When a bank files an IBC Section 7 application against your company, the National Company Law Tribunal (NCLT) has 14 days to decide whether to admit it. If it admits, a moratorium begins at once, your board’s powers pass to an interim resolution professional, and the bank’s SARFAESI and DRT actions against the company stop. Since 26 May 2026 the grounds on which an NCLT can refuse a properly proved petition are narrower than they were. That makes the first two weeks after you learn of the filing the most important period in the case.

This article explains what a financial creditor NCLT filing contains, how the 2026 amendment changed the admission test, the defences that remain, and what to do in the 14-day window.

What Section 7 is, and who can file

Section 7 of the Insolvency and Bankruptcy Code, 2016 lets a financial creditor start the corporate insolvency resolution process (CIRP) against a corporate debtor that has defaulted. A Section 7 IBC financial creditor is, under Section 5(7), any person to whom a financial debt is owed, including an assignee. Banks, NBFCs and asset reconstruction companies are the usual applicants. Financial debt means money lent or raised against the consideration of the time value of money, such as a term loan, working capital facility or debenture.

The minimum amount of default is Rs 1 crore. A bank can file on its own account or jointly with other financial creditors. Filing does not depend on the account having been classified as an NPA, though the NPA date often appears in the papers because it is evidence of default.

For a company already under SARFAESI notice, a Section 7 petition is a different and more severe route. SARFAESI lets the bank enforce against specific security. A Section 7 petition, if admitted, takes the company itself into a court-supervised process in which every creditor is bound. For a side-by-side view of the three routes, see Hectogon’s comparison of IBC NPA resolution, SARFAESI enforcement and DRT recovery, and its IBC route settlement services.

What the bank has to put in the application

The application is made in Form 1 under the Adjudicating Authority Rules and has five parts: applicant details, details of the financial debt, details of the default, the proposed interim resolution professional with written consent, and a verification. The bank must also serve a copy on the corporate debtor’s registered office.

The central requirement is proof of default. Under Section 7(3) the bank shows it through either a record of default from an information utility such as NeSL, or other evidence the Insolvency and Bankruptcy Board of India permits, which includes the loan agreement, account statements, NPA classification and, where relevant, a court decree. Under the 2026 amendment, when a financial institution files an information utility record of default, that record is treated as sufficient proof of default.

Three things in the filing deserve a careful read by the borrower:

1. The date of default. The bank states a date. That date drives the limitation analysis. Where the date claimed is earlier or later than the borrower’s own records show, the difference matters.
2. The amount. The claim in the petition can include principal, interest and charges. Disputes about how much is owed do not necessarily defeat the petition, but they should be identified early.
3. The proposed resolution professional. The petition names the person the bank wants as interim resolution professional. A pending disciplinary proceeding against that person is one of the three conditions for admission.

The 14-day admission test after the 2026 amendment

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received assent on 6 April 2026, and the substituted Section 7(5) has been in force since 26 May 2026. Under the new text, the NCLT must pass an order admitting or rejecting the application within 14 days of receiving it. If it does not pass an order in that time, it must record the reasons for the delay in writing.

The NCLT must admit the application if three conditions are met:

• default has occurred;
• the application is complete; and
• no disciplinary proceeding is pending against the proposed resolution professional.

An Explanation provides that once these conditions are met, no other ground shall be considered to reject the application. If the application is incomplete, the NCLT must first give the applicant seven days to correct the defect before rejecting it.

This closes a debate that ran for years. In Innoventive Industries Ltd. v. ICICI Bank (SC, 2017), the Supreme Court held that where default is proved and the application is complete, admission follows. In Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (SC, 2022), the Court read the word “may” in the old Section 7(5)(a) as leaving the NCLT some discretion even after default was shown, which borrowers used to argue against admission. In M. Suresh Kumar Reddy v. Canara Bank (SC, 11 May 2023), the Court said Vidarbha turned on its specific facts and was an exception, and that once the NCLT is satisfied that a default has occurred, there is hardly any discretion left to refuse admission. The 2026 amendment now points the same way in the statute itself.

A Section 7 admission is therefore less a contest over fairness or commercial sense and more a test of whether the bank has proved a default within the law. A borrower who treats the filing as something that can be argued away on hardship will usually be disappointed.

The defences that remain

To defend a Section 7 petition, a borrower has to work within a narrow test, so the defences that matter are narrow too. None of them succeeds without documents.

No default. Default means non-payment of a debt that has become due and payable. If the debt exists but has not yet fallen due, for example because a repayment schedule or standstill agreement is in force, the petition can fail. If a part of a due debt is unpaid, that can still amount to default.

Limitation. The petition must be filed within three years of the date of default, as the Supreme Court explained in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2018). A written acknowledgment of the debt within the period can extend it. A borrower should check the default date in the petition against its own records and against every letter, restructuring proposal and balance confirmation sent to the bank.

An incomplete or defective application. Missing consent from the proposed professional, an incorrect form, or missing proof of default can be raised. The NCLT will usually allow the seven days to cure, so this defence buys time at best.

A pending disciplinary proceeding against the proposed professional. This is one of the statutory conditions. It affects who is appointed, and the practical result may be a request to name another professional.

Payment or settlement before admission. If the bank agrees to settle and withdraws before admission, the matter can end. After admission, withdrawal runs through Section 12A and needs the committee of creditors’ approval, and the 2026 amendment narrowed the window for that route.

Abuse of process. The Supreme Court in Anjani Technoplast Ltd. v. Shubh Gautam (23 April 2026) held that the Code cannot be used as a means of oppression or coercion, or as a substitute for executing a money decree against a solvent company. That case involved a private decree holder and a company that showed it could pay. The ruling’s reported facts involve a private decree holder, so how far it limits bank petitions has not been tested, and the Court said the earlier principle that decree holders can invoke the Code must be examined on facts. A borrower should treat it as a point to raise only where the facts really fit, such as a solvent company with an executable decree and a bank using the Code to apply pressure. Section 65 of the Code also penalises initiation of the process for fraudulent or malicious purposes, though it is rarely a ground on which a petition is refused.

What admission does to the company, its directors and its guarantors

Once the NCLT admits the petition, four things follow.

1. A moratorium under Section 14. It bars the continuation of suits and proceedings against the company, the transfer or sale of its assets, and the enforcement of security interests, including SARFAESI action. DRT recovery proceedings against the company stop for the moratorium period.
2. The interim resolution professional takes over. The board’s powers are suspended and the professional manages the company.
3. The process runs on statutory timelines. The Code sets time limits for the resolution process in Section 12. Check the current limits with counsel, because they have been amended more than once.
4. Promoters face a bar. Under Section 29A, a person whose account has been classified as an NPA for a year or more is, subject to the conditions in the Section, barred from submitting a resolution plan unless the overdue amounts are paid before the plan is submitted.

The moratorium protects the company. It does not protect personal guarantors. In State Bank of India v. V. Ramakrishnan (SC, 2018), the Supreme Court held that the Section 14 moratorium does not extend to a company’s personal guarantors, so the bank can pursue them separately. Directors who gave guarantees should assume the bank may do so.

The first 14 days: what to do

A company that learns of an IBC Section 7 application, usually through a notice from the NCLT registry or the bank’s copy, has little time. These steps tend to matter most:

1. Get the full petition and annexures. Read the default date, the claimed amount and the record of default.
2. Build the default timeline. List every payment, notice, restructuring offer, acknowledgment and standstill communication, with dates.
3. Test limitation. Compare the claimed default date to the three-year period and to any acknowledgments.
4. Check the completeness points. The form, the consent, the information utility record and the service.
5. Decide whether settlement is realistic. A settlement before admission has a different legal footing from one after. RBI’s framework for compromise settlements (RBI/2023-24/40, DOR.STR.REC.20/21.04.048/2023-24, dated 8 June 2023) sets the rules banks work within, and each bank’s board-approved policy governs the details. An IBC debt restructuring conversation with the bank can run in parallel with the legal response, but it should not replace it.
6. Prepare to appear. Counsel should be in place before the first listing, since the NCLT has to decide within 14 days of receiving the application.

If the NCLT admits the petition, an appeal lies to the National Company Law Appellate Tribunal under Section 61, ordinarily within 30 days, with a limited further period the Appellate Tribunal may allow. The Supreme Court is the next forum.

Where this sits in the wider picture

Directors often ask whether a Section 7 petition means the end of the company. It does not necessarily. The process is meant to resolve the debt, and many companies in corporate insolvency India 2026 face it as one route among several for stressed accounts. What changes is who controls the outcome. Before admission, the board and the bank can negotiate. After admission, the committee of creditors decides, and the resolution plan route replaces the board’s authority.

When professional review matters

Reading a Section 7 petition against Form 1, the information utility record and the limitation period is a legal exercise, and the facts of each account differ. A review by a qualified advocate, before the first hearing, is usually more useful than one after admission. Clients in this situation typically consider having the petition, the default date and the settlement options checked against the current Code before deciding how to respond. No advisor can lawfully promise how the NCLT or the Appellate Tribunal will decide a particular case.

Frequently asked questions

How long does the NCLT take to decide a Section 7 application?

Since 26 May 2026, the NCLT must pass an order admitting or rejecting a Section 7 application within 14 days of receiving it. If it does not, it must record the reasons for the delay in writing. In practice, the first hearing and the borrower’s response fall inside that short window.

Can a company stop a bank’s Section 7 petition by arguing hardship?

Rarely. The Supreme Court has held that once default is proved and the application is complete, admission follows, and the 2026 amendment bars rejection on other grounds. Defences that can work are no default, limitation, an incomplete application, or a pending disciplinary proceeding against the proposed professional.

What happens to SARFAESI and DRT proceedings once a Section 7 petition is admitted?

On admission, the Section 14 moratorium starts. It bars suits and proceedings against the company, transfer of its assets, and enforcement of security interests, including SARFAESI action. DRT recovery proceedings against the company stop for the moratorium period. Personal guarantors are not protected by the moratorium.

What is the minimum default amount for a financial creditor to file under Section 7?

The minimum default is Rs 1 crore. A financial creditor such as a bank, NBFC or asset reconstruction company can file alone or jointly with other financial creditors. Proof of default comes either from an information utility record or from other evidence permitted by the Insolvency and Bankruptcy Board of India.

Can a company settle with the bank after a Section 7 petition is filed?

Yes, before admission, the parties can settle and the bank can withdraw, which ends the matter. After admission, withdrawal goes through Section 12A and needs the committee of creditors’ approval, a harder route. A settlement should be recorded in writing and checked by counsel against the bank’s policy and RBI’s framework.