The Insolvency and Bankruptcy Code, 2016 (IBC) has transformed how India handles financial difficulties for businesses and individuals. Among its important provisions, Section 10 stands out as a key tool that allows a company, referred to as a corporate debtor, to voluntarily start the Corporate Insolvency Resolution Process (CIRP) when it cannot pay its debts. This section gives businesses a way to take action early, focusing on restructuring and revival instead of liquidation. In this article, we will explain Section 10 in detail, covering its legal framework, steps for filing, court interpretations, and what it means for businesses. Whether you are a business owner, a legal professional, or someone with a stake in a company, this guide will help you understand how to navigate corporate insolvency under the IBC.
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What is Section 10 of the IBC, 2016?
Section 10 of the Insolvency and Bankruptcy Code, 2016, allows a corporate applicant, usually the company itself, to voluntarily start the Corporate Insolvency Resolution Process (CIRP) when it fails to pay its financial obligations, known as a default. Unlike processes started by creditors, Section 10 lets businesses take the lead in addressing their financial troubles. The goal is to restructure and revive the company rather than shutting it down. This provision is especially important for companies that want to stay in control of their resolution plan while following legal and governance rules.
Who Can File Under Section 10?
A corporate applicant under Section 10 includes:
The corporate debtor (the company itself).
Authorized members or partners of the corporate debtor.
Any person with control over the financial affairs of the corporate debtor.
This broad definition ensures that key stakeholders within the company can initiate the CIRP, provided they meet the procedural requirements.
Procedural Requirements of Section 10 IBC
Section 10 provides a clear and structured process for starting the CIRP. Below, we break down the key parts of the section and what they require:
Sub-section (1): Filing the Application
Under Sub-section (1), a corporate applicant can file an application with the Adjudicating Authority, which is usually the National Company Law Tribunal (NCLT), when the company has defaulted on its debts. A default means failing to repay debts, such as loans or payments to suppliers, when the amount owed is above a certain limit (currently ₹1 crore, as updated by an amendment).
Sub-section (2): Application Format
Sub-section (2) requires the application to be submitted in a specific format, along with necessary details and a filing fee. This ensures that the application is complete and follows a standard format to avoid any kind of delays. The application must include information about the default and a proposed plan for resolving the financial issues.
Sub-section (3): Supporting Documents
Sub-section (3) lists the documents and information that must be included with the application:
Financial Records: The company must provide its books of account and other financial documents, usually covering the previous two financial years.
Resolution Professional Details: The application must include details about the proposed interim resolution professional (IRP), who will manage the CIRP.
Shareholder/Partner Approval: A special resolution passed by the company’s shareholders or a resolution approved by at least three-fourths of the company’s partners is required. This rule was added through the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, effective from June 6, 2018, to ensure better corporate governance.
Sub-section (4): Adjudicating Authority’s Role
Sub-section (4) states that the Adjudicating Authority must decide whether to admit or reject the application within 14 days. The application will be admitted if:
It is complete and includes all required documents.
There are no disciplinary issues with the proposed resolution professional.
If the application is rejected because it is incomplete or there are issues with the resolution professional, the applicant has seven days to fix the problems after being notified. The Supreme Court, in the case of M/S. Surendra Trading Company Vs. M/S. Juggilal Kamlapat Jute Mills Company Limited ([2017] ibclaw.in 08 SC), clarified that this seven-day period is flexible, not strict, giving applicants some leeway to correct mistakes.
Sub-section (5): Commencement of CIRP
Sub-section (5) explains that the CIRP officially begins on the day the application is admitted. This starts the resolution process, triggers a moratorium (a pause on legal actions against the company), and allows the resolution professional to take over the management of the company.
Learn more about Corporate Insolvency Resolution
How Section 10 Differs from Sections 7 and 9 of IBC
While Sections 7 and 9 of IBC allow financial and operational creditors, respectively in order to initiate the CIRP, Section 10 of IBC is unique in its voluntary nature. Creditor-initiated processes may prioritize debt recovery, whereas Section 10 focuses on revival, aligning with the IBC’s broader objectives. This difference tells that Section 10 is a strategic tool for businesses aiming to restructure without external pressure.
Practical Implications of Section 10 of IBC
Section 10 of IBC offers businesses a proactive mechanism in order to address financial distress. Unlike Sections 7 and 9 of IBC, which involve creditors initiating the Corporate Insolvency Resolution Process, Section 10 of IBC empowers the corporate debtor to take control. This is particularly beneficial for:
Businesses Seeking Revival:The companies can propose restructuring plans in order to avoid liquidation.
Stakeholder Alignment: The requirement for shareholder/partner approval ensures collective decision-making.
Time-Bound Resolution: The 14-day decision timeline and 180-day CIRP period (extendable to 330 days) promotes efficiency.
However, the 2018 amendment requiring shareholder/partner approval adds procedural complexity and especially for companies with diverse ownership structures. Businesses must ensure compliance with documentation and governance requirements to avoid rejection by the NCLT.
Benefits of Section 10
Proactive Approach: Allows companies to address insolvency before creditors intervene.
Control Over Process: The corporate debtor can propose a resolution professional and strategy.
Moratorium Protection: Halts legal actions, giving breathing room to restructure.
Challenges
Governance Hurdles: Obtaining shareholder/partner approval can be time-consuming.
Documentation: Incomplete or inaccurate financial records may lead to rejection.
Threshold Limits: The ₹1 crore default threshold may exclude smaller defaults.
Find out What Insolvency is?
Summary
Section 10 of the Insolvency and Bankruptcy Code, 2016, allows a corporate applicant, typically the company itself, to voluntarily initiate the Corporate Insolvency Resolution Process (CIRP) upon defaulting on debts. The application, filed with the Adjudicating Authority, requires financial records, details of a proposed resolution professional and shareholder/partner approval (post-2018 amendment). The authority decides within 14 days, with a seven-day window to fix defects. Judicial rulings, like M/S. Surendra Trading Company (2017) further ensures procedural flexibility.
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Section 10 of IBC: FAQs
Q1. What is Section 10 of the IBC?
Section 10 of the Insolvency and Bankruptcy Code, 2016, allows a corporate applicant, typically the company, to voluntarily initiate the Corporate Insolvency Resolution Process (CIRP) upon defaulting on financial obligations, aiming for revival over liquidation.
Q2. What is the insolvency petition under Section 10?
The insolvency petition under Section 10 is an application filed by a corporate applicant with the Adjudicating Authority (NCLT) to start the CIRP, including financial records, resolution professional details, and shareholder/partner approval.
Q3. What is Section 10A of IBC 2016?
Section 10A, introduced in 2020, temporarily suspends the initiation of CIRP under Sections 7, 9, and 10 for defaults arising due to COVID-19-related financial distress, typically for six months to a year.
Q4. What is the minimum amount for insolvency?
The minimum amount for initiating insolvency under the IBC is ₹1 crore for corporate debtors, as set by the 2020 amendment to ensure significant defaults trigger CIRP.
Q5. What is the threshold for 1 crore in IBC?
The ₹1 crore threshold in the IBC refers to the minimum default amount required to initiate CIRP under Sections 7, 9, or 10, applicable to corporate debtors since March 2020.
