Before 2016, a creditor chasing a large company that had stopped paying faced a maze: civil suits, Debts Recovery Tribunals, the old Sick Industrial Companies Act, and winding-up petitions in the High Courts, often running side by side for years. The Insolvency and Bankruptcy Code, 2016, usually called the IBC, replaced much of that with a single, time-bound process. Its central idea is simple: when a company cannot pay, its creditors should decide quickly whether it can be rescued, and if not, its assets should be sold and the money shared in a fixed order.
This guide explains the IBC in plain language: who can use it, what happens when a case is admitted, who decides the company's future, how long it takes and what the 2026 amendments changed. It is written for business owners, creditors, homebuyers and directors who want to understand the system before they talk to a lawyer. Where you need more detail on a step, the links take you to our pages on that topic.
हिंदी में सारांश
दिवाला और शोधन अकà¥à¤·à¤®à¤¤à¤¾ संहिता, 2016 (IBC) à¤à¤• à¤à¤¸à¤¾ कानून है जिसके तहत जब कोई कंपनी अपना करà¥à¤œà¤¼ नहीं चà¥à¤•à¤¾ पाती, तो लेनदार NCLT में आवेदन कर सकते हैं। आवेदन सà¥à¤µà¥€à¤•à¤¾à¤° होने पर कंपनी का बोरà¥à¤¡ निलंबित हो जाता है, à¤à¤• रेज़ोलà¥à¤¯à¥‚शन पà¥à¤°à¥‹à¤«à¥‡à¤¶à¤¨à¤² कामकाज संà¤à¤¾à¤²à¤¤à¤¾ है, और वितà¥à¤¤à¥€à¤¯ लेनदारों की समिति (CoC) तय करती है कि कंपनी को बचाया जाठया उसका परिसमापन हो। कंपनियों के लिठनà¥à¤¯à¥‚नतम चूक ₹1 करोड़ है। 26 मई 2026 से लागू संशोधनों ने कई नियम बदले हैं।
The IBC in six points
It is a collective process
Once a case is admitted, it is not a recovery action for one creditor. All creditors file claims, and the outcome binds everyone.
Control shifts to creditors
The company's board is suspended. A resolution professional runs the business, and a committee of financial creditors decides its future.
Rescue comes first
The aim is a resolution plan that keeps the business running under new or restructured ownership. Liquidation follows only if no plan is approved.
There are strict timelines
The process is meant to finish within 180 days, extendable to 330 days including litigation, though many cases take longer in practice.
The NCLT decides
The National Company Law Tribunal admits cases, approves plans and decides disputes. Appeals go to the NCLAT and then the Supreme Court.
It covers individuals too
Personal guarantors of company loans can face insolvency under the Code before the NCLT. Other individuals' insolvency provisions are being brought in gradually.
Who can start an insolvency case
There are three ways to start a corporate insolvency resolution process, or CIRP. A financial creditor, someone who lent money or provided finance against the time value of money, files under Section 7. Banks, NBFCs, bondholders and homebuyers fall in this group. An operational creditor, someone owed for goods or services, first sends a demand notice under Section 8 and, if the debt is not paid or disputed within ten days, files under Section 9. And the company itself can file under Section 10, which directors sometimes do when they see that insolvency cannot be avoided.
In each case, the company must have defaulted on at least Rs 1 crore. The minimum was Rs 1 lakh when the Code began and was raised to Rs 1 crore in March 2020 to keep small defaults out of the system. For small businesses registered as MSMEs, a separate pre-packaged process under Section 54A applies with a lower threshold of Rs 10 lakh. See our guide on the Rs 1 crore rule.
The application goes to the NCLT bench that covers the state where the company's registered office is. If the bench finds a default of the required amount, the application complete and the proposed professional eligible, it admits the case. Since 26 May 2026, the NCLT must admit a complete Section 7 application once the default is established, which has narrowed the discretion tribunals had been exercising. For operational creditors, a genuine dispute raised before the demand notice still defeats the application, as the Supreme Court held in Mobilox (2017).
How a corporate insolvency case runs
Application and admission
A creditor or the company files before the NCLT. The tribunal hears the company briefly and decides whether to admit. The law expects this within 14 days; in practice it often takes longer.
Moratorium and public announcement
On admission, a moratorium freezes suits, recovery actions and enforcement against the company. An interim resolution professional takes charge and publishes a public announcement inviting claims.
Claims and the committee of creditors
Creditors file claims with proof. The professional verifies them and forms a committee of financial creditors, which votes in proportion to the debt owed to each.
Information memorandum and invitation for plans
The resolution professional prepares an information memorandum about the company and invites resolution plans from eligible bidders, who must pass the Section 29A test.
Voting on plans
The committee evaluates plans and approves one by at least 66% of the voting share. Plans must pay certain minimum amounts to operational creditors and dissenting financial creditors.
NCLT approval or liquidation
The NCLT checks that the plan complies with the law and approves it, binding everyone. If no plan is approved in time, the NCLT orders liquidation, and the assets are sold and the proceeds shared in the order set by Section 53.
What happens to the people involved
For directors and promoters, admission means the board is suspended. They must hand over records and cooperate with the resolution professional, and they can attend committee meetings without a vote. They cannot simply buy back the company if they fall within Section 29A, which bars, among others, promoters of companies with long-standing NPA accounts and wilful defaulters, though MSME promoters get some relief. Directors may also face applications to reverse transactions made before insolvency, and personal liability for wrongful trading under Section 66. See our guide on directors after insolvency.
For employees and workers, wages during the process are paid as costs of the process. Unpaid dues before insolvency are claims. In liquidation, workmen's dues for 24 months rank near the top of the waterfall, and provident fund and gratuity funds are kept outside the estate.
For guarantors, the company's insolvency does not release them. Lenders can pursue personal guarantors separately, including through insolvency proceedings under Part III of the Code before the same NCLT. The Supreme Court confirmed in Lalit Kumar Jain (2021) that approval of the company's plan does not discharge the guarantor. See personal guarantor insolvency explained.
Who's who in an insolvency case
| Term | Plain meaning |
|---|---|
| Corporate debtor | The company in insolvency |
| CIRP | Corporate insolvency resolution process, the rescue phase |
| IRP / RP | Interim resolution professional, then resolution professional, who runs the company during CIRP |
| CoC | Committee of creditors, made up of financial creditors, which decides the company's future |
| Resolution applicant | A bidder who submits a plan to take over or restructure the company |
| Moratorium | A freeze on legal actions against the company during CIRP |
| Liquidation | Sale of the company's assets and distribution of proceeds, if rescue fails |
| Section 29A | The list of people who cannot submit a resolution plan |
What the 2026 amendment changed
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 came into force on 26 May 2026 and made some of the most significant changes since the Code began. Among those most relevant to everyday users:
- Admission of Section 7 applications: once default is established and the application is complete, the NCLT must admit it, and must record reasons if it does not decide within the time set.
- Settlement and withdrawal: Section 12A was recast. Withdrawal after admission is allowed only once the committee of creditors is formed, with 90% of its vote, and before the first invitation for resolution plans. See settlement after admission.
- Government dues: a charge created only by operation of law no longer makes government dues secured, which changes their ranking in the waterfall.
- Personal guarantors: filing an insolvency application by or against a personal guarantor of a company loan no longer triggers an interim moratorium.
- Plans and liquidation: plans can deal with assets separately, approval can happen in two stages, and liquidation is supervised by the committee, with a one-time chance to restore the CIRP for up to 120 days.
- Avoidance transactions: look-back periods now run from the date the application was filed, and creditors can approach the tribunal if the professional does not act.
Because many cases were pending on 26 May 2026, questions about which version of the law applies are likely to be decided by the courts over the next few years.
When the IBC is the wrong tool
The IBC is powerful, but it is not a debt collection service. If the debt is below Rs 1 crore, insolvency is not available against a company. If the buyer disputed the goods or services before the demand, a Section 9 petition will fail. If you want your money rather than control of the company, a commercial suit, arbitration, a DRT case or SARFAESI action may be faster and more certain. And once a case is admitted, the company's assets are shared among all creditors, so an unsecured creditor may recover only a small part of the debt. The right question is not "can I file?" but "what do I want, and which forum gets me there?" See choosing the right recovery route.
Common misconceptions about the IBC
- "Filing insolvency is a quick way to recover a debt." It is a collective process; an unsecured creditor may recover only part of the debt.
- "Once admitted, the company will be shut down." Most of the process is aimed at rescue; liquidation is the fallback.
- "Directors are protected by the moratorium." The moratorium protects the company, not its directors or guarantors.
- "The company can settle any time." After admission, withdrawal is now possible only in a narrow window under Section 12A.
- "Small suppliers can use it for any unpaid bill." The minimum default is Rs 1 crore for companies.
- "Government dues always come first." After 2026, a charge created only by law does not make them secured.
How one supplier used the Code
Here's a made-up example. A Ghaziabad packaging supplier was owed Rs 1.3 crore by a consumer goods company that had stopped paying but never complained about quality. The supplier had tried phone calls and letters for months.
Its lawyer sent a demand notice under Section 8. When no dispute was raised within ten days, a Section 9 application was filed. At the first hearing, the buyer, which was solvent but slow to pay, realised that admission would mean losing control of the company. It paid the full amount within three weeks and the application was withdrawn. The case never reached the committee-of-creditors stage. This is how many operational creditor cases end: the threat of admission brings payment, but only when the debt is clear and undisputed.
When rescue worked
Here's a second made-up example. A Punjab textile mill with Rs 300 crore of bank debt defaulted after years of losses. A bank filed under Section 7, and the mill was admitted. The resolution professional kept the mill running with interim finance approved by the committee of creditors. Three bidders submitted plans; the committee approved one from a textile group that paid the banks about 40% of their claims, retained most of the workforce and invested in new machinery. The NCLT approved the plan, and the mill continued under new ownership. The banks took a loss, but recovered more than liquidation would have given them, and the business survived.
Where to go from here
If you are a creditor, start with the minimum default guide and the limitation guide to check whether your claim qualifies. If you are a company that has received a notice, see defending an insolvency petition. If you are a homebuyer, see homebuyers' rights. And if you are not sure which NCLT bench applies, see which bench will hear my case.
Frequently Asked Questions
What is the IBC in simple words?
It is India's insolvency law. When a company cannot pay its debts of Rs 1 crore or more, creditors can ask the NCLT to start a process in which creditors decide whether the company is rescued or liquidated.
Who decides IBC cases?
The NCLT for companies, LLPs and personal guarantors of company loans. Appeals go to the NCLAT and then to the Supreme Court on questions of law.
What is the minimum amount for an IBC case?
Rs 1 crore for companies, and Rs 10 lakh for the MSME pre-packaged process.
Does IBC mean the company will close?
Not necessarily. The first aim is a resolution plan that keeps the business running. Liquidation follows only if no plan is approved.
Can a supplier use the IBC?
Yes, as an operational creditor, after sending a demand notice. The debt must be undisputed before the notice.
Are homebuyers covered?
Yes. Homebuyers are financial creditors and can file together if they meet the threshold. See our guide on homebuyers' rights.
What changed in 2026?
Admission rules, Section 12A withdrawal, the status of government dues, the interim moratorium for guarantors, plan approval and liquidation, among other changes, from 26 May 2026.
How long does an IBC case take?
The law sets 180 days, extendable to 330 days including litigation. In practice, many cases take longer.
Have a Question About an IBC Case?
Tell us whether you are a creditor, a company or a homebuyer, and send the key papers. We will explain plainly how the Code applies to you.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Have a question about your own case?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
