The Notice That Changes Everything
An insolvency petition filed against your company is not simply a demand for payment. From the moment the National Company Law Tribunal admits it, a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, freezes all proceedings, transfers, and enforcement actions against the company. Management control passes to an Interim Resolution Professional. The business is effectively in a holding pattern while the Corporate Insolvency Resolution Process runs its course.
The window to prevent admission is narrow. The strategy for using it depends entirely on what kind of petition has been filed, who filed it, and what grounds exist to challenge it.
Section 7 vs Section 9: The Distinction That Shapes Your Defence
Section 7: Financial Creditors
A Section 7 petition is filed by a financial creditor, typically a bank, NBFC, or debenture holder. The test for admission is binary: existence of a financial debt and occurrence of default. That is all the financial creditor needs to demonstrate.
The Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2017) 2 SCC 1 established this standard clearly. Proof of debt and default is sufficient. The NCLT has no residual discretion to impose additional conditions.
The position was briefly unsettled by Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022) 8 SCC 352, where the Supreme Court read the word “may” in Section 7(5) as conferring discretion on the NCLT to reject a petition even where default was established if the company’s financial health suggested CIRP was not appropriate. M. Suresh Kumar Reddy v. Canara Bank (2023) 13 SCC 673 subsequently confined this discretion to genuinely exceptional circumstances.
Most recently, in February 2026, the Supreme Court in Insta Capital Pvt. Ltd. v. Ecstasy Realty confirmed that a pre-existing dispute has no application in Section 7 proceedings. Once financial debt and default are established, admission must follow. Technical defences, including arguments about restructuring discussions or informal email-based moratoriums, will not succeed unless they reflect a validly executed and binding modification to the financial arrangement.
What Section 7 Defences Actually Work
The narrowness of the Section 7 gateway means the realistic defences are limited.
Limitation is the most viable. If the debt has been in default for more than three years without any acknowledgement of liability, the petition may be time-barred under the Limitation Act, 1963, read with B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2019) 11 SCC 633. However, each acknowledgement in audited financial statements or through partial payments restarts the limitation clock. The NCLT in a 2025 IDBI Bank matter, held that acknowledgement in multiple consecutive audited balance sheets extended the limitation period under Section 18 of the Limitation Act, making the petition timely.
Where a corporate debtor can show that the amount claimed is genuinely disputed, such as where the financial creditor’s own documentation is inconsistent or the debt has been partially repaid, and the balance is contested, there may be scope to challenge the quantum even if the existence of the debt is accepted.
Section 9: Operational Creditors
A Section 9 petition is filed by an operational creditor, typically a supplier or service provider, claiming unpaid dues. The process is front-loaded. Under Section 8, the operational creditor must first send a demand notice in the prescribed format. The corporate debtor has 10 days to either pay or raise a notice of dispute.
If a pre-existing dispute is raised, the Section 9 petition becomes unmaintainable. This is the most commonly used and most commonly litigated ground of challenge.
The Grounds That Actually Work
Pre-Existing Dispute
This is the strongest and most frequently successful ground for defending a Section 9 petition.
The IBC defines dispute in Section 5(6) to include a bona fide dispute relating to the existence of the amount of debt, quality of goods or services, or breach of a representation or warranty. The Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 held that the NCLT must reject a Section 9 petition if there is a plausible pre-existing dispute, meaning one that is not a patently spurious argument raised only to avoid liability.
The dispute must predate the demand notice. A dispute raised for the first time in response to the Section 9 petition itself carries very little weight. Email exchanges, correspondence questioning invoices, or unresolved reconciliation issues documented before the demand notice was served are consistently treated as evidence of a pre-existing dispute.
The NCLAT reinforced this in 2025, holding that email correspondence and unreconciled accounts predating the demand notice constituted a pre-existing dispute rendering the Section 9 petition unmaintainable, relying on the Supreme Court’s principles in S.S. Engineers v. Hindustan Petroleum Corporation Limited and Sabarmati Gas Limited v. Shah Alloys Limited.
However, courts have pushed back hard on manufactured disputes. In M/s. Saraswati Wire and Cable Industries v. Mohammad Moinuddin Khan (2025 INSC 1410), decided in December 2025, the Supreme Court set aside an NCLAT order that had accepted a pre-existing dispute defence. The Court held that a corporate debtor cannot accept a debt in its books, continue making payments, and then cry dispute when an operational creditor files under Section 9. A reply filed by a suspended director after management had already vested in an IRP was held to be non-est. The dispute was described as “mere moonshine” that did not satisfy even the low-threshold Mobilox test.
Similarly, in a 2025 NCLT Mumbai matter involving Tata Power EV Charging Solutions Ltd. v. Cab-Eez Infra Tech Ltd., disputes raised regarding billing and minimum usage guarantee charges were found to be illusory and afterthoughts because the corporate debtor had not raised them before or promptly after the demand notice. The petition was admitted.
The lesson is clear. A pre-existing dispute must be genuine, documented, and pre-dating the demand notice. The courts treat disputes raised after the fact as tactical obstructions, not bona fide defences.
Limitation
The Limitation Act, 1963, applies to IBC applications. The three-year limitation period runs from the date of default, as confirmed in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2019). Debts defaulted more than three years ago without acknowledgement of liability or a fresh cause of action may be time-barred.
Dena Bank v. C. Shivakumar Reddy (2021) SCC OnLine SC 543 confirmed that initiating other recovery proceedings does not reset the limitation clock under the IBC. The relevant date is the date of default, not the date the creditor decided to use the IBC.
Crucially, however, each acknowledgement of the debt, whether in audited financial statements, a board resolution, or through partial payments, restarts the limitation period under Section 18 of the Limitation Act. A corporate debtor that has regularly acknowledged its dues cannot successfully run a limitation defence simply because the underlying transaction is old.
Defective Demand Notice
For Section 9 petitions, the demand notice under Section 8 must comply with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. It must be in Form 3 or Form 4, addressed to the corporate debtor, and contain the specific prescribed information.
The Supreme Court in 2025 reversed NCLAT decisions that had dismissed petitions on the ground that demand notices were addressed to key managerial personnel at the registered office rather than directly to the company. The Court held that the statutory purpose of the notice is met if the company received it and the demand was clear. However, a fundamentally defective notice that fails to communicate the demand or the basis of the claim can still defeat the petition. The test is whether actual prejudice was caused, not whether the form was perfect.
Debt Below Threshold
Section 4 of the IBC sets the minimum threshold for initiating CIRP at Rs. 1 crore. Petitions based on debts below this threshold are not maintainable.
A 2025 NCLT Mumbai decision involving an operational creditor clarified that unilaterally imposed interest components, not agreed upon by contract or course of dealing, cannot be included in the operational debt for threshold computation. Where the principal alone fell below Rs. 1 crore, and the interest component was never contractually agreed upon, the petition was dismissed as not meeting the threshold.
This is a useful ground to examine early on. If the creditor has inflated the claimed amount with interest, penalties, or charges that are not contractually supported, the actual debt may fall below the threshold.
What Happens After Admission: Section 12A and Settlement
If the petition is admitted and CIRP begins, the options narrow but do not disappear entirely. Section 12A of the IBC, read with Regulation 30A of the CIRP Regulations, allows the application to be withdrawn with the approval of 90 per cent of the Committee of Creditors before a resolution plan is approved.
In practice, many insolvency proceedings are resolved through negotiated settlement after admission, particularly where the corporate debtor has the means to pay, and the admission was used as a coercive enforcement tool. The Supreme Court has repeatedly noted that the IBC is not a debt recovery mechanism. Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17 confirmed that the Code’s primary purpose is the resolution of insolvency, not the collection of dues.
The NCLT regularly grants settlement opportunities during hearings before finalising admission orders, as seen in the 2025 JBS Enterprises matter, where the NCLT gave multiple settlement windows before ultimately admitting the petition when tendered cheques were dishonored.
What Businesses Should Do Immediately
The window between receiving a demand notice under Section 8 and the filing of a Section 9 petition is ten days. The window between the filing of any petition and its admission before the NCLT is the most critical phase for building a defence.
If you receive a Section 8 demand notice, respond in writing within the ten-day window. Do not rely on verbal communications or informal discussions. If you have a genuine dispute with the claimant, document it in a formal written reply immediately. Ensure the dispute is specific, references the invoices or claims in question, and is grounded in the actual contractual position between the parties.
If the petition has already been filed but not yet admitted, engage insolvency counsel without delay. The pre-admission stage is the most effective point for placing a limitation defence, a pre-existing dispute, a threshold objection, or a defective notice argument before the NCLT. Once CIRP begins, the options narrow to Section 12A settlement or an appeal before NCLAT under Section 61 within 30 days of the admission order.
Anush Raajan advises corporate debtors, financial creditors, and operational creditors across IBC proceedings before the NCLT and NCLAT, including pre-admission strategy, challenge proceedings, and Section 12A settlement applications.
Frequently Asked Questions
Can I challenge an insolvency petition after it is admitted? Yes, but the window is tight. Appeals against admission orders go to the NCLAT under Section 61 of the IBC within 30 days. After that, the corporate debtor’s options are limited to participating in the CIRP or pursuing a Section 12A settlement.
What is the most common way to successfully defend a Section 9 petition? Establishing a pre-existing dispute under Section 5(6) of the IBC. The dispute must have been bona fide, specific, and documented before the demand notice is issued. Courts have consistently rejected disputes raised only after the petition is filed as tactical rather than genuine.
Is there a time limit for filing an insolvency petition? Yes. The three-year limitation period under the Limitation Act, 1963, runs from the date of default. Acknowledgement of the debt in audited balance sheets or through partial payments restarts the clock.
What is Section 12A? Section 12A allows withdrawal of an admitted CIRP application with the consent of 90 percent of the Committee of Creditors. It is the primary settlement mechanism after CIRP has commenced.
Does a pre-existing dispute work against a Section 7 petition from a bank? No. The Supreme Court confirmed in February 2026 in the Ecstasy Realty case, that a pre-existing dispute has no application in Section 7 proceedings. Once financial debt and default are established, admission must follow.What happens if the claimed debt is below Rs. 1 crore? The petition is not maintainable. Section 4 sets the minimum threshold at Rs. 1 crore. Unilaterally imposed interest or charges not agreed upon by contract cannot be added to meet this threshold.
