Section 7 of IBC : Section 7: Initiation Of Corporate Insolvency Resolution Process By Financial Creditor

Explanation using Example

Imagine a scenario where XYZ Bank lent Rs. 50 crores to ABC Pvt. Ltd. for business expansion. However, ABC Pvt. Ltd. failed to repay the debt as per the agreed terms, resulting in a default. XYZ Bank, being a financial creditor, decides to initiate the corporate insolvency resolution process (CIRP) against ABC Pvt. Ltd.

XYZ Bank files an application before the National Company Law Tribunal (NCLT), which is the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC), 2016. The application includes:

• Proof of default recorded with an information utility;
• A proposal for an interim resolution professional;
• Other relevant information as required by the Insolvency and Bankruptcy Board of India (IBBI).

The NCLT reviews the application within 14 days and confirms the occurrence of default using the records provided. Since the application is complete and there are no disciplinary proceedings against the proposed resolution professional, the NCLT admits the application and orders the commencement of the CIRP.

Following this, the CIRP commences from the date of admission, and the NCLT communicates the order to XYZ Bank and ABC Pvt. Ltd. This process aims to resolve the insolvency issue in a time-bound manner, either by restructuring the company's debt or by liquidating its assets to repay the creditors.