Abm 25c

is the single biggest reform in India's debt-recovery framework.

are now part of the law.

Meaning: Inability to pay — a person/company does not have enough cash flow or assets to repay debts as they fall due. It is a financial state, not a legal declaration.; Real-Life Example: Rahul runs a kirana shop, took a ₹5 lakh business loan, but monthly sales no longer cover EMIs.

Meaning: Legal declaration of insolvency — a tribunal/court formally declares the person/company unable to pay and orders the sale of assets to repay lenders.; Real-Life Example: Rahul's lenders move DRT, the tribunal declares him bankrupt, his shop and machinery are auctioned.

Meaning: Non-payment of a debt of ₹1 crore or more (corporate threshold) when due. Default is the trigger event for filing an IBC application.; Real-Life Example: XYZ Ltd. fails to pay ₹1.5 crore EMI on a working-capital loan for 30 days default crystallised.

Type: Companies & LLPs (Part II of IBC, handled by NCLT); Example: A textile manufacturer takes a ₹50 Cr term loan from a consortium and defaults — banks file under Section 7.

Type: Promoters/individuals who guaranteed a corporate loan; Example: Ramesh, MD of ABC Ltd., personally guaranteed a ₹20 Cr loan. ABC defaults — banks proceed against Ramesh's personal assets under IBC.

Type: Sole proprietors & partnership firms (Part III); Example: A standalone restaurant defaults on a ₹10 lakh MUDRA loan — case lies with DRT.