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.
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