The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduces significant reforms to Section 7, aimed at reducing judicial delays and ensuring the time-bound admission of insolvency applications filed by financial creditors. The amendment reinforces the principle that once a default is established, the commencement of the Corporate Insolvency Resolution Process (CIRP) should not be hindered by extraneous considerations.
Under the amended framework, the Adjudicating Authority (NCLT) is required to admit or reject an application within 14 days from the date of its receipt. Admission is now effectively mandatory upon satisfaction of prescribed statutory conditions. In cases where the application is rejected or where the decision is delayed beyond the stipulated timeline, the Adjudicating Authority is required to record reasons in writing, thereby ensuring transparency and accountability.
Omission of Proviso to Section 7(4) and Substitution of Section 7(5)
It is pertinent to note that the proviso to sub-section (4) of Section 7, which earlier required the Adjudicating Authority to record reasons in writing in cases where it failed to ascertain the existence of default and pass an order within the prescribed period, has been omitted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026.
Further, sub-section (5) of Section 7 has been substituted, thereby restructuring the admission framework and reinforcing the legislative intent of strict adherence to timelines and minimisation of delays. The substituted sub-section (5) reads as follows-
“(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—
a. admit the application, if it is satisfied that a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceeding pending against the proposed resolution professional; or
b. reject the application, if it is satisfied that a default has not occurred or the application under sub-section (2) is incomplete or a disciplinary proceeding is pending against the proposed resolution professional:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b), give a notice to the applicant to rectify the defect in his application within seven days from the date of receipt of such notice from the Adjudicating Authority:
Provided further that if the Adjudicating Authority has not passed an order under this sub-section within a period of fourteen days from the date of receipt of the application under sub-section (2), it shall record the reasons for such delay in writing.
Explanation I.––For the purposes of this sub-section, it is hereby clarified that where the requirements under clause (a) have been complied with, no other ground shall be considered to reject an application filed under this section.
Explanation II.––For the removal of doubts, it is hereby clarified that where a record of default in respect of a financial debt owed to a financial institution recorded with the information utility has been furnished along with the application filed by such financial institution under this section, such record shall be considered sufficient for the Adjudicating Authority to ascertain the existence of default under this section.”.
Old Provisions of sub-section (5)
“(5) Where the Adjudicating Authority is satisfied that—
a. a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending5against the proposed resolution professional, it may, by order, admit such application; or
b. default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending5against the proposed resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.”
Substituted Section 7(5) – Key Features
The substituted provision mandates that the Adjudicating Authority shall, within fourteen days of receipt of the application:
- Admit the application if:
- a default has occurred,
- the application is complete, and
- no disciplinary proceedings are pending against the proposed Resolution Professional;
- Reject the application if:
- default has not occurred,
- the application is incomplete, or
- disciplinary proceedings are pending against the proposed Resolution Professional.
Key procedural safeguards:
- Before rejection, the applicant must be given an opportunity to rectify defects within 7 days
- If no order is passed within 14 days, the Adjudicating Authority must record reasons for the delay in writing
Important Explanations Introduced
- Explanation I – No Extraneous Grounds
Once the conditions for admission are satisfied, no other ground can be considered for rejection. This significantly limits judicial discretion.
- Explanation II – Evidentiary Value of Information Utilities
A record of default from an Information Utility (IU), when submitted by a financial institution, shall be deemed sufficient evidence for establishing default.
Position Prior to the Amendment (Old Section 7(5))
Under the earlier framework, the Adjudicating Authority:
- “may” admit or reject an application even if conditions were satisfied
- Enjoyed wider discretion, which often led to delays and inconsistent outcomes
- Could consider factors beyond the core requirements of default and completeness
Impact of the Amendment-
Converts admission from a discretionary power to a mandatory duty;
- Ensures speed and certainty in initiation of CIRP;
- Minimises judicial intervention and delays at the threshold stage;
- Strengthens creditor confidence and procedural discipline;
- Reinforces the IBC’s objective of time-bound insolvency resolution;
Old and Amended Section 7 (IBC Amendment Act, 2026)
| Particulars | Old Provision (Before 2026 Amendment) | Amended Provision (After 2026 Amendment) |
| Nature of Power of NCLT | Discretionary – NCLT “may” admit or reject application | Mandatory – NCLT “shall” admit or reject application |
| Basis of Admission | Based on satisfaction of default, but scope for wider interpretation | Strictly limited to: (i) default, (ii) completeness, (iii) no disciplinary proceedings |
| Judicial Discretion | Wider discretion; courts could consider extraneous factors | Significantly restricted; no extraneous grounds allowed (Explanation I) |
| Timeline for Admission | 14 days prescribed, but not strictly enforced | Strict 14-day timeline, with mandatory recording of reasons for delay |
| Proviso to Section 7(4) | Required recording of reasons if default not ascertained in time | Omitted |
| Section 7(5) | Used the term “may” → allowed flexibility in admission/rejection | Substituted with “shall” → creates mandatory obligation |
| Rectification Opportunity | 7 days to rectify defects before rejection | Continued (retained in amended provision) |
| Evidentiary Value of IU Records | Not expressly clarified | IU record deemed sufficient proof of default (Explanation II) |
| Scope for Delay | Frequent delays due to judicial interpretation | Delays discouraged; reasons must be recorded in writing |
| Objective | Balanced approach but led to uncertainty | Speed, certainty, and reduced litigation |
Conclusion: The substitution of Section 7(5), coupled with the omission of the proviso to Section 7(4), marks a decisive shift towards a rule-based and time-bound admission regime. By limiting discretion and emphasising objective criteria, the amendment ensures that insolvency proceedings are triggered promptly and efficiently, in line with the core philosophy of the IBC.
Insertion of Additional Proviso in Sections 9 and 10 – Strengthening Timelines
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has introduced similar timeline-based accountability in respect of applications filed by operational creditors (Section 9) and corporate applicants (Section 10).
In this regard:
- Section 9(5) has been amended to insert an additional proviso after the existing proviso, which provides that:
“Provided further that if the Adjudicating Authority has not passed an order under this sub-section within a period of fourteen days from the date of receipt of application under sub-section (2), it shall record the reasons for such delay in writing.”
- Section 10(4) has also been amended on similar lines, by inserting an additional proviso, which reads as follows:
“Provided further that if the Adjudicating Authority has not passed an order under this sub-section within a period of fourteen days from the date of receipt of the application under sub-section (2), it shall record the reasons for such delay in writing.”
Significance of the Amendment
These insertions bring uniformity across Sections 7, 9, and 10, ensuring that:
- The 14-day timeline for admission or rejection is consistently applied across all categories of applicants;
- The Adjudicating Authority is made accountable for delays;
- There is enhanced procedural discipline and transparency;
- The objective of time-bound insolvency resolution is reinforced.
*****
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
Author Bio
