Prashant Kumar Nair | Advocate-on-Record, Supreme Court of India
For six years after the Insolvency and Bankruptcy Code came into force, one question refused to settle: when a financial creditor proves a default, does the National Company Law Tribunal have to admit the insolvency application, or does it have a choice?
The Supreme Court answered that question in July 2022. The answer created more problems than it solved. Parliament has now stepped in, and the answer it has given is written in the only language that ends such debates permanently, legislative text.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 replaces tribunal discretion at the admission stage with a hard deadline. Fourteen days. Proof of default. Admission. The era of contested admission hearings stretching across months, and of corporate debtors deploying regulatory approvals, pending appeals, and financial health arguments to stave off insolvency, is over in its previous form.
This article traces the legal journey that made that intervention necessary, examines precisely what the 2026 Amendment does, and identifies where the next round of litigation will concentrate.
I. What Section 7 Said: The Architecture of the “May” Problem
Section 7(5)(a) of the IBC 2016, as originally enacted, used the word “may” in conferring the admission power on the adjudicating authority. The tribunal, on satisfaction that a default had occurred and the application was complete, “may, by order, admit such application.” Compare this with Section 9(5)(a), which governs admission of an operational creditor’s application and uses “shall.” Parliament chose different language for financial creditors and operational creditors, and that choice had consequences.¹
The orthodox interpretation, applied consistently in the early years of the Code, was that this “may” operated in a narrow space, the tribunal could decline admission only in defined exceptional circumstances, not as a matter of open-ended discretion. The Code’s purpose, after all, was speed. Innoventive Industries Ltd v ICICI Bank Ltd established that the IBC is a complete and exhaustive code on corporate insolvency, and that its objectives include maximisation of value through timely resolution.² Swiss Ribbons Pvt Ltd v Union of India confirmed that the Code’s architecture, with financial creditors at the governance centre, was designed to deliver exactly this.³ A regime of wide admission discretion would hollow out both propositions.
Yet the word “may” sat in the statute. And when the right set of facts arrived before the right bench, the word was given its full weight.
II. Vidarbha: The Judgment That Opened the Door
Vidarbha Industries Power Ltd v Axis Bank Ltd, decided on 12 July 2022, is the pivot on which this entire story turns.⁴ The facts were sympathetic to the corporate debtor. Vidarbha Industries was a thermal power plant under statutory regulation by the Maharashtra Electricity Regulatory Commission. A regulatory appeal before APTEL, the Appellate Tribunal for Electricity, was pending, and that appeal, if decided in the company’s favour, would have substantially extinguished the debt to Axis Bank. NCLT rejected the Section 7 application. NCLAT reversed. The Supreme Court, by a two-judge bench, restored NCLT’s order.
The ratio was significant. The Court held that Section 7(5)(a)’s use of “may” conferred genuine discretion on the adjudicating authority, not a discretion to be exercised arbitrarily, but a discretion nonetheless. Factors that the NCLT could legitimately consider included the overall financial health of the corporate debtor, the pendency of proceedings that might extinguish or reduce the debt, and statutory regulatory contexts.
The implications were immediate. If NCLT had discretion to reject a Section 7 application even on proved default, every corporate debtor with a pending regulatory proceeding, a disputed valuation, or a sympathetic factual matrix had a new line of defence at the admission stage itself. The admission hearing, which the Code’s architects had designed to be a brief, records-based exercise, could now become a full contested hearing on viability, financial health, and the status of external proceedings.
Within months of Vidarbha, counsel across the country were filing detailed affidavits at the Section 7 stage on their clients’ financial performance, pending regulatory approvals, and rehabilitation plans. What the Code had intended to take fourteen days was taking six months in contested cases. The admission stage had quietly become the new battlefield.
III. The Judicial Response: Containment Without Resolution
The legal community recognised the problem. Subsequent benches attempted to contain Vidarbha without overruling it.
K Sashidhar v Indian Overseas Bank had already established the principle that the adjudicating authority’s jurisdiction under the Code is “circumscribed”, it cannot travel beyond what the statute explicitly permits.⁵ Applied post-Vidarbha, this principle should have limited the discretion to truly exceptional cases. It did not, because Vidarbha had specifically approved discretion at the admission stage itself.
Indus Biotech Pvt Ltd v Kotak India Venture Fund I provided some clarity by holding that the in rem character of CIRP attaches at admission, at the point when default is determined and the application is admitted, not merely on filing.⁶ But this did not address the Vidarbha problem of post-default, post-proof discretion.
The difficulty was structural. A two-judge bench had decided Vidarbha. A coordinate bench could not overrule it. A larger bench reference was the correct path, but that takes time. Parliament took a different path, and a faster one.
IV. What the 2026 Amendment Does: Section 7 Rewritten
The IBC (Amendment) Act, 2026, Act No. 6 of 2026, assented on 6 April 2026, rewrites the admission framework for financial creditor applications in three material ways.⁷
First: “May” becomes “shall.”
The amended Section 7(5)(a) replaces “it may, by order, admit such application” with mandatory language. On satisfaction that a default has occurred and the application is complete, the adjudicating authority shall admit. The word “may” is gone. The Vidarbha ratio, which rested entirely on that word, is legislatively overruled. The discretion the Court found does not survive the amendment.
Second: The fourteen-day period is now a hard ceiling, not a target.
The pre-amendment framework set fourteen days as the period within which the NCLT should ascertain the existence of default. In practice, this was treated as aspirational. Applications lingered for months at the ascertainment stage, particularly in contested matters. The 2026 Amendment makes the fourteen days a mandatory deadline for completion of the admission exercise. Where the NCLT cannot complete admission within fourteen days, it must record written reasons for the delay. This written-reasons requirement is not cosmetic, it creates an appellate record and a basis for mandamus if the delay is unreasonable.
Third: Information Utility records are now conclusive for default determination.
The Amendment provides that where default is recorded in an Information Utility, that record shall be conclusive evidence of default for the purposes of Section 7 admission. This directly addresses one of the primary delay tactics at the admission stage: the corporate debtor contesting the existence or quantum of default through affidavits, counter-affidavits, and oral arguments. Where the IU record shows default, that debate ends.
V. The Legal Architecture: Why “Shall” Forecloses the Old Arguments
The shift from “may” to “shall” does more than reverse Vidarbha. It settles several ancillary arguments that had developed around the discretion point.
The argument that the NCLT could consider the corporate debtor’s financial viability before admission is gone. Viability is a question for the Committee of Creditors exercising commercial wisdom post-admission, not for the tribunal at the threshold. Essar Steel India Ltd v Satish Kumar Gupta established that the CoC’s commercial wisdom is sacrosanct.⁸ The 2026 Amendment ensures that the viability assessment reaches the CoC without being intercepted at admission.
The argument that pending regulatory proceedings could justify admission deferral is substantially foreclosed. If the IU records default, the amendment’s conclusive evidence provision means that a pending APTEL appeal or MERC proceeding cannot reopen the default question.
Mobilox Innovations Pvt Ltd v Kirusa Software Pvt Ltd, dealing with the operational creditor admission standard, held that the adjudicating authority at admission must assess whether a “plausible contention” exists requiring further investigation, not examine merits.⁹ The 2026 Amendment effectively imports this limited-inquiry model into the Section 7 framework: default is proved, IU record is conclusive, admission follows. The inquiry is narrow. The conclusion is mandatory.
VI. Incoming Litigation: Where the Next Arguments Will Concentrate
Parliament has closed one set of arguments. Practitioners should anticipate the next set forming immediately.
Challenge 1: Constitutional validity of mandatory admission.
The most predictable challenge is that mandatory admission on IU record without any discretion to consider surrounding circumstances violates Article 21 and Article 14. This argument has low prospects. The answer is in Swiss Ribbons: the Code’s architecture has already been constitutionally validated. Removing judicial discretion at a threshold stage, particularly where the IU record is maintained under a regulated statutory framework, is a legitimate legislative policy choice.
Challenge 2: Accuracy and finality of IU records.
If IU records are conclusive, challenges will shift to the IU itself. Corporate debtors will contest whether the IU record accurately reflects the true position, whether partial payments have been recorded, whether the recorded default date is correct, whether the debt has been novated or restructured. These challenges will be framed as jurisdictional, you cannot admit if the IU record is itself wrong, and will require rapid adjudication.
Challenge 3: The “complete application” gateway.
Where corporate debtors cannot contest the default, the last admission-stage argument is that the application is incomplete. Expect aggressive challenges to application completeness, missing annexures, incorrect forms, inadequate evidence of the financial contract, as a substitute for the viability arguments that are no longer available.
Challenge 4: The written-reasons requirement as a delay tool.
The written-reasons requirement, introduced to ensure accountability for delay, may in some cases become a procedural basis for challenge. If the NCLT admits without recording reasons for delay where delay in fact occurred, does that vitiate admission? This argument has no merit but will be attempted.
VII. What This Means in Practice
For banks and financial institutions, the Amendment delivers the admission certainty the Code always promised. A lender who has done the work of maintaining IU records, documenting default correctly, and filing a complete application can now expect admission within fourteen days. The delay that made strategic default attractive, the window between default and CIRP initiation during which promoters could negotiate, restructure, or dissipate assets, is materially compressed.
For resolution applicants, faster admission means faster CIRP initiation, which means earlier information memorandum, earlier RFRP, and more predictable timelines.
For corporate debtors, the Amendment removes the admission hearing as a strategic delay opportunity while leaving intact all legitimate post-admission rights: representation in CoC, challenge to RFRP process, challenge to resolution plan on Section 30(2) grounds, and the full appellate pathway under Section 61. The Code’s procedural protections have not been diminished, they have been repositioned to the correct stages of the process.
VIII. The Legislative Gap: What Parliament Did Not Address
One question the Amendment does not answer directly: what happens to the numerous Section 7 applications currently pending before NCLTs that were filed, argued, and reserved under the pre-amendment regime, where Vidarbha-based arguments were accepted, or where admission has been deferred on viability grounds?
As a general rule of statutory construction, amendments to procedural law apply to pending proceedings unless a different intention is expressed. The replacement of “may” with “shall” is procedural in character, it goes to the tribunal’s power at the admission stage, not to substantive rights. A reasonable interpretation is that pending Section 7 applications should now be decided under the amended mandatory framework. Expect contested arguments on this question in every NCLT bench over the coming months.
IX. Conclusion
The 14-day rule is not merely a procedural tightening. It is Parliament’s definitive answer to the question of what the IBC’s admission stage is for.
It is for one thing: determining whether default has occurred. Not whether the corporate debtor is viable. Not whether external proceedings might extinguish the debt. Not whether the NCLT, exercising a broadly conceived quasi-judicial discretion, thinks insolvency is the right outcome for this particular company at this particular moment. Those are questions for the CoC, the resolution professional, and ultimately the market for distressed assets.
The Vidarbha Court was not wrong to read “may” as it did. That reading was textually defensible. But the consequences demonstrated that the Code’s architecture could not function as intended if the admission stage became a contested hearing on viability. Parliament’s response is measured and correct. The word has changed. The law has changed with it.
The next question, already in formation, is whether the IU infrastructure is robust enough to carry the weight Parliament has now placed on it. That is the gap the next round of litigation will expose.
ENDNOTES
1. Insolvency and Bankruptcy Code, 2016, Section 7(5)(a) (pre-amendment); Section 9(5)(a). [VERIFIED, PD]
2. Innoventive Industries Ltd v ICICI Bank Ltd (2018) 1 SCC 407 (SC). [VERIFIED, PD]
3. Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17 (SC). [VERIFIED, PD]
4. Vidarbha Industries Power Ltd v Axis Bank Ltd (2022) 8 SCC 352 (SC). [VERIFIED, PD]
5. K Sashidhar v Indian Overseas Bank (2019) 12 SCC 150 (SC). [VERIFIED, PD]
6. Indus Biotech Pvt Ltd v Kotak India Venture Fund I (2021) 6 SCC 436 (SC). [VERIFIED, PD]
7. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026), Section 7(5) (as amended), assented 6 April 2026. [VERIFIED, PD]
8. Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta (2020) 8 SCC 531 (SC). [VERIFIED, PD]
9. Mobilox Innovations Pvt Ltd v Kirusa Software Pvt Ltd (2018) 1 SCC 353 (SC). [VERIFIED, PD]
INFOGRAPHIC NOTE FOR DESIGN TEAM
Side-by-side comparison visual: Left, Section 7 Before 2026 Amendment (“may” language, Vidarbha discretion, no deadline enforcement, contested admission hearings). Right, Section 7 After 2026 Amendment (“shall,” 14-day hard ceiling, IU records conclusive, written reasons for delay). Timeline graphic below showing compression of admission window.
Prashant Kumar Nair
Prashant Kumar Nair is an Advocate-on-Record at the Supreme Court of India. He practises across insolvency and restructuring, arbitration and dispute resolution, real estate and infrastructure, corporate and commercial law, taxation, intellectual property, regulatory and compliance, and capital markets law. He is a doctoral researcher at RGNUL focusing on the arbitration-insolvency interface. He is the founder of Corpus Lawyers. LinkedIn: linkedin.com/in/prashant-kumar-nair/