The Insolvency and Bankruptcy Code, 2016 does not begin the corporate insolvency resolution process because a company is sick, mismanaged or insolvent in the balance-sheet sense. It begins because a single, precisely defined event has occurred: a default. Everything in Part II of the Code radiates outward from that one trigger. The amount of the default must cross a statutory threshold; the default must have a date; that date sets the clock of limitation running; and once a default is established before the Adjudicating Authority, the corporate insolvency resolution process must, ordinarily, follow. This article isolates the triggering event itself, asking three questions the examiner repeatedly returns to: what is a default, how much must it be, and when does it occur. Understanding this is the gateway to the three doors of initiation that the Code provides, and which we treat in detail in initiation of CIRP by a financial creditor and its siblings.
Default, Not Insolvency, Is the Trigger
The first and most important conceptual correction an aspirant must make is this: the Code is not triggered by insolvency. It is triggered by default. The two are distinct. A company may be deeply insolvent in the accounting sense, with liabilities exceeding assets, and yet face no insolvency proceeding so long as it pays its debts as they fall due. Conversely, a perfectly solvent and profitable company that withholds payment of an admitted, undisputed debt above the threshold can be dragged into the corporate insolvency resolution process (CIRP). The trigger is a behavioural event, non-payment, not a financial condition.
This design choice was deliberate. The Bankruptcy Law Reforms Committee, whose report underlies the Code, wanted a clean, objective, justiciable event that the Adjudicating Authority could verify quickly rather than a sprawling inquiry into the company's overall financial health. The word that captures this event is default, and it is defined in Section 3(12). For the policy backdrop and the shift from the old debtor-in-possession regime, see the introduction, object and scheme of the IBC.
The Supreme Court fixed this understanding at the very threshold of the Code's life. In Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, the first authoritative pronouncement on the Code, the Court held that the moment the Adjudicating Authority is satisfied that a default has occurred and the application is complete, it must admit the application. The inquiry is into default, not into the wider solvency or commercial wisdom of pursuing the debtor.
The Anatomy of Default: Section 3(12)
Section 3(12) of the Code defines default as "non-payment of a debt when whole or any part of the debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be." Three elements must be dissected.
First, there must be a debt. Section 3(11) defines debt as a liability or obligation in respect of a claim which is due from any person, and includes both a financial debt and an operational debt. The distinction between these two species of debt is foundational and is examined in our note on definitions; it determines which door of initiation is available and what proof is required.
Second, the debt must have become due and payable. A debt that is contractually not yet due, or whose payment has been validly deferred, cannot found a default. The maturity of the obligation is therefore part of the trigger.
Third, and decisively, the words "whole or any part" mean that non-payment of even a portion of the debt constitutes default. There is no requirement that the entire sanctioned facility or the whole invoice be unpaid. In M. Suresh Kumar Reddy v. Canara Bank, 2023 INSC 521 (decided 11 May 2023), the Supreme Court squarely reaffirmed that non-payment of a part of the debt, once it becomes due and payable, amounts to default and attracts an order under Section 7. This is a favourite trap in problem questions: the defence that "most of the loan was repaid" is no defence at all if any due part remains unpaid.
The Quantum Filter: Section 4 and the One-Crore Threshold
Not every default opens the door to insolvency. Section 4 imposes a quantum filter. As originally enacted, Section 4 provided that Part II applies where the minimum amount of the default is one lakh rupees, with a proviso empowering the Central Government to notify a higher figure not exceeding one crore rupees.
The Government exercised that power dramatically during the pandemic. By Notification S.O. 1205(E) dated 24 March 2020, issued under the proviso to Section 4, the minimum amount of default was raised from one lakh rupees to one crore rupees for corporate persons. This single notification removed the great majority of small and mid-sized claims from the corporate insolvency forum overnight and shunted them back to ordinary recovery mechanisms.
For the examiner, three precise points matter. The threshold is jurisdictional: an application founded on a default below one crore is not maintainable as a corporate insolvency application at all. The threshold is per the amount of default, not the size of the total facility, so a borrower of fifty crores who is in arrears of only seventy lakh rupees falls below the line. And the threshold question and the COVID-era debate over whether the enhanced figure operates prospectively or retrospectively were the subject of conflicting tribunal views, with the prevailing position treating the enhanced one-crore threshold as applying to applications filed on or after the notification date regardless of when the default arose.
When Does Default Occur? The Date of Default
Because the Code is triggered by an event, that event must have a date. The date of default is not a technicality; it is the linchpin from which limitation runs, against which the Section 10A bar is measured, and by reference to which the existence of the trigger is tested.
For a financial debt secured by a banking facility, the date of default is ordinarily aligned with the date the account is classified as a Non-Performing Asset (NPA) under the Reserve Bank of India's prudential norms, that is, typically when the account remains overdue beyond ninety days. The Supreme Court treated the NPA date as the date of default in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd., decided 14 August 2020, where the accounts had been classified as NPA on 8 July 2011 and 5 August 2011, fixing the default in 2011.
The date of default must be pleaded with precision. A financial creditor must state it in the application form (Form 1) and support it with the record of the financial debt, including, where available, the record maintained by an information utility under Section 7(3). An operational creditor's default crystallises by reference to the demand notice procedure under Section 8, examined in our note on initiation of CIRP by an operational creditor. A vaguely pleaded or shifting date of default is fatal, because it is precisely the fact the Adjudicating Authority must verify.
Proving the Trigger Before the Adjudicating Authority
How is default proved, and how searchingly does the Adjudicating Authority examine it? The architecture differs sharply between financial and operational creditors, and that difference is itself a frequent examination theme.
For a financial creditor proceeding under Section 7, Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, laid down that the Authority has merely to ascertain the existence of a default from the records of the information utility, or on the basis of other evidence furnished by the financial creditor, and is to do so expeditiously. Once a debt and a default are shown and the application is complete, the application must be admitted. The corporate debtor's scope to resist is narrow: it can show that the default has not occurred, that the debt is not due, or that the application is incomplete, but it cannot turn the admission stage into a full trial on the merits of the underlying commercial dispute.
For an operational creditor under Sections 8 and 9, the inquiry is wider in one direction: the existence of a genuine dispute defeats the trigger. In Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 (judgment dated 21 September 2017), the Supreme Court held that all the Adjudicating Authority must see is whether there is a plausible contention requiring further investigation, a dispute that is not a patently feeble legal argument or an assertion of fact unsupported by evidence. If such a real dispute exists, the application must be rejected. The threshold for the operational debtor is thus the existence of a pre-existing dispute, not a defence proved at trial.
Limitation: The Trigger Has a Shelf Life
A default does not remain actionable forever. The date of default starts a limitation clock, and an aspirant who can marry the trigger to limitation answers a large slice of the IBC syllabus in one move.
The applicability of the Limitation Act, 1963 was settled in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 (judgment dated 11 October 2018). The Court held that the Limitation Act applies to applications under Sections 7 and 9 from the inception of the Code, and that Article 137 of the Schedule to the Limitation Act, the residuary article prescribing three years, governs. Crucially, the Court held that the right to apply accrues when the default occurs. If the default occurred more than three years before the application, the application is time-barred, save where delay is condoned under Section 5 of the Limitation Act. Parliament later codified this by inserting Section 238A into the Code.
The rigour of this rule was demonstrated in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. (14 August 2020). The default having occurred on the NPA date in 2011 and the Section 7 application having been filed in 2018, roughly seven years later, the application was held barred by limitation; the three-year period from the date of default could be extended only by a properly pleaded case for condonation under Section 5, which was absent. The practical lesson: limitation is measured from the date of default, and a stale default cannot be revived merely by the magnitude of the debt.
Reviving the Trigger: Acknowledgment of Debt
Because limitation runs from the date of default, creditors naturally seek to extend it. The principal mechanism is acknowledgment of liability under Section 18 of the Limitation Act, which, if made before the expiry of the prescribed period, starts a fresh period of three years from the date of the acknowledgment.
In Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, (2021) 10 SCC 330 (judgment dated 4 August 2021), the Supreme Court held that entries in the books of account and balance sheets of the corporate debtor, as well as a one-time settlement (OTS) proposal, can constitute an acknowledgment of debt under Section 18, thereby furnishing a fresh starting point for limitation. The Court further held that a final judgment or decree of a court or tribunal in favour of the creditor gives rise to a fresh cause of action, and that there is no bar to filing supporting documents at any stage before a final order is passed.
Two cautions follow for examination purposes. First, the acknowledgment must be made before the original limitation period has expired; an acknowledgment made after the debt is already time-barred cannot resurrect it. Second, the document relied on must contain an admission of a subsisting liability; a mere proposal to restructure, or a routine annual filing devoid of any admission of liability, may not qualify. The interplay of date of default, acknowledgment and Article 137 is the most heavily litigated dimension of the triggering event.
Suspending the Trigger: Section 10A and COVID-Era Defaults
The clearest illustration that the Code revolves around the date of default is Section 10A, inserted by an Ordinance with effect from 5 June 2020. Section 10A bars the filing of any application under Sections 7, 9 or 10 for any default arising on or after 25 March 2020 for a period of six months, extendable up to one year, and contains a proviso that no application shall ever be filed for a default occurring during that suspended period.
The Supreme Court construed this provision in Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd., (2021) 3 SCC 224 (judgment dated 9 February 2021). The Court held that the bar operates by reference to the date of the default, not the date of the application. Consequently, an application filed before 5 June 2020 but in respect of a default occurring on or after 25 March 2020 is caught by the bar. The cut-off date of 25 March 2020, the commencement of the national lockdown, was deliberately chosen to ring-fence pandemic-induced defaults.
The Court was careful to add that Section 10A does not extinguish the debt or the creditor's right to recover it; it merely suspends the insolvency remedy for that defined class of defaults. The decision is a textbook demonstration that the trigger is the default event and its date, and that the legislature can withdraw the insolvency forum for a slice of defaults defined purely by their date of occurrence.
Does an Established Default Compel Admission? The Vidarbha Detour
If a default is proved and the application is complete and within time, must the Adjudicating Authority admit it? Innoventive suggested there was hardly any discretion. That orthodoxy was disturbed by Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352 (judgment dated 12 July 2022), where the Supreme Court seized on the word "may" in Section 7(5)(a) and held that the provision is discretionary: the NCLT may decline to admit a Section 7 application even where debt and default are established, if there are sound reasons to do so, contrasting this with the mandatory "shall" in Section 9(5).
The decision caused considerable unease, since it appeared to reintroduce a merits inquiry into a regime designed to be mechanical at the trigger stage, and a review petition against it was dismissed on 22 September 2022. The Court itself then promptly trimmed the doctrine. In M. Suresh Kumar Reddy v. Canara Bank, 2023 INSC 521 (11 May 2023), the Court clarified that Vidarbha turned on its peculiar facts (an arbitral award in the debtor's favour awaiting realisation) and that, ordinarily, once the existence of a financial debt and default is established, the NCLT is bound to admit the Section 7 application. The discretion recognised in Vidarbha is the exception, not the rule.
For the aspirant, the safe formulation is this: an established default ordinarily compels admission under Section 7; Vidarbha recognises a narrow residual discretion to be exercised only in exceptional, fact-specific circumstances, as confirmed by M. Suresh Kumar Reddy.
From Trigger to Process: The Three Doors of Initiation
The triggering event, once it exists, can be carried to the Adjudicating Authority through three distinct doors, each with its own procedure and its own gloss on the trigger.
A financial creditor moves under Section 7, relying on the record of the financial debt and the date of default, with the wide reading of Innoventive permitting expeditious admission. The Code even allows a single financial creditor, or financial creditors jointly, to apply, and a creditor may rely on a default to it or to any other financial creditor. This route is developed in initiation of CIRP by a financial creditor.
An operational creditor must first issue a demand notice under Section 8 and can proceed under Section 9 only if no payment is made and, critically, no genuine pre-existing dispute is raised, the Mobilox filter. The operational creditor's trigger is therefore conditional on the absence of dispute.
Finally, the corporate debtor itself may initiate under Section 10, in effect confessing its own default, a route examined in initiation of CIRP by the corporate debtor. Across all three doors the inner core is identical: a debt due and payable, a default crossing the one-crore threshold, a date of default within limitation, and no statutory bar such as Section 10A. Get that core right and the procedural variations fall into place.
The Trigger and the Statutory Clock of CIRP
The triggering event also marks the start of a tightly timed process. The Code does not merely require that a default be proved; once the application is admitted, the corporate insolvency resolution process is governed by strict timelines, a 14-day window for the Adjudicating Authority to ascertain default and decide on admission under Section 7, and an outer time limit for completion of the CIRP itself.
This is why the verification of the trigger is built for speed. Innoventive stressed that the 14-day period for ascertaining the existence of a default is significant precisely because the Code prizes time-bound resolution over leisurely adjudication. A trigger that cannot be verified quickly defeats the statutory scheme. The downstream timelines, including the 330-day outer limit, are dealt with in our note on the time limit for CIRP.
The practical takeaway is that the quality of the trigger determines the pace of everything that follows. A clean, dated, documented default supported by an information-utility record or a clear record of financial debt is admitted swiftly; a contested or poorly evidenced default invites the very delay the Code was enacted to abolish.
Common Misconceptions About the Trigger
Several recurring errors deserve direct correction. First, that the Code is a recovery mechanism: it is not. The trigger is default, but the object is resolution of the corporate debtor as a going concern or, failing that, liquidation; a creditor who treats Section 7 or 9 as a debt-collection lever, with no genuine intention of insolvency resolution, risks the application being viewed as an abuse, particularly after the dispute and discretion glosses in Mobilox and Vidarbha.
Second, that solvency is a defence: it is not. As M. Suresh Kumar Reddy confirms, an established default ordinarily compels admission irrespective of the debtor's overall solvency. Third, that part-payment defeats the trigger: it does not, because Section 3(12) expressly reaches non-payment of "whole or any part" of the debt.
Fourth, that any old debt will do: it will not, because limitation under Article 137 runs from the date of default per B.K. Educational Services, subject to acknowledgment under Dena Bank. And fifth, that the date of the application matters for the COVID bar: it does not, because Ramesh Kymal ties Section 10A to the date of default. Holding these five corrections together gives a precise, defensible account of what it takes to trigger insolvency under the Code. For the wider scheme into which the trigger fits, return to the IBC notes hub.
Frequently asked questions
What exactly triggers insolvency under the IBC, default or insolvency?
Default, not insolvency. Section 3(12) defines default as non-payment of a debt that has become due and payable. A solvent company can be subjected to CIRP if it defaults on an undisputed debt above the threshold, while an insolvent company that keeps paying its dues faces no proceeding. The Supreme Court fixed this in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, holding that admission follows once default and a complete application are shown.
What is the minimum amount of default required to trigger CIRP?
One crore rupees. Section 4 originally fixed the minimum at one lakh rupees with power to enhance it up to one crore. By Notification S.O. 1205(E) dated 24 March 2020, the Central Government raised the threshold to one crore rupees for corporate persons. The figure refers to the amount of the default, not the size of the total facility, so a large borrower in arrears of less than one crore falls below the jurisdictional line.
Does non-payment of only part of a debt amount to default?
Yes. Section 3(12) expressly covers non-payment of the "whole or any part" of a debt. In M. Suresh Kumar Reddy v. Canara Bank, 2023 INSC 521, the Supreme Court held that non-payment of a part of a debt, once due and payable, constitutes default and attracts an order under Section 7. The argument that most of the loan has been repaid is therefore no defence if any due portion remains unpaid.
From what date does limitation run for an insolvency application?
From the date of default. In B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633, the Supreme Court held that Article 137 of the Limitation Act prescribes a three-year period running from the date the default occurs, applicable to Sections 7 and 9 from the Code's inception. Babulal Vardharji Gurjar v. Veer Gurjar Aluminium (2020) applied this strictly, barring an application filed about seven years after the NPA-dated default.
Can a time-barred default be revived to trigger CIRP?
It can be extended, not revived from the dead. Under Section 18 of the Limitation Act, an acknowledgment of liability made before the limitation period expires starts a fresh three-year period. In Dena Bank v. C. Shivakumar Reddy, (2021) 10 SCC 330, the Supreme Court held that balance-sheet entries and a one-time settlement proposal can amount to such an acknowledgment. But an acknowledgment made after the debt is already time-barred cannot resurrect it.
How did Section 10A affect defaults during the COVID-19 period?
Section 10A barred applications under Sections 7, 9 and 10 for any default occurring on or after 25 March 2020, with a proviso permanently barring applications for defaults in the suspended window. In Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd., (2021) 3 SCC 224, the Supreme Court held the bar operates by reference to the date of default, not the filing date, but does not extinguish the debt or the right to recover it.