The Corporate & Commercial Law Society Blog, HNLU

Tag: insolvency

  • The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

    The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

    BY VAISHNAV M, THIRD- YEAR STUDENT AT NUALS, KERALA

    INTRODUCTION

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’) ensconces a mechanism known as the Corporate Insolvency Resolution Process (‘CIRP’) that attempts to revive the Corporate Debtor (‘CD’) through restructuring and strategic resolution of debts. With the CD managed by a Resolution Professional (‘RP’), the Resolution Applicants (‘RA’) can propose restructuring plans to resolve debts and sustain the CD as a going concern.

    Where the plan involves acquisition, merger or amalgamation (collectively, ‘Combination’), it is important that the restructuring does not distort the competition in the market. This is where merger control and the Competition Commission of India (‘CCI’) step in. The Supreme Court in Independent Sugar Corporation Ltd. v. Girish Sriram & Ors (‘ISC’)dealt with the procedure to seek the CCI’s approval for combination during the insolvency process.

    The piece is not a general comment on the decision; instead, it aims to examine a particular point in the judgement that has not received the critical attention it deserves. That is, the particular stage at which the CCI-nod for the combination is to be obtained. This question is especially pertinent in the context of the recently introduced IBC (Amendment) Bill, 2025 (‘2025 Amendment’), which proposes to relax the timeline for the CCI’s approval for resolution plans.

    THE ISC CASE AND THE STATUS QUO

    In the ISC case, one of the RAs challenged the CIRP, citing many procedural laxities. One of the grounds was failure to seek approval of the CCI before placing the resolution plan before the Committee of Creditors (‘CoC’) for voting. According to Section 31(4) of the IBC, an RA has one year from the approval of the Adjudicating Authority (‘AA’) to obtain necessary clearances under other laws. But the proviso clarifies that the approval of the CCI for the combination is to be obtained before the approval of the CoC.

    Hitherto, the position was that this proviso is directory and not mandatory in nature, as laid down by the decision of the National Company Law Tribunal (‘NCLAT’) in Arcellor Mittal v Abhijit Guhakartha & Ors. The Supreme Court (‘SC’), in the ISC case, reversed the position by holding that the proviso is to be read literally, and treating it otherwise would render it obsolete. However, the proviso does not specify who seeks approval and at what stage before the CoC nod. In the scheme of CIRP, the stages preceding the CoC approval are:

    • Stage 1: Invitation for expression of interest from prospective RAs
    • Stage 2: Request for resolution plans from prospective RAs
    • Stage 3: Examination and confirmation of the plans by the RP
    • Stage 4: Voting by the CoC on the plans

    The SC in ISC clarified that the RA need not wait till submission of the plan to the RP before sending a notice to the CCI for approval. In effect, the approval of the CCI can be sought at any time, even in Stage 1 during the invitation for expression of interest at any point before Stage 4. The next section shall discuss the workability of the same.

    DETERMINING THE TRIGGER POINT FOR CCI NOTICE

    When to send the notice?

    According to Section 6 of the Competition Act, 2002, (‘the Competition Act’) an enterprise must send a notice of combination to the CCI when it executes any agreement or document for acquisition, or when the Board of Directors (‘Board’) of the enterprises involved approves the proposal for a merger or amalgamation.

    As held in ISC, an RA can send a notice to the CCI much before it submits its resolution plan to the RP. But is the requirement of an agreement or a decision for acquisition or the Board’s approval for merger met at Stages 1 and 2?

    An ‘agreement’ to acquire is a broad and liberal construct, and includes an arrangement of understanding or even an action in concert. Such an arrangement or understanding can be reflected in a formal or written form, and it need not have been formulated with the intent legal enforceability. In the case of the CIRP, the RP is tasked with managing the CD, including entering into contracts on behalf of the CD, courtesy Section 23 read with Section 20 of IBC. Resultantly, an agreement or understanding for the purpose of acquisition has to be between the RA proposing the combination on one side and the RP on the other side.

    But such an understanding or arrangement is absent at Stage 1. An agreement requires a meeting of minds of at least two parties, which is lacking when the RA is yet to share their proposal with the RP. Similarly, Stage 2 only marks a point where the RAs have prepared the plan. That does not signify an agreement as it is yet to be examined and understood by the RP.  

    At Stage 3, the RP examines the resolution plans proposed by the RAs and confirms whether they comply with the minimum essentials mandated by the law. This confirmation implies an agreement or an understanding, making Stage 3 and onwards the appropriate trigger for notice.

    Now, in the case of a merger or amalgamation, the notice is triggered only after the proposal is approved by the Board of both parties.[i]  In the case of a CD, the interim RP (‘IRP’) or the RP steps into the shoes of the management. Resultantly, the approval would have to be sought from the RP himself. Therefore, a notice for merger or amalgamation cannot be sent to the CCI before the plan is submitted to the RP and confirmed by them, which is Stage 3. So, the same conclusion follows – it is at Stage 3 that the notice is triggered.

    Who should send the notice?

    In the case of acquisition, the acquirer sends the notice.[ii] Generally, the successful RA submitting the plan acquires the target CD company, as was seen in the case of ISC. Therefore, it is the RA who is required to send the notice to the CCI. For merger or amalgamation, notice must be sent jointly by the RA and the RP.[iii]

    Suppose there are RAs intending to propose an acquisition in Stages 1 and 2, then all those RAs must send the notice to the CCI with the requisite fees,[iv] even before the plan is seen and examined by the RP. So, even RAs whose plan might not be voted in later would have to bear the cost at an early stage. Quite similarly, in the case of merger or amalgamation, the RP and the respective RA have to send the notice and pay the fees, jointly or severally.[v]Whether the RA or the RP handling the stressed CD would want to take the liability to pay the fees amid relative uncertainty is doubtful.

    WELCOMING THE 2025 AMENDMENT

    The 2025 Amendment has been appreciated for many desirable introductions, from the new ‘creditor-initiated insolvency resolution process’ to ‘group insolvency’. Clause 19(d) amends the proviso to Section 31(4), allowing the RA to obtain the CCI approval before submission to AA. So, the approval process can be deferred till the CoC votes on the plan and the Successful Resolution Applicant is identified. The minor change resolves the above-discussed problem of redundancy, while leaving room for seeking approval at an earlier stage.

    There are certain concerns regarding the amendment as well, but these can be addressed duly. One of the concerns is regarding compliance with the CIRP timeline of 330 days under Section 12 of the Code. However, 330 days is a general rule. The Court has already held, previously as well as in ISC, that the breach of the time-limit can be condoned in exceptional circumstances where any blame for such a delay cannot be attributed to any of the parties.

    In case the plan approved by the CoC is rejected by the CCI, it must be modified to address those objections. However, the successful RA cannot make any change at its own behest. So, once changes are made, the CoC must approve it again. Essentially, such a rejection need not be fatal to the CIRP, though it may elongate the process. In any case, Clause 19(b) of the 2025 Amendments allows the AA to return back the plan to the CoC for correcting any defects. What it reflects is that alterations made post first CoC approval is not doctrinally unacceptable. When CCI recommends changes, the CoC is well-equipped to accommodate it then and there. 

    Therefore, the proposed amendment to the procedure for CCI approval of the resolution plan is a pragmatic improvement as it spares the RA and the RP from the additional paperwork and costs that are characteristic of the existing position.

    CONCLUDING REMARKS

    The current position as settled in the ISC case does not gel well with reality. Even though it seems to make available a broad period for sending the notice, starting from Stage 1, it is generally not possible to send a notice until Stage 3 when the trigger for the notice under the Competition Act is activated. In rare cases with only one RA and mutual certainty as to the terms of the combination, this proposition in ISC might be of some use. Such cases are rare in the typically uncertain flow of business in the CIRP.

    The proposed change in the 2025 Amendment reflects the reality. The RAs and the RP can even wait till the CoC approval to send the notice. This improves ease of doing business and provides more leeway for the stakeholders to ensure compliance.

    [i] Competition Commission of India (Combinations) Regulations, 2024, Reg. 5(7).

    [ii] Id., Reg. 9(1).

    [iii] Id., Reg. 9(3).

    [iv] Id., Regs. 10, 11.

    [v] Id., Regs. 10(2), 9(3).

  • Insolvent Airlines, Invisible Assets: India and Global Norms

    Insolvent Airlines, Invisible Assets: India and Global Norms

    BY AADITYA VARDHAN SINGH AND MANYA MARWAH, THIRD- YEAR STUDENTS AT IIM, ROHTAK

    INTRODUCTION

    The insolvency of the jet airways has impacted the economy of India and has it slowed down. The resolution plan of Jet Airways could only realise nearly Rs. 400 crores whereas the claims of the financial creditors amounted to almost Rs. 8000 crores. While the physical assets such as upside on Aircraft sales, ATR inventory, etc. were well taken into account, the intangible assets that the airline held, failed to serve the interests of the creditors and could not reap the return of the money lent.

    What went unrealised were almost 700 intangible assets in the form of airport slots which could have satisfied a significant amount of the creditors’ claims. These intangible assets are the airport slots: which are powerful operating rights, defined as a permission granted by the airport operator to use their infrastructure essential to arrive or depart at a level 3 airport on a specific date and time.
    The standard mechanism for allocating slots in India partially follows the Worldwide Airport Slot Guidelines (‘WASG’) developed by global aviation bodies like Airports Council International (‘ACI’), International Air Transport Association (‘IATA’), and Worldwide Airport Coordinators Group (‘WWACG’). Slots are assigned twice yearly, for the summer and winter seasons, and few airlines are reassigned their historical slots, primarily known as “Grandfather rights”. Airlines that utilise 80% of the slots keep it for the next season, famously known as “Use-it-or-Lose-it” rule. If the airline fails to comply with the 80% threshold, the slot goes back into the pool available to other airlines to apply and use.

    This article aims to analyse the current position of the Indian insolvency framework in the event of airline administration and how the status of airport slots in India as being untransferable has impacted the interest of stakeholders and undermined the assets recovery from airlines during insolvency.

    NATURE OF AIRPORT SLOTS: REGULATORY PERMISSIONS OR MONETIZABLE ASSETS

    Understanding Airport Slots and Their Regulation

    Airport slots are limited and therefore highly regulated by the Directorate General of Civil Aviation (‘DGCA’), an office attached under the Ministry of Civil Aviation (‘MoCA’). The existing framework is governed by the MoCA Guidelines for Slot Allocation, 2013, which restricts the transfer of airport slots, except in cases involving mergers and acquisitions or temporary rearrangements approved by the Airport Coordinator.

    This present framework that governs the allocation of airport slots deems them to merely be regulatory permissions granted by the airport coordinators rather than monetizable and transferable assets. India has witnessed multiple airline collapses, including Jet Airways, Kingfisher Airlines, and Go First. Each of these had substantial slot holdings at major domestic and international airports, which could have been of great help in reducing the financial burden on the airlines to some extent. Still, unfortunately, our insolvency framework doesn’t recognise them as an asset.

    CLASH WITH IBC OBJECTIVES

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’) was designed to maximize the value of assets of insolvent companies, aiming to preserve and rescue viable businesses. According to the Code’s objectives, it seeks:

    “…to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons…for maximization of value of assets…in a time-bound manner.”

    However, ignoring slots, holding immense monetary value as assets, undermines this purpose of the IBC. The current guidelines issued in 2013 do not align with the code which was enacted in 2016 with an intent to prioritize the interests of the creditors in the event of insolvency, For example, when Jet ceased operations in April 2019, it had some of the most lucrative slots at Heathrow, Mumbai, and Delhi. However, since Indian aviation law doesn’t recognize slots as assets, the Resolution Professional couldn’t monetize them under the IBC.

    Despite multiple representations, the DGCA and MoCA refused to reallocate the historic slots to the resolution applicant, the Kalrock-Jalan Consortium, stating in an affidavit:

    “On the date of moratorium, Jet had no slots and had also lost the right to claim historicity.”

    The inability to treat slots as tradable assets meant Jet’s potential revival lost steam. The resolution applicant had no assurance of getting the airline’s most critical operating assets i.e. its airport slots. However, the DGCA reallocated Jet’s slots to rival airlines, creating further complications and deterring a clean resolution.

      In India, slots can neither be transferred nor exchanged for monetary benefits. In the event of airline insolvency, the DGCA, the authority regulating the allocation of slots in India, throws back the slots owned by airlines into the slot pool, depriving the original airline of something that could have generated millions of dollars if recognized as assets.

    GLOBAL PRACTICES: RECOGNITION AND MONETIZATION OF SLOTS

    Understanding the approach followed by other major jurisdictions towards slot trading during insolvency events is imperative to ensure proper policy formulation.

    European Union: Monetizing Slot Transfers

    The European Union (‘EU’) slot allocation is governed by EU Regulation 95/93. Article 8(4) of this document provides for airlines to transfer or exchange airport slots, with or without monetary compensation, subject to the approval of the airport coordinator. The intent behind such a liberal approach is to protect the financial interest of airlines’ creditors during insolvency proceedings and allow airlines to realize economic interest by exchanging their high-value airport slots with other airlines for their less valued airport slots and monetary benefits for the balance. Through such structured transfers, the value of these assets is not wasted but utilized to recover some part of the value for the stakeholders.

    United Kingdom: Judicial Recognition of Slot Rights

      Through the significant ruling of the United Kingdom (‘UK’) Court of Appeal (‘the court’) in Monarch Airlines Ltd v Airport Coordination Ltd (2017), the judiciary reinforced the recognition of airport slots as intangible assets holding crucial economic value. Even though the UK ceased to be part of the EU, it still holds some of the principles and regulations followed earlier, and this is one of them. In this case, Monarch Airlines had entered administration, lost its operating license, and all the aircraft on lease were returned. When the airline lost the slots, it possessed under ‘grandfather rights’, the court upheld its right over the historic slots, dismissing the argument of future slot allocation purely based on current operational status, and declared such practice as arbitrary and contrary to the regulatory framework. Even though the court explicitly declined the outright sale of slots, it permitted structured exchange and transfers involving monetary consideration.

      IATA Worldwide Airport Slot Guidelines (WASG)

      India’s currently followed guidelines reflect partial adherence to the IATA WASG. Under clauses 8.11 and 8.12 of these guidelines, transparent and coordinated Slot transfer and slot swapping are allowed with or without monetary consideration. These international practices promote liquidity in the aviation market, especially during airline insolvency.

      India aims to transform itself into a global aviation hub, which is impossible without aligning its domestic rules and regulations with those of globally adopted practices. Some Indian airports like Delhi and Mumbai have massive passenger traffic, and slots at these airports carry significant economic value. However, the insolvency event of Go First, where the slots held by the airline were reallocated in the slot pool by DGCA, providing other airlines the opportunity to avail themselves, reflected the restriction imposed on slot trading in the secondary market by existing guidelines. Therefore, recognizing slots as transferable assets and enabling their regulated transfer or exchange becomes of prime importance to improve market liquidity, protect creditors’ interests, and encourage investment in the aviation sector.

      PROPOSED SLOT TREATMENT IN INSOLVENCY

      Post the shift of treatment of slots from ‘regulatory permissions’ to ‘intangible monetizable and transferrable assets’, there is a need for complete overhaul in the framework regarding the treatment of slots as soon as an airline is declared insolvent. As per Chapter 9, Coordination after Final Slot Allocation, Section 8 Part (i) slots can only be held by an airline with a valid operating licence – “Aircraft Operators Certificate (‘AOC’)” When an insolvency proceeding is initiated against an airline, it does not automatically become inoperative and hence still has the power to hold the slots. The airline in this time period shall be entitled to either transfer the slots and monetize them until the airline holds the AOC, subject to the final approval by the DGCA, or since the status of ‘Airport Slots’ is an asset, therefore the Resolution Applicant may initiate a ‘free and transparent’ bidding process which shall be regulated by DGCA for final approval. The bidding process shall be completed within a reasonable time as determined by the authorities concerned.

      CONCLUSION

      Indian laws have developed considerably ensuring liberal behaviour and balancing it with reasonable regulatory oversight. However, the challenge of monetizing slots in India presents a critical void in the current insolvency framework, particularly in the aviation sector. The case of Jet Airways depicts the failure of legal framework in realising the rights of airline of its historic airport slots holding immense commercial value.

      Learnings from international regimes such as EU and UK reflect that a liberal and structured approach towards slot trading can protect the creditors’ interests during financial distress and improve liquidity in the market enhancing investor’s confidence. Though the threat of potential monopolization persists, well planned and formulated policies and regulations can mitigate these concerns. So, the real question is: Can India truly afford high-value assets like airport slots in insolvency proceedings, or is it time to rethink our legal definitions of value before subsequent airline bankruptcy costs us more than grounded planes?

    1. Decoding Residuary Jurisdiction: Why NCLT cannot release PMLA Attachments

      Decoding Residuary Jurisdiction: Why NCLT cannot release PMLA Attachments

      RITURAJ KUMAR , FIFTH – YEAR STUDENT AT RMLNLU, LUCKNOW

      INTRODUCTION

      The interplay of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and the Prevention of Money Laundering Act, 2002 (‘PMLA’) has been an issue of deliberation since the introduction of the IBC. The conflict is quite natural as both statutes have a non-obstante clause suggesting each has an overriding effect. This leads to a situation where both statutes claim primacy in case of conflict. Further, they both have divergent objects. The IBC aims to maximise the asset during the Corporate Insolvency Resolution Process (‘Resolution Process’), whereas the PMLA provides for confiscating assets arising from or engaged in money laundering. This becomes a significant barrier during the resolution process.

      The discussion around the primacy of the statute and whether a moratorium imposed under Section 14 of the IBC would extend to the attachment made by the Enforcement Directorate (‘ED’) under Section 5 of the PMLA has been a concern for almost a decade.  This blog does not delve into the above issue and restricts its scope to why the National Company Law Tribunal(‘NCLT’) cannot release attachments of a corporate debtor confirmed by the Adjudicating Authority under the PMLA. The National Company Law Appellate Tribunal (‘NCLAT’) in Anil Goel for Dunar Foods v. ED recently affirmed this position that the NCLT cannot release such attachments. However, the legal position on this issue remains unsettled as the Bombay High Court in Shivcharan v. Adjudicating Authority and Anr (‘Shivcharan’) had previously authorised the NCLT to release such attachments while exercising its residuary jurisdiction. Currently, the Shivcharan judgement is pending before the Supreme Court of India for final determination of this issue. In this light, this blog examines the residuary jurisdiction provided under the IBC and argues how Shivcharan judgement disregards the established legal principle and procedure in an attempt to achieve the objects of the IBC.

      RESIDUARY JURISDICTION OF THE NCLT

      Residuary jurisdiction has been vested in the NCLT under Section 60(5)(c) of the IBC. However, it is limited to deciding matters related to the resolution or liquidation of the Corporate Debtor, and it does not provide an inherent jurisdiction. This aligns with the Embassy Property Developments Pvt. Ltd. V. State of Karnataka and Ors case, where the Supreme Court of India asserted that the NCLT cannot replace the legitimate jurisdiction of other courts or tribunals when the issue does not arise solely from or relate to the insolvency of the corporate debtor. By extension, this would equally apply to a special statute like the PMLA where the attachment was confirmed by the Adjudicating Authority under Section 8(3) of the PMLA.

      The attachment under the PMLA relates to the ‘proceeds of crime’ derived from the criminal activities associated with the scheduled offences. These crimes threaten the integrity of the financial system and affects the public at large. These offences are prosecuted by the state and are in the realm of public law. The PMLA was introduced to fulfil India’s international commitment to combat money laundering, aligning with the Vienna Convention (1988) and the United Nations Convention against Transnational Organised Crime (2000).  Such matter, being in the realm of public law, cannot be brought within the phrase “arising out of or in relation to the insolvency resolution” as enshrined under the aforementioned section.

      This position has been recently reaffirmed in Kalyani Transco v. M/s Bhushan Power and Steel Ltd. , where the division bench of the Supreme Court held that the NCLT or NCLAT does not have any authority to adjudicate upon a public law like PMLA. The NCLT, deriving its jurisdiction from the provisions of the IBC and constituted under the Companies Act 2013, is a coram non judice to direct the ED to release the attachment. 

      NCLT AUTHORITY DURING THE RESOLUTION PROCESS 

      During the resolution process, the primary duty of a Resolution Professional is to run the Corporate Debtor as a going concern.Recently, in the case of Mr Shailendra Singh, Resolution Professional of Foxdom Technologies Pvt Ltd V. Directorate of Enforcement & Anr, the Resolution Professional invoked the residuary jurisdiction to defreeze the account of the Corporate Debtor, which was frozen by the Adjudicating Authority under PMLA. The NCLT held that they do not have the power to issue directions to the ED in this regard. It reiterated the stance adopted by the NCLAT in Kiran Shah v. Enforcement Directorate Kolkata that the jurisdiction to deal with matters related to attachment and freezing of accounts under PMLA vests exclusively with the authorities designated under the PMLA. If aggrieved by any action, the Resolution Professional can seek appropriate remedies under the PMLA itself. The statute provides adequate mechanisms for resolving concerns and claims. This clear demarcation of jurisdiction ensures that the PMLA remains independent of IBC and serves its legislative object.

      NCLT AUTHORITY AFTER APPROVAL OF THE RESOLUTION PLAN 

      While the forum for releasing attachments during the resolution process is relatively clear, the situation becomes complicated after approval of the resolution plan under Section 32A of the IBC  It states that the Corporate Debtor cannot be held liable for the prior offence committed by the erstwhile promoter, and protects the property from being attached.

      In Shivcharan judgement, the Bombay High Court reinforced this interpretation that after approval of the resolution plan, the Adjudicating Authority under the PMLA must release the attachments. It also stated that this is the only means of ensuring that the right, as stipulated in Section 32A of the IBC, will start to flow. This position is supported by the Supreme Court’s decision in Manish Kumar v. Union of India which upheld the constitutionality of Section 32A. Article 141 of the Constitution of India ensures consistency in the interpretation of law and set a judicial precedent where all lower courts follow the ruling made by the Supreme Court of India. Consequently, the PMLA Court is bound to comply and give effect to the Section 32A by releasing the attachment.

      However, the Shivcharan judgement erred in empowering the NCLT to release the attached property made under the PMLA under the residuary jurisdiction. The Bombay HC read something not expressly provided in the law and authorised NCLT to adjudicate upon the issue falling into the purview of another court. Though this judgment seeks to achieve the object of the IBC, it overlooks the relevant precedents and established principles. Notably, it stands in aberration with the Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, where the Supreme Court issued a note of caution to NCLT while exercising the residuary jurisdiction. The Apex Court noted that the NCLT has jurisdiction to adjudicate disputes that arise solely from or relate to the insolvency of the corporate debtor. It has to ensure that they do not usurp the legitimate jurisdiction of other courts or tribunals when the issue extends beyond the insolvency of the corporate debtor.

      Additionally, this approach is also in conflict with the principle of harmonious construction, which is applied to reconcile conflicting provisions within a statute or two different statutes. A harmonious construction cannot extend to the limit which renders one provision completely redundant. The Shivcharan judgement makes the provisions of the PMLA nugatory by bypassing the PMLA courts, and authorises the NCLT to release the attachment.

      Moreover, allowing the NCLT to discharge the attachment practically implies that the NCLT is sitting in an appeal against the Adjudicating Authority of the PMLA, where the latter confirmed the attachment made by the ED.  This goes against the settled principle that the forum to hear the appeal is to be tested in reference to the forum which passed the original order. Since the attachments are confirmed under Section 8(3) of the PMLA by its Adjudicating Authority, it must be discharged either by the same forum or by the appellate forum under Section 26 of the PMLA constituted thereunder. In short, the Adjudicating Authority under the IBC i.e. NCLT cannot assume the role of Adjudicating Authority under the PMLA.

      A WAY AHEAD

      As the appeal of the Shivcharan judgement and related cases are pending before the Supreme Court, a clear jurisdictional boundary must be established by a conclusive ruling. The authority to discharge attached property must rest with the PMLA Court unless a legislative amendment says otherwise. The PMLA Court is a competent forum authorised by the law to deal with attachment and permitting the NCLT to adjudicate on such matters only causes jurisdictional conflict and confusion among the litigators, forcing them to move from one court to another.

      However, while adopting this approach, Section 32A of IBC must be given effect. This provision represents the last expression of the intent of the legislature, as it was introduced through an amendment in 2020. After approval of the resolution plan, the PMLA court must be mandated to release the attachment. This ensures that the protection under the said provision can take effect, and the Successful Resolution Applicant is not made liable for the prior offence. For Section 32A to operate effectively, the perquisite prescribed therein must be satisfied, namely that the new management is not related to the prior management and is not involved in the alleged offence. In practice, the PMLA Court often encounters difficulties in determining compliance with these requirements while considering the release of attachments. To address this issue, the NCLT may issue a No Objection Certificate (‘NOC’) while approving a resolution plan, specifying that the statutory conditions of Section 32A are met. Such an NOC will affirm that a promoter is not regainingcontrol or laundering assets through the resolution process. It will prevent jurisdictional conflict and will not cause unnecessary hardships to litigating parties. In effect, this will ensure that resolution applicants are not discouraged, and revival of a corporate debtor is not obstructed.     

      This conflict between the IBC and the PMLA reflect the difficulty of reconciling two statutes having divergent objects and non-obstante clause. To maintain the independence of both statutes, a consistent position has to be adopted defining a clear jurisdictional boundary ensuring the revival of a corporate debtor is not discouraged. A conclusive ruling by the Supreme Court in this regard or an appropriate legislative amendment is essential to resolve this conflict and bring much-needed clarity to relevant stakeholders.

    2. Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

      Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

      Vaibhav Mishra and Sparsh Tiwari, Fourth- year student at Hidayatullah National Law University, Raipur

      INTRODUCTION

        Capital reduction is a salient aspect of corporate finance that is dealt with under section 66 (‘the section’) of the Companies Act of 2013 (‘2013 Act’). It entails a reduction in the issued share capital of the company. Accounting and Corporate Regulatory Authority of Singapore explains the commercial rationale for undertaking the capital reduction as including a plethora of reasons such as simplifying capital structure, and ownership structure, increasing dividend-paying capacity, etc.

        Indian  corporate jurisprudence has evolved through numerous judgments that have elucidated the scope of this section. The established position was that the company’s rationale for the invocation of the section cannot be questioned, affirming its wide application. Last year, in September 2024, a petition was filed by Phillips India Limited before National Company Law Tribunal (‘NCLT’) Kolkata (‘the tribunal’) under the section seeking permission for the reduction of capital. The company provided two reasons for the application i.e. providing liquidity to the minority & reducing administrative costs. However, the tribunal, in its order dismissing the petition, held that such a transaction fell outside the scope of capital reduction.

        Though a development in last year, the vacuum of judicial discretion under Section 66 still remains in the Indian regime. This article attempts to critically analyse NCLT’s order vis-à-vis precedents. The article also analyses relevant foreign authorities to clarify the scope of the section. Furthermore, it also delves into the possibility of effecting the takeover outside these traditional arrangements.

        NCLT’S ORDER VIS-À-VIS PRECEDENTS

          In this matter, Koninklijke Philips N. V., which held 96.13% of shares in Philips India Limited, wanted to effect capital reduction by purchasing shares of minority shareholders. For this, a two-fold reason was provided by the company, viz., firstly, providing liquidity to the shareholders who could not liquidate their holdings following the company’s delisting in 2004, and secondly, reducing the administrative costs associated with minority shareholders. However, the tribunal dismissed the petition, with the interpretation of the statutory scheme of the section playing a key role in its decision.

          Before delving into judicial reasoning, it is crucial to examine the existing precedents on this section’s interpretation. In a similar factual scenario, the Bombay High Court in Capital of Wartsila India Limited v. Janak Mathuradas, confirmed the petitioner company’s capital reduction that was undertaken to provide liquidity to minority shareholders who had no way to liquidate their holdings after the company was delisted in 2007. Similarly, the single judge bench of Delhi NCLT in Devinder Parkash Kalra & Ors. v. Syngenta India Limited allowed capital reduction as a means of providing liquidity to the minority shareholders. It is pertinent to note that NCLT confirmed the application of capital reduction even though it called for revaluation by an independent valuer. Also, in Economy Hotels India Services Private Limited v. Registrar of Companies, Justice Venugopal termed the process of capital reduction under the section as a “domestic affair”, affirming its expansive scope. These precedents reflect the traditional line of reasoning where the courts did not interfere in the application of the section except to secure certain equitable objectives, such as securing the minority’s interest.

          ASSESSING THE NCLT’S ORDER IN LIGHT OF THE STATUTORY SCHEME OF THE SECTION

            In this matter, the tribunal characterised the nature of the transaction as a buy-back and not a capital reduction. The rationale for this decision was twofold: first, the present transaction did not fall under any of the three instances outlined under the section, and second, the inapplicability of the section in light of section 66(8). As evident, the order was a departure from the established line of judicial reasoning associated with capital reduction.

            Firstly, on the rationale that the present transaction did not fall under instances provided under the section, it is pertinent to note that the tribunal failed to give any consideration to the words “in any manner” as used in the section. These words are of wide import and must be given their natural meaning. Moreover, a reference may be made to the corresponding provision of the Companies Act, 1956 (‘the Act’) for guidance. Section 100 of the now-repealed Act further clarified the generality of the provision by incorporating the words “in any manner; and in particular and without prejudice to the generality of the foregoing power”. Therefore, the incorporation of the words “in any manner”, though not the same as section 100, supports an expansive interpretation not limited to the instances mentioned under the section.

            Furthermore, an expansive interpretation could reasonably allow the present transaction to fall within the purview of section 66(b)(ii), which states that a company can “pay off any paid-up share capital which is in excess of wants of the company”.The reasoning is that one of the motivations behind the company’s decision to undertake this transaction was to reduce the administrative costs of managing around 25,000 shareholders who collectively held a minuscule 3.16% of the total share capital. This objective of reducing administrative costs can reasonably be interpreted as falling within the scope of being in “excess of wants” under section 66(b). Further support for this interpretation is provided by Ramaiya’s commentary[i], where he suggests that “a company may be in need of money so paid-up through capital in business but still may not be in want of the money through share capital”. Thus, an expansive interpretation brings this transaction within the ambit of the section.

            Secondly, section 66(8) states that “nothing in this section shall apply to buy-back of its securities under Section 68”. To clarify the scope of this provision, the tribunal referred to section 100 of the Act, highlighting that it lacked a provision like section 66(8). The tribunal interpreted this discrepancy to mean that section 66(8) restricted the buy-back of securities under the section. However, this reasoning is beset by the fact that the Act lacked any provision for buy-back of securities. It was only in 1999 that such a provision, viz. section 77A, was included. The 2013 Act creates a separate section i.e. section 68, to deal with buy-back transactions. Hence, it is contended that 66(8) is clarificatory in nature, implying that capital reduction and buy-back of shares are governed under separate sections, and does not serve to restrict the scope of capital reduction. Thus, the author opines that the tribunal has erred in its order, creating an uncertain position in a relatively established position on the applicability of the section. 

            JUDICIAL DISCRETION IN CAPITAL REDUCTION TRANSACTIONS: AN ANALYSIS

            Judgements from the UK offer critical cues on understanding capital reduction. For instance, inBritish American Trustee and Finance Corporation v. Couper, judicial discretion over the capital reduction process was affirmed by the court. The courts also laid the relevant principles like fairness and equitable process for minority shareholders, creditors, etc., to guide this ‘judicial discretion’. In Re Ranters Group PLC[ii], the court interpreted the section 135(1) of the Company Act, 1985. Interestingly, section 135, though no longer in effect, uses similar wording, like the section in the context of capital reduction i.e. “reduced in any way”. Harman J. here held that the court needs to ensure broadly three things, viz, equitable treatment of shareholders, protection of creditor’s interest and ensuring that shareholders are aware of the proposal. The NCLT’s order exceeds this ‘judicial discretion’. In the instant case, there was nothing in the order to prove inequitable treatment or violation of the creditor’s interest. Therefore, the deviation in NCLT’s order could affect the business autonomy of the company and could potentially create various challenges for the corporate sector in executing transactions.

            Thus, the situation calls for legislators to reassess the structure & statutory scheme of the section of the 2013 Act. NCLT’s order, if treated as precedent, implies that the whole process under the section becomes dependent on the tribunal’s discretion. As is evident, the section starts with ‘subject to confirmation by tribunal’. It is contended that the role of the judiciary is limited to protecting the interests of shareholders, creditors and ensuring equity in transactions.

            EXPLORING THE ALTERNATIVES TO THE TRADITIONAL WAY OF CAPITAL REDUCTION

            In this matter, Phillips was unable to effect capital reduction even after obtaining the consent of 99% of shareholders. This highlights the need for an alternative structure that allows companies to undertake capital reductions outside the bounds of the traditional arrangement. In this context, valuable insights could be drawn from section 84 of the Companies Act of Ireland, 2014, which outlines two methods of capital reduction: the Summary Approval Procedure ( SAP) and the Court-bound method. The SAP allows a company to carry out a capital reduction through a two-fold process, firstly, by passing a special resolution of the shareholders and lastly, declaration of solvency from the directors. This process avoids the need of court approval, bringing in the efficiency and flexibility that our system currently lacks.

            Another example of a highly relaxed framework can be found in section 256B of the Corporations Act, 2001 in Australia, where companies wishing to effect capital reduction may do so, provided they lodge a notice with the Australian Securities and Investments Commission (‘ASIC’) prior the meeting notice is sent to the shareholders. The shareholders hold the final authority to decide on the capital reduction, and their decision does not require any confirmation. Thus, capital reduction remains entirely within the domain of the shareholders.

            In the Indian context, section 236 of the 2013 Act, mirroring section 395 of the Act, could potentially serve as an alternate mechanism for the acquisition of minority shares. This provision allows any person or group of persons holding ninety percent or more of the issued equity capital of a company to acquire the remaining minority shareholdings. However, there are few precedents on its application, and the provision lacks clarity due to its clumsy drafting. For example, while section 236(1) & (2) allows the majority with more than 90% shareholding to buy minority shares, 236(3) dealing with minority shareholders does not obligate them to sell their shareholding. Thus, 236 offers an incomplete remedy from the perspective of the company. It is contended that this provision should be interpreted in light of its objective, well-stated in its JJ Irani Committee report. The evident intention of the committee in introducing section 395 of the Act was to create a legal framework for allowing the acquisition of minority shareholding. However, as noted above, the provision in its current form does not put an obligation on the minority shareholders while providing a ‘buy-out’ mechanism to the majority, illustrating a conservative approach of legislators.

            Therefore, it is suggested that necessary amendments be made to section 236(3) to impose a mandate on minority shareholders to divest their shareholding, while also ensuring an equitable valuation for them. Such amendments would facilitate the full realisation of the remedy provided under this provision, serving as an alternative to the section of the 2013 Act.

            CONCLUDING REMARKS

            While the NCLT’s deviation from the established precedent on capital reduction may be flawed in its reasoning, it has nonetheless sparked a debate about the necessity of exploring alternatives to traditional capital reduction methods.  The need for such alternatives is further underscored by the economic and time-related costs associated with seeking tribunal confirmation. The focus should be on identifying alternative methods that safeguard minority shareholders from exploitation, while also enabling companies to undertake capital reduction quickly and efficiently.

            [i] Ramaiya, Guide to the Companies Act, 2013, vol. 1 (25th ed. LexisNexis 2021)

            [ii] [1988] BCLC 685.

          1. 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.

          2. 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.

          3. 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.

          4. Bharati Airtel & Anr v. V.V. Iyer – Unraveling the Set-Off Saga in Insolvency

            Bharati Airtel & Anr v. V.V. Iyer – Unraveling the Set-Off Saga in Insolvency

            by Pratishtha Agarwal and Prabhav Tripathi, students of third-year at the Institute of Law, Nirma University

            Introduction

            While the Insolvency and Bankruptcy Code, 2016 (“IBC”) serves as a complete code, many a time, the exclusive nature of the Act presents a legal lacuna in the procedure and calls for determining the application of other general laws in such absence of relevant provisions. On a similar note, in the recent case of Bharati Airtel Limited and Anr. v Vijaykumar V. Iyer and Anr., the Supreme Court decided upon the question of the right to claim set-off in the Corporate Insolvency Resolution Process (“CIRP”). In set-off, it is a debtor’s right to settle the smaller claim owed to him against the larger claim payable to his creditor. As there is no statutory provision on setting off the balance amount once the CIRP has been initiated, the Bench comprising Justice Sanjiv Khanna and Justice S.V.N. Bhatti observed the appeal.

            It was held that insolvency set-off and statutory set-off do not apply to CIRP. Though the right to claim of set-off is generally granted under Order VIII Rule 6  of the Civil Procedure Code, 1908 (“CPC”), it is not permitted in the CIRP when the Resolution Professional proceeds to take control and custody of Corporate Debtor’s assets under Section 25(2)(a) of IBC.

            This blog aims to understand the rationale behind the judgement and the exceptions it carved, discuss the arguments presented from both sides and analyse the dissenting stances of foreign jurisdictions on claim of set-off in insolvency proceedings.  

            Facts of the Case 

            In April 2016, eight spectrum trading agreements were executed between Bharti Airtel Limited, Bharti Hexacom Limited, Aircel Limited, and Dishnet Wireless Limited to acquire the usage rights of the spectrum allocated to the latter. Since the agreement was contingent on the approval of the Department of Telecommunications, Government of India, (“DoT”) it had demanded that the Aircel entities submit bank guarantees for Rs 457.73 crores owing to certain licenses and spectrum dues.

            After the Aircel entities filed a challenge with the Telecom Disputes Settlement and Appellate Tribunal (“TDSAT”)regarding DoT’s directive, they were ordered by TDSAT to provide bank guarantees for which they approached the Airtelentities. On the Aircel entities replacing the bank guarantees furnished by the Airtel entities and Airtel entities receiving them from the DoT, Rs. 411.22 crores were payable by the Airtel entities to the Aircel entities.

            Pertinently, the bone of contention arose on 10th January 2019 when the Airtel entities made a payment of Rs 341.80 crores due to Aircel entities after setting-off a balance amount of Rs 145.20 crores on the ground that Aircel entities owed that amount to them. This set-off was contested before the Adjudicating Authority (“AA”) in Mumbai by Airtel wherein an order in favour of the Airtel entities held that they had a right to set off Rs. 112.87 crores from the payment. The Resolution Professional contested the Adjudicating Authority’s order before NCLAT which held ‘set-off to be antithetical to the objective of the IBC.’ 

            Provisions And Principles: No Right To Claim Set-Off In The CIRP

            Relying upon the opening part of the enactment, the Supreme Court judgement addresses IBC as a complete code to consolidate the laws relating to insolvency resolution and reorganization. The intentional omission of statutory set-off or insolvency set-off provisions during CIRP reflects a legislative decision to preclude the assertion of such rights in insolvency proceedings. Additionally, Regulation 29 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) which addresses setoff and mutual credits, is confined to Chapter III Part II, specifically about the liquidation process. This posits that if there were a conflicting legislative intent, the law would have encompassed Chapter II Part II of the IBC to allow the application of set-off claims during CIRP.

            Section 238 IBC provides an overriding power wherein notwithstanding anything inconsistent present in any other law for the time being in force, the laws laid down are in effect. This legal position also disarms Regulation 29 from subsuming the CIRP under its scope of insolvency set-off. Further, Order VIII Rule 6 of CPC creates a legal or statutory set-off wherein the defendant has a right to claim set-off against the plaintiff’s demand for an ascertained sum of money that is legally recoverable and is not beyond the pecuniary limits of the court’s jurisdiction. However, this set-off too, is overridden by Section 238 and rendered inapplicable from being exercised during insolvency proceedings, thus maintaining the rigidity and exclusivity of the Code.

            It was further argued that the concept of insolvency set-off, in its entirety, goes against the principle of pari passu. Section 53 of the IBC lays down the priority order of creditors for the distribution of sale proceeds of liquidation assets under the “waterfall mechanism”. Here, set-off offers an overriding effect and primacy to the creditor entitled to claim set-off against the demanded credits of the Corporate Debtor. In the process of dealing with these cross demands by set-off, the assets are depleted in favour of that single creditor with set-off entitlement that was initially available to be settled amongst the general body of creditors. As a consequence, with a decrease in the dividend payable, the same class of creditors are not treated equally and the liquidation hierarchy is also compromised. Thus, if such a claim is permitted in the CIRP, it is bound to go against the waterfall mechanism by keeping the entitled creditor on a higher footing and the other creditors at a disadvantageous position.

            Contradictory Viewpoint on the Applicability of Set-Off to CIRP

            The SC judgment attempts to clear the air on the applicability of set-off to CIRP however it raises pertinent questions on whether the Apex Court has taken an erroneous stance. The judgment moots the contention that Regulation 29 of the Liquidation Regulationsmandates the mutual set-off however the instant regulation only corresponds to liquidation.

            Pertinently, as noted earlier, the judgment of the SC in the case of Swiss Ribbons v. Union of India held that set-off can be considered during CIRP subject to the challenge before the AA. Interestingly, the judgment takes note of the mandatory nature of insolvency set-offs in the United Kingdom as highlighted by the judgment in the case of National Westminster Bank Ltd. v. Halesowen Presswork & Assemblies Ltd.. Therefore, it is vital to highlight that set-off is a widely accepted and practised principle of insolvency law internationally. Notably, Section 553  of the U.S. Code provides for the right of a creditor to offset a mutual debt that arose before the commencement of the case i.e. pre-petition debt. However, per the ratio of In re Shopper’s Paradise,  it was highlighted that a creditor can never offset a post-petition debt against a pre-petition debt. This in line with the distinction drawed upon in the instant judgment in relation to set-off pre and post the initiation of the CIRP. 

            Further, in the matter of Pramod Kumar Sharma Uniworld Sugars Pvt. Ltd. v. ED&F Man Sugar Ltd., NCLT Chandigarh had held that set-off was permissible during CIRP in view of ‘the treatment reflected in the book of accounts of the Corporate Debtor while determining the liability of the parties with regard to the purchase and sale of sugar.’ A case has been made out in detail below for allowing set-off in the context of CIRP. 

            Justifications for Permitting Set-off in the Context of CIRP

            1. Litigation Minimization: Permitting setoffs can aid in the reduction of litigation throughout the CIRP. The presence of set-off may potentially mitigate disputes concerning the validity and magnitude of claims, as it incentivizes the involved parties to negotiate settlements rather than engage in protracted legal disputes.

            2. Encourages Credit Flow: An effectively operating set-off mechanism has the potential to encourage credit flow. If creditors are certain that the quantities owed by the debtor can be offset against their exposure, they may be more inclined to grant credit to financially distressed companies. This would subsequently increase the availability of credit in the market.

            3. Promoting Creditor Engagement: Permitting set-off enables creditors to be more motivated to actively participate in the CIRP. To encourage greater participation in negotiations, contribution to the resolution plan, and support for the company’s revival, creditors might be more inclined to offset their claims against the liabilities of the debtor.

            Conclusion

            However, the Apex Court has carved out two exceptional conditions in Paragraphs 30 and 32 of the judgement, wherein the set-offs are permitted in CIRP in two circumstances. Firstly, a contractual set-off is allowed if its entitlement is effective before or on the date of CIRP initiation.  As the same cannot be precluded, the terms of the contract remain binding besides the moratorium period. Secondly, equitable set-off, wherein the claim and counter-claim are linked by transactions that can be treated as one, was also made an exception by the Bench. Herein, the set-off needs to be “quantifiable, genuine, and established on fact and in law.” Through this judgement, the Supreme Court reiterated the sanctity and exclusivity of IBC and settled the position of law on the applicability of the right to claim set off in the CIRP. In the context of insolvency law, the ratio decidendi is a right step in the way to establish a proper demarcation of claims in CIRP and other laws.