The Insolvency and Bankruptcy Code (IBC), 2016 provides a time-bound framework for resolving insolvency and bankruptcy matters. Under Section 10, a corporate applicant, which includes the corporate debtor itself may initiate the Corporate Insolvency Resolution Process (CIRP) if it has committed a default.

Scope of Section 10 of IBC

Section 10 allows a corporate debtor to voluntarily initiate insolvency proceedings against itself. This provision is a critical aspect of the Code’s debtor-in-possession model, offering financially distressed companies an opportunity to restructure their debt through a formal mechanism, under the supervision of an interim resolution professional and the National Company Law Tribunal (NCLT).

When Can CIRP Be Initiated by a Corporate Applicant?

The process under Section 10 may be initiated when a corporate debtor commits a default. The application must be filed with the Adjudicating Authority (NCLT) in the prescribed form and manner, along with the appropriate fees. The minimum default amount is ₹1 crore for applications filed on or after March 24, 2020.

Who Can Apply Under the IBC?

The Insolvency and Bankruptcy Code (IBC) is applicable in the following situations:

  • When the amount of default is at least ₹1 crore.
  • Companies incorporated under the Companies Act, 2013 or any earlier company law.
  • Entities governed by any special law that is currently in effect.
  • Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008.
  • Any other incorporated bodies covered under existing laws, as notified by the Central Government.
  • Individuals who have provided personal guarantees for loans taken by corporate borrowers.
  • Partnership firms and sole proprietorships.
  • Individuals, except those who are specifically excluded under certain provisions.

Prerequisites for Filing an Application Under Section 10

A corporate applicant must furnish the following along with the application:

  • Books of account and supporting documents for the specified period.
  • Details of the proposed Interim Resolution Professional (IRP).
  • A special resolution passed by shareholders of the company or, in the case of a partnership, a resolution passed by three-fourths of total partners, approving the decision to file for CIRP.

Admission or Rejection of the Application

Under sub-section (4), the Adjudicating Authority must, within 14 days of receiving the application:

  • Admit the application, if it is complete and there are no pending disciplinary proceedings against the proposed IRP; or
  • Reject the application, if it is incomplete or if there are pending disciplinary proceedings against the IRP.

However, the Adjudicating Authority is required to provide the applicant an opportunity to rectify defects within 7 days of receiving a notice to that effect.

Legal Requirements for Filing Under Section 10 of the IBC, 2016

To initiate a voluntary insolvency resolution process under Section 10 of the IBC, a corporate debtor must satisfy certain legal conditions, clarified through multiple NCLAT rulings:

  1. Existence of Debt and Default Must Be Proven

The corporate debtor must demonstrate a clear case of default. Courts have emphasized, in cases like Unigreen Global Pvt. Ltd. v. PNB and Innoventive Industries Ltd. v. ICICI Bank, that once the Adjudicating Authority is satisfied a default has occurred, the application must be admitted (if complete). Creditors can oppose such applications by showing that no default exists in fact or law.

  1. Application Must Be Complete & IRP Must Have No Pending Disciplinary Proceedings

Section 10 requires the application to be complete with documents such as the board/shareholder resolution, financial records, and proposed Interim Resolution Professional (IRP) details. If any disciplinary proceedings are pending against the proposed IRP, the application may be rejected. NCLAT has clarified that applications must comply strictly with procedural requirements (Gaja Trustee Co. Pvt. Ltd. v. Haldia Coke), but cannot be opposed by unrelated parties like ex-employees (Suresh Padmanabhan v. Tata Steel).

  1. Application Must Not Be Barred Under Section 11

Section 11 disqualifies certain applicants, including companies already under insolvency or liquidation. The NCLAT has ruled that a winding-up order bars filing under Section 10, but mere pendency of such a petition does not (Unigreen Global and Ameya Laboratories v. Kotak Mahindra Bank).

  1. Assessment Must Be Based Solely on Prescribed Information

The Adjudicating Authority should evaluate only the information and documents mandated under the Code, Rules, and prescribed Forms. Allegations like misuse of SARFAESI proceedings or unrelated litigation cannot be grounds for rejection (Gemini Innovations, BCL Homes, Antrix Diamond Exports). The tribunal reiterated that disclosure of non-mandatory information (e.g., prior asset transfers or other legal proceedings) is not required unless it directly relates to Section 11 disqualifications.

  1. Applicant Must Not Be a Profitable Company

If the debtor company is financially healthy and generating profits, the tribunal may view the application as an abuse of the insolvency process. In Vyomit Shares & Stock Investments v. SEBI, NCLAT held that profitable companies are not eligible to seek relief under Section 10.

Commencement of CIRP

The CIRP begins from the date of admission of the application by the Adjudicating Authority

Judicial Interpretation

In M/s Surendra Trading Company v. M/s Juggilal Kamlapat Jute Mills Co. Ltd. & Ors. (2017), the Hon’ble Supreme Court clarified the nature of timelines prescribed under the IBC. It held that the 7-day period provided under the proviso to Section 10(4)—for rectifying defects in an application is directory and not mandatory. The Court emphasized that rejecting an application solely due to a delay in rectification could cause unnecessary hardship, especially when genuine reasons exist.

Conclusion

Section 10 empowers corporate debtors to initiate their own insolvency proceedings, providing a dignified exit or revival route for distressed companies. It strikes a balance between commercial responsibility and legal compliance, while judicial pronouncements ensure flexibility in procedural matters to avoid unnecessary rejection of valid applications. Proper understanding and adherence to the procedural requirements under this section is essential for a successful initiation of CIRP.