Jun 14, 2021

International Insolvency & Restructuring Report 2021/22

In India, insolvency and liquidation of corporate entities such as companies and limited liability partnerships is governed by the (Indian) Insolvency and Bankruptcy Code, 2016 (“IBC”). The IBC was passed by the Indian Parliament in May 2016 to address the crisis of large non‑performing assets in the banking sector. The IBC replaced the entire gamut of extant insolvency and restructuring laws in India by introducing a single comprehensive law for insolvency of corporates and individuals. The provisions relating to insolvency of companies and limited liability partnerships were notified on December 1, 2016. The provisions relating to insolvency of personal guarantors to corporate entities were notified with effect from December 1, 2019. The provisions relating to insolvency of partnership firms and other individuals (who are not personal guarantors to corporate debtors) are yet to be notified.

Introduction to IBC

The IBC classifies creditors as financial creditors and operational creditors. Creditors that extend debt along with interest, disbursed against the consideration for the time value of money are classified as financial creditors and include, inter alia, banks, bondholders, lessors of financial leases and beneficiaries of guarantees in relation to such debts. Creditors that are owed a debt in respect of the provision of goods and services are classified as operational creditors and include, inter alia, employees, workmen and trade creditors. Importantly, dues to the central and state governments including unpaid tax dues are also classified as operational debt. Under the IBC, any creditor (financial or operational) or the corporate debtor itself may file an application with the National Company Law Tribunal (“NCLT”) to commence the corporate insolvency resolution process (“CIRP”) of a corporate debtor on a payment default of INR10m (approx. US$134,000).[2]

Admission of CIRP

The NCLT, after determining if a payment default has taken place, must pass an order admitting the insolvency petition and for commencement of CIRP against the corporate debtor (“Insolvency Commencement Date” or “ICD”). From the ICD, a moratorium becomes operative till the date of completion of the CIRP process, i.e. the date of approval of the resolution plan by the NCLT or date of liquidation order, as the case may be (“CIRP Period”). During the CIRP Period, no suit or legal proceeding can be commenced (including any action to enforce security interest) against the corporate debtor and no pending proceeding can be proceeded with against the corporate debtor.

On the ICD, an interim resolution professional proposed by the creditor filing the CIRP application takes over the management of the corporate debtor (“IRP”). The IRP is also required to invite and verify proofs of claims submitted by creditors of the corporate debtor and constitute a committee of creditors (“CoC”). The CoC consists of all the unrelated financial creditors (and not operational creditors) of the corporate debtor. The CoC, during its first meeting (which must be held within 30 days from ICD), appoints an insolvency professional (IRP or his substitute) as the resolution professional (“RP”).

Role of the CoC

Once the CIRP commences, it may either lead to successful restructuring via a resolution plan or a liquidation of the corporate debtor. An application for withdrawal of IBC application may be made to the NCLT by the applicant through the (i) IRP (before constitution of CoC); or (ii) IRP/RP (after constitution of CoC) where such application is approved by the CoC by a vote of 90% by value. CoC is required to ensure resolution of the insolvency of the corporate debtor and value maximisation. In the event no resolution plan is received or approved by the CoC, before the expiry of the CIRP Period, the NCLT must pass an order of liquidation against the corporate debtor. The CoC may also resolve to liquidate the corporate debtor at any time during the CIRP Period. All major decisions of the CoC like: (i) extending the CIRP Period; (ii) replacing the IRP/RP; (iii) approving the resolution plan; (iv) raising interim finance (i.e. debt financing availed by the corporate debtor after ICD), etc., are driven by the financial creditors holding 66% of the financial debt of the corporate debtor.

Resolution plan

Under IBC, the RP is required to invite resolution plans from bidders who (and whose connected persons) meet a stringent eligibility criteria to submit a resolution plan.[3] The IBC provides that any resolution plan must mandatorily fulfil certain conditions before it is placed before the CoC for its approval. Such conditions include (a) payment of insolvency resolution process costs (i.e. costs incurred in conducting the CIRP and any interim finance availed by the corporate debtor) in priority to any other payment; (b) payment of debts of operational creditors in priority to financial creditors which shall not be less than the threshold provided in the IBC; and (c) payment of at least the liquidation value to dissenting financial creditors prior to any recoveries being made by assenting financial creditors, etc.

After the CoC approves the resolution plan, the RP must submit the resolution plan to the NCLT for its approval. The NCLT does not have jurisdiction to evaluate the commercial contours of the plan and is merely required to ensure that the mandatory conditions stipulated by the IBC are met.[4]

On approval of a resolution plan by the NCLT depending on the resolution plan (a) all liabilities of the corporate debtor existing at or pertaining to the period prior to the ICD are extinguished; and

(b) no action may be taken against the property of the corporate debtor, in relation to the offences committed in the period prior to the ICD. However, immunity is available only if the resolution plan results in change in the management and control of the corporate debtor to a person who is (a) not a promoter managing or controlling the corporate debtor or his relative; or (b) a person with regard to whom a report or complaint has been filed by an investigative authority in relation to the offence.

Avoidable transactions

The NCLT (on the application by the RP) may reverse a preferential transaction, an undervalued transaction, a fraudulent transaction or an extortionate transaction. The relevant look-back period for scrutinising such transactions is two years prior to ICD in case of related parties and one year preceding the ICD in case of any other person, except in cases of fraudulent and wrongful transactions, where no look-back period has been prescribed.


An order of liquidation may be passed against the corporate debtor in the following circumstances: (i) CoC resolves to liquidate the corporate debtor during CIRP Period; (ii) CoC does not approve a resolution plan and the CIRP Period expires; (iii) a resolution plan that has been passed is violated; or (iv) the NCLT rejects a resolution plan for noncompliance with mandatory requirements.

The priority of payments in liquidation is as follows:
(a) costs of CIRP and liquidation (includes interim finance);
(b) amounts due to secured creditors (if security relinquished with the liquidator and not enforced separately) and workmen dues (workmen dues will be capped at two years);
(c) employees’ dues (capped at one year);
(d) amounts due to unsecured financial creditors;
(e) amounts due to central and state government (capped at two years) and any shortfall due to secured creditors (if security was enforced separately outside liquidation process);
(f) any remaining debt;
(g) preference shareholders; and
(h) equity shareholders or partners.

Voluntary liquidation

Voluntary liquidation process of a corporate debtor can be initiated in case the corporate debtor has not made any payment default. This requires a declaration from the majority of the directors confirming, inter alia, that (a) the corporate debtor is not being liquidated to defraud any person; and (b) either the corporate debtor has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the liquidation.

Within four weeks of the issuance of the declaration, (i) a special resolution[5] of the members of the corporate debtor resolving to liquidate the corporate debtor voluntarily; or (ii) a resolution of the members of the corporate debtor in a general meeting requiring the corporate debtor to be liquidated voluntarily in accordance with the corporate debtor’s articles is required. In such meetings, the members must also resolve to appoint an insolvency professional to act as the liquidator and fix his or her terms of appointment and remuneration.

If the corporate debtor owes any debt to any person, creditors representing two-thirds in value of the debt of the company shall also approve the resolution passed by the shareholders. The liquidator must endeavour to complete the voluntary liquidation process of the corporate debtor in one year. Voluntary liquidation shall be deemed to have commenced from the date of passing of the special resolution at the extraordinary general meeting/general meeting (subject to creditors approval, if applicable). On commencement of voluntary liquidation, the company shall cease to carry on its business from the liquidation commencement date except as required for the beneficial winding up of its business. The company shall continue to exist until it is dissolved in accordance with the Insolvency and Bankruptcy board of India (Voluntary Liquidation Process) Regulations, 2017 (“Voluntary Liquidation Regulations”).

Introduction to the RBI – Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 (“RBI Resolution Framework”)

Apart from the process under the IBC, voluntary debt restructuring (with a debtor-in-possession model) may also be undertaken under the RBI Resolution Framework.

Under the RBI Resolution Framework, lenders (i.e. Scheduled Commercial Banks (excluding Regional Rural Banks), All India Term Financial Institutions, Small Finance Banks; and, Systemically Important Non-Deposit taking Non- Banking Financial Companies and Deposit taking Non-Banking Financial Companies) (“Lenders”) are required to put in place board approved policies for the resolution of stressed assets, including resolution timelines.

The RBI Resolution Framework provides a 30‑day review period (“Review Period”) for reviewing the account of the company on the occurrence of a default and determining a resolution strategy and a resolution plan. During the Review Period, the Lenders and asset-reconstruction companies with exposure to the borrower are required to enter into an inter-creditor agreement (“ICA”) to provide a framework for the finalisation of a resolution plan. The ICA must provide that decisions of lenders representing 75% of outstanding facilities and 60% by number will bind all lenders. The resolution plan is required to provide payment of at least the liquidation value due to the dissenting lenders. A resolution plan (meeting conditions set out in the RBI Resolution Framework) is required to be implemented within 180 days from the end of the Review Period.

Further, (a) 20% additional provisioning is required if a viable resolution plan is not implemented by the end of 180 days from the end of the Review Period; and (b) 35% additional provisioning (including above 20%) is required if a viable resolution plan is not implemented by 365 days from the commencement of the Review Period. Conditions for reversal of additional provisioning are also specified in the RBI Resolution Framework.

Recent legal developments

Pre-packaged insolvency in India

Apart from the CIRP process under IBC (as explained in Section A above), micro, small and medium enterprises (“MSME”)[6] can also be restructured under the pre-packaged insolvency resolution process (“PPIRP”) introduced by the Government of India in light of the distress caused by the coronavirus pandemic vide its notification dated April 4, 2021. PPIRP is a debtorin-possession and the creditor-in-control model which may be extended to other companies (other than MSMEs) in due course.

An application for initiating PPIRP of an MSME may be made:[7]

(a) in case of default of more than INR 10,00,000 (i.e. US$13,250);
(b) if the MSME has not undergone a PPIRP or completed CIRP in the three years preceding the date of the application;
(c) if the MSME is not undergoing CIRP;
(d) if no order requiring the MSME to be liquidated has been passed;
(e) If the MSME is eligible to submit a resolution plan under the IBC; and
(f) if the unrelated financial creditors of the MSME by (i) 10% majority propose the name of a resolution professional (“RP”) for conducting the PPIRP, and (ii) 66% majority approve the suggested RP. Commencing PPIRP, would also require (a) a declaration by majority of the directors or partners of the MSME, stating, inter alia, (i) that the MSME shall file an application for initiating PPIRP within a time period not exceeding 90 days; (ii) that the PPIRP is not being initiated to defraud any person; and (iii) the RP proposed and approved by the financial creditors; and (b) a special resolution passed by 75% of the members  of the MSME approving the filing of an application for initiating PPIRP.

Under the IBC, if during the pendency of a PPIRP application, an application for initiating CIRP against the same corporate debtor is filed, the CIRP application will be proceeded with only after the PPIRP application is disposed of. If PPIRP application is filed within 14 days from filing the CIRP application then the NCLT shall first dispose of the PPIRP application. However, if PPIRP application is filed after 14 days from filing the CIRP application then the NCLT shall first dispose the CIRP application.

Admission of PPIRP and appointment of RP.

Within 14 days of the filing of an application for initiating PPIRP, if the NCLT is satisfied that the corporate debtor is eligible to file for a PPIRP and that the application filed is complete, it shall admit the application. The date of such admission shall be the pre-packaged insolvency commencement date (“PCD”). The NCLT shall, while admitting the application, declare a moratorium and appoint a RP.

During the PPIRP, the management of the affairs of the corporate debtor continues to vest with its board of directors/ partners, who are expected to protect and preserve the value of the property of the corporate debtor. On commencement of PPIRP, the RP shall prepare reports on the eligibility of the corporate debtor to file for PPIRP and confirm if the base resolution plan submitted by it meets the requirements laid down under the IBC. The duties of a RP inter alia include confirming the list of claims submitted by the corporate debtor, informing the creditors regarding their claims, maintaining an updated list of claims, monitoring the management of the affairs of the corporate debtor, constituting the CoC, preparing the information memorandum etc.

Committee of creditors.

The CoC shall be constituted by the RP within seven days of the PCD and its first meeting shall be conducted within seven days of its constitution. The CoC shall be empowered to make an application to the NCLT, at any time by a vote of not less than 66%, seeking an order to vest the management of the corporate debtor with the RP.

The NCLT shall make an order to that effect, if it is satisfied that the affairs of the corporate debtor are being conducted in a fraudulent manner or that there has been a gross mismanagement of the affairs of the corporate debtor. If such order is passed by the NCLT, the resolution plan under PPIRP needs to involve change of management or control of the corporate debtor.

Resolution plan.

The corporate debtor submits a base resolution plan to the RP within two days of the PCD, which is presented to the CoC. The CoC may either (a) elect to approve the base resolution plan (by a vote of 66%) if it does not impair any claim owed by the corporate debtor to its operational creditors; or (b) invite prospective resolution applicants (“PRAs”) to submit resolution plans to compete with the base resolution plan. The base resolution plan as well as the resolution plans must conform to certain mandatory requirements of a resolution plan (as elaborated above). The resolution plans submitted by PRA’s must also fulfil such criteria as may be laid down by the RP with the approval of CoC, keeping in mind the complexity and scale of operations of the corporate debtor.

Where, on the basis of such criteria, the CoC decides that a resolution plan is significantly better than the base resolution plan, it may approve such resolution plan. However, in the event that such plan is not significantly better than the base resolution plan, the submitter of the resolution plan and the corporate debtor shall improve their plans over the plan of the other party. For this, both bidders will have a fixed period of 48 hours to increase their bid by a pre-specified percentage. At the end of the process, whichever plan has the highest score shall be considered by the CoC for approval. After the CoC approves a resolution plan by a majority of 66%, the RP shall submit the approved resolution plan to the NCLT along with a compliance certificate, for its approval. Upon approval by the NCLT, the resolution plan shall become binding on all stakeholders.

Termination of PPIRP.

The PPIRP process may be terminated if: (a) the control of the corporate debtor was vested in the RP (due to affairs of the corporate debtor being conducted in a fraudulent manner or there being gross mismanagement of the affairs of the corporate debtor) and the approved resolution plan does not result in a change in the management and control of the corporate debtor; (b) if the resolution plan with the highest score is not approved by the CoC; or (c) if the CoC does not approve any plan within 90 days of the PCD, and NCLT shall commence the liquidation process for the corporate debtor.

The CoC, at any time after the PCD but before the approval of resolution plan by a vote of 66%, may resolve to initiate a CIRP in respect of the corporate debtor, if such corporate debtor is eligible for CIRP.

Avoidable transactions.

The provisions for avoidance of preferential, undervalued, extortionate credit and fraudulent transactions as applicable to CIRP, shall also apply to the PPIRP process.

Group insolvency

The IBC does not codify a mechanism for dealing with group insolvencies.[8] The Insolvency and Bankruptcy Board of India set up a working group under the chairmanship of Mr. UK Sinha on January 17, 2019 to recommend a complete regulatory framework for insolvency resolution and liquidation of companies in a corporate group under the IBC.

Some of the recommendations of the working group are:[9]

(a) a corporate group may be defined as a group of companies, including holding, subsidiary and associate companies, as defined under the (Indian) Companies Act, 2013 (“CA, 2013”). However, companies which are intrinsically linked with the group and do not fall under the definition provided in CA, 2013 may be included in a corporate group by making an application to the NCLT;

(b) the framework may provide for procedural coordination in the first phase by providing for (i) joint applications; (ii) communication, cooperation and information sharing; (iii) single insolvency professional and single adjudicatory authority; (iv) formation of group CoCs; and (v) group coordination proceedings;

(c) the framework may be implemented in a phased manner, where the first phase is focused on domestic group companies. Cross-border group insolvencies may be dealt with at a later stage;

(d) the framework may be enabling and may be voluntarily used by stakeholders. However, provisions relating to communication, cooperation and information sharing may be mandatory for insolvency professionals, Adjudicating Authorities and CoCs. However, no such amendments have been notified to date.

In the case of State Bank of India v. Videocon Industries Limited (“VIL”), the NCLT, bench at Mumbai vide its order dated August 8, 2019[10] consolidated the CIRP of 13 group companies of VIL and set out the following criteria for consolidation of CIRP processes: (1) common control; (2) common directors; (3) common assets; (4) common liabilities; (5) inter-dependence; (6) interlacing of finance; (7) pooling of resources; (8) co-existence for survival; (9) intricate link of subsidiaries; (10) inter-twined accounts; (11) inter-looping of debts; (12) singleness of economics of units; (13) cross shareholding; (14) inter dependence due to intertwined consolidated accounts; (15) common pooling of resources, etc.

Following this, the NCLT, bench at Mumbai also consolidated the CIRP processes of the Lavasa Group of companies.[11]


1. Piyush Mishra and Suharsh Sinha are partners at AZB & Partners. Shruti Sethi is an associate at AZB & Partners.
2. Notification No. SO 1205(E) dated March 24, 2020, issued by the Ministry of Corporate Affairs.
3. Section 29A of the IBC. Some of the grounds for disqualifications include:
(i) being an undischarged insolvent;
(ii) being a wilful defaulter;
(iii) being prohibited from trading in the
securities market;
(iv) having an account classified as a nonperforming asset (“NPA”) (for more than one year);
(v) being convicted for certain offences;
(vi) being disqualified from acting as a director under Companies Act, 2013;
(vii) being under any similar disability under any law in a foreign jurisdiction.
4. Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta & Ors., Civil Appeal Nos. 8766-67 of 2019, Supreme Court of India; K Sashidhar v. Indian Overseas Bank & Ors, Civil Appeal No. 10673 of 2018, Supreme Court of India.
5. A special resolution is one which is passed by 75% approval of the members with voting rights (present and voting).
6. As per the notification of the Ministry of Micro, Small and Medium enterprises dated June 1, 2020, (i) a micro enterprise refers to an enterprise where the investment in Plant and Machinery or Equipment does not exceed one crore rupees (approx. US$133,400) and turnover does not exceed five crore rupees (approx. US$667,00); (ii) a small enterprise refers to an enterprise where the investment in Plant and Machinery or Equipment does  not exceed ten crore rupees (approx. US$1,334,100) and turnover does not exceed fifty crore rupees (approx. US$6,670,600); (iii) a medium enterprise refers to an enterprise where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees (approx. US$6,670,600) and turnover does not exceed two hundred and fifty crore rupees
(approx. US$33,333,400).
7. Notification No. SO 1543 (E) dated April 9, 2021, issued by the Ministry of Corporate Affairs, read with Sections 54A(2)(a), (b), (c), (d) and (e) of IBC.
8. https://vidhilegalpolicy.in/research/report-ofthe-ibbi-working-group-on-group-insolvency/
9. Report of the Working Group on Group Insolvency, September, 2019. Available at – https://ibbi.gov.in/uploads/resources/d2b41342411e65d9558a8c0d8bb6c666.pdf
10. MA 1306/2018 in CP No. 02/2018 decision dated August 8, 2019.
11. In the matter of Axis Bank Limited and Lavasa Corporation Limited, MA 3664/2019 in C.P.(IB)-1765, 1757 & 574/MB/2018 (NCLT, Mumbai, February 26, 2020).


Piyush Mishra, Partner
Suharsh Sinha, Partner
Shruti Sethi, Senior Associate





These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.