1) When accounts are listed for insolvency, and the application has to be filed by one of the creditors (banks, financial institutions, etc) with the National Company Law Tribunal (NCLT), stating that the company was given a loan and it defaulted. Once NCLT is satisfied, it admits the case and appoints and interim insolvency resolution professional (IRP) recommended by the bank. The code permits 180 days for completing resolution process, with an extension of 90 days if needed.
2) In case of a default of Rs. 1 lakh or more, either the debtor or creditor has to make an application to NCLT, with proof of default. The Tribunal has to be satisfied that there has been a default. Once NCLT is satisfied, it passes an order stating the application has been admitted.
3) Within a month, the IRP takes over the company, the promoters move out and the board of directors is suspended. the IRP becomes the de facto MD. The company's management reports to him. In addition, he also makes a public announcement inviting claims from people to whom the company owes money. Once claimants come. he makes a list and forms a Committee of Creditors (CoC), which gets the real authority and decides if it wants to continue with the IRP or get a new one. This has to happen in a month.
4) The IRP runs the company with the approval of CoC on major decisions. He also prepares a memorandum inviting resolution plans and sends it to stakeholders. The CoC has to approve the resolution plan within 180 days, with 75% majority. This is then sent to NCLT for its nod, which assesses if due process was followed.
5) But if the CoC feels a resolution plan is not workable, or if it does not pass the resolution in 180 days, then the company goes for liquidation.