Section 95: Application by Creditor to Initiate Insolvency Resolution Process

Section 95 of the Insolvency and Bankruptcy Code, 2016 permits a creditor to initiate an insolvency resolution process against a debtor, either individually, jointly with other creditors, or through a resolution professional, subject to the requirements of Part III of the Code.

Current framework: The notified Part III insolvency resolution framework applies to personal guarantors to corporate debtors. For a creditor's application against such a personal guarantor, the 2019 Rules prescribe the demand notice and application procedure, while the applicable IBBI regulations govern the insolvency resolution process.

Section 95 - Statutory Provision

(1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application.

(2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against-

(a) any one or more partners of the firm; or

(b) the firm.

(3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just.

(4) An application under sub-section (1) shall be accompanied with details and documents relating to-

(a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application;

(b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and

(c) relevant evidence of such default or non-repayment of debt.

(5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor.

(6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed.

(7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified.

Who Can Apply under Section 95?

A creditor may file the application alone, jointly with other creditors, or through a resolution professional. The statutory provision therefore permits both an individual creditor application and a joint creditor application.

Demand Notice and 14-Day Requirement

Section 95(4)(b) requires details and documents showing that the debtor failed to pay the debt within fourteen days after service of the demand notice. For personal guarantors to corporate debtors, Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 prescribes the creditor application procedure and the applicable forms.

Application against a Personal Guarantor

For the notified personal guarantor framework, a creditor seeking insolvency resolution against a personal guarantor to a corporate debtor proceeds under Section 95 read with the applicable 2019 Rules. The prescribed framework requires service of the demand notice and filing of the creditor application in the prescribed form, together with the applicable fee and supporting material.

Documents and Evidence Required

The application must contain details of the debt owed as on the application date, evidence concerning non-payment following the demand notice, and relevant evidence of default or non-repayment. The creditor must also provide a copy of the application to the debtor. The applicable rules and regulations prescribe or specify further procedural requirements.

Partnership Debts

Section 95(2) permits a creditor, in relation to a partnership debt, to seek initiation of the insolvency resolution process against one or more partners or against the firm. Section 95(3) also provides for presentation, transfer and possible consolidation of applications concerning different partners of the same firm before the Adjudicating Authority dealing with the first application.

Interim Moratorium under Section 96

After an application is filed under Section 95, Section 96 governs the interim moratorium in accordance with its statutory terms. The following provisions deal with appointment of the resolution professional, examination of the application, submission of the report and the decision on admission or rejection.

Meaning of Important Terms

Creditor: Section 3 defines a creditor as a person to whom a debt is owed and includes financial creditors, operational creditors, secured creditors, unsecured creditors and decree-holders.

Debt: Section 3 defines debt as a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt.

Default: Section 3 defines default as non-payment of debt when the whole or any part or instalment has become due and payable and is not paid by the debtor or corporate debtor, as applicable.

Resolution professional: Section 79 defines the resolution professional for Part III as an insolvency professional appointed under that Part for conducting the fresh start process or insolvency resolution process.

Adjudicating Authority: In proceedings concerning personal guarantors to corporate debtors, jurisdiction is governed by Section 60 of the Code together with the notified Part III framework.

Related Provisions

For a particular proceeding, check the official Code, commencement notifications, the applicable rules, current IBBI regulations and procedural directions.