The Corporate & Commercial Law Society Blog, HNLU

Category: Corporate Insolvency Resolution Process

  • CIIRP’S MISSING MORATORIUM: A STRUCTURAL FLAW UNDER THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2026

    BY KASHVI SHREY, SECOND – YEAR STUDENT AT CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

    I. Introduction

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’or ‘the Code’) has reshaped India’s approach to insolvency, aiming to strike a balance between creditor recovery and fair treatment of debtors and other stakeholders. At its core, the Code is built on the ideas of value maximisation and equitable, efficient, and transparent processes. In practice, though, the numbers tell a grimmer story. Resolution processes take an average of 602 days, which is nearly double the statutory ceiling of 330 days, and creditors recover roughly 33% of admitted claims. Against this backdrop, the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘The Amendment Act’), which received Presidential assent on April 6, 2026, marks a significant shift by introducing the Creditor-Initiated Insolvency Resolution Process (‘CIIRP’) under the newly inserted Chapter IV-A (Sections 58A to 58K) of the Code, as introduced by the Amendment Act.

    The mechanics of CIIRP are relatively straightforward. Section 58B of the amended Code (Initiation of Creditor-Initiated Insolvency Resolution Process) permits a Financial Creditor (‘FC’) belonging to a class notified by the Central Government and holding at least 51% of the financial debt by value to initiate CIIRP by issuing a 30-day notice to the Corporate Debtor (‘CD’). If the default is not resolved within this period, a Resolution Professional (‘RP’) appointed by the initiating creditors makes a public announcement commencing the process. Crucially, the CD’s management is not suspended. It remains in control under a Debtor-in-Possession (‘DIP’) model, subject to the RP’s oversight, with the process running for 150 days, which is extendable up to 45 days.

    The CIIRP, however, contains a structural flaw that undermines these ambitions. Unlike the standard Corporate Insolvency Resolution Process (‘CIRP’), the CIIRP provides no automatic moratorium at commencement. The RP must separately apply to the National Company Law Tribunal (‘NCLT’) for a moratorium after the public announcement of CIIRP, leaving a legally uncovered window during which any creditor may race to the NCLT and trigger a  CIRP petition. Compounding this is the absence of any DIP financing mechanism in Chapter IV-A, leaving management in nominal possession of the enterprise but with no statutory path to working capital.

    II. The Moratorium Gap and the Race-to-CIRP Problem

    The moratorium under the standard CIRP operates as the structural foundation of the entire resolution process. Under Section 14 of the IBC, an automatic stay on suits, enforcement of security interests, asset transfers, and recovery actions against the CD takes effect immediately upon the NCLT’s admission of a petition.  It ensures that all creditors engage the resolution process simultaneously, preventing any single creditor from obtaining preferential recovery by acting ahead of the others.

    The CIIRP departs from this design. Under Chapter IV-A as enacted, the RP makes a public announcement commencing the CIIRP after the requisite 51% creditor approval under Section 58B. A moratorium does not take effect at that point. The RP must subsequently apply to the NCLT for one, and the moratorium takes effect only upon the NCLT’s order. Between the public announcement and the tribunal’s order, the CD’s assets remain exposed and enforcement actions remain available to creditors.

    This gap creates a specific and traceable risk. Section 11 of the IBC, as amended, bars a CD already undergoing CIIRP from being subjected to a fresh CIRP. The bar, however, operates only once the CIIRP is formally underway and a moratorium is in place. A non-notified Financial Creditor, one ineligible to initiate CIIRP because it falls outside the Central Government’s notified class, retains the right to file an application under  Section 7 (Initiation of CIRP by FC) of the IBC once the public announcement is made, but before any moratorium is granted. Under the mandatory admission mechanism introduced by the same Amendment Act, which now compels the NCLT to admit a petition on proof of debt and default within fourteen days of filing, such a petition is likely to be admitted promptly. Once a CIRP commences on admission, the Section 11 bar activates to protect the CIRP, not the CIIRP, displacing the latter entirely.

    The primary argument against this concern is that the Central Government’s notification of eligible CDs and FCs will be drafted carefully enough to manage the risk. This argument, while understandable, misreads the statutory problem. The notification governs who may initiate CIIRP; it says nothing about when the moratorium takes effect. A non-notified creditor holding a valid claim against a notified CD faces no statutory bar to filing a CIRP petition during the moratorium gap. Until  Section 240 (Power of Central Government to Make Rules) of the IBC is exercised to extend moratorium protection to the moment of the public announcement, or until Parliament amends Section 14 to expressly include CIIRP commencement within its scope, this risk is embedded in the statutory text and cannot be managed away by notification design.

    Of particular relevance in this regard is the approach adopted by the United Kingdom through the Corporate Insolvency and Governance Act, 2020 (‘CIGA’). Part A1 of the Insolvency Act, 1986, as introduced by CIGA, provides a free-standing moratorium that takes effect automatically upon filing, without any separate court application, immediately restraining creditor enforcement actions for an initial period of 20 business days. This automatic protection was specifically designed to prevent the kind of creditor race that the CIIRP’s moratorium gap now invites. When enacting Chapter IV-A, Parliament had the benefit of this model; its decision not to replicate an automatic moratorium is a design choice whose consequences require correction.

    III. The DIP Financing Vacuum

    Even if the moratorium gap were addressed, the CIIRP faces a second structural problem. The DIP model at the heart of Chapter IV-A requires the CD’s management to continue operating the enterprise during the 150-day resolution window, and sustaining operations requires working capital. Securing that working capital during an insolvency process, in turn, requires lenders willing to extend fresh credit to a distressed entity.  The empirical backdrop lends urgency to this concern: as per the Insolvency and Bankruptcy Board of India (‘IBBI’) data as of October 2025, over 2,800 CIRPs have ended in liquidation orders, with average creditor recoveries of approximately 6% of admitted claims in liquidation, compared to 32.76% in resolved cases. This differential underscores the premium that early, going‑concern‑preserving intervention commands, and it is precisely that premium which DIP financing is designed to secure.

     Chapter IV-A contains no provision for such financing. There is no statutory basis for granting priority, let alone super-priority, to creditors who extend credit to a CD during an ongoing CIIRP. A commercial lender asked to extend working capital to such a CD faces the prospect of those advances ranking pari passu with pre-petition debt under Section 53 (Distribution of Assets) of the IBC in any subsequent CIRP or liquidation. The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India held that the IBC is a complete code and that priorities under it are statutory, not equitable; courts will not imply a super-priority that Parliament has not enacted. The IBBI committee report of April 2, 2026, which proposed draft CIIRP regulations to operationalise the new Chapter, addresses several procedural details but does not propose a DIP financing mechanism, confirming that this gap remains live and unaddressed in the regulatory framework as currently proposed.

    Of particular relevance here is the approach adopted in Singapore through the Insolvency, Restructuring and Dissolution Act, 2018 (‘IRDA’). Sections 67 and 101 of the IRDA provide that creditors extending rescue financing to a debtor undergoing a scheme of arrangement or judicial management may, upon court authorisation, obtain super-priority over all other claims and administrative expenses in the event of a subsequent liquidation. Singapore’s Parliament thus recognised that the DIP model is commercially inoperative without a statutory financing incentive. The IRDA model is particularly apt for India’s institutional context: unlike the United States Chapter 11 approach, where DIP financing priority is negotiated contractually and is thereafter confirmed by the court, the IRDA conditions priority on prior judicial authorisation a design that preserves creditor oversight and is structurally consonant with the CoC-centred governance architecture already established under the IBC.

    IV. Corrective Prescriptions for Subordinate Legislation

    These gaps are correctable through subordinate legislation before the Amendment Act is brought into force, provided the IBBI and Central Government approach them as structural corrections rather than optional refinements.

    The first and most urgent correction is to extend moratorium protection to the moment of the RP’s public announcement of CIIRP commencement. The Central Government holds rule-making power under Section 240 of the IBC and the IBBI holds regulation-making power under Section 240A (Power of Board to Make Regulations); either authority could be deployed to prescribe an interim stay, co-extensive in scope with Section 14, taking effect from the date of the public announcement and operates until the NCLT’s formal order. The UK’s automatic Part A1 moratorium under CIGA demonstrates that an immediate, filing-triggered stay need not require judicial pre-authorisation to be effective; India’s subordinate legislation can replicate that outcome within the existing statutory architecture. The more durable solution is a Parliamentary amendment expressly bringing CIIRP commencement within Section 14’s automatic moratorium, and the IBBI’s ongoing regulatory process presents the appropriate occasion to recommend this to the Ministry of Corporate Affairs.

    The second correction is the introduction of a CIIRP-specific interim financing provision. The IBBI’s draft regulations should prescribe that advances extended to a CD during an ongoing CIIRP by any lender, whether or not a member of the Committee of Creditors (‘CoC’), shall, upon approval by at least 66% of the CoC by value and NCLT sanction, rank as priority claims ahead of pre-petition unsecured debt in any subsequent CIRP or liquidation. This voting threshold mirrors the one prescribed for approval of CIIRP resolution plans, ensuring that the same majority empowered to approve the ultimate resolution also authorises interim financing on priority terms. Further reinforcing this design, the Singapore model, court-authorised super-priority under Sections 67 and 101 of the IRDA, demonstrates that such a mechanism can be operationalised through regulations requiring NCLT approval as a condition precedent, preserving judicial oversight while creating the commercial certainty that lenders require.

    Lastly, the notification of eligible FCs must extend CIIRP initiation rights to Asset Reconstruction Companies (‘ARCs’) registered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) and to distressed debt funds that have acquired financial debt through assignment in the secondary market. Confining the notification to scheduled commercial banks would create a sub-classification within the class of financial creditors based on the mode of acquisition rather than the economic character of the claim. The analysis in Swiss Ribbons Pvt. Ltd. v. Union of India, which upheld the financial-operational creditor distinction on the ground that the two classes are intelligibly differentiable in their commercial roles, does not support a further sub-classification within financial creditors that tracks institutional form rather than economic function.

    V. Conclusion

    The CIIRP is the most structurally innovative provision the IBC has seen since its enactment in 2016. The DIP model, the compressed 150-day timeline, and the out-of-court initiation framework, each represent genuine advances over the CIRP’s tribunal-dependent architecture. These advances, however, are contingent on scaffolding that the Amendment Act does not presently provide. The absence of an automatic moratorium at CIIRP commencement creates a race-to-CIRP process vulnerability that can collapse the framework before any resolution plan is formulated. The absence of a DIP financing mechanism reduces incumbent management’s role to a formality, depriving the CIIRP of the going-concern preservation it is designed to achieve.

    Accordingly, before the Central Government notifies the commencement date for the Amendment Act, the IBBI’s subordinate legislation must incorporate three targeted corrections: an automatic interim stay operative from the date of the public announcement, on the lines of the UK’s Part A1 moratorium; a CoC-approvable and NCLT-sanctioned priority mechanism for fresh credit, on the lines of Sections 67 and 101 of Singapore’s IRDA; and an FC notification that includes ARCs and  holders of assigned financial debt. Without these corrections, the CIIRP will generate the contested, tribunal-heavy litigation it was specifically designed to avoid.

  • A New Chapter in India’s Insolvency Law: What the 2025 Amendments Mean for Stakeholders

    A New Chapter in India’s Insolvency Law: What the 2025 Amendments Mean for Stakeholders

    BY Suprava Sahu, Fourth-Year student at gnlu, Gandhinagar
    INTRODUCTION

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’) marked a shift in India’s approach to the corporate resolution process. By changing a fragmented framework into a unified, creditor-centric process, IBC aimed to expedite the resolution of non-performing assets and enhance the ease of doing business. While studies have highlighted that IBC succeeded in improving recovery rates and reducing the timelines, structural issues began to surface as the code matured. Delays in the resolution, underutilization of viable assets, and limited investor participation called for reform.

    Recognizing this need, the Insolvency and Bankruptcy Board of India (‘IBBI’) introduced the IBBI ((Insolvency Resolution Process for Corporate Persons) Fourth Amendment Regulations 2025 which aim to address the inefficiencies and enhance the effectiveness of the Corporate Insolvency Resolution Process (‘CIRP’). Key features of this amendment include enabling part-wise resolution of corporate debtors, harmonizing payment timelines for dissenting creditors, and mandating the presentation of all resolution plans to the Committee of Creditors (‘CoC’).

    The piece unpacks whether the regulatory changes align with the IBC and its intended goals or are just a mere paper over the institutional cracks.

    DIAGNOSING THE IBC’S STRUCTURE

    IBC rests on three foundational pillars: maximizing the value of assets, ensuring a time-bound insolvency process, and balancing the interests of all stakeholders. These principles are affirmed as the foundational principle behind the IBC by cases like Essar Steel India Ltd. v. Satish Kumar Gupta.

    Yet these principles exist in tension. For example, despite the 190–270-day timeline for the CIRP, the IBBI’s quarterly report shows that  more than 60% of the CIRPs have exceeded the timelines, which leads to diminished asset value, deters strategic investors, and disrupts the objective of value maximization.

    The framework also gives substantial control to financial creditors via the CoC, with operational creditors having a very limited say. This structure offers swift decision making it has attracted criticism for privileging institutional lenders at the cost of small creditors. The introduction of staged payments for dissenting creditors and asset-specific resolution under the new regulations can be seen as a regulatory response to this imbalance.

    The IBC initially favoured a rigid process to instill discipline in resolution, but a one-size-fits-all model may stifle innovation. Scholars have argued that insolvency systems need to adapt to varied market structures and varied market structures especially in emerging economies. A key question remains: can a rigid, rule-bound structure effectively adapt to the complexities of a diverse insolvency system? The amendments must be understood not as isolated tweaks but as strategic interventions to reconcile the tensions inbuilt in the IBC’s design.

    DISSECTING THE KEY AMENDMENTS

    The amendment introduces four main changes each targeting to address long-standing inefficiencies and gaps in the stakeholder engagement.

    • Part-wise Resolution of Corporate Debtors

    The amended regulations now allow the Resolution Professionals (‘RPs’)to invite resolution plans for specific business segments of the corporate debtor in addition to the entire company. This creates a dual-track mechanism that offers unprecedented flexibility to the CoC and RPs. It is grounded on the fact that many insolvency cases involve heterogeneous assets, some of which are viable, some of which are distressed. Under the earlier regime, focusing on a holistic resolution often led to delayed proceedings and discouraged potential resolution applicants who were only interested in certain businesses. A similar model has been employed in jurisdictions like UK, where the pre-pack administrative sales and partial business transfers allow administrators to sell parts of their enterprise to recover the maximum value. Studies have advocated for asset-wise flexibility as a strategy to reduce liquidation rates and protect value.

    However, this reform risks of cherry picking, where bidders might try to choose profitable units while leaving liabilities and nonperforming divisions. This can potentially undermine the equitable treatment of creditors and complicate the valuation standard and fair assessment. This concern was evident in cases like Jet Airways where bidders sought profitable slots while avoiding liabilities. Jurisdictions like the UK mitigate this through independent scrutiny in pre-pack sales, a safeguard which India could adapt.

    • Harmonized Payment Timelines for Dissenting Creditors

    In cases like Jaypee Kensington and Essar Steel, the Supreme Court upheld that dissenting creditors must receive at least the liquidation value but left ambiguity on payment. Previously, the treatment of dissenting creditors lacked clarity, especially around the payment timelines. The amendment resolves this ambiguity by laying down a clear rule. . By ensuring that dissenters are not disadvantaged for opposing the majority, it reinforces a sense of procedural justice and also encourages more critical scrutiny of resolution plans within the CoC. It seeks to balance the majority rule with individual creditor rights, thereby enhancing the quality of proceedings.

    But, this provision could also complicate cash flow planning for resolution applicants and disincentivize performance-based payouts. Early, mandatory payouts to dissenters could affect plan viability and reduce the flexibility needed for restructuring. There is also a risk that dissenters may use their position to strategically extract early payments, leading to non-cooperation or tactical dissent – an issue which the amendment has left unaddressed.

    The balancing act between fairness and functionality can be seen as a reform which not just enhances inclusivity but also introduces a new operational pressures.  

    • Enhanced role for interim finance providers

    Another noteworthy intervention is that the CoC may now direct RPs to invite interim finance providers to attend CoC meetings as observers. These entities will not have voting rights but their presence is expected to improve the informational symmetry within the decision-making process. Finance providers have more risk when they are lending to distressed entities. Allowing them to observe deliberation offers more visibility into how their funds are being used and enhances lender confidence. From a stakeholder theory perspective, this inclusion marks a shift away from creditor dominance towards a more pluralist approach. This was also argued by Harvard Professor Robert Clark, who stated that insolvency regimes must recognize the varied capital interests involved in business rescue.

    While the introduction of interim finance providers promotes transparency and may increase lender confidence, the observer status needs to be carefully managed. Without clear boundaries, non-voting participants could still exert indirect influence on CoC deliberations or access sensitive information. To mitigate such risks, the IBBI could consider issuing guidelines to standardize observer conduct. This highlights a broader concern – expanding stakeholder involvement without proper guardrails, which may create issues in the already complex process.

    • Mandatory Presentation of All Resolution Plans to the CoC

    Earlier, RPs would filter out non-compliant plans and only present eligible ones to the CoC. The new amendment mandates all resolution plans to be submitted to the CoC along with the details of non-compliance. This reform shifts from RP discretion to CoC empowerment. It repositions the RP as a facilitator and reduces the risk of biased exclusion of potential plans.

    The amendment enhances transparency and aligns with the principles of creditor autonomy, which states that the legitimacy of the insolvency process depends not only on outcomes but on stakeholder confidence in the process. It also carries a risk of “decision fatigue” if the CoC is flooded with irrelevant non-viable proposals. The RP’s expert assessment should still carry some weight and structured formats for presenting non-compliant plans may be needed to make this reform operationally sound.

    Taken together, the amendments do not merely fix operational gaps they reflect a broader evolution of India’s insolvency framework from rigidity to responsiveness.

    STAKEHOLDER IMPLICATIONS & CONCERNS

    The regulation significantly rebalances roles within the CIRP, with distinct implications for each stakeholder. For Financial Creditors, part-wise resolutions, allowing staged payments and overseeing finance participants through the CoC has deepened their influence. This aligns with the creditor-in-control model, which states that power demands fiduciary accountability. Dominant creditors could steer outcomes for selective benefit, risking intra-creditor conflicts previously flagged by IBBI.

    Dissenting creditors now gain recognition through statute in phased payouts, ensuring they receive pro rata payments before consenting creditors at each stage. However, operational creditors remain outside the decision-making process, raising concerns about continued marginalization. This concern was also highlighted by IBBI that insolvency regimes that overlook smaller creditors risk creating long-term trust deficits in the process. RPs must now present all resolution plans, including the non-compliant ones to the CoC. This not just curtails arbitrary filtering but also increases the administrative burden.. Beyond the RP’s procedural role, the reforms also alter the landscape for resolution applicants.  The amendment benefits RPs by offering flexibility to bid for specific parts of a debtor. This may attract specialized investors and increase participation. However, unless the procedural efficiencies are addressed alongside the increased discretion, both RPs and applicants may find themselves in navigating through a system which is transparent but increasingly complex.

    CONCLUSION AND WAY FORWARD

    The Fourth Amendment to the CIRP reflects a bold move that seeks to move from a procedural rigidity towards an adaptive resolution strategy. The reforms aim to align the IBC more closely with the global best practices which are mainly focused on value maximization and creditor democracy. Yet as numerous scholars have emphasized insolvency reform is as much about institutional capability and procedural discipline as it is about legal design. The real test would lie in implementation, how the CoCs exercise their enhanced discretion and how RPs manage rising procedural complexity. Equally important is ensuring that small creditors, operational stakeholders and dissenters are not left behind.

    Going forward, further reforms are needed which include standard guidelines for plan evaluation, better institutional support and capacity upgrades for the NCLTs. Without these, the system risks duplicating the old inefficiencies. Overall, the 2025 reform represents a necessary evolution, but whether it becomes a turning point or a missed opportunity will depend on how effectively the ecosystem responds.

  • Reconsidering the Scope of Section 14 of IBC: Analysing the Inherent Extra-Territorial Scope of Moratorium 

    Reconsidering the Scope of Section 14 of IBC: Analysing the Inherent Extra-Territorial Scope of Moratorium 

    BY ADITYA DWIVEDI AND PULKIT YADAV, FOURTH-YEAR STUDENTS AT NUSRL, RACHI

    INTRODUCTION

    The moratorium provisions under the Insolvency and Bankruptcy Code, 2016 (‘The Code’), are important mechanisms to maintain the debtor’s assets and maximise value for all stakeholders. Yet, the territorial applicability of these provisions, especially in proceedings involving cross-border assets, is a matter of judicial interpretation and academic discussion. 

    This article analyses the extra-territorial applicability of moratorium under the Code with a special focus on comparing and contrasting the interpretation of moratoriums applicable to Corporate Insolvency Resolutions Process (‘CIRP’) and Insolvency Resolution Process (‘IRP’) under Sections 14 and 96 of the Code, respectively. 

    By analysing the recent judgment of the Calcutta High Court in Rajesh Sardarmal Jain v. Sri Sandeep Goyal, (‘Rajesh Sadarmal’) this article contends that whereas Section 96 moratorium might be restricted to Indian jurisdiction, Section 14 moratorium necessarily has extra-territorial application due to the interim resolution professional’s statutory obligation to manage foreign assets under Section 18(f)(i) of the Code.

    TERRITORIAL SCOPE OF MORATORIUM: DIVERGENT INTERPRETATIONS

    The Code provides for two types of insolvency proceedings: CIRP for corporate persons under Part II and IRP for individuals and partnership firms under Part III, with moratoriums under Sections 14 and 96, respectively, to facilitate these processes

    However, courts have interpreted the moratoria under Sections 14 and 96 differently. In P. Mohanraj v. Shah Bros. Ispat, the Supreme Court held that Section 14 has a broader scope but limited its analysis to domestic proceedings. In contrast, the Calcutta High Court in Rajesh Sadarmal highlighted the extra-territorial reach of Section 96. Hence, examining these interpretations is key to understanding the territorial scope of both provisions.

    INSOLVENCY RESOLUTION PROCESS VIS-A-VIS SCOPE OF SECTION 96: ANALYSING THE NARROW INTERPRETATION OF MORATORIUM UNDER PART III

    IIn Rajesh Sardarmal, the Calcutta High Court held that the Section 96 moratorium for personal guarantors does not extend to foreign jurisdictions, as the Code’s scope under Section 1 is limited to India and does not specify the enforcement of the Section 96 moratorium in foreign courts. Thus, the court held that actions in foreign jurisdictions cannot be suspended by Section 96. This interpretation implies that all provisions under the Code lack extra-territorial application.

    However, this view contradicts the Code’s inherent extra-territorial mechanism, as outlined in Sections 234 and 235 of the Code which respectively empower the central government to enter into reciprocal arrangements with other countries to enforce the provisions of the Code and allow the Adjudicating Authority (‘AA’) to issue a letter of request to the competent authority of a reciprocating country, requesting it to take necessary action regarding any ongoing homebound proceedings against the Corporate Debtor (‘CD’) under the Code. Further, this interpretation also negates the inherent extra-territorial scope of the moratorium under Section 14. 

    CORPORATE INSOLVENCY RESOLUTION PROCESS VIS-À-VIS SCOPE OF SECTION 14: A CASE WARRANTING BROADER INTERPREATAION OF MORATORIUM UNDER PART II

    The Supreme Court, in M/S HPCL Bio-Fuels Ltd v. M/S Shahaji Bhanudas Bhad, held that the Code, as an economic legislation, is intended for the revival of the CD rather than being used as a recovery mechanism. Further, in Swiss Ribbons Pvt. Ltd. v. Union of India, the Apex Court held that moratorium under section 14 envisions the protection of the assets of the CD, to facilitate its smooth revival. 

    Therefore, applying Rajesh Sadarmal’s narrow interpretation to Section 14 would weaken the moratorium’s purpose and hinder the CIRP. In a globalised economy, corporate debtors often hold foreign assets, which must be brought under the control of the interim resolution professional and the resolution professional under Sections 18 and 25 of the Code, respectively. This will maximise the value of the CD and enhance the chances of higher recovery for creditors. Further, it would also prevent successful resolution applicants from acquiring foreign assets of the CD without making any payment, and enable the committee of creditors to exercise their commercial wisdom judiciously in selecting the most suitable resolution plan after assessing the true financial position of the CD. 

    EXTRA-TERRITORIAL SCOPE: LEGISLATIVE INTENT AND STATUTORY FRAMEWORK

    In Dr. Jaishri Laxmanrao Patil v. The Chief Minister & Anr, the Supreme Court held that courts must act upon the intent of the legislature, and such intent can be gathered from the language used in the statute. Moreover, inRenaissance Hotel Holdings Inc. v.  B. Vijaya Sai & Others, the Apex Court ruled that the quintessential principle of interpretation is that every provision of a statute shall be interpreted considering the scheme of the given statute. Meaning thereby that the textual interpretation must align with the contextual one. 

    The Supreme Court went further ahead in the State of Bombay v. R.M.D. Chamarbaugwala, and held that a statute may have extra-territorial application if a sufficient territorial nexus exists. Hence, Section 1 of the Code does not bar such application. Interpreting Section 14 thus requires examining legislative intent and nexus, with Sections 18(f)(i), 234, and 235 providing key guidance.

    SECTION 18(f)(i): CONTROL OVER FOREIGN ASSETS

    After the commencement of insolvency and imposition of moratorium, the AA appoints an interim resolution professional under Section 16. As per Section 18(f)(i), the interim resolution professional must take control of all assets owned by the corporate debtor, including those located abroad. This establishes a clear territorial nexus, supporting extra-territorial application.

    In M/s Indo World Infrastructure Pvt. Ltd. v. Mukesh Gupta, the National Company Law Appellate Tribunal (‘NCLAT’) held that under Section 18(f), read with Section 20, the interim resolution professional must secure and preserve the corporate debtor’s assets. This interpretation aligns with the moratorium’s objective under Section 14. Such an intra-textual reading reflects the legislative intent to extend the moratorium to foreign assets for effective CIRP and value maximisation. While Section 1 poses no bar, supported by the doctrine of territorial nexus, actual enforcement abroad still depends on securing international cooperation through agreements under the Code.

    INTERNATIONAL AGREEMENT UNDER SECTION 234 AND 235: HIGHLIGHTING THE INHERENT EXTRA-TERRITORIAL SCOPE OF THE CODE

    Under Part V, the Code provides a legislative route under Sections 234 and 235 to facilitate the extraterritorial application of its provisions. This legislative structure recognises the necessity of international coordination and highlights the extraterritorial nature of the Code. 

    However, their efficacy is yet to be tested because, to date, no notification[i] has been issued by the central government in this regard. Therefore, unless the central government gives effect to these provisions through mutual agreement with other countries, no provision of the Code can be extended to foreign proceedings or assets situated in foreign lands. 

    However, in State Bank of India v. Videocon Industries Ltd., the National Company Law Tribunal (‘NCLT’) held that the  CD’s foreign assets will form part of the CIRP and be subject to Sections 18 and 14 of the Code. Yet, the NCLT has not provided any judicial framework for the consolidation of the CD’s foreign assets in the CIRP. 

    Therefore, even if the CD’s foreign assets are considered part of the CIRP, in the absence of a judicial or legislative framework (such as mutual agreements), those assets cannot be included in the CIRP.

    NEED FOR A COMPREHENSIVE CROSS-BORDER FRAMEWORK

    In DBS Bank Limited Singapore v. Ruchi Soya Industries Limited & Another, the Apex Court held that the primary aim of the Code is to balance the rights of various stakeholders by enabling the resolution of insolvency, encouraging investment, and optimising asset value. 

    Therefore, it is necessary to address the concerns of distressed Indian companies with a foreign presence and foreign companies having the centre of main interest (‘COMI’) in India. This will ensure that stakeholders or creditors are not left in the lurch due to skewed recovery resulting from the non-inclusion of the CD’s foreign assets in the CIRP. 

     However, to effectively address these concerns, there is a need to devise a cross-border framework that encompasses not only the CIRP but also the IRP. At present, India lacks such a framework, which constitutes a significant regulatory gap in its insolvency regime. In cases where personal guarantors possess assets located outside the country, this gap severely impairs the ability of creditors to recover dues effectively. The present framework is limited in scope and fails to provide mechanisms for the recognition and enforcement of foreign proceedings involving personal guarantors, thereby undermining the efficiency of cross-border recoveries.

    While the Report of the Insolvency Law Committee on Cross-Border Insolvency, 2018 (‘The Report’) laid down a robust foundation for dealing with CDS, it did not address personal insolvency, as Part III of the Code had not yet been notified at that time. The report emphasised the importance of providing foreign creditors access to Indian insolvency proceedings and of enabling Indian insolvency officials to seek recognition abroad. However, with the subsequent notification of provisions relating to personal guarantors, there is now an urgent need to expand the cross-border framework to encompass personal guarantor insolvency as well. The report also supports this view as it provides for the subsequent extension of cross-border provision on IRP, post notification of Part III. 

    Moreover, in Lalit Kumar Jain v. Union of India,  the Supreme Court held that due to the co-extensive nature of the liability of the surety with that of the principal debtor under Section 128 of the Indian Contract Act, 1872, creditors can recover the remaining part of their debt from CIRP by initiating IRP against the personal guarantor to the CD.

    Therefore, failing to extend the cross-border insolvency regime to IRP would limit creditors’ access to the guarantor’s foreign assets, thereby impeding the full and effective realization of their claims.

    To address this regulatory shortfall, a pragmatic way forward would be to operationalise Section 234 through mutual agreements with key trading partners of India, by expanding the scope of the cross-border framework, as suggested in the report   to include IRP, and amending the Code accordingly. 

    Further, the Courts should also refrain from narrowly interpreting the scope of moratoriums and other provisions of the Code, and should take into account the doctrine of territorial nexus while analysing the scope of any provision of the Code. 

    A broader interpretation, especially in cases involving foreign assets or proceedings, would facilitate a more effective and holistic resolution process by recognising the global footprint of many CDs. This approach aligns with the objective of maximising the value of assets under Sections 20 and the preamble of the Code and ensures that proceedings under the Code are not rendered toothless in cross-border contexts. 

    Additionally, invoking the doctrine of territorial nexus can help establish a sufficient legal connection between India and foreign assets or persons, thereby allowing Indian insolvency courts to issue directions that can have extraterritorial reach, wherever justified. This interpretive approach will ultimately enhance creditor confidence and will reinforce India’s credibility as a jurisdiction with a robust insolvency regime.

    Moreover, in the absence of any judicial and legislative framework, the doctrine of Comity of Courts can be invoked by the creditors seeking the enforcement of insolvency proceedings on foreign lands. This common law doctrine postulates an ethical obligation on the courts of one competent jurisdiction to respect and to give effect to the judgments and orders of the courts of other jurisdictions.

    Creditors can also seek recognition of Indian insolvency proceedings abroad through the UNCITRAL Model Law on Cross-Border Insolvency, as seen in Re Compuage Infocom Ltd., where the Singapore High Court recognised the Indian CIRP but denied asset repatriation. This highlights the urgent need for a comprehensive cross-border insolvency framework aligned with the spirit of the Code and the report that is primarily based on the Model Law.

    CONCLUSION

    While the Calcutta High Court’s ruling in Rajesh Sardarmal limits the territorial reach of Section 96 moratorium, Section 14 moratorium has to be interpreted more expansively, considering its inextricable link with Section 18(f)(i). Further, while interpreting the Code, the courts must give due regard to the legislative intent and the judicial principle of territorial nexus.  The success of the Code’s insolvency resolution mechanism, especially in cross-border asset cases, relies on acknowledging and enabling the extra-territorial operation of moratorium provisions. Legislative amendments, international cooperation frameworks, and judicial interpretation of the Code’s provisions based on legislative intent are essential to realise this goal.

    [i] Uphealth Holdings, INC. v. Dr. Syed Shabat Azim & Ors. Co., 2024 SCC OnLine Cal 6311 ¶ 20

  • Settlement Agreements and Section 12A Withdrawals: A Comparison with Section 230 of the Companies Act, 2013

    Settlement Agreements and Section 12A Withdrawals: A Comparison with Section 230 of the Companies Act, 2013

    BY ARSHIA ANN JOY AND ADITI SINGH, FOURTH-YEAR STUDENTS AT NUALS, KOCHI.

    Introduction

    A liquidation order is passed as per the Insolvency and Bankruptcy Code 2016 (“IBC“)  when the Corporate Insolvency Resolution Process (“CIRP“) falls through, and the company cannot be revived within the stipulated timeline. However, courts, over time, have interpreted that issuing a liquidation order is not to be treated as a death sentence to the company and its operations. This is because the ultimate aim of the IBC is to facilitate the revival of the company if it is a feasible option. This further implies that the order permitting an entity’s liquidation can be reversed if the petition initiating CIRP proceedings is itself withdrawn. Section 12A was introduced in the IBC in 2018 to allow settlements between the Corporate Debtor (“CD“) and the creditors by allowing withdrawal of proceedings, with 1035 such withdrawals recorded till December 2023.

    This article explores the legality of allowing the withdrawal of proceedings after issuing the liquidation order, when a settlement agreement is reached. The authors also look at how the lack of procedural clarity surrounding the acceptance of the settlement agreement leads to difficulties in reviving the CIRP if the settlement agreement fails. Further, solutions are suggested through a comparison with section 230 of the Companies Act, 2013 (“CA”), which facilitates arrangements aiming at debt restructuring and thereby resolving the financial crisis of the company. The authors argue that allowing the Adjudicating Authority (“AA”) to thoroughly analyse the settlement agreements while admitting section 12A applications, similar to the procedure envisaged in section 230 of CA, would be a step in the right direction in addressing the ambiguities surrounding the withdrawal of CIRP and revival of proceedings, if need be.

    Reversibility of a Liquidation Order and Withdrawal of Proceedings Post Issuance of Liquidation Order

    The parties are said to have arrived at a settlement agreement if the CD agrees to pay the creditor an agreed sum to resolve the conflict. Once a settlement agreement is reached after a liquidation order is passed, the parties can approach the AA under section 12A and withdraw the proceedings initiating CIRP. The primary intention behind introducing section 12A is to recognise post-admission settlement cases in line with statutory provisions. 

    The NCLAT, in Navaneetha Krishnan v. Central Bank of India, settled the law on reversibility of a liquidation order. It was held that even during the liquidation period, if any person satisfies the Committee of Creditors (“CoC”) , and CoC accepts the said offer with a 90% voting share, such a person may apply for a withdrawal of the proceedings before the AA.

    In 2019, the NCLAT, in a similar case, emphasised the importance of allowing the promoters/shareholders to arrive at a settlement as per section 12A. In such cases, the application seeking initiation of CIRP can be withdrawn. The Supreme Court in Vallal RCK v. Siva Industries held that the wisdom of the CoC in approving a settlement plan must not be interfered with by the AA unless such a decision was wholly ‘capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.’ In this case, the CoC had failed to approve the proposed resolution plan with the requisite 66% majority. Subsequently, the Resolution Professional filed an application under section 33(1)(a) of IBC seeking liquidation of the entity pending which the promoter of the CD approached the AA with a settlement plan. The AA had, in turn, refused to approve it without giving due regard to the 90% majority decision of the CoC to go ahead with the settlement plan. 

    More recently, in 2022, the NCLT analysed the rationale put forth in Navaneetha Krishnan and Vallal RCK to conclude that even after the order of liquidation is passed, the application for withdrawal of proceedings may be allowed. In this case, the liquidator had received a settlement proposal from the promoter of the CD duly approved by the CoC with the requisite majority. 

    The NCLT Chennai Bench rightly noted:

    “Thus, it could be seen that even during the liquidation process, the parties have arrived at a settlement, then the application filed under Section 7, 9 and 10 can be withdrawn. Consequently, the CIRP and the liquidation initiated against the CD also stand withdrawn.”

    Thus, the order of liquidation already passed does not hinder the AA from passing an appropriate order of withdrawal as per section 12A if all the requisite conditions are satisfied.

    The Dilemma: Applying Section 12A Post Issuance of Liquidation Order

    Although the law seems to be settled regarding the impact of section 12A on a liquidation order, the lack of procedural clarity has led to contradictory results in the past few years. 

    In Jayashree Mohan v. Pathukasahasram Raghunathan, the NCLT laid down the limited scope available for reviving an entity undergoing liquidation. It was stated that once the liquidation process is initiated, the entity cannot come out of the process except through the two avenues, namely, by way of a scheme under section 230 of CA or by sale as a going concern. In this case, section 12A is not seen as a potential avenue which could result in the revival of the entity once liquidation is initiated.

    Similarly, the NCLT Chennai bench in Narayan Maheshwari disallowed the withdrawal application made under section 12A while the liquidation process was going on. It was emphasised that section 12A was inserted in Part II of the IBC, which deals exclusively with CIRP and not liquidation. Since no specific amendment is made in the liquidation process regulations, an application for withdrawal under section 12A cannot be allowed post-issuance of a liquidation order. It was further held that in Navaneetha Krishnan, the application under section 12A was never filed during liquidation and that the ex-promoter of the CD had filed an application under section 230 of CA for approving a scheme of compromise. In this case, the NCLT has voiced its concerns regarding allowing withdrawal of proceedings once the order of liquidation has been passed as it might potentially lead to every suspended Director/Promoters waiting till the liquidation order to enter into a settlement agreement at a ‘throw away price.’

    The above rationale of the tribunals could hamper the prospects of reviving a company through settlement, just because the order of liquidation has been initiated against it, thus defeating the purpose for which section 12A was included in the IBC. The application of section 12A to Part III of the IBC has to be specifically inculcated in the regulations to put a rest to these contradictory judgements.

    Revival of CIRP in case of Failure of Settlement Agreement

    In  the cases where withdrawal of proceedings was allowed after issuing the order of liquidation, the stakeholders had agreed on a one-time settlement (“OTS”) or a settlement agreement. In Sudip Dutta, the NCLT, while analysing a catena of decisions including Navaneetha Krishnan stated that:

    “In the instant case, no application was filed under Section 12A of IBC since there was no OTS that was acceptable to the Respondent No. 2 bank.”

    As noted above, the application for withdrawal under section 12A is considered after the issuance of the liquidation order only when the CoC approves a settlement agreement with the requisite majority. 

    However, the procedure for accepting or analysing such a settlement agreement is not specified in the statute or the relevant regulations. As seen above, the commercial wisdom of the CoC is given primacy and judicial intervention is permitted only if the decision of the CoC was wholly arbitrary or capricious. Analysing whether the decision itself was arbitrary or capricious would, in turn, require the settlement agreement to be on the record, which might not happen in most cases, especially when the statute/regulations fail to mandate the same, as was noted by the NCLAT in Krishna Garg. 

    In this case, the CD did not adhere to the terms of the settlement agreement after the CIRP proceedings were withdrawn. The NCLAT refused to revive the CIRP proceedings because the settlement agreement terms were not filed or brought on record before it. The NCLAT in SRLK Enterprises categorically stated that IBC is not a recovery proceeding where parties can repeatedly approach the AA owing to the non-repayment of debt. Proceedings can be revived only if the settlement agreement has been brought on record and has been made a part of the order of withdrawal. The AA can revive the CIRP proceedings, if the settlement agreement has a clause which provides for the revival of CIRP proceedings upon failure of setttlement agreement. The AA need not specifically grant the liberty to revive the proceedings in such cases. This would also imply that if there is no such clause allowing revival, the parties may be granted the liberty to do so specifically, by the AA. These recent orders suggest that the settlement agreement need not always become a part of the order allowing the withdrawal of proceedings, thus complicating the revival of proceedings under the IBC later when the parties fail to adhere to the settlement terms.

    Additionally, in Vallal RCK, the Supreme Court noted how the CoC has entered into many ‘deliberations’ before accepting the settlement plan, and stated that the CoC decision is not ordinarily subject to judicial scrutiny. The analysis done by the court gets confined to checking whether the CoC has done enough ‘deliberations’ before approving the settlement agreement. This seems to be in stark contrast to the procedure followed under section 230 of CA, where the AA is empowered to delve deeper into the actual contents of the proposed scheme.

    Comparison with Section 230 of the Companies Act, 2013

    Even after passing the order of liquidation, if a scheme of Compromise demonstrates viability, feasibility, optimisation of the CD’s assets, and equitable consideration of creditors, the liquidator may submit an application under section 230 of the CA to the AA in a bid to revive the company. As per regulation 2B of the Liquidation Process Regulations 2016, a scheme of compromise and arrangement may be completed within 90 days post the order of liquidation. 

    Furthermore, clauses (2) to (10) of section 230 puts forth the powers of the AA in overseeing the admission of the scheme of compromise and arrangement. The AA is to be made aware of the latest financial position of the entity, the creditor’s responsibility statement, the auditor’s report on the fund requirements, the valuation report on the assets of the company, etc. Further, in SREI Equipment Finance Limited, the NCLAT observed that sections 230-232 cast an obligation on the AA to ensure that the scheme is not contrary to public policy and not prejudicial to the company’screditors and members. Greater checks and balances are put in place under section 230 of the CA while admitting a proposed scheme of compromise and arrangement even after a liquidation order is passed.

    Conclusion and Recommendations

    A similar procedural clarity on the AA’s oversight is absent when it comes to the role of the AA in a section 12A application involving a settlement agreement. Section 12A must specifically be made applicable to Part III of the IBC. Further, a time period may be mentioned in section 12A, similar to section 230 of CA, for accepting and analysing the settlement agreement once the AA has issued the order for liquidation. The regulations must also specify that the settlement agreement entered into must mandatorily be brought on record while withdrawing the proceedings so that revival of the CIRP can be made possible without much hassle if the said agreement falls through at a later stage.