uncertain route, and why the correspondence before the demand notice matters so much.

Section 10: the company itself

A corporate debtor that has committed a default may itself apply to initiate CIRP. Since the 2018 amendments, the application must be supported by a special resolution of the shareholders or, in the case of a limited liability partnership, a resolution passed by at least three-fourths of the total number of partners. The applicant must also furnish its books of account and such other information as may be specified. Since the IBC (Amendment) Act, 2026, the corporate applicant no longer proposes its own interim resolution professional; under new Section 16(3A), the NCLT refers the matter to the Insolvency and Bankruptcy Board of India for a recommendation.

Section 10 is used where the management concludes that a collective, time-bound resolution process is better than a series of individual enforcement actions. Once the application is admitted, the moratorium under Section 14 applies and the board is suspended. The decision is therefore a serious one for directors and shareholders.

Limitation: a hurdle common to all three

Limitation applies to all three routes. In B.K. Educational Services Pvt Ltd v. Parag Gupta and Associates (Supreme Court, 11 October 2018), the Court held that the Limitation Act, 1963 has applied to applications under Sections 7 and 9 from the inception of the Code, confirmed by Section 238A, inserted in 2018. The residuary Article 137 applies: the right to apply accrues on the date of default, and an application filed more than three years later is barred, unless delay can be condoned under Section 5 of the Limitation Act.

Acknowledgments matter. In Laxmi Pat Surana v. Union Bank of India (26 March 2021), the Supreme Court held that Section 18 of the Limitation Act applies to Section 7 applications, so a written acknowledgment of liability signed before the period expires starts a fresh period. In Asset Reconstruction Co (India) Ltd v. Bishal Jaiswal (15 April 2021), it held that entries in a corporate debtor’s balance sheet can amount to such an acknowledgment, depending on the facts.

Practical points before filing

• Check the figure. The Rs 1 crore threshold applies to the amount in default, not to the total exposure.
• Fix the date of default. It drives limitation. Collect every acknowledgment, payment and balance sheet entry that may extend the period.
• Operational creditors: review the correspondence. Any complaint about quality, delay or quantity raised before the demand notice may be treated as a pre-existing dispute.
• Serve the Section 8 notice properly, at the registered office, and keep proof of delivery.
• Homebuyers: organise early. The 100 or 10% requirement must be met at filing, with allottees of the same project.
• Do not file to pressure. Section 65 of the IBC penalises initiation of insolvency proceedings fraudulently or with malicious intent for a purpose other than resolution or liquidation.

Frequently Asked Questions

What is the minimum amount of default for filing insolvency against a company?

Rs 1 crore. Section 4 of the IBC allows the Central Government to set the threshold, and it was raised from Rs 1 lakh to Rs 1 crore by notification dated 24 March 2020. The same threshold applies under Sections 7, 9 and 10.

Can a single homebuyer file for insolvency against a builder?

No. Under the proviso to Section 7(1), allottees must file jointly, being at least one hundred allottees of the same real estate project or ten per cent of the total allottees of that project, whichever is less. The Supreme Court upheld this requirement in Manish Kumar v. Union of India (2021).

What is a pre-existing dispute under Section 9?

It is a genuine dispute about the operational debt that existed before the corporate debtor received the Section 8 demand notice. Under Mobilox Innovations v. Kirusa Software (2017), if the dispute is a plausible contention and not spurious or illusory, the NCLT must reject the Section 9 application without deciding who is right.

What is the limitation period for an IBC application?

Three years from the date of default under Article 137 of the Limitation Act, as held in B.K. Educational Services v. Parag Gupta and Associates (2018). A written acknowledgment of the debt within that period, including in some cases a balance sheet entry, can give a fresh period under Section 18 of the Limitation Act.

Can the NCLT refuse a Section 7 application even if default is proved?

After the IBC (Amendment) Act, 2026, Section 7(5) requires admission if a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional, and an Explanation states that no other ground shall be considered to reject it. This is consistent with M. Suresh Kumar Reddy v. Canara Bank (2023).

This article is for general information and is not legal advice.

This article is for general information only and is not legal advice or an invitation to engage the firm. Laws and judgments change; please obtain specific legal advice before acting.