In today's fast-paced and competitive business world, financial troubles can strike even the most well-run companies. Recognizing this, the Insolvency and Bankruptcy Code (IBC), 2016 was introduced in India to provide an efficient framework for dealing with corporate financial distress. Among its various provisions, Section 10 offers a unique route—a company itself can apply for insolvency when it realizes it can no longer pay its debts.
This article aims to simplify and explain Section 10 of IBC in a clear and comprehensive manner.
What is Section 10 of the IBC?
Section 10 allows a corporate applicant (usually a company or its authorized members) to voluntarily initiate the Corporate Insolvency Resolution Process (CIRP) when the company has defaulted on its debt. Unlike creditors initiating insolvency under Section 7 or 9, here the company itself approaches the Adjudicating Authority (the National Company Law Tribunal or NCLT) to begin the process.
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Key Provisions of Section 10 of IBC
In Section 10 the steps a company in financial trouble can take to start the insolvency process on its own are laid out. Here are its most important parts, which explain who is eligible, what paperwork is needed, when things need to be done and how to make sure things go smoothly.
1. Who Can Apply?
The application can be made by a corporate applicant, which includes:
The corporate debtor (the company itself)
Authorized members such as directors or partners
2. When Can a Company Apply?
A company can file for insolvency if it has committed a default in repayment of any debt, whether it’s financial or operational.
3. What Documents Are Needed?
According to sub-section (3), the application must be accompanied by:
The company’s books of accounts and other financial documents for a specified period
Details of the proposed Resolution Professional (a person who will take charge of the company during CIRP)
A special resolution passed by shareholders (for companies) or a resolution by at least 75% of partners (for partnerships), approving the insolvency filing
4. What Happens After Filing?
The NCLT must decide within 14 days whether to:
Admit the application (if complete and the proposed Resolution Professional has no disciplinary cases pending)
Reject the application (if incomplete or if the Resolution Professional has issues)
Before rejection, the NCLT must give the applicant a chance to correct errors within 7 days.
5. When Does CIRP Begin?
The Corporate Insolvency Resolution Process begins on the date of admission of the application by the NCLT.
Why Would a Company Use Section 10?
At first glance, it may seem odd that a company would willingly admit to being insolvent. But there are valid strategic and legal reasons for doing so
1. Protection from Creditors
Once the application is admitted, a moratorium kicks in under Section 14 of the IBC. This means
Creditors cannot file or continue any lawsuits
The company’s assets are protected from being seized
The company gets a temporary breathing space
2. Chance at Revival
Through CIRP, the company gets an opportunity to restructure its debts and revive the business. If a feasible resolution plan is approved the company can make a fresh start.
3. Avoiding Criminal Liability
For directors, filing under Section 10 can demonstrate that they took timely steps to deal with financial issues possibly avoiding charges of negligence or fraud later.
Safeguards Against Misuse
Initially, Section 10 was seen as a loophole where companies could delay creditors by filing frivolous applications. To counter this:
The 2018 amendment added that the application would be rejected if disciplinary proceedings are pending against the proposed Resolution Professional.
Companies must show internal approval (through special or partner resolutions), ensuring the decision is not taken unilaterally or in bad faith.
Also, if the company has already been through insolvency in the last 12 months or has violated earlier resolution terms, the application can be dismissed.
Real-World Example
Let's say that a company called "TechNova Ltd." took out loans to create a new tech product. The product didn't do well in the market because of changes, and the company can't pay back loans anymore. The board of TechNova holds an emergency meeting and adopts a special resolution to file for bankruptcy under Section 10 instead of waiting for creditors to take them to court.
They make the necessary financial statements, choose a professional to oversee the process of resolution, and send the whole thing to the NCLT. Within 14 days, the tribunal accepts the application, and TechNova is given a 180-day window to work on a debt resolution plan, which could include luring new investors or renegotiating with creditors.
In a nutshell,
Section 10 of the IBC is a safety valve that companies can use on their own when they are having money problems. It gives them the power to take charge of the situation instead of waiting for things to get worse. It helps not only the debtor but also creditors, employees, and the economy as a whole by preserving viable businesses when it is used responsibly.
Section 10 supports the main goal of the IBC, which is to help solve insolvencies quickly while keeping asset values as high as possible. It does this by combining openness, legal protections, and structured timelines.
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Section 10 of IBC: FAQs
Q1: Can a company file under Section 10 without creditor consent?
Yes, but it must have shareholder or partner approval.
Q2: Is filing under Section 10 a declaration of bankruptcy?
No, it’s a request to start the resolution process. Bankruptcy is a last resort after resolution fails.
Q3: Who oversees the process once admitted?
An Interim Resolution Professional (IRP), usually chosen by the applicant, manages the company during the CIRP.
Q4: What happens if the resolution plan fails?
If no plan is approved, the company may go into liquidation—its assets will be sold to repay creditors.
