Section 7 IBC Application by a Financial Creditor

When a lender should consider Section 7

A Section 7 application is not a recovery suit. If it is admitted, the company’s board is suspended, a resolution professional takes over management, a moratorium stops other proceedings against the company, and creditors look for a resolution plan or, failing that, liquidation. For a lender, it is the strongest form of pressure available, and it can also be the most expensive. We advise lenders to compare it with SARFAESI enforcement and a DRT recovery application before filing, and to consider the position of any guarantors.

What the application must establish

The application is made in Form 1 under the Adjudicating Authority Rules, with the documents the form requires. It must show:

• A financial debt. Loan agreements, sanction letters, disbursement records and statements of account. For investors, the instrument and the terms on which money was advanced.
• A default of at least one crore rupees. The record of default from the information utility, together with the lender’s statement of account.
• Limitation. The date of default and, if more than three years have passed, the acknowledgments that extend the period, such as balance sheets, restructuring letters or payments.
• A proposed interim resolution professional. With their written consent and an authorisation for assignment, and no disciplinary proceeding pending against them.
• Authority. The board resolution or power of attorney of the officer filing for the lender.

Admission after the 2026 amendment

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 substituted Section 7(5). The tribunal must admit the application within fourteen days if it is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed professional. Explanation I says no other ground may be considered to reject the application, and Explanation II makes a record of default from an information utility sufficient to establish default. If the tribunal does not decide within fourteen days, it must record its reasons. This ends the debate that followed Vidarbha Industries v. Axis Bank (2022) about a discretion to refuse admission.

In practice the company is still served and heard on whether there is a financial debt, whether it is in default and whether the application is within time. The admission hearing is narrower than before, but it is not a formality.

Lenders other than banks

Section 7 is not only for banks. Non-banking finance companies, holders of debentures and bonds, companies that gave inter-corporate deposits, and investors whose instruments carry a return for the time value of money can all be financial creditors. For these lenders the question of whether the money is a financial debt at all is usually the main battleground: an equity investment, a share application amount or a deposit that carries no interest and no repayment date can be argued to fall outside Section 5(8). The documents signed at the time of the investment, and how the company itself recorded the amount in its books, usually decide it.

Defending a company against Section 7

For a company served with an application, the arguments that remain are the statutory ones: the debt is not a financial debt (for example, it is a trade payable or an equity contribution), there is no default because the amount was not due or was paid, the default falls in the Section 10A window, the application is time-barred, or it is incomplete. A settlement before admission is far easier than one after, because after admission Section 12A requires ninety percent of the committee of creditors. Our main NCLT page explains the process after admission.

Claims, the committee and the plan

Once the case is admitted, the lender files its claim with the interim resolution professional and takes its seat on the committee of creditors in proportion to its debt. The committee decides on the resolution plan by sixty-six percent of the voting share. Where promoters stood as personal guarantors, the company case and the guarantor case should be run together. Where the loan is secured, the lender should weigh SARFAESI enforcement before filing, because admission brings a moratorium that halts it against the company’s assets; our note on the Section 13(2) SARFAESI notice explains that route. Our corporate practice advises on security, intercreditor arrangements and assignments of debt.

Speaking to us

Send the sanction letters, the loan agreements, the statement of account, the default record if one has been registered, and any correspondence acknowledging the debt. We tell you whether the application can be filed now, what the limitation position is and what to expect at admission. Call or WhatsApp 99115 44811, or email manujalawyers@gmail.com.