When can a private company enter insolvency?
A private company can enter insolvency when it defaults on a debt of at least ₹1 crore and the National Company Law Tribunal admits an application under the Insolvency and Bankruptcy Code. Being a private company does not keep the company out of the Code. The filing is not made in a district court.
When does the process start?
Section 4 applies the process where the default is at least the amount the Central Government specifies, which is ₹1 crore. The older minimum of ₹1 lakh does not open an application. Default is non-payment of a whole or part of a debt that has become due. The process starts when the tribunal admits the application, not when the board merely decides the company is short of cash.
Who may apply?
| Applicant | Section |
|---|---|
| A financial creditor | Section 7, for a default of a financial debt. |
| An operational creditor | Section 9, after the demand the section requires and where no notice of a pre-existing dispute is on record. |
| The company itself | Section 10, as a corporate applicant. |
A creditor does not need a special resolution of the company’s members before filing. A resolution of the members to wind the company up is a different route, described on the closure page only where it is actually a removal of the name or a winding up.
What happens after admission?
Admission starts the corporate insolvency resolution process. Section 14 imposes a moratorium: suits and continuation of pending suits are stayed, and the assets are not transferred outside the process. The aim is a resolution plan. Section 12 requires the process to be completed within 180 days of the admission, with one extension of up to 90 days. The Code then caps the period, including time taken in legal proceedings, at 330 days. A further extension is only where the tribunal finds the case exceptional. The process does not finish on day 180 as a matter of course.
If the committee of creditors does not approve a plan, or the tribunal rejects the plan, the tribunal orders liquidation. Liquidation is the consequence of a failed resolution. It is not the first order on the day of admission.
What is not insolvency?
Selling the shares does not close the company and does not start this process. Removing the name under section 248, in Form STK-2, is available only after the liabilities are extinguished. A company that cannot pay ₹1 crore or more does not use that form to skip the debt. A voluntary statement that the company has no debts is a strike-off fact, not an insolvency application.
Frequently asked questions
Four questions cover the tribunal, the ₹1 crore minimum, a sale of assets, and strike-off.
Is the application filed in the district court?
No. An application under the Insolvency and Bankruptcy Code is filed with the National Company Law Tribunal. A district-court winding up is not this process.
Is the minimum default still ₹1 lakh?
No. The Central Government has raised the minimum default for this process to ₹1 crore. A smaller unpaid bill does not open the process.
Does admission mean the assets are sold at once?
No. Admission starts a resolution process and a moratorium. Liquidation follows only if a resolution plan is not approved, or where the Code otherwise orders it.
Is strike-off the same filing?
No. Removing the name under section 248 is available after the liabilities are extinguished. It is not a resolution process for a company that cannot pay.
Sources
The corporate insolvency resolution process is the Insolvency and Bankruptcy Code, 2016. The minimum default is the amount the Central Government has specified under section 4.