The Corporate & Commercial Law Society Blog, HNLU

Tag: 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.

  • COMI Confusion: Can India Align With The Global Insolvency Order?

    COMI Confusion: Can India Align With The Global Insolvency Order?

    Prakhar Dubey, First- Year LL.M student, NALSAR University, Hyderabad

    INTRODUCTION

    In the contemporary global economy, where firms often operate across various countries, the growing complexity of international financial systems has made cross-border insolvency processes more complicated than ever. International trade and business have proliferated, with companies frequently possessing assets, conducting operations, or having debtors dispersed across multiple nations. In a highly interconnected environment, a company’s financial hardship in one jurisdiction may have transnational repercussions, impacting stakeholders worldwide. Consequently, addressing insolvency with equity, efficacy, and certainty is essential.

    A fundamental challenge in cross-border insolvency is establishing jurisdiction—namely, which court will manage the insolvency and which laws will regulate the resolution process. The issue is exacerbated when several nations implement disparate legal norms or frameworks for cross-border recognition and collaboration. Two fundamental concepts, forum shopping and Centre of Main Interests (‘COMI’), profoundly influence this discourse.

    Forum shopping occurs when debtors take advantage of jurisdictional differences to file in nations with more lenient rules or advantageous outcomes, such as debtor-friendly restructuring regulations or diminished creditor rights. Although this may be strategically advantageous for the debtor, it frequently generates legal ambiguity and compromises the interests of creditors in alternative jurisdictions. To mitigate such exploitation, the United Nation Commission on International Trade Law Model Law on Cross-Border Insolvency (‘UNCITRAL Model Law’) has formalised the COMI test, a principle designed to guarantee openness and predictability in cross-border procedures. It offers an impartial method to determine the most suitable forum based on the locus of a debtor’s business operations.

    Although recognising the need for cross-border bankruptcy reform, India has not yet officially adopted the Model Law. Instead, it relies on antiquated processes such as the Gibbs Principle, which asserts that a contract covered by the law of a specific country can only be terminated under that legislation, along with ad hoc judicial discretion. These constraints have led to ambiguity, uneven treatment of creditors, and prolonged cross-border remedies.

    This blog critically assesses India’s present strategy, highlights the gap in the legislative and institutional framework, and offers analytical insights into the ramifications of forum shopping and COMI. This analysis utilises the Jet Airways case to examine comparable worldwide best practices and concludes with specific measures aimed at improving India’s cross-border insolvency framework.

    INDIA’S STANCE ON ADOPTING THE UNCITRAL MODEL LAW

    The existing cross-border insolvency structure in India, as delineated in Sections 234 and 235 of the Insolvency and Bankruptcy Code ( ‘IBC’ ), 2016, is predominantly inactive. Despite the longstanding recommendations for alignment with international standards from the Eradi Committee (2000) and the N.L. Mitra Committee (2001), India has not yet enacted the UNCITRAL Model Law.

    More than 60 nations have implemented the UNCITRAL Model Law to enhance coordination and collaboration across courts internationally. India’s hesitance arises from apprehensions of sovereignty, reciprocity, and the administrative difficulty of consistently ascertaining the COMI. Adoption would include not only legislative reform but also institutional preparedness training for judges, fortifying the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’), and establishing bilateral frameworks.

    KEY PROVISIONS OF THE UNCITRAL MODEL LAW AND IMPLICATIONS FOR INDIA

    The four fundamental principles of the UNCITRAL Model Law, Access, Recognition, Relief, and Cooperation, are designed to facilitate the efficient and fair resolution of cross-border bankruptcy matters. They facilitate direct interaction between foreign representatives and domestic courts, expedite the recognition of foreign procedures, protect debtor assets, and enhance cooperation among jurisdictions to prevent delays and asset dissipation.

    The effectiveness of these principles is evident in global bankruptcy processes, as demonstrated by the rising number of nations implementing the UNCITRAL Model Law and the more efficient settlement of complex international cases. Nonetheless, its implementation has not achieved universal acceptance, with certain countries, such as India, opting for different approaches, which may pose issues in cross-border insolvency processes.

    In the case of In re Stanford International Bank Ltd., the English Court of Appeal faced challenges in establishing the COMI due to inconsistencies between the company’s formal registration in Antigua and Barbuda and the true location of its business operations. This case underscores the imperative for a well-defined COMI standard that evaluates significant commercial operations rather than merely the jurisdiction of incorporation. The Court of Appeal finally determined that the Antiguans’ liquidation represented a foreign primary procedure, underscoring that the presumption of registered office for COMI may only be refuted by objective and verifiable elements to other parties, including creditors. This case highlights the complexity that emerges when a company’s official legal domicile diverges from its practical reality, resulting in difficulties in implementing cross-border insolvency principles.

    Moreover, India’s exclusion of a reciprocity clause hindered the global implementation of Indian rulings and vice versa. In the absence of a defined statutory mandate, ad hoc judicial collaboration often demonstrates inconsistency and unpredictability, hence compromising the global enforceability of Indian insolvency resolutions. This reflects the challenges encountered by other jurisdictions historically, as demonstrated in the European Court of Justice’s ruling in Re Eurofood IFSC Ltd. This pivotal judgment elucidated that the presumption of the registered office for the COMI can only be contested by circumstances that are both objective and verifiable by third parties, including the company’s creditors. These cases highlight the pressing necessity for a comprehensive and globally harmonised legal framework for insolvency in India, with explicitly delineated criteria to prevent extended and expensive jurisdictional conflicts.

    FORUM SHOPPING AND INSOLVENCY LAW: A DELICATE BALANCE

    Forum shopping may serve as a mechanism for procedural efficiency while simultaneously functioning as a strategy for exploitation. Although it may assist debtors in obtaining more favourable restructuring terms, it also poses a danger of compromising creditor rights and creating legal ambiguity.

    In India, reliance on the Gibbs Principle, which posits that a contract can only be discharged by the governing law, has hindered flexibility. This was seen in the Arvind Mills case, where the disparate treatment of international creditors was scrutinised, and in the Dabhol Power issue, where political and legal stagnation hindered effective settlement.

    While a certain level of jurisdictional discretion enables corporations to seek optimal restructuring, India must reconcile debtor flexibility with creditor safeguarding. An ethical framework grounded in transparency and good faith is crucial to avert forum shopping from serving as a mechanism for evasion.

    COMI IN INDIA: NEED FOR LEGAL CLARITY

    India’s judicial involvement in COMI was prominently highlighted in the Jet Airways insolvency case, which entailed concurrent processes in India and the Netherlands. The NCLT initially rejected the acknowledgement of the Dutch proceedings owing to the absence of an explicit provision in the IBC. The NCLAT characterised the Dutch process as a “foreign non-main” proceeding and confirmed India as the COMI. In a recent judgment dated November 12th, 2024, the Supreme Court ultimately ordered the liquidation of Jet Airways, establishing a precedent for the interpretation of COMI. This decision solidifies India’s position as the primary jurisdiction for insolvency proceedings involving Indian companies, even when concurrent foreign proceedings exist. It underscores the Indian judiciary’s assertive stance in determining the COMI and signals a stronger emphasis on domestic insolvency resolution, potentially influencing how future cross-border insolvency cases are handled in India.

    This case illustrates the judiciary’s readiness to adapt and the urgent requirement for legislative clarity. In the absence of a defined COMI framework, results are mostly contingent upon court discretion, leading to potential inconsistency and forum manipulation. Moreover, it demonstrates that India’s fragmented strategy for cross-border cooperation lacks the necessary robustness in an era of global corporate insolvencies.

    To address these difficulties, India must execute a set of coordinated and systemic reforms:

    Implement the “Nerve Centre” Test (U.S. Model)

    India should shift from a rigid procedure to a substantive assessment of the site of significant corporate decision-making. This showcases the genuine locus of control and decision-making, thereby more accurately representing the commercial landscape of contemporary organisations.

    Apply the “Present Tense” Test (Singapore Model)

    The COMI should be evaluated based on the circumstances at the time of insolvency filing, rather than historical or retrospective factors. This would deter opportunistic actions by debtors attempting to exploit more lenient jurisdictions.

    Presumption Based on Registered Office

    Utilising the registered office as a basis for ascertaining COMI provides predictability; nonetheless, it must be regarded as a rebuttable presumption. Judicial bodies ought to maintain the discretion to consider factors outside registration when evidence suggests an alternative operational reality.

    Institutional Strengthening

    India’s insolvency tribunals must be endowed with the necessary instruments and experience to manage cross-border issues. This encompasses specialist benches within NCLT/NCLAT, training initiatives for judges and resolution experts, and frameworks for judicial collaboration. The adoption of the UNCITRAL Model Law must incorporate a reciprocity clause to enable mutual enforcement of judgments. India should pursue bilateral and multilateral insolvency cooperation agreements to augment worldwide credibility and enforcement.

    By rectifying these legal and procedural deficiencies, India may establish a resilient insolvency framework that is internationally aligned and capable of producing equitable results in a progressively interconnected financial landscape.

    CONCLUSION

    The existing cross-border bankruptcy structure in India is inadequate to tackle the intricacies of global corporate distress. As multinational businesses and assets expand, legal clarity and institutional capacity become imperative. The absence of formal acceptance of the UNCITRAL Model Law, dependence on antiquated principles such as the Gibbs Rule, and lack of a clearly defined COMI norm have resulted in fragmented and uneven conclusions, as shown by the Jet Airways case. To promote equity, transparency, and predictability, India must undertake systemic changes, including the introduction of comprehensive COMI assessments, a reciprocity provision, and institutional enhancement. Adhering to international best practices will bolster creditor trust and guarantee that India’s bankruptcy framework stays resilient in a globalised economic landscape.

  • 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.

  • 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.