Sections 1 and 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 1 gives the Code its name, says where it extends and leaves its start date to a notification. Section 3 then defines the words that the rest of the Code uses, and clauses (1) to (18), read here as per the IBBI consolidated text of the Code amended up to 12 August 2021, cover the Board, claim, creditor, debt, default and the financial-sector terms.
The Code extends to the whole of India and comes into force on the date the Central Government appoints by notification, with different dates possible for different provisions. A claim is a right to payment (or to a remedy for breach that gives rise to payment) whether or not it is decided, disputed or secured. A debt is a liability in respect of a claim that is due, and default is non-payment when the debt has become due and payable. A corporate person excludes a financial service provider.
Section 1: title, extent and commencement
Section 1(1) allows the Code to be called the Insolvency and Bankruptcy Code, 2016. Section 1(2) says it extends to the whole of India. The text shows a proviso after sub-section (2) as omitted ("[***]"); the footnote to it names an adaptation order of 2020. Nothing in that omitted passage is printed as operative text.
Section 1(3) says the Code "shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint". The proviso adds that "different dates may be appointed for different provisions of this Code and any reference in any such provision to the commencement of this Code shall be construed as a reference to the commencement of that provision." No notification is among the texts consulted, so this article gives no commencement date for the Code or for any Part of it. Check the notifications for the Part you are working with; if you need help reading a notification against a pending matter, a legal consultation can help.
For the persons to whom the Code applies, read section 2 of the Code.
Section 3: how the definitions work
Section 3 opens: "In this Code, unless the context otherwise requires". So a definition governs unless the context points elsewhere. Clauses (19) to (37) are in our next article; the terms specific to Part II sit in section 5 (see financial creditor and financial debt).
| Clause | Term | What it says (short) |
|---|---|---|
| (1) | Board | The Insolvency and Bankruptcy Board of India established under sub-section (1) of section 188 |
| (2) | bench | A bench of the Adjudicating Authority |
| (3) | bye-laws | Bye-laws made by the insolvency professional agency under section 205 |
| (4) | charge | An interest or lien created on property or assets as security; includes a mortgage |
| (5) | Chairperson | The Chairperson of the Board |
| (6) | claim | See below |
| (7) | corporate person | See below |
| (8) | corporate debtor | A corporate person who owes a debt to any person |
| (9) | core services | Services of an information utility: accepting electronic submission of financial information, safe and accurate recording, authenticating and verifying it, and providing access to it |
| (10) | creditor | Any person to whom a debt is owed |
| (11) | debt | See below |
| (12) | default | See below |
Claim, debt and default
"Claim" has two limbs. Clause (6)(a) is "a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured". Clause (6)(b) is a "right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment", again whether or not reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured. The width matters: a disputed or unmatured payment right is still a claim.
"Debt" in clause (11) is "a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt". "Default" in clause (12) is "non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be". Part of an instalment is enough, but the amount must have become due and payable.
"Creditor" in clause (10) means "any person to whom a debt is owed" and "includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder". The first two are defined in section 5 and explained in the articles on financial creditor and operational creditor (see Read next).
Corporate person and corporate debtor
Clause (7) defines "corporate person" as a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or "any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider". A corporate debtor (clause 8) is simply a corporate person who owes a debt to any person. Because financial service providers are excluded, they are dealt with separately in the Code.
Example. Mehta Components Private Limited owes Rs 40 lakh to a supplier whose invoices are disputed. The supplier's right to payment is a claim even though disputed, the amount is a debt once due, and non-payment of the due amount is a default. Whether the supplier can start a process is a separate question under the later sections.
Information and financial-sector terms (clauses 13 to 18)
- Financial information (13): records of the debt of the person; records of liabilities when the person is solvent; records of assets over which security interest has been created; records, if any, of instances of default; records of the balance sheet and cash-flow statements; and such other information as may be specified.
- Financial institution (14): a scheduled bank; a financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); a public financial institution as defined in clause (72) of section 2 of the Companies Act, 2013; and such other institution as the Central Government may by notification specify. Which institutions have been notified is not in the texts consulted.
- Financial product (15): securities, contracts of insurance, deposits, credit arrangements including loans and advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts other than those to exchange one currency for another settled immediately, or any other instrument as may be prescribed.
- Financial service (16): nine kinds of activity, from accepting deposits (a) to selling, providing or issuing stored value or payment instruments or providing payment services (i). The categories are discussed in our post on section 3(16).
- Financial service provider (17): a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator.
- Financial sector regulator (18): an authority or body constituted under any law to regulate services or transactions of the financial sector, including the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and other regulatory authorities notified by the Central Government.
Other Acts named in these clauses are the Companies Act, 2013, the Limited Liability Partnership Act, 2008 and the Reserve Bank of India Act, 1934, quoted as printed. Check the current law for the corresponding provisions.
Does the 2026 Amendment Act touch clauses (1) to (18)?
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) amends section 3 only by adding clause (27A), an Explanation to clause (31) and clause (31A); these are covered in the next article. The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether this change has been notified. Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help with an IBC definition or a notice that relies on it?
Whether a particular dues is a claim, a debt or a default decides who can act and how. If you are preparing or answering a demand, our team can read the documents with you in a legal consultation.
Key takeaways
- The Code extends to the whole of India and starts on the date notified under section 1(3); different dates may apply to different provisions.
- A claim includes disputed and unmatured payment rights, and a right to a remedy for breach that gives rise to payment.
- A debt is a due liability in respect of a claim; default needs the amount to be due and payable and unpaid.
- A corporate person excludes a financial service provider.
- Financial institution includes institutions the Central Government notifies; check what has been notified.
Read next
- Section 3 of the Code: clauses (19) to (37)
- Section 5: financial creditor, financial debt and dispute
- Section 5: operational creditor and operational debt
- Introduction to the Insolvency and Bankruptcy Code, 2016
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.