The Insolvency and Bankruptcy Code 2016 transformed India’s debt resolution landscape. Before the IBC, creditor recoveries averaged under 20 percent and proceedings routinely lasted over four years.
Today, the corporate insolvency resolution process (CIRP) provides a time-bound framework capped at 330 days. Average recoveries are significantly higher for financial creditors. The IBC has also become a strategic tool for distressed M&A, allowing resolution applicants to acquire businesses through approved resolution plans with a clean slate.
Altacit Global advises creditors and corporate entities on all aspects of IBC proceedings, ensuring compliance and maximizing recovery.
What Is the IBC 2016?
The Insolvency and Bankruptcy Code India 2016 is a comprehensive law that consolidates all previous legislation relating to the insolvency of companies, limited liability partnerships, and individuals. The Code provides a unified framework to resolve financial distress in a time-bound manner, protecting the value of the corporate debtor’s assets.
This framework operates through several key institutions. The National Company Law Tribunal (NCLT) handles corporate insolvency. The National Company Law Appellate Tribunal (NCLAT) manages appeals.
The Insolvency and Bankruptcy Board of India (IBBI) serves as the primary regulator, overseeing Insolvency Professional Agencies and the professionals registered under them. The IBC replaced the fragmented regime that included the Sick Industrial Companies Act (SICA), partially replaced elements of the SARFAESI Act, and overhauled the older Company Law liquidation provisions.
Who Can Trigger Corporate Insolvency in India?
Financial Creditor (Section 7)
Financial creditors include banks, non-banking financial companies (NBFCs), bondholders, or any entity owed a financial debt (a debt disbursed against the consideration for the time value of money). The default threshold to trigger insolvency under this section is ₹1 crore.
This limit was raised from ₹1 lakh in 2020 to reduce frivolous filings. Section 7 applications represent the most common trigger for corporate insolvency.
Operational Creditor (Section 9)
Operational creditors are entities owed operational payments, such as suppliers of goods, employees, and service providers. Before initiating proceedings, an operational creditor must send a mandatory 10-day demand notice to the corporate debtor.
If the company formally disputes the debt or the quality of goods/services prior to the notice, operational creditors cannot proceed with filing the application.
Corporate Debtor Itself (Section 10)
A corporate debtor can initiate CIRP against itself when it cannot pay its debts. This voluntary insolvency initiation requires shareholder approval and allows a distressed company to seek resolution proactively.
This route remains relatively rare compared to creditor-initiated proceedings.
Corporate Insolvency Resolution Process (CIRP) - Step by Step
Step 1: Filing application at NCLT
The financial creditor, operational creditor, or the corporate debtor files an insolvency application at the appropriate NCLT bench with jurisdiction over the company’s registered office.
Step 2: NCLT admission
The NCLT must admit or reject the application within a specified timeframe 14 days for financial creditors and 10 days for operational creditors. Once admitted, the CIRP process officially commences.
Step 3: Appointment of Interim Resolution Professional (IRP)
Upon admission, the NCLT appoints an Interim Resolution Professional (IRP) who immediately takes over the management of the corporate debtor, displacing the board of directors. A legal moratorium (a court-ordered suspension of legal proceedings) begins simultaneously.
During this moratorium period, no legal suits or recovery proceedings can continue or be initiated against the company, protecting its assets from fragmentation.
Step 4: Public announcement and creditor claims
The IRP makes a public announcement regarding the initiation of the CIRP. They invite all creditors financial, operational, and statutory to submit their formal claims along with proof of debt within 30 days.
Step 5: Constitution of Committee of Creditors (CoC)
After collating the claims, the IRP constitutes the Committee of Creditors (CoC), comprising the financial creditors. Operational creditors have no voting rights in the CoC, though they may have representation if their dues meet certain thresholds.
The CoC holds the commercial power and typically votes to replace the IRP with a permanent Resolution Professional (RP) to manage the remainder of the process.
Step 6: Resolution Plan submission and approval
The RP invites prospective resolution applicants (potential acquirers or investors) to submit viable resolution plans to revive the company. The CoC evaluates these plans based on commercial viability and votes on them.
A minimum 66% voting approval from the CoC is required. Once approved by the CoC, the plan goes to the NCLT for final statutory confirmation.
Step 7: Implementation or Liquidation
If a successful resolution plan is approved, it is implemented, and the company continues as a going concern. If no resolution plan is approved by the CoC within the statutory 330 days, or if the NCLT rejects the plans, the company automatically goes into liquidation.
The liquidator then sells and distributes the assets in a statutory waterfall order.
CIRP Timeline - 330 - Day Rule
The IBC mandates CIRP completion within 330 days under Section 12. This timeframe includes any time spent on legal litigation or tribunal delays. The objective is to prevent asset depreciation while the company remains in limbo.
During this CIRP period, the moratorium restricts any new suits, prohibits asset transfers, and stops all dividend payments.
In practice, meeting this deadline remains challenging. Data from 2024-2025 indicates that the average CIRP duration for closed cases reached 716 days. Courts have periodically extended timelines using their inherent powers in highly complex matters to prevent premature liquidation.
The government is introducing targeted legislative amendments to address systemic delays, clear NCLT bottlenecks, and strictly enforce the 330-day rule to maintain the Code’s economic effectiveness.
Waterfall Distribution Under IBC - Priority Order
When a company enters liquidation, the distribution of sale proceeds follows a strict hierarchy known as the waterfall mechanism under Section 53.
Priority | Category |
1st | CIRP costs and resolution professional fees |
2nd | Secured creditors (financial creditors) |
3rd | Workmen dues (24 months preceding liquidation) |
4th | Employee dues (12 months preceding liquidation) |
5th | Unsecured financial creditors |
6th | Government dues (Central and State) |
7th | Remaining secured creditors for any shortfall |
8th | Operational creditors |
Last | Equity shareholders |
Once CIRP costs and secured creditors are paid, the pool of funds is frequently exhausted. Unsecured financial creditors, operational creditors, and equity shareholders typically receive little or nothing in a liquidation scenario.
This reality strongly incentivizes all stakeholders to push for a resolution plan rather than allowing the company to liquidate.
Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs
The government introduced the Pre-packaged insolvency (PPIRP) framework in 2021 specifically for Micro, Small and Medium Enterprises (MSMEs) where the default is ₹1 crore or less.
The key difference from standard CIRP is that the debtor remains in management during the process (debtor-in-possession), rather than handing control to an external professional. A base resolution plan is submitted upfront, facilitating a much faster 120-day timeline for completion.
This makes the process significantly less disruptive than traditional CIRP, preserving business relationships and operational continuity. Awareness and adoption among MSMEs and their lenders are steadily increasing as a viable corporate rescue mechanism.
IBC as a Distressed M&A Tool
Beyond debt recovery, the IBC has become an effective vehicle for distressed Mergers and Acquisitions (M&A). Prospective resolution applicants can submit tailored plans to acquire insolvent companies as going concerns.
Buyers can often secure acquisitions at below-market prices. Under Section 31 of the IBC, an approved resolution plan is legally binding on all creditors, statutory authorities, and stakeholders. This grants the acquirer a clean slate, entirely extinguishing any pre-insolvency historical liabilities, tax demands, or hidden claims.
Notable distressed acquisitions include Tata Steel’s acquisition of Bhushan Steel and ArcelorMittal’s takeover of Essar Steel. Altacit Global advises resolution applicants on identifying targets, structuring transactions, and submitting compliant, competitive IBC resolution plans to the CoC.
For further details on structuring corporate acquisitions, refer to our comprehensive M&A guide.
Personal Guarantor Insolvency
The IBC covers personal guarantors to corporate debtors. Financial institutions and banks can initiate personal insolvency proceedings against guarantors, generally the company promoters who provided personal guarantees for the corporate debt.
These proceedings can run simultaneously even if the corporate CIRP is already ongoing. In 2021, the Supreme Court upheld the constitutional validity of these personal guarantor provisions under the Personal Guarantors to Corporate Debtors (Insolvency and Liquidation) Regulations, 2019.
This development is significant for promoter-led companies in India, as it prevents promoters from sheltering their personal assets while allowing their companies to default.
Recent IBC Developments (2025-2026)
The insolvency landscape is dynamic, with constant legislative and judicial refinements. Key developments include:
- IBBI Regulatory Amendments: The regulator amended Insolvency Professional Regulations to enforce stricter conduct standards, ensuring higher transparency in the resolution process.
- Supreme Court 2025 Rulings: In a follow-up to the Vidarbha Industries case, the Supreme Court upheld the CoC’s “commercial wisdom.” The ruling reinforces that judicial courts will not interfere in the CoC’s commercial decision regarding the approval or rejection of a resolution plan.
- Timeline Reforms: The government is considering legislative mechanisms to curb CIRP timeline extensions, specifically addressing systemic delays in highly complex, multi-creditor cases.
- Cross-Border Insolvency: The adoption of the UNCITRAL Model Law on cross-border insolvency remains under active legislative consideration to handle groups with global asset footprints.
Strategic Legal Guidance for Restructuring and Insolvency
Navigating the complexities of the Insolvency and Bankruptcy Code requires precise, strategic legal counsel. From managing the strict 330-day rule to negotiating with the CoC, missteps can severely impact recovery or acquisition outcomes.
Altacit Global advises creditors, corporate debtors, resolution applicants, and insolvency professionals across India on all facets of IBC proceedings. Whether you require guidance on restructuring distressed assets, navigating winding up procedures, CIRP strategy, resolution plan drafting, or executing distressed M&A, our corporate team has deep experience managing complex NCLT matters across all benches.
For a comprehensive understanding of the legal framework governing businesses in India, read our detailed guide, Corporate Law in India or contact us at info@altacit.com.
Frequently Asked Questions - IBC India
Q1: What is the minimum default amount to trigger CIRP?
The minimum threshold is ₹1 crore for both financial and operational creditors under Section 4. This limit was raised from ₹1 lakh in March 2020 to prevent frivolous filings during the COVID-19 period.
Q2: Can a company avoid CIRP by repaying after the application is filed?
Yes. If the corporate debtor pays the admitted default amount before the NCLT formally admits the application, the tribunal will typically dismiss the filing. Once the application is admitted and the IRP is appointed, settlement becomes significantly harder and requires a 90% voting approval from the CoC under Section 12A.
Q3: What happens to employees when a company enters CIRP?
The IRP or RP is mandated to continue managing the business as a going concern under Section 20. Employees generally continue their employment during CIRP. In the waterfall distribution, workmen dues (for 24 months) hold high priority. If the company ultimately proceeds to liquidation, employees face a high risk of losing their jobs.
Q4: Can a resolution plan write off all debts?
Yes. Under Section 31 of the IBC, an NCLT-approved resolution plan is binding on the corporate debtor and all its creditors, including those who voted against the plan. Operational creditors can legally receive zero if the liquidation value dictates it, a principle upheld by the Supreme Court in the landmark Swiss Ribbons case of 2019.
