Towards a fair, efficient insolvency regime, Pg9

Key Highlights:

• The Insolvency and Bankruptcy Code (IBC) 2026 Amendment introduces the Creditor-Initiated Insolvency Resolution Process (CIIRP).
• CIIRP is a hybrid model aiming to combine debtor-in-possession features with the creditor-in-control model.
• Initiation rights for CIIRP are restricted to a specific class of "notified financial institutions".
• The amendment replaces "may" with "shall" in Section 7(5)(a), making National Company Law Tribunal (NCLT) admission mandatory based on information utility records.
• This restrictive framework raises concerns about constitutional challenges and economic inefficiency.

Detailed Insights:

• India's insolvency regime has historically struggled with the "Chakravyuha Challenge" of balancing company preservation and creditor interests.
• The Sick Industrial Companies Act represented a debtor-in-possession model, while the IBC shifted to a creditor-in-control approach.
• The IBC has faced issues like protracted litigation and procedural lapses, which CIIRP aims to address by reducing judicial intervention.
• The amendment is a legislative response to the Vidarbha Industries ruling, which had granted discretionary power to the NCLT.
• Limiting CIIRP initiation to "notified financial institutions" creates an arbitrary hierarchy among financial creditors, potentially violating Article 14.
• This sub-classification disenfranchises operational and smaller financial creditors, forcing them into the more aggressive Corporate Insolvency Resolution Process (CIRP).
• Unlike the U.S. Chapter 11 and U.K. Part 26A, which base access on objective financial conditions, India's approach relies on regulatory identity.
• A "universal CIIRP" with a "default-neutral initiation rule" based on financial exposure (51% creditor support) is proposed as a more equitable solution.

Key Concepts Involved:

• Insolvency and Bankruptcy Code (IBC): A comprehensive law for insolvency resolution of corporate persons, partnership firms, and individuals in India.
• Creditor-Initiated Insolvency Resolution Process (CIIRP): A proposed mechanism allowing specific creditors to initiate a less disruptive restructuring process while current management retains control.
• Debtor-in-possession model: An insolvency framework where the existing management retains control of the company during the restructuring process.
• Creditor-in-control model: An insolvency framework where creditors take control of the company during the resolution process.
• National Company Law Tribunal (NCLT): A quasi-judicial body in India that adjudicates issues relating to Indian companies.