i Statutory framework and substantive law

The extant legal framework pertaining to bankruptcy and insolvency in India comprises several statutes.

The 2019 World Bank report on Doing Business2 ranked India at 108th of 190 countries on resolving insolvency, up from 136th in 2017. The report also notes that resolving insolvency takes about 4.3 years and costs 9 per cent of the debtor's estate, with the most likely outcome being a piecemeal sale of assets. The average recovery is 26.5 cents per dollar. Notably, the strength of insolvency framework index has increased from 6 in 2017 to 8.5 in 2018.

In October 2014, the Ministry of Finance established a Bankruptcy Law Reforms Committee (BLRC) to review the law and suggest improvements. The BLRC's report resulted in the Insolvency and Bankruptcy Code 2016 (the Insolvency Code), which was approved by Parliament on 12 May 2016 and has been brought into effect over the past 12 to 24 months. In August 2018, a Second Amendment to the Insolvency Code was passed, inter alia, to address certain issues on which there had been significant litigation and divergent rulings.

Individuals and partnership firms

The Insolvency Code deals with insolvency for individuals and partnerships.3


The Companies Act 1956 addressed, inter alia, insolvency of companies. The Companies Act 2013 repealed, in stages, the Companies Act 1956 and addressed insolvency.

The Insolvency Code was approved by Parliament in 2016 and brought into force during 2016 and 2017. At present, the Insolvency Code addresses insolvency, creditors' winding up as well as voluntary winding up,4 of entities other than those engaged in the financial and securities markets5 (financial sector entities) with a separate statute being contemplated to address the insolvency of financial sector entities.

The staggered implementation and repeal of the statutes concerned has resulted in some ambiguity as to the status of proceedings instituted under the Companies Act 1956, which remains to be resolved. However, the Insolvency Code stands as a complete code addressing insolvency, save for financial sector entities.

Insolvency Code

The Insolvency Code applies to companies, limited liability partnerships (LLPs), partnership firms and individuals. It provides for an insolvency resolution process first, then, if the resolution fails, liquidation. Separate procedures have been detailed for corporate persons (i.e., companies and LLPs) and for partnership firms and individuals.

The Insolvency Code also provides for insolvency professionals to be registered under the Insolvency Code, who shall be responsible for implementing the resolution and liquidation processes stipulated under the Code.

Resolution and enforcement processes prescribed by the Reserve Bank of India

The Banking Regulation (Amendment) Act 2017 of 14 July 2017 (the BR Act) empowered the central government to authorise the Reserve Bank of India (RBI) to direct banking companies to initiate the insolvency resolution process provided in the Insolvency Code in cases of defaults.

Revised framework for resolution of stressed assets

In February 2018, the RBI notified a revised framework for resolution of stressed assets (the Revised Framework) repealing the several schemes and mechanisms previously in force.6

While the Revised Framework retained some of the key principles of the erstwhile RBI guidelines – including early recognition of stress, centralised reporting of credit information, elective right of lenders to convert outstanding balances into equity of the borrower – the resolution mechanism was significantly revised for consistency with the Insolvency Code, inter alia, by requiring lenders to mandatorily refer stressed accounts for resolution under the Insolvency Code if the debt was in excess of 20 billion rupees as at 1 March 2018 and the default on that debt continued for more than 180 days from 1 March 2018; and, if 100 per cent of the lenders agreed to resolve the debt outside the Insolvency Code process.

The Revised Framework was challenged in the Supreme Court and, in a judgment of 2 April 2019, was struck down as unconstitutional.7 The Revised Framework issued in exercise of powers under Section 35AA of the BR Act did not empower the RBI to issue general directions to reference all cases without considering specific defaults to the Insolvency Code. Therefore, all actions taken under the Revised Framework, including initiation of proceedings under the Insolvency Code against certain borrowers in default were declared as non est.

As a fallout of the Supreme Court's judgment, the RBI issued a press release on 4 April 2019 in which it intimated that, in light of the Dharani Sugars judgment, it would take necessary steps, including issuance of a revised circular, as may be necessary, for expeditious and effective resolution of stressed assets.

On 7 June 2019, in supersession of the erstwhile circular on Resolution of Stressed Assets dated 12 February 2018, the RBI issued a revised prudential framework for resolution of stressed assets (the Revised Circular). The Revised Circular applies to Scheduled Commercial Banks (SCBs), All India Term Financial Institutions, Small Finance Banks, Non-Banking Financial Companies (both non-deposit systemically important and those that accept public deposits). Lenders have been given the liberty to develop and adopt a board-approved policy for resolution of stressed assets with timelines for resolution. This policy is required to outline the signs of financial difficulty and set out qualitative and quantitative criteria for determination of any financial difficulty. 

Lenders are required to take pre-emptive measures to initiate and implement a resolution plan even before a default occurs. In the case of default, lenders are required to undertake a review of the borrower within 30 days of the default (the Review Period).

Upon review, if the lenders pursue restructuring of debt rather than initiating insolvency proceedings under the Insolvency Code, the restructuring plan is required to be implemented within 180 days of the end of the Review Period.

For the implementation of the restructuring plan, all lenders are required to enter into an inter-creditor agreement during the Review Period. All decisions under the inter-creditor agreement, with the consent of 75 per cent, by value, of the total outstanding credit facilities and 60 per cent of lenders by number, will be binding on all lenders. All dissenting lenders are required to be paid at least the liquidation value.

Norms have also been prescribed for classification of assets as non-performing and provisioning in the books of the lenders.

Occurrence of default and resolution plan by lenders

Although the Revised Framework was struck down, all lenders must adopt policies for timely resolution of stressed assets. Immediately on the occurrence of default with respect to any lender, all lenders must take steps to cure that default. However, the right of the lenders to implement a resolution plan outside the realm of the Insolvency Code is unclear in light of the Supreme Court's April 2019 judgment.

Reference under the Insolvency Code

Under the Revised Framework, lenders were compelled to file reference under the Insolvency Code in two circumstances: (1) they were unable to agree a resolution plan within the 180-day time limit (including, pertinently if implicitly, the opinion of the credit rating agency, or agencies, that the residual debt is classified below Resolution Plan 4); or (2) a resolution plan is established but the borrower defaults within the 'specified period'. However, in light of the Supreme Court's judgment of April 2019, the Revised Framework no longer applies and the RBI is expected to issue guidelines in this regard once again.

Notwithstanding this position, clearly, once the reference is made, the Insolvency Code will require that efforts be made to effect a resolution in terms of the Insolvency Code and that will result in further delay with concomitant deterioration of security. In essence, the consequence of failure to agree a resolution plan may well result in an untrammelled abnegation of the RBI's intent to ensure a healthy book with Indian banks, and in measures that are suboptimal as compared to the standards set out in the Revised Framework.

ii Policy

Refreshingly, the policy on insolvency is well developed in India but, not unusually, and as discussed, there seems to be a dichotomy as to the preferred mechanism:

  1. the recovery imperative: the Securitisation and Asset Reconstruction and Enforcement of Security Interest Act 2002 (SARFAESI) permits secured creditors to enforce their security interest without the intervention of the courts. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill 2016 (the Security Bill) approved by Parliament on 9 August 2016 simplifies the recovery process by, inter alia, minimising court intervention. These statutes, with the RBI Guidelines, allow for relatively expeditious enforcement; and
  2. the route to resolution: the Insolvency Code.

iii Insolvency procedures

Proceedings under the Insolvency Code

The Insolvency Code provides for a two-stage process: an insolvency resolution process and, in the event that such resolution process is unsuccessful, a liquidation or bankruptcy process, as the case may be. Separate procedures have been detailed for corporate persons (i.e., companies and LLPs) and for individuals.

Insolvency resolution process

For corporate persons, the insolvency resolution process may be initiated by a creditor. The Insolvency Code distinguishes between 'operational creditors'8 and 'financial creditors'.9 An application for resolution may be preferred by any creditor or group of creditors or by the company itself. The application is submitted to the adjudicating authority, which will admit the application if appropriate.

Application by financial creditors

When an application is made by a financial creditor to initiate the insolvency resolution process,10 there is no express stipulation providing the debtor with an opportunity to be heard. However, the principles of natural justice, including the right to be heard,11 must apply, and where the facts of any case require that an ex parte or interim order be passed, that ex parte order must record the reasons for derogating from the debtor's right to be heard.12

Application by operational creditors

Operational creditors may initiate the insolvency resolution process by serving a demand notice13 to the corporate debtor, upon receipt of which the corporate debtor may bring to the notice of the operational creditor the existence, if any, of a 'dispute'14 with respect to the underlying debt. Once the application is admitted, the following actions are prohibited:

  1. any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property, including any action under SARFAESI;
  2. transferring, encumbering, alienating or disposing of the debtor's assets or legal rights or interest therein; and
  3. the institution of any suits or continuation of pending suits or proceedings.

Homebuyers with advances to builders undergoing the insolvency resolution process have been elevated to the status of financial creditors by the Second Amendment to the Insolvency Code.

An interim insolvency professional15 manages the company and, inter alia, constitutes a committee of creditors and formulates an information memorandum as to the prospects of the company.16 A resolution plan is drafted, based on the information memorandum, and must provide for, inter alia, repayment of debts and management of the company. The resolution plan, if approved by 66 per cent of creditors,17 is submitted to the adjudicating authority, which then approves or rejects the resolution plan.

The entire resolution process is to be completed within 180 days and only one extension of up to 90 days to that time limit may be provided by the adjudicating authority.

Settlement by parties subsequent to admission of application

The Supreme Court has upheld the right of the parties to arrive at a settlement and record terms of settlement after an application for initiation of the insolvency resolution process under Section 7 of the Insolvency Code was admitted by the adjudicating authority.18

The position has now been settled by the Second Amendment to the Insolvency Code, which provides that the National Company Law Tribunal (NCLT) may permit the withdrawal of an application for initiation of the insolvency resolution process filed by a financial creditor, an operational creditor or the corporate debtor with the approval of 90 per cent or more of the committee of creditors.

Emerging issues

Although jurisprudence under the Insolvency Code is nascent, some issues that have already resulted in significant litigation are the meaning of 'dispute' in Section 8 of the Insolvency Code, and the subject of the moratorium protecting the debtor once an application for insolvency has been admitted.

Existence of a dispute

The Insolvency Code, under Section 9, permits an operational creditor to file an application with the adjudicating authority for initiation of the insolvency resolution process 10 days after a demand notice is served and the corporate debtor has not (1) made payment of the underlying debt, or (2) issued a notice19 informing the operational debtor of the existence of a dispute in relation to the underlying debt for which the demand notice has been served.

Further to the notification of the relevant provisions of the Insolvency Code, there had been a number of judgments allowing petitions for initiation of the insolvency resolution process in which a dispute was raised by the operational creditor after receipt of the demand notice and where no formal court or arbitration proceedings subsisted in respect of the claimed dispute.20

There have also been judgments adopting an inclusive definition of the term 'dispute' and holding that disputes raised subsequent to receipt of a demand notice from the operational creditor will bar the initiation of the insolvency resolution process even in the absence of formal court of arbitration proceedings in respect of the same.21 Subsisting appeal proceedings arising out of an arbitral award on a dispute relating to an operational debt have also been held to constitute a dispute.22

While the position remained in flux, the Supreme Court in September 201723 considered the issue and, inter alia, held that the adjudicating authority need not examine whether the dispute is bona fide or whether formal dispute resolution has been invoked in respect of the dispute but must instead only consider the following: (1) there is a plausible contention that requires further investigation; (2) a dispute truly exists in fact and is not spurious, hypothetical, illusory, mere bluster, plainly frivolous or vexatious; and (3) the dispute raised by the corporate debtor should be 'in existence' (i.e., real as opposed to frivolous or illusory). The Supreme Court also held that the adjudicating authority must not consider (1) whether the dispute is likely to succeed, nor (2) the merits of the dispute except to the extent of it being patently feeble legal argument or an assertion of fact not supported by evidence.

The position was reiterated by the Supreme Court in August 2018,24 but the Court also clarified that the Insolvency Code cannot be used in terrorem to extract small amounts from corporate debtors and jeopardise the future of an otherwise solvent company.

The scope of the moratorium

The Insolvency Code provides for a moratorium to the corporate debtor during the pendency of the insolvency resolution process. Effectively, recovery actions by the creditors of the corporate debtor, including under SARFAESI, are prohibited to prevent hindrances to the resolution process.

However, there seem to be conflicting views arising with respect to the scope and extent of the properties covered by the moratorium.

The Mumbai bench of the NCLT has held on multiple occasions that the moratorium extends only to the property of the corporate debtor and not its promoters and directors.25 The bench relied on the words 'its property' used in Section 14 of the Insolvency Code and held, inter alia, that the court cannot add to the language used by the legislature under the umbrella of ejusdem generis.26

However, the same bench, on a different occasion,27 held that a moratorium, if granted, would extend to the personal property of the promoters and directors of the corporate debtor. The position was clarified by the Second Amendment to the Insolvency Code, which amended Section 14 of the Insolvency Code to provide that the moratorium will not be applicable to a surety in a contract of guarantee. This position was also ratified by a judgment of the Supreme Court in August 2018.28

It has also been held that the liability of a guarantor is coextensive with the liability of the principal debtor. Therefore, if a principal debtor fails to pay, insolvency proceedings against the guarantor can be admitted.29 If the debt is subject to the jurisdiction of a foreign court, even then there is no liability on the guarantor, provided that the orders of the foreign court show that there is no liability of the principal debtor.30

The issue is particularly significant in the Indian context, where personal guarantees from promoters and directors, and the creation of security over their assets for corporate borrowers, are common.

It has also been held that a financial creditor cannot exercise set-off once the moratorium is in force,31 while a performance guarantee can be invoked during pendency of the moratorium.32 It has also been held that rent due from a corporate debtor to a landlord prior to the commencement of the moratorium will not be included in the moratorium since the landlord is not prejudicially affected because of the moratorium.33

Strategic sale and restrictive timelines

In furtherance to certain amendments made to rules governing the insolvency resolution process, liquidators are now authorised to undertake a strategic sale of the assets of the corporate debtor in parcels as well as collectively. However, currently, a timeline of 105 days has been prescribed within which the liquidator is required to identify applicants for the sale. While the intent is to complete the sale process within the 180-day period prescribed for the resolution process, it may be difficult to meet with the prescribed timeline especially in large insolvency proceedings where there are significant assets involved.


If the creditors or the adjudicating authority reject a resolution plan, the adjudicating authority must pass a liquidation order. The insolvency professional, acting as liquidator, will collect all claims from creditors, verify those claims and thereafter distribute the assets of the debtor in the following order of priority:

  1. costs relating to the insolvency resolution process and liquidation;
  2. workmen's dues and a secured creditor who has relinquished his or her security to be treated equally;
  3. unpaid dues to employees;
  4. unsecured creditors;
  5. amounts owed to the government and debts due to a secured creditor for unpaid amounts post the enforcement of security interest;
  6. preference shareholders; and
  7. equity shareholders.34

Thereafter, the liquidator will apply to the adjudicating authority for a dissolution order in respect of the debtor.

Enforcement of security interest

In liquidation proceedings, a secured creditor may opt either to realise his or her security interest or to relinquish it, in accordance with the provisions of the Insolvency Code. The moratorium during the resolution process precludes the exercise of this right at that time, and the enforcement is possible only if the resolution plan fails or is rejected by the adjudicating authority, both of which lead to the commencement of liquidation proceedings under the Code. Dissenting creditors (i.e., those who vote against the resolution plan) are nonetheless bound by that plan if it is duly approved.

For a secured creditor to realise its security interest, the secured creditor must inform the liquidator of the security interest and the relevant asset subject to which the security interest will be realised. The liquidator will verify this, and thereafter, the secured creditor may realise the security interest in accordance with applicable laws. In the event that the enforcement of security interest yields an amount exceeding the debts due to the secured creditor, the secured creditor must tender the excess amount to the liquidator. Alternatively, if the amount yielded is inadequate, the remaining unpaid debts of the secured creditor will be paid by the liquidator in accordance with the order of priority, as listed above.35

Individuals and partnership firms

The Insolvency Code provides for three mechanisms: the fresh start process, the insolvency resolution process and the bankruptcy process.

While the insolvency resolution process and the bankruptcy process for individuals and partnership firms is largely the same as for corporate persons, the fresh start process is unique to individuals and partnership firms. Note that, in real terms, the thresholds to be eligible for a fresh start are fairly low36 and, effectively, the remedy may be availed of only by those at the bottom of the pyramid.37 These provisions have not been notified and are not yet in force.

Fast-track insolvency proceedings

On 14 June 2017, the Insolvency and Bankruptcy Board of India (Fast-Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 were notified, providing for fast-track insolvency resolution for small companies. The fast-track resolution process is to be completed within 90 days, as opposed to the 180 days prescribed for non-fast-track proceedings. This time limit can be extended by the adjudicating authority by up to 45 days.

iv Control of insolvency proceedings

Proceedings under the Insolvency Code

The Insolvency Code provides that the NCLT is the adjudicating authority for matters pertaining to companies and LLPs, while appellate jurisdiction is exercised by the NCLAT. As far as individuals and unlimited partnerships are concerned, the adjudicating authority is the Debt Recovery Tribunal, while appellate jurisdiction is exercised by the Debt Recovery Appellate Tribunal (DRAT). Appeals against orders passed by the NCLAT and the DRAT will lie before the Supreme Court.

As per the relevant stipulations set out in the Insolvency Code, control of insolvency proceedings, once initiated, shall lie with the relevant adjudicating authority and the appellate authority. The board of directors has no significant role in or control over insolvency proceedings.

v Special regimes

The Insolvency Code permits the government to stipulate a separate framework regulating insolvency for financial services firms, which is being proposed. The promulgation of this framework is expected in due course.

vi Cross-border issues

The Insolvency Code does not adopt the UNCITRAL Model Law on Cross-Border Insolvency. However, it permits the central government to enter into an agreement with the government of any other foreign country to enforce the provisions of the Insolvency Code. Further:

  1. the government may direct that the application of provisions of the Insolvency Code in relation to the assets or property of a corporate debtor or debtor, including a personal guarantor of a corporate debtor situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified;
  2. while applying the provisions of the Insolvency Code on assets situated outside India, the adjudicating authority may issue a 'letter of request' to a competent court of the foreign country where the asset is located;38 and
  3. the insolvency professional appointed, while taking custody of the assets of the bankrupt, shall also take control over assets of a corporate debtor that may be located in a foreign country.39 However, this does not include assets of a foreign subsidiary of the corporate debtor.40


Presently, the banking sector in India is faced with a large number of non-performing assets (NPAs) and stressed accounts. However, since the bulk of the legacy of NPAs were recognised last year, leading to a peak in March 2018, the NPA cycle now seems to have turned around. In accordance with the Financial Stability Report released by the RBI on 27 June 2019, it is expected to reach 9 per cent in March 2020.

According to a press release issued by CRISIL on 25 June 2019, the asset quality of banks should witness a decisive turnaround in the fiscal year 2019–2020, with gross NPAs reducing by 350 basis points over two years to 8 per cent by March 2020 compared with a peak of 11.5 per cent in March 2018 and 9.3 per cent in March 2019. This will be driven by a combination of a reduction in fresh accretions to NPA as well as stepped-up recoveries from existing NPA accounts.

In October 2017, the central government announced a 2,100 billion rupee bailout plan for public sector banks (PSBs) in India in an attempt to resolve the high level of bad debt and to improve their capital position. With increased recapitalisation, the PSBs have shown a noticeable improvement and have registered a credit growth of 9.6 per cent in March 2019. Additionally, after the recapitalisation of PSBs, the capital adequacy of SCBs has improved. SCBs' capital to risk-weighted assets ratio improved from 13.7 per cent in September 2018 to 14.3 per cent in March 2019 after recapitalisation of PSBs. Significantly, PSBs, which account for more than 80 per cent of the NPAs in the system, should see their gross NPAs fall by more than 400 basis points to 10.6 per cent by March 2020 from a peak of 14.6 per cent in March 2018.

In the past few years, the RBI has brought about various schemes aimed at addressing the issue of NPAs and stressed assets. The implementation of the Insolvency Code has greatly overhauled the regulatory measures in respect of the resolution of impaired assets and has contributed to a more efficient deployment of capital. The Financial Stability Report released by the RBI on 27 June 2019 estimates that of the 1,858 corporates in the resolution process up to March 2019, 152 were closed on appeal or review, 94 resulted in resolution and 378 yielded liquidation. Also, the revised prudential framework on stressed assets issued by the RBI on 7 June 2019 significantly extends the erstwhile stressed asset resolution framework as it also builds in an incentive for early adoption of a resolution plan.


The resolution process that has been made available under the Insolvency Code is plenary in the sense that it requires consent from the majority of all persons concerned. The RBI regulations are, necessarily, lender-centric.

Voluntary winding up is a plenary process.


There have been no significant recent or pending ancillary insolvency proceedings in India in the past year.


While discussing recent trends with respect to insolvency proceedings in Indian law, the ongoing proceedings in relation to the Kingfisher Airlines Limited (Kingfisher) bankruptcy controversy is relevant. Vijay Mallya is under investigation in connection with sums owed by Kingfisher to a consortium of lenders led by the State Bank of India, amounting to approximately 90 billion rupees. The consortium has initiated action under SARFAESI and has taken physical possession of Kingfisher House, the company headquarters, which is valued at 1 billion rupees.

United Breweries (Holdings) Limited (UB Holdings), the ultimate parent of Kingfisher, had provided corporate guarantees to secure contractual payments due from Kingfisher, inter alia, in connection with the sale and maintenance of aircraft and other operations. However, Kingfisher defaulted in making these payments in or around 2010 and 2011 and, consequently, the corporate guarantees were invoked. UB Holdings in turn defaulted on the payments to be made consequent to the invocation of the corporate guarantees. Accordingly, several winding-up petitions were filed against UB Holdings between March and November 2012. Despite opposing the winding-up petitions, UB Holdings simultaneously filed an application before the Karnataka High Court pursuant to Section 536(2) of the Companies Act 195641 for leave to sell certain shares held in its subsidiary United Spirits Limited (USL) to Diageo PLC (Diageo).

The Karnataka High Court granted its leave and Diageo purchased USL shares. Diageo acquired a 55 per cent stake in USL during the course of 2012 and 2013. However, in February 2016, Vijay Mallya was asked to step down from USL's board of directors, pursuant to an internal forensic audit enquiry, whereby various legal contraventions were discovered in relation to loans given by USL to the United Breweries Group.

Kingfisher has also defaulted in payment of its taxes and, accordingly, the service tax department has seized several of Kingfisher's assets, including helicopters and other aircraft. Additionally, since Vijay Mallya is not presently in India (he is reportedly in London), the service tax department has initiated proceedings to impound his passport and compel him to return to India. In April 2016, the government revoked his passport and requested the UK government to deport him. However, the UK government informed the Indian government that, although it could not deport Mr Mallya, it is willing to assist and cooperate in exploring alternatives, such as extradition and mutual legal assistance. Presently, extradition proceedings are being heard by an English court, and while Mr Mallya had previously cited the poor conditions of Indian jails as one of the reasons for not returning to India, he has expressed his willingness to return to India, according to press reports,42 after proceedings were initiated under the Fugitive Economic Offenders Act 2018 (see below). He was declared a proclaimed fugitive economic offender in January 2019 and consequently the special court in India has attached all his properties.43

Similarly, proceedings against diamantaire Nirav Modi have also been initiated under the Fugitive Economic Offenders Act for the 2 billion dollar Punjab National Bank fraud case. However, despite several attempts by the authorities in India, the application to declare Nirav Modi as a fugitive economic offender is still pending.

In April 2017, the RBI issued a notification advising banks to review and monitor their exposure to the telecommunications sector in view of the increased stressed levels in the sector and consider making provisions for standard assets at higher rates.

The Fugitive Economic Offenders Ordinance 2018 was notified on 21 April 2018 and subsequently the Fugitive Economic Offenders Act came into force from 21 April 2018, with the objective of deterring economic offenders from evading liability under Indian law by remaining outside the territorial jurisdiction of Indian courts, and forcing them to return to India to face trial for scheduled offences. Scheduled offences are offences of value of 1 trillion rupees or more and include, inter alia, dishonestly or fraudulently preventing debt being available for creditors and dishonouring a cheque. The Act empowers authorities to, inter alia, confiscate to the central government any property of the offender. The provisions of the Act are wide both in scope and application and may, in our view, operate as a hindrance to the insolvency resolution process whereby a director, promoter or other key personnel of the corporate debtor is declared a fugitive economic offender.44

The Insolvency Code is still in its early stages but, in the future, there may well be an increase in insolvency proceedings being initiated by the debtors themselves, since the Code is geared primarily towards revival and rehabilitation of insolvents. The insolvency resolution process may be effective, especially when debtors are facing genuine stress on account of, inter alia, market conditions or unfavourable changes in regulatory policies. The resolution process and the subsequent resolution plan (if implemented well) will allow stressed businesses to recover, and the extent of financial distress45 makes this a particularly relevant development for the Indian economy.

Annexure I – Rights of Operational and Financial Creditors

Sr No. Operational creditor Financial creditor
Initiation of corporate insolvency resolution process
1 May file an application on occurrence of default provided the operational creditor has sent a demand notice as per Section 8 and has not received payment or a notice of dispute within 10 days of issue of notice.¹ May file an application on occurrence of default.²
2 Default may only be with respect to debt owed to the applicant.³ Default includes a default in respect of debt owed not only to the applicant but any other financial creditor.⁴
3 It is optional for operational creditors to propose a resolution professional in the application.⁵ It is mandatory for financial creditors to propose a resolution professional in the application.⁶
Committee of creditors
4 Operational creditors are not entitled to be a part of the committee of creditors.⁷ Financial creditors constitute the committee of creditors.⁸
Meetings of committee of creditors
5 Operational creditors have the right to be notified by the resolution professional before any meeting of the committee of creditors provided the sum of their aggregate dues is not less than 10 per cent of the debt of the corporate debtor.⁹ All financial creditors have the right to be notified by the resolution professional before any meeting of the committee of creditors.¹⁰
6 Operational creditors are permitted to attend the meetings of the committee of creditors provided the sum of their aggregate dues is not less than 10 per cent of the debt of the corporate debtor.¹¹ All financial creditors are entitled to attend the meetings of the committee of creditors.¹²
Voting rights
7 Operational creditors are not entitled to vote at the meetings of the committee of creditors.¹³ Financial creditors are allowed to vote in proportion to the debt owed to each financial creditor at the meetings of the committee of creditors.¹⁴
Submission of financial information to the information utility
8 It is optional for operational creditors to submit financial information to the information utility.¹⁵ It is mandatory for financial creditors to submit financial information to the information utility.¹⁶
Punishment for false information
9 Imprisonment for a term ranging between 1 and 5 years or a fine ranging between 100,000 and 10 million rupees.¹⁷ Fine ranging between 100,000 and 10 million rupees.¹⁸

1 See Insolvency and Bankruptcy Code, 2016, Section 9(1).

2 ibid., Section 7(1).

3 ibid., Section 9.

4 ibid., Explanation to Section 7(1).

5 ibid., Section 9(4).

6 ibid., Section 7(3).

7 ibid., Section 21(2).

8 ibid., Section 21(2).

9 ibid., Section 24(3)(c).

10 ibid., Section 24(3)(a).

11 ibid., Section 24(4).

12 ibid., Section 24(1).

13 ibid., Section 24(4).

14 ibid., Section 24(6).

15 ibid., Section 215(3).

16 ibid., Section 215(2).

17 ibid., Section 76.

18 ibid., Section 75.


1 Justin Bharucha is a partner at Bharucha & Partners.

3 The Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920 stand repealed.

4 That is, a winding up instituted and enforced by creditors that is now addressed by, inter alia, Sections 6, 7, 8, 9, 33 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Voluntary winding up of a company is addressed by, inter alia, Section 59 of the Insolvency Code and the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.

5 Under Section 3(7), the Insolvency Code does not apply to financial service providers who have been specifically excluded from the definition of corporate persons. A financial service provider is defined under the Insolvency Code as 'a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator'.

6 The Reserve Bank of India has previously promulgated several schemes for resolution of stressed assets including, inter alia, the corporate debt restructuring scheme, strategic debt restructuring scheme, sustainable structuring of stressed assets, joint lenders forum, etc.

7 Dharani Sugars and Chemicals Ltd. v. Union of India & Ors, Transferred Petition (Civil) No. 1399 of 2018.

8 A person to whom an operational debt is owed, including any person to whom a debt has been legally assigned or transferred. The Insolvency Code defines an operational debt as a claim in respect of the provision of goods or services, including employment or a debt in respect of the repayment of dues arising under any law for the time being in force, and payable to the central government, any state government or any local authority.

9 A person to whom a financial debt is owed, including a person to whom a debt has been legally assigned or transferred. The Insolvency Code defines a financial debt as a debt with interest, if any, that is disbursed against the consideration for the time value of money – see Section 5(8) of the Code for the full definition. The different rights of operational and financial creditors are set out in Annexure I – Rights of Operational and Financial Creditors, at the end of this chapter.

10 In terms of Section 7 of the Insolvency Code.

11 The right of a party to present its case is an essential ingredient of natural justice under Indian law. As an example, see Union of India v. Shiv Raj (2014) 6 SCC 564.

12 Writ Petition 7144(W) of 2017, Sree Metaliks Limited and another v. Union of India and Anr.

13 In terms of Section 8 of the Insolvency Code.

14 The scope and meaning of the term 'dispute' has been subject to litigation. See Section I.iii, 'Existence of a dispute', below.

15 The committee of creditors may either confirm the appointment of the interim insolvency professional or replace the interim insolvency professional with a different insolvency professional.

16 Members of the suspended board of directors or the partners of the corporate person, as well as operational creditors (if the amount of their aggregate dues is not less than 10 per cent of the debt) are entitled to attend the meetings of the committee of creditors; however, they cannot vote at the meetings.

17 A creditor's vote is determined pro rata to that creditor's share of the total debt of the company. Note that debt is classified as 'operating debt' and 'financial debt' and the creditor's pro rata share is calculated based on this classification.

18 Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP, Civil Appeal No. 9279 of 2017.

19 In terms of Section 8(2) of the Insolvency Code.

20 DF Deutsche Forfait AG and Anr v. Uttam Galva Steel Ltd; R.L. Steel & Energy Ltd v. Shyam Industries Ltd; Vertex Chemicals v. Mahaan Proteins Limited; Phoenix Global DMCC v. A&A International Trading Private Ltd; Surbhi Body Products and Godolo and Godolo Exports Pvt Ltd v. Meyer Apparel Ltd.

21 KirusaSoftware Ltd v. Mobilox Innovations Pvt Ltd, National Company Law Appellate Tribunal [NCLAT] Company Appeal (AT) (Insolvency) 6 of 2017; Surbhi Body Products and Godolo and Godolo Exports Pvt Ltd v. Meyer Apparel Ltd; One Coat Plaster and Shivam Construction Company v. Ambience Pvt Ltd; Philips India Ltd v. Goodwill Hospital & Research Centre Ltd; PK Ores v. Tractors India Private Ltd; MCL Global Steel Pvt Ltd v. Essar Projects India Ltd.

22 Annapurna Infrastructure Pvt Ltd & Ors v. Soril Infra Resources Ltd.

23 Mobilox Innovations Private Limited v. Kirusa Software Private Limited – AIR 2017 SC 4532.

24 K Kishan v.Vijay Nirman Company Private Limited – Civil Appeal No. 21824 of 2017.

25 Alpha and Omega Diagnostics (India) Ltd v. Asset Reconstruction Company of India Ltd.

26 Sandria D'Souza and others v. Elektrans Shipping.

27 Leo Duct Engineers & Consultants.

28 State Bank of India v. V. Ramakrishnan & Anr – Civil Appeal No. 3595 of 2018.

29 Reliance Commercial Finance Ltd v. Anil Ltd – 2017 143 SCL 501 National Company Law Tribunal [NCLT] (Ahd).

30 EXIM Bank of India v. CHL Ltd – 2018 146 SCL 43.

31 Indian Overseas Bank v. RP for Amtek Auto Ltd – 2018 145 SCL 138 (NCLAT).

32 Nitin Parikh v. Madhya Gujarat Vij Company Ltd – 2018 146 (SCL) 412 (NCLT – Ahmedabad).

33 JAS Telecom Pvt Ltd v. Eolane Electronics Bangalore Pvt Ltd – 2018 144 CLA 89 (NCLAT).

34 Insolvency Code, Section 53.

35 ibid., Section 52.

36 The eligibility criteria include, inter alia, a gross annual income not exceeding 60,000 rupees, no ownership of a dwelling unit, and an aggregate value of assets not exceeding 20,000 rupees.

37 For example, for the Startup India programme, thus far out of 728 applications for start-up recognition, 180 are recognised as start-ups; however, only 16 of these have been incorporated post 1 April 2016 and are therefore eligible for tax benefits. See article on The Hindu Business Online at www.thehindubusinessline.com/info-tech/16-startups-considered-for-benefits-under-finance-act/article8876630.ece.

38 Insolvency Code, Sections 234 and 235.

39 ibid., Section 18.

40 ibid., Section 36.

41 Section 536(2) of the Companies Act 1956 states, inter alia, that any transfer of shares in the company or alteration in the status of its members made after the commencement of the winding up, shall be void, unless the court otherwise orders.

45 Measured in terms of stressed and non-performing assets on lenders' portfolios.