Triggering the Corporate Insolvency Resolution Process (CIRP): Default and Application Filing
The Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) is a structured mechanism designed to resolve the financial distress of a corporate debtor. The initiation of CIRP is a critical first step, and it is triggered by the occurrence of a 'default' and the subsequent filing of an 'application' before the Adjudicating Authority (National Company Law Tribunal - NCLT).
Understanding 'Default'
A 'default' is the bedrock upon which CIRP is initiated. Section 3(12) of the IBC defines 'default' as 'the commission of a default under section 4, 5 or 6'. In essence, it signifies a failure by the corporate debtor to pay a debt when it has become due and payable. This includes not only the principal amount but also any interest or other charges that are contractually or statutorily owed.
Who Can File an Application to Initiate CIRP?
The IBC empowers specific parties to initiate the CIRP by filing an application before the Adjudicating Authority (NCLT). These parties are categorized as 'Financial Creditors', 'Operational Creditors', and the 'Corporate Debtor' itself.
| Applicant Type | Minimum Default Amount | Application Details |
|---|---|---|
| Financial Creditor | ₹1 Crore (as per Section 4 of IBC) | Must provide records of default from a financial institution or information utility. |
| Operational Creditor | ₹1 Crore (as per Section 4 of IBC) | Must provide a copy of the invoice or order for the supply of goods or services, and a record of the non-payment of the outstanding amount. |
| Corporate Debtor | No minimum amount specified | Can file an application if it has committed a default and is unable to pay its debts. |
The Application Filing Process
Once a default is established and the applicant meets the minimum threshold, an application is filed with the NCLT. The application must be in the prescribed format (Form-A for financial creditors, Form-B for operational creditors, and Form-C for the corporate debtor) and accompanied by relevant supporting documents.
NCLT's Role in Admitting the Application
Upon receiving the application, the Adjudicating Authority (NCLT) has a limited timeframe to decide whether to admit or reject it. This decision is based on whether a 'default' has occurred and if the application is complete and in order.
The NCLT's decision-making process for admitting an insolvency application is a critical juncture. The NCLT must ascertain if a 'default' has occurred. If a default is established, and the application is complete, the NCLT is mandated to admit the application. This admission formally initiates the CIRP. The NCLT has a strict timeline of 14 days from the date of filing to pass an order of admission or rejection. This swift process is designed to prevent undue delays in resolving distressed corporate entities.
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The NCLT's primary role is to verify the existence of a default. It does not delve into the merits of the dispute or the reasons for the default at this stage. If a default is proven, the application must be admitted.
Consequences of Admission
Once the NCLT admits an application, several immediate consequences follow, marking the formal commencement of the CIRP. The management of the corporate debtor is suspended, and a Resolution Professional is appointed to manage the affairs of the company.
Financial Creditor, Operational Creditor, and the Corporate Debtor itself.
₹1 Crore.
Learning Resources
The official source for the Insolvency and Bankruptcy Code, 2016, providing the complete legal text and amendments.
An official overview from IBBI explaining the Corporate Insolvency Resolution Process, its objectives, and key stages.
Access to the official forms and rules prescribed by the NCLT for filing insolvency applications.
A practical guide that breaks down the CIRP process, including initiation, application filing, and key timelines.
An in-depth article discussing the nuances of initiating CIRP, focusing on default and application requirements.
Explores the critical aspects of triggering CIRP, emphasizing the definition of default and the application process.
A video tutorial explaining the CIRP process, including how it is initiated and the roles of various stakeholders.
An introductory video to the IBC, covering its objectives and the fundamental steps of CIRP.
A comprehensive overview of CIRP, detailing its initiation, key stages, and the role of the NCLT.
A general overview of the IBC, providing context and key information about its provisions, including CIRP.