Section 7 IBC (Financial Creditor Insolvency Application): Explained (2026)

Legal Explainer · Insolvency Law

Updated for 2026 · Claw Editorial

A lender has lent money, the company has stopped paying, and the next step is unclear. Do you file a recovery suit, or move the NCLT under the insolvency law? Section 7 of the Insolvency and Bankruptcy Code (IBC) is the route for a financial creditor who wants to start insolvency proceedings. Section 7 lets a financial creditor apply to the NCLT to start the corporate insolvency resolution process (CIRP) against a company that has defaulted on a financial debt of at least Rs 1 crore. If the NCLT is satisfied that the default exists and the application is complete, it admits the case and a moratorium begins. Last verified: October 2026.

01What Section 7 says

Section 7 is titled "Initiation of corporate insolvency resolution process by financial creditor". It allows a financial creditor to file an application before the adjudicating authority, which for companies is the National Company Law Tribunal (NCLT). The application asks the NCLT to start CIRP against the corporate debtor when a default has occurred.

The financial creditor can file by itself, jointly with other financial creditors, or through a person authorised to act for it. The application is made in the prescribed form, with proof of the financial debt and the default. It must also name a proposed interim resolution professional (IRP).

This is a civil, commercial route. It is not a criminal section, so ideas like cognizable, bailable or punishment do not apply to it. The aim is resolution of a failing company, not punishment of its promoters.

02Who can file and the key ingredients

An application under Section 7 needs four things to stand.

• A financial creditor: a person to whom a financial debt is owed, as defined in Section 5(7) of the Code. Banks, NBFCs and other lenders are the usual applicants.
• A financial debt: a debt with interest, disbursed against the time value of money, as defined in Section 5(8). Loans, debentures and similar borrowings fall here.
• A default: non-payment of a debt that has become due, as defined in Section 3(12). The debt can be owed to the applicant or to any other financial creditor of the company.
• A corporate debtor: a company or LLP, as defined in the Code. Individuals and partnership firms follow different parts of the Code.

The default is usually shown through records such as a loan agreement, account statements, a recall or demand notice, and information from an information utility. The Code allows the financial creditor to rely on evidence of default from such utilities and other prescribed records.

Special rules for certain classes of creditors

For some classes, such as home buyers (allottees under a real estate project) and certain debenture holders, the Code requires a joint application by a minimum number or share of creditors in the same class. For allottees, this is believed to be at least 100 allottees or 10 percent of the total, whichever is less.

03The default threshold

The Code sets a minimum default for starting CIRP. The Central Government raised this limit to Rs 1 crore by a notification dated 24 March 2020. A default below Rs 1 crore cannot start insolvency under Section 7.

The threshold is on the amount of the default, not on the size of the whole loan. Check the total default figure carefully before you file, because a short fall in the figure can lead to rejection.

04NCLT process, admission and CIRP

The steps move in a fixed order.

1. Filing: the financial creditor files the application with the NCLT bench that has jurisdiction over the company’s registered office.
2. Ascertaining default: the NCLT looks at the records, including those from an information utility, and checks if the default is proved. The Code gives it 14 days from receipt of the application for this step. Courts have treated this time limit as directory in some cases, so delay does not by itself end the application.
3. Admit or reject: if the default exists and the application is complete, with no disciplinary proceeding pending against the proposed IRP, the NCLT admits it. Otherwise it can reject it. Before rejecting for an incomplete application, it must give the applicant a notice of 7 days to fix the defect.
4. Commencement: CIRP begins on the date of admission. The NCLT appoints the IRP, who takes charge of the company and invites claims from creditors.
5. Committee of creditors and resolution: the IRP forms the committee of creditors (CoC). The CoC considers resolution plans. If no plan is approved in time, the company may move to liquidation.

The law sets an outer time limit for CIRP, with extensions possible in set cases. The exact days have been shaped by amendments and court rulings, so confirm the current rule before relying on a number.

05What the moratorium means

On the date of admission, the NCLT declares a moratorium under Section 14. While it runs, suits and proceedings against the company are stayed, the company cannot transfer or sell its assets, and creditors cannot enforce security or recover property. This gives the company breathing space and protects its value while a resolution is explored.

The moratorium ends when the resolution plan is approved or when the NCLT orders liquidation. Ongoing supply of essential goods and services to the company is protected during this period.

06Section 7 vs Section 9

In short, lenders use Section 7 and suppliers use Section 9. For the operational creditor route in detail, read our guide to Section 9 IBC.

07Defences and limits

A corporate debtor served with a Section 7 application usually argues on a few lines.

• No default in law or fact: the debt was paid, or it was not yet due.
• Limitation: the Limitation Act applies to Section 7 applications, and the courts have applied the three year period under Article 137, with acknowledgement of debt able to extend it.
• Not a financial debt, or not a financial creditor: the claim does not meet the definitions in Section 5.
• Defects in the application: missing documents or an unsuitable IRP.

The Supreme Court has said that once a default is proved, a Section 7 application is admitted, and the existence of a dispute is not a ground to refuse a financial creditor in the way it is for operational creditors. It has also, in later cases, said the NCLT keeps some room to consider the facts. Read the current decisions on the point before you advise, since the position has been refined over time.

Orders of the NCLT can be challenged before the National Company Law Appellate Tribunal (NCLAT) and then the Supreme Court. Because multiple benches are involved, tracking the matter by party name saves time. See our guide to NCLT and NCLAT case tracking software.

08Criminal law note: BNS and BNSS

Section 7 IBC is not part of the Indian Penal Code or the Code of Criminal Procedure. It has no equivalent in the Bharatiya Nyaya Sanhita (BNS) 2023 or the Bharatiya Nagarik Suraksha Sanhita (BNSS) 2023, and no section number needs to be mapped. Section numbers in those new criminal codes differ from the old IPC and CrPC, so always check a mapping before citing a criminal section.

The IBC does have its own offence provisions elsewhere in the Code, but those are separate from Section 7. If you are working on a criminal procedure point such as default bail, see Section 167 CrPC default bail.

09Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

For Section 7 work, there are two practical jobs. The first is research: finding Supreme Court and High Court judgments on admission, default, limitation and moratorium. Claw covers 9,102 forums, with a database of 30 crore+ judgments and results in under 5 seconds. The second is tracking: once a company is in CIRP, hearings at the NCLT and NCLAT matter, and Claw lets you track related cases by party name.

Create a FREE Claw account to search 30 crore+ judgments on this section and track related cases by party name. The free plan is for individual advocates. Teams and enterprises are on paid plans. Claw does not use customer case documents to train AI models.

10Sources and further reading

• Insolvency and Bankruptcy Board of India: ibbi.gov.in
• India Code (bare act): indiacode.nic.in
• NCLT: nclt.gov.in
• Claw: clawlaw.in

This is general information, not legal advice. Check the bare act and current notifications before filing.

11Frequently asked questions