IBC Section 95: Application by creditor to initiate insolvency resolution process

Section 95 of Insolvency and Bankruptcy Code, 2016: Application by creditor to initiate insolvency resolution process

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(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.

Legal Commentary & Landmark Judgments: Section 95

Section 95 empowers financial and operational creditors to initiate insolvency resolution proceedings against personal guarantors of corporate debtors upon default.

Statutory Relief & Application: A creditor may file an application under Section 95 directly or through a Resolution Professional.
Operational Statutory Relief & Application: The mere filing of a Section 95 application immediately triggers an automatic statutory interim-moratorium under Section 96, staying all pending legal actions and executions relating to any debt of the personal guarantor.

The NCLT directs the RP to examine the application and submit a recommendation report under Section 99 before judicial admission under Section 100.

Key Landmark Precedents:

Lalit Kumar Jain v. Union of India (2021) 9 SCC 321: The Supreme Court held that the approval of a corporate resolution plan under Section 31 does not discharge the personal guarantor's independent contractual liabilities, affirming creditors' rights to pursue personal guarantors simultaneously.
Dilip B. Jiwrajka v. Union of India (2023) SCC OnLine SC 1530: A three-judge bench upheld the constitutional validity of Sections 95 to 100, holding that the appointment of an RP and submission of a report without prior hearing does not violate natural justice because judicial adjudication occurs at the Section 100 stage.

Legal Commentary:

Section 95 represents a monumental shift in Indian commercial banking. Promoters can no longer hide behind corporate veils while businesses are restructured; personal wealth pledged as guarantees can be directly pursued in parallel before the NCLT.