What happens when a company receives a demand notice? For most companies and directors, what follows feels like a black box. The fear is that the company will simply collapse and everyone will scramble for whatever is left. That is not how it works. When a company defaults on a debt of one crore rupees or more, the Insolvency and Bankruptcy Code, 2016 (“Code”), sets in motion a defined, time-bound sequence called the Corporate Insolvency Resolution Process (“CIRP”). The Code was built on a deliberate choice: rescue the business if it can be rescued, and only liquidate if it cannot. Control of the company shifts away from existing management and into a structured process supervised by the National Company Law Tribunal (“NCLT”). Understanding that sequence is the difference between reacting in panic and protecting your position
Who Can Start the Process:
The CIRP can be triggered by three categories of applicants, each under a distinct provision of the Code. A financial creditor or a home buyer files an application under Section 7 of the Code. This is the most powerful route because the creditor only has to establish that a financial debt exists and that a default has occurred. An operational creditor, meaning a supplier, vendor, service provider or employee, files an application under Section 9 after serving a statutory demand notice under Section 8 of the Code and waiting for the response window to lapse. The company itself can file an application under Section 10, voluntarily admitting that it cannot pay its debts and seeking the protection of the process to revive itself. The common threshold across all three routes is a default of at least one crore rupees, fixed under Section 4. The trigger can be a defaulted term loan, an unpaid invoice, or an external commercial borrowing, as long as it meets that floor.
Step One: Filing and Admission:
The applicant files an application before the NCLT bench that has jurisdiction over the registered office of the company. The Tribunal then examines whether a default has genuinely occurred and whether the application is complete. The Supreme Court settled the standard early. In Innoventive Industries Ltd. v. ICICI Bank1, the Court held that once a financial creditor demonstrates default and a complete application, the NCLT must admit the application. For operational creditors, Mobilox Innovations v. Kirusa Software2, introduced a vital filter: if there is a genuine pre-existing dispute about the debt, the application fails. This protects companies from operational creditors using the insolvency forum purely as a recovery tool.
Step Two: The Moratorium and the Interim Professional:
The moment the NCLT admits the application, two things happen at once. NCLT declares a moratorium under Section 14, and it appoints an interim resolution professional (“IRP”). The moratorium is a protective freeze. No new suits can be filed against the company, no existing proceedings can continue, no assets can be transferred, and no security can be enforced. This breathing space is the heart of the Code because it stops a chaotic race among creditors and preserves the value of the business while resolution is attempted. At the same time, the powers of the board of directors are suspended and pass to the IRP, who takes over management of the company as a going concern.
Step Three: The Committee of Creditors:
The IRP issues a public announcement inviting all creditors to submit their claims. Once claims are collated and verified, the financial creditors form the Committee of Creditors (“CoC”), the body that effectively steers the rest of the process. COC is the commercial brain of the CIRP. It confirms or replaces the IRP as the Resolution Professional (“RP”), and it takes the major decisions on the future of the company. The Supreme Court in Swiss Ribbons v. Union of India3, upheld the constitutional validity of the Code and gave significant deference to what it called the commercial wisdom of the COC, while reminding everyone that the process serves a public interest and is not merely private debt recovery. That balance, between creditor autonomy and judicial oversight, runs through almost every contested insolvency matter that firms like Bridgehead Law handle before the tribunal.
Step Four: Inviting and Approving a Resolution Plan:
The resolution professional prepares an information memorandum describing the company, its assets, and its liabilities and invites resolution applicants to submit plans. A resolution plan is a proposal by a third party, or sometimes existing stakeholders, to take over the company, infuse funds, and pay creditors an agreed amount. The COC evaluates the plans and votes. A plan requires the approval of creditors holding at least sixty-six per cent of the voting shares under Section 30. Once approved by the COC, the plan is placed before the NCLT for approval under Section 31 of the Code. A sanctioned plan binds everyone, including dissenting creditors, employees, the government, and other stakeholders. The company then exits insolvency as a revived entity as a clean slate. Claims not provided for in the approved resolution plan generally stand extinguished and cannot thereafter be enforced against the company4. If no plan is approved within the statutory timeline, or the COC decides the company cannot be saved, the NCLT orders liquidation under Section 33, and the assets are sold to repay creditors in the order of priority prescribed by the Code.
The Timelines, and Why They Slip:
On paper, the CIRP is meant to conclude within 180 days, extendable by a further period of 90 days, with an outer limit of 330 days, including litigation time. The reality is less tidy. Many resolutions have stretched well past 330 days because of contested admissions, valuation fights, and appeals. The Code promised speed, and on aggregate, it has improved recovery and discipline, but the gap between the statutory clock and the courtroom clock remains the most criticized feature of the regime.
When Even Finality Is Not Final:
The Code was designed to deliver certainty through a time-bound process. Yet some of the most significant insolvency matters have shown that litigation can continue long after a resolution plan appears settled. For creditors, investors, and resolution applicants, the lesson is straightforward. While the CIRP is intended to produce swift and definitive outcomes, major disputes can continue beyond approval of a resolution plan, making procedural compliance and litigation strategy just as important as commercial negotiations.
What Has Just Changed:
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026) received Presidential assent on 6th April, 2026, and the Ministry of Corporate Affairs brought the bulk of its provisions into force from 26th May, 2026.
The Practical Takeaway:
For a company, the worst response to a looming default is to treat the CIRP as something that happens to you rather than something you can prepare for. Internal compliance checks, clean books, settled key contracts, and an honest assessment of viability all change the options available once the process begins. For a creditor, the route chosen and the timing of the filing often determine the recovery, and the new mandatory-admission regime makes early, well-prepared filings more potent than ever. The CIRP is demanding, time-bound, and increasingly creditor-driven, but it is navigable when the sequence is understood and the right strategy is set early. Whether you are a creditor weighing a Section 7/ 9 petition or a company assessing its exposure, getting clarity before the clock starts is what protects value. At Bridgehead Law, we advise creditors, companies, guarantors, resolution professionals, liquidators and other stakeholders through every stage of the insolvency process, from admission and resolution planning to implementation and liquidation.
