IBC & SARFAESI: Banking, Finance & Insolvency Law Complete Guide India 2026

The Insolvency and Bankruptcy Code, 2016 (IBC) transformed India's insolvency resolution landscape. Before the IBC, resolving corporate insolvency in India took an average of 4.3 years — the global average was 1.7 years. The IBC set a 180-day (extendable to 270-day) timeline for corporate insolvency resolution, and India rose dramatically in the World Bank's Ease of Doing Business rankings as a result.

Combined with the SARFAESI Act, 2002 and the Debt Recovery Tribunals (DRT), India now has a comprehensive framework for creditor rights and debt recovery.

The IBC Framework: Overview

Types of Insolvency Proceedings Under IBC

1. Corporate Insolvency Resolution Process (CIRP) For corporate debtors (companies and LLPs). Triggered by:

• •Financial creditor (Section 7)
• •Operational creditor (Section 9)
• •Corporate debtor itself (Section 10)

3. Liquidation (Chapter III of Part II) When CIRP fails or resolution plan is rejected.

4. Pre-Packaged Insolvency Resolution Process (PPIRP) For MSMEs: a faster, less adversarial process where the debtor submits a base plan upfront.

Section 7 IBC: Financial Creditor Application

Who Is a Financial Creditor?

A financial creditor is any person to whom a financial debt is owed. Financial debt includes:

• •Loans from banks and financial institutions
• •Bonds and debentures
• •Hire purchase finance
• •Mortgage
• •Any amount raised under any other transaction having the commercial effect of borrowing

Section 7 Application: Filing Requirements

Documents Required:

• 1.Application in Form 1 (IBC (Application to Adjudicating Authority) Rules, 2016)
• 2.Record of default (from Information Utility or other evidence)
• 3.Name of Insolvency Resolution Professional proposed
• 4.Any information relating to books of account

Key Timelines:

• •NCLT must admit or reject within 14 days of filing (Section 7(4))
• •If additional information required: can be extended to 30 days
• •One further extension of 30 days (not beyond 60 days total)

Section 7: Proof of Default

The cornerstone of a Section 7 application is proving default. Methods:

• 1.Information Utility: NESL (National E-Governance Services Limited) is India's only operational IU. Default records from NESL are conclusive proof.
• 2.Banking records: NPA classification letters, demand notices, CIBIL reports
• 3.Acknowledgment of debt: Board resolutions, correspondence, financial statements
• 4.Court decree: If previously adjudicated

Section 9 IBC: Operational Creditor Application

Who Is an Operational Creditor?

An operational creditor is any person to whom an operational debt is owed. Operational debt includes claims for:

• •Goods supplied
• •Services rendered
• •Employment dues
• •Government dues (tax authorities)

Mandatory Pre-Condition: Demand Notice

Before filing a Section 9 application, the operational creditor must send a demand notice in Form 3 or 5 (as applicable). The corporate debtor has 10 days to:

• •Make payment, or
• •Send a notice of dispute

What Constitutes a "Dispute" Under IBC?

In Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018), the Supreme Court held that a "dispute" for Section 9 purposes is not merely an assertion by the debtor. There must be a pre-existing dispute that is brought to the notice of the operational creditor before the demand notice.

The CIRP Process: Step by Step

Day 0: Admission Order

NCLT admits the application and:

• •Declares moratorium under Section 14
• •Appoints Interim Resolution Professional (IRP)
• •Publishes public announcement

• •No suits or proceedings
• •No enforcement of security interest
• •No transfer/encumbrance of assets
• •No recovery of property

Day 1-30: IRP Takes Control

The IRP:

• •Takes custody of assets
• •Manages affairs of the corporate debtor as going concern
• •Collects all financial information
• •Constitutes Committee of Creditors (CoC)

Day 30-180: Resolution Process

Committee of Creditors:

• •All financial creditors are members
• •Voting rights proportional to debt
• •Operational creditors are not CoC members (unless no financial creditors)

• •Provide for payment of insolvency resolution costs
• •Provide for minimum payment to operational creditors
• •Not be approved if it would result in the resolution applicant being ineligible under Section 29A

• •They are an undischarged insolvent
• •They are a wilful defaulter
• •Their NPA account is outstanding for more than 12 months
• •They have been convicted of any offence punishable with 2+ years imprisonment
• •Connected persons are ineligible

Liquidation Under IBC

If no resolution plan is approved within the CIRP period, or if the CoC decides to liquidate, or if the resolution plan is rejected by NCLT, liquidation commences.

Liquidation Waterfall (Section 53 IBC)

The order of priority for payment in liquidation:

• 1.Insolvency resolution costs (including liquidator's fees)
• 2.Workmen's dues for 24 months
• 3.Secured creditors (up to the extent of security)
• 4.Employee dues (other than workmen) for 12 months
• 5.Unsecured financial creditors
• 6.Government dues
• 7.Remaining secured creditors (amounts not realised from security)
• 8.Remaining debts and dues
• 9.Preference shareholders
• 10.Equity shareholders

SARFAESI Act, 2002: Security Enforcement

What Is SARFAESI?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 allows banks and financial institutions to enforce their security (collateral) without going to court.

Eligibility

SARFAESI applies to:

• •Secured creditors: banks, NBFCs, ARCs
• •NPA classification must be made
• •Outstanding debt above ₹1 lakh (reduced threshold for MSME in some cases)

SARFAESI Process

Step 1: NPA Classification Bank classifies the account as Non-Performing Asset (NPA).

Step 2: Demand Notice (Section 13(2)) Bank issues 60-day notice demanding repayment with interest and charges.

Step 3: Possession Notice (Section 13(4)) If debtor fails to repay within 60 days:

• •Symbolic possession: notice affixed to the property
• •Physical possession: with assistance of magistrate

• •Public auction
• •Private treaty
• •Assignment

Challenging SARFAESI Actions (Section 17)

The borrower can challenge SARFAESI actions before the Debt Recovery Tribunal (DRT) within 45 days of the measure taken.

Grounds for Challenge:

• •Bank has not followed the prescribed procedure
• •Debt is disputed
• •Limitation has expired
• •Property not covered by the security interest
• •Valuation of property is incorrect

Debt Recovery Tribunals (DRT)

DRT Jurisdiction

DRTs have jurisdiction to adjudicate applications for recovery of debts due to banks and financial institutions for amounts above ₹20 lakh.

DRT Filing Procedure

Original Application (OA) by Bank:

• 1.Application in the prescribed form
• 2.Supporting documents (loan agreement, demand notice, account statements)
• 3.Application fee

• 1.Service of summons on defendant
• 2.Written statement filed by defendant
• 3.Evidence by affidavit
• 4.Cross-examination
• 5.Arguments
• 6.Recovery Certificate issued by DRT

Frequently Asked Questions

1. What is the minimum default for filing under IBC? ₹1 crore as of 2024 (enhanced from ₹1 lakh during COVID-19).

2. Can an operational creditor file for insolvency? Yes, under Section 9 IBC, but must first send a demand notice and wait 10 days.

3. What is the moratorium under IBC? Section 14 IBC imposes a moratorium from the date of admission: no suits, security enforcement, or asset transfer during CIRP.

4. Who controls the corporate debtor during CIRP? The Resolution Professional (RP) manages the affairs of the corporate debtor. The Board of Directors is suspended.

5. What is the liquidation waterfall? Section 53 IBC sets the priority of payments in liquidation: resolution costs → workmen → secured creditors → employees → unsecured creditors → government → preference → equity.

6. How is SARFAESI different from IBC? SARFAESI is for enforcing security interest (specific assets). IBC is for insolvency resolution of the entire company.

7. Can a promoter submit a resolution plan? Under Section 29A, promoters of the defaulting company are generally disqualified unless the default is less than 1 year and the NPA has been cleared.

8. What is a pre-packaged insolvency? PPIRP allows MSMEs to submit a base resolution plan before filing with NCLT, making the process faster and less disruptive.

9. Can a foreign creditor file under IBC? Yes. Foreign creditors can file under Section 7 or Section 9. The IBC does not discriminate between Indian and foreign creditors.

10. What is the DRT appeal process? Orders of DRT can be appealed to Debt Recovery Appellate Tribunal (DRAT). DRAT orders can be challenged before the High Court under Article 226.

Conclusion

IBC and SARFAESI have fundamentally changed creditor rights in India. Banks now have robust tools for NPA resolution. Corporate debtors face time-bound resolution with professional management. Advocates who master insolvency and banking law are well-positioned in one of India's most active litigation sectors.

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