Section 7 of the Insolvency and Bankruptcy Code, 2016 is the provision that empowers a financial creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor by filing an application before the National Company Law Tribunal upon the occurrence of a default. Under Indian law, the default threshold for triggering Section 7 is Rs. 1 crore, as notified by the Central Government under Section 4 of the IBC.
Legal definition
Section 7(1) of the Insolvency and Bankruptcy Code, 2016 provides:
A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
Section 7(5) further provides:
The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). Where the Adjudicating Authority is satisfied that —
(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it shall, by order, admit such application; or
(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application.
The default threshold was raised from Rs. 1 lakh to Rs. 1 crore by a notification dated 24 March 2020 under Section 4 of the IBC.
How courts have interpreted this term
Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407
In the first application ever filed under Section 7 of the IBC, the Supreme Court clarified the scope of the NCLT's inquiry at the admission stage. The Court held that the Adjudicating Authority must ascertain two things: (i) whether a default has occurred, and (ii) whether the application is complete. Once these two conditions are satisfied, the NCLT is bound to admit the application. The Court emphasised that the IBC overrides inconsistent provisions of any other enactment, including state laws such as the Maharashtra Relief Undertakings (Special Provisions) Act, 1958.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17
The Supreme Court upheld the constitutional validity of the IBC in its entirety, including the distinction between financial and operational creditors. The Court held that financial creditors are given the power to initiate CIRP under Section 7 because their relationship with the corporate debtor is based on the assessment of financial risk and viability. The differential treatment between Section 7 (financial creditor) and Section 9 (operational creditor) was held to be based on an intelligible differentia with a rational nexus to the objects of the Code.
E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd. (2022) 3 SCC 161
The Supreme Court clarified that the existence of a default is the sine qua non for admission of a Section 7 application. The Court held that a financial creditor must demonstrate that a financial debt exists and that the corporate debtor has committed a default in repayment. The burden of establishing these two elements lies on the applicant financial creditor.
Why this matters
Section 7 is the most frequently invoked provision for initiating insolvency proceedings in India. It is the gateway through which banks, financial institutions, debenture holders, homebuyers (post-2018 amendment), and other financial creditors can trigger the corporate insolvency resolution process. The provision's design reflects the IBC's creditor-in-control model, where the commercial wisdom of financial creditors drives the resolution process.
For practitioners, understanding the distinction between the Section 7 route and the Section 9 route is critical. Unlike operational creditors, financial creditors filing under Section 7 are not required to serve a prior demand notice on the corporate debtor. The NCLT's role at the admission stage is limited to verifying the existence of default and the completeness of the application — it does not adjudicate the underlying dispute or conduct a mini-trial on the quantum of debt.
A common misconception is that the NCLT exercises discretion in admitting or rejecting a Section 7 application. The Supreme Court in Innoventive Industries made clear that once default is established and the application is complete, admission is mandatory, not discretionary. This non-discretionary framework ensures that the insolvency process cannot be delayed by prolonged preliminary litigation.
Related terms
Applicant classification:
Alternative trigger provisions:
Process initiated:
Adjudicating authority:
Frequently asked questions
What is the default threshold for filing under Section 7 IBC?
The default threshold is Rs. 1 crore, as notified by the Central Government on 24 March 2020 under Section 4 of the IBC. Prior to this notification, the threshold was Rs. 1 lakh. The increased threshold was introduced during the COVID-19 pandemic to prevent a surge of insolvency filings against companies facing temporary distress.
Can a single financial creditor file under Section 7?
Yes. Section 7(1) permits a financial creditor to file either individually or jointly with other financial creditors. There is no requirement for multiple creditors to join the application, and even a single creditor whose debt exceeds the threshold can initiate CIRP.
Does the NCLT conduct a trial before admitting a Section 7 application?
No. The Supreme Court in Innoventive Industries (2018) held that the NCLT's role at the admission stage is summary in nature. It must ascertain two things: the existence of a default and the completeness of the application. If both are established, admission is mandatory. The NCLT does not adjudicate disputed claims or conduct an evidentiary hearing at this stage.
Can a Section 7 application be withdrawn after admission?
Yes, but only under Section 12A of the IBC, which requires the approval of 90% of the voting share of the Committee of Creditors. The applicant financial creditor must move an application before the NCLT with the CoC's approval for the withdrawal to be permitted.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.