Litigation Hold and Records Retention Before an IBC Filing

A creditor's prospects in a filing under the Insolvency and Bankruptcy Code, 2016 are usually decided before the application is drafted, by the documents already in the creditor's own files and by whether a litigation hold stopped routine record deletion in time. Section 7 and Section 9 of the Code require debt, default and limitation to be established on the papers annexed to the application before the National Company Law Tribunal, since no discovery process fills a gap later. The insolvent counterparty carries its own preservation and cooperation duties, including under Section 19 of the Code. This article sets out what each side must retain and produce.

What a Section 7 or Section 9 Application Is Actually Decided On

An application under the Insolvency and Bankruptcy Code, 2016 (the Code) is not a suit. There is no framing of issues, no examination in chief, and no discovery process that will fill a gap in the creditor's file. The Adjudicating Authority reads the application, the reply and the annexures. What is not annexed is, for practical purposes, not in the case.

For an operational creditor the working set is the purchase order or supply agreement establishing terms and credit period, the invoice, the delivery challan and goods receipt note proving performance, the ledger showing the running balance and how payments were appropriated, the demand notice under section 8 with proof of delivery, and the affidavit under section 9(3)(b) confirming that no notice of dispute was received.

For a financial creditor it is the facility agreement, evidence of disbursement drawn from the lender's own books, the security documents, the recall notice and the record of default. The weak link is usually proof of disbursement on older facilities booked through a branch system that has since been migrated.

The Evidentiary Weight of an Information Utility Record

Sections 214 and 215 of the Code create information utilities, of which National E-Governance Services Limited is the only operational one. A creditor submits financial information, the debtor is invited to authenticate it, and the utility issues a record of default. Section 7(3)(a) permits a financial creditor to furnish either that record or such other evidence of default as may be specified, and tribunals have read the requirement as directory rather than mandatory.

That shifted on 26 May 2026, when the explanation inserted into section 7 by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 came into force: a record of default filed by a financial institution with an information utility is sufficient for the Adjudicating Authority to ascertain default. The lesson for a lender is to file with the utility while the account is still performing, because authentication depends on a debtor who has no reason to cooperate once litigation is in view.

What Documents Fix the Date of Default?

Nothing in the file matters more than the documents fixing the date of default, because that date starts the limitation clock. It is fixed by the credit period in the purchase order read with the invoice date, by the due date of the first unpaid instalment under a facility, or by a recall notice where the contract permits acceleration. Running-account bookkeeping, where receipts are applied to the oldest item without any written appropriation, turns the date of default into an inference drawn from a ledger rather than a matter of record.

Article 137, Section 238A and the Three Year Clock

Section 238A of the Code applies the Limitation Act, 1963, so far as may be, to proceedings before the Adjudicating Authority and the National Company Law Appellate Tribunal. No article prescribes a period for an application under section 7 or section 9, so the residuary article 137 applies: three years from the date on which the right to apply accrues.

B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates [(2019) 11 SCC 633] settled the position. The Supreme Court held that the Limitation Act applies to applications under sections 7 and 9 from the inception of the Code, that article 137 is attracted with the right to apply accruing on the date of default, and that an application filed more than three years after default is barred, subject only to condonation under section 5.

What Counts as a Valid Acknowledgement Under Section 18?

The escape is section 18 of the Limitation Act, under which an acknowledgement of liability in writing, signed before the period expires, starts a fresh period from the date of the acknowledgement. Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy [(2021) 10 SCC 330] applied it to a section 7 application, restoring the admission order on the footing that part payments, a proposal for a one time settlement and entries in the corporate debtor's balance sheets amounted to acknowledgements extending limitation. The Court also held that there is no bar on filing additional documents until a final order is passed.

Three conditions are missed with depressing regularity. The acknowledgement must be in writing and signed, so a verbal assurance recorded in a credit committee note is worth nothing. It must be made before the subsisting period expires, because an acknowledgement after expiry revives nothing. And it must admit a present liability rather than merely confirm that correspondence was received. Settlement correspondence marked without prejudice raises a separate question about whether it can be produced at all, and Indian law does not answer that with a flat refusal.

The discipline that follows is unglamorous: obtain a signed balance confirmation from every material counterparty at each year end, keep the signed copy rather than an attachment in somebody's mailbox, and diarise the three year date from the latest acknowledgement.

Imposing a Litigation Hold Before the Filing Decision Is Taken

A litigation hold is the instruction suspending routine destruction of records once litigation is reasonably in prospect. Indian procedure has no codified spoliation doctrine, but section 119 of the Bharatiya Sakshya Adhiniyam, 2023 preserves the presumption, illustrated at clause (g), that evidence which could be produced and is not would, if produced, be unfavourable to the party withholding it.

Suspending Routine Deletion Without Halting the Business

The trigger should be the first credible signal of distress: a cheque return, an application under a resolution framework, a section 7 filing by another creditor, or a downgrade to default. Auto-deletion in the email system must then be suspended for named custodians rather than globally, because a blanket suspension is usually refused and nothing happens at all. Retention rules in collaboration platforms are separate settings, and backup rotation must be paused for the relevant window.

Custodial Collection and the Messaging Problem

Collection should be custodial and logged across sales, credit control, logistics, finance and the relationship manager, with metadata intact. Copying files into a shared folder destroys creation dates and invites a challenge later.

Messaging is where most files fail. Delivery confirmations, rescheduling requests and admissions of shortfall now sit in threads on personal handsets. Where those threads are the evidence of performance or of acknowledgement they have to be exported and preserved, and an electronic record tendered later needs the certificate contemplated by section 63(4) of the Bharatiya Sakshya Adhiniyam, 2023, which replaced section 65B of the Indian Evidence Act, 1872 from 1 July 2024 and calls for the hash value of the record.

The table below sets out the records that carry the evidential load, what each proves, how long it must be kept and where it is generated.

Retention periods are floors, not targets: where a hold is running, the period is until the matter closes.

The Duty to Hand Over: Section 19 After 26 May 2026

The obligations run the other way as well. Section 19 of the Code requires the personnel of the corporate debtor, its promoters and any person associated with its management to extend all assistance and cooperation to the interim resolution professional. Where that cooperation does not come, the professional applies to the Adjudicating Authority, which issues directions and warns of penal action.

The 2026 Amendment widened the section with effect from 26 May 2026. The reference to personnel was replaced with the broader concept of persons, extending the duty to former personnel, promoters, persons associated with management and persons engaged under a contract for service, and the section was made explicit in applying to the resolution professional as well.

The practical reach is the point for in-house counsel. The duty now catches the outsourced accounting firm holding the ledger backups, the consultant on a service contract, the project manager on a construction site, and the finance director who resigned three months before admission. A group company running shared services should assume the records it holds are within scope.

What Happens When Books and Records Go Missing Under Section 70?

Section 70 makes it an offence for an officer of the corporate debtor to fail to disclose the details of property, to fail to deliver property or books and papers in his control to the resolution professional, or to account falsely for property. The punishment is imprisonment of not less than three years extending to five, or a fine of not less than one lakh rupees extending to one crore, or both. The statutory defence is proof of an absence of intent, which is difficult to run when the answer to a question about a missing ledger is that nobody knows.

That sits on top of section 128(5) of the Companies Act, 2013, which requires books of account with the relevant vouchers to be kept in good order for at least the eight financial years immediately preceding the current financial year, or for all preceding years where the company is younger. Section 128(6) places the liability on the managing director, the whole-time director in charge of finance and the chief financial officer, with a fine of fifty thousand to five lakh rupees.

Why Gaps in the Books Become Avoidance and Wrongful Trading Findings

A resolution professional who cannot reconstruct the books does not keep quiet about it. The transaction audit report records which records were unavailable and for which periods, and that becomes an averment in an application under sections 43, 45, 49, 50 or 66. Former directors then have to explain a transfer without the file that would have explained it.

The 2026 Amendment sharpened this from 26 May 2026. Definitions of avoidance transaction and of fraudulent or wrongful trading were inserted, section 66 was extended so that a liquidator may also initiate proceedings, and avoidance and wrongful trading proceedings now survive the conclusion of the resolution process or the liquidation. The replaced section 47 lets creditors, members or partners apply where such transactions occurred and were not reported.

None of this is answered by the clean slate. Section 31(6) extinguishes prior claims against the corporate debtor and its assets on approval of a resolution plan, and section 32A stops prosecution of the company for pre-commencement offences, but both leave the liability of those in charge of and responsible for the conduct of its business untouched. Personal exposure for undocumented transactions outlives the plan.

Frequently Asked Questions

When should a litigation hold be issued if the counterparty has not yet been admitted into insolvency?

As soon as distress is credible: a returned cheque, an application under a resolution framework, a section 7 filing by another creditor, or a downgrade to default. You do not need to have decided to file. The cost of holding records is trivial beside the cost of explaining their absence.

Can an email be an acknowledgement of debt under section 18 of the Limitation Act?

It can, if it is in writing, admits a subsisting liability, is sent before the existing three year period expires, and comes from someone authorised to bind the counterparty. Confirmation from an accounts assistant that an invoice was received is not an acknowledgement of liability. Preserve the full record so that a certificate under section 63(4) of the Bharatiya Sakshya Adhiniyam, 2023 can be given later.

Do the corporate debtor's balance sheets help a creditor on limitation?

Where the debt is disclosed, yes. In Dena Bank v. C. Shivakumar Reddy the Supreme Court treated balance sheet entries together with part payments and a settlement proposal as acknowledgements. Whether an entry acknowledges a particular creditor's debt depends on the entry and on any qualification in the notes, so obtain the notes and not merely the face of the accounts.

Must a section 7 application be supported by a record of default from an information utility?

Section 7(3)(a) allows either an information utility record or other evidence of default, and tribunals have read the requirement as directory. Since 26 May 2026 a record filed by a financial institution is sufficient by itself for the Adjudicating Authority to ascertain default, which makes it the fastest route to admission though not the only one.

Can a former employee or an external consultant be compelled to cooperate with the resolution professional?

Yes, since 26 May 2026. Section 19 as amended reaches former personnel, promoters, persons associated with management and persons engaged under a contract for service. If cooperation is refused the professional applies to the Adjudicating Authority for directions, and an officer who withholds books and papers is exposed under section 70.

Does approval of a resolution plan end the risk of avoidance proceedings against former directors?

No. Section 31(6) extinguishes claims against the corporate debtor, and section 32A stops prosecution of the company for pre-commencement offences, but individual liability survives both. Avoidance and wrongful trading proceedings now expressly outlast the conclusion of the process, so a departing director should keep personal copies of board papers covering the look-back periods.

What documents does an operational creditor need to prove debt and default under Section 9 of the IBC?

An operational creditor filing a Section 9 application under the Insolvency and Bankruptcy Code, 2016 should be able to produce the purchase order or supply agreement establishing terms and credit period, the invoice, the delivery challan and goods receipt note proving performance, the ledger showing the running balance and how payments were appropriated, the demand notice under section 8 with proof of delivery, and the affidavit under section 9(3)(b) confirming that no notice of dispute was received. The Adjudicating Authority decides the application on the record annexed to it, so a document not annexed is, for practical purposes, not part of the case.

What is the limitation period for filing a Section 7 or Section 9 application under the IBC?

The limitation period for an application under section 7 or section 9 of the Insolvency and Bankruptcy Code, 2016 is three years from the date the right to apply accrues, under article 137 of the Limitation Act, 1963, applied through section 238A of the Code. The Supreme Court confirmed this in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates [(2019) 11 SCC 633], holding that an application filed more than three years after default is barred, subject only to condonation under section 5 of the Limitation Act.

What penalty applies under Section 70 of the IBC for withholding books or records from a resolution professional?

Section 70 of the Insolvency and Bankruptcy Code, 2016 makes it an offence for an officer of the corporate debtor to fail to disclose property, fail to deliver property, books or papers to the resolution professional, or to account falsely for property. The punishment is imprisonment of not less than three years, extending to five years, or a fine of not less than one lakh rupees, extending to one crore rupees, or both. The statutory defence is proof of an absence of intent, which is difficult to establish when a ledger simply cannot be located.

How long must a company retain its books of account under the Companies Act, 2013?

Section 128(5) of the Companies Act, 2013 requires a company to keep its books of account, together with the relevant vouchers, in good order for at least the eight financial years immediately preceding the current financial year, or for all preceding years if the company has existed for less than eight years. Section 128(6) places the liability for compliance on the managing director, the whole-time director in charge of finance, and the chief financial officer, with a fine of fifty thousand to five lakh rupees for a default.

Should email auto-deletion be suspended company-wide or only for specific custodians during a litigation hold?

For specific custodians. Suspending auto-deletion for named individuals whose records are relevant, such as sales, credit control, logistics and finance personnel dealing with the counterparty, keeps the litigation hold targeted and workable. A company-wide suspension of routine deletion is usually refused by IT teams as impractical, with the result that nothing is actually preserved. Retention settings in collaboration platforms are typically separate from email and must be adjusted independently, and backup rotation should be paused for the relevant window as well.

What certificate is required to produce electronic messaging records as evidence in India?

Section 63(4) of the Bharatiya Sakshya Adhiniyam, 2023, which replaced section 65B of the Indian Evidence Act, 1872 with effect from 1 July 2024, requires a certificate identifying the electronic record, describing how it was produced, and giving the hash value of the record before it can be tendered as evidence. Messaging threads on personal handsets that contain delivery confirmations or acknowledgements of shortfall should be exported and preserved with this certificate in mind, rather than screenshotted or forwarded piecemeal.

Which information utility issues records of default under the IBC?

National E-Governance Services Limited is currently the only operational information utility under sections 214 and 215 of the Insolvency and Bankruptcy Code, 2016. A creditor submits financial information to it, the debtor is invited to authenticate the entry, and the utility then issues a record of default. Since the explanation inserted into section 7 with effect from 26 May 2026, a record of default filed by a financial institution with an information utility is by itself sufficient for the Adjudicating Authority to ascertain default.

Why does custodial collection matter more than copying files into a shared folder during a litigation hold?

Copying files into a shared folder strips the file's original creation and modification metadata, which is often what proves when a document was created relative to the events in dispute. Custodial collection, logged across the relevant departments such as sales, credit control, logistics and finance, preserves that metadata and creates a record of who held what and when it was collected. A collection process that cannot show this chain invites a challenge to the authenticity or completeness of the documents later produced.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at the law firm Vikrant D. Shetty & Associates, Advocates & Solicitors which advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, including applications turning on limitation, evidence of default and the production of records, and represents parties in domestic and international commercial arbitrations seated in India and abroad.

Related reading: the exceptions to the without prejudice rule under Indian law, which matters where an acknowledgement of debt arrives inside settlement correspondence.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.