In simple terms, being insolvent refers to a person or business’s inability to pay its debts. When a person, business, or other organization is unable to meet its financial obligations for paying debts as they fall due, insolvency results. Insolvency and bankruptcy are not the same. A court’s finding of insolvency and the subsequent legal orders meant to end the insolvency constitute bankruptcy. When a debtor is unable to pay their debts, this is referred to as insolvency. An insolvent debtor may seek a remedy through bankruptcy under the law. The Companies Act of 2013[1] and the Insolvency and Bankruptcy Code of 2016[2] contain provisions for determining sickness, making a revival application, appointing an interim or company administrator, conducting a time-limited revival process, and, if a revival is not possible, conducting a liquidation procedure through a single regulator, the National Company Law Tribunal.

The Insolvency and Bankruptcy Code aims to quickly and comprehensively update the rules governing the reorganization and insolvency resolution of corporations, partnership partnerships, and individuals.[3] In addition to promoting entrepreneurship, an efficient legal framework for timely insolvency and bankruptcy resolution will help ease business operations, permit more investments, and promote economic growth and development. It unifies the existing framework by combining insolvency and bankruptcy under a single piece of legislation. Companies, partnerships, limited liability partnerships, individuals, and any other entity that the central government may specify are subject to the Code.


The CIRP is the procedure used to resolve a corporate debtor’s insolvency in compliance with the Code’s rules[4]. When there is a minimum default amount of INR 1 crore, the code’s insolvency procedure for corporate debtors is applicable. The Government enhanced the minimum amount of default for starting CIRP from INR 1 lakh to INR 1 crore by an announcement dated March 24, 2020.[5]


A corporation generally has two sources of funding, namely equity, and debt, except financial service providers. The corporate is typically controlled and governed by the equity shareholders. Nonetheless, the Code provides that if they don’t pay their debts, the defaulting corporation must go through the corporate insolvency resolution process (CIRP). Up until the Committee of Creditors (CoC) develops a resolution plan that would allow the corporate operations to continue indefinitely, an insolvency professional (IP) manages them as a continuing concern. The lengthy title of the Law states that a CIRP must (a) maximize the value of the corporate assets and (b) balance the interests of all stakeholders while doing so. This duty is essentially the responsibility of the IP and the CoC, which is made up of unrelated financial creditors.[6] By achieving a balance between resolution and liquidation, the Code enhances value. In most situations where creditors would get at least as much as they would in liquidation, it stimulates and facilitates resolution. When the enterprise value is “sufficiently” higher than the liquidation value, this would occur. In these situations, resolution maximizes and protects the business value as a going concern. The Code encourages liquidation in the remaining situations since it optimizes value for stakeholders.

Resolution increases the business asset value and allows each shareholder to remain with the corporation and share in its future. Stakeholders in a category are treated similarly, and they all have something to gain or lose from a settlement. Liquidation, in contrast, enables the fulfillment of their claims one at a time. After fully satisfying the claims of one set of stakeholders, any surplus is applied to the claims of the following set of stakeholders. Resolution typically prevails over recovery and liquidation on both counts, maximizing the value of the assets and balancing the interests.

The need of balancing interests under CIRP arises from the possibility that no business will have the resources at the start of CIRP to fully satisfy the claims of all stakeholders, whereas resolution gives the CoC the chance to think about and balance their interests. The Code specifies the number of balances for the resolution process, including the adoption of the resolution plan by 75% of the voting power, repayment of interim financing in priority, and repayment of operational creditors for at least the liquidation value.[7]

Moreover, the CIRP laws include many balances. They enable a financial creditor to safeguard its interests by leaving them at the liquidation value. Yet, many creditors might not want to leave at the liquidation value. And those who leave behind the corporate value. This strikes a balance between the interests of different types of financial creditors while tipping the scales in favour of the resolution. According to the regulations, a resolution plan must also explain how it has taken care of the interests of all parties, including the corporate debtor’s financial creditors and operational creditors.

When the primary goal of the Code is to make it easier to recast a company defaulting on its debt commitments, it must fairly consider the interests of all stakeholders. The CoC has a responsibility to work towards resolution and, via resolution, maximize the value of the corporate assets and balance the interests of all stakeholders rather than just one group of stakeholders. The CoC is given the unique role of custodian of a corporate under CIRP.


According to Section 12(1) of the Code[8], the CIRP must be finished within 180 days of the application’s admission to begin the process. An additional 90 days may be requested once by the adjudicating authority. Including any extensions or litigation periods, this is the maximum amount of time that must be allotted for the completion.[9] The aforementioned time restriction, however, may be extended in extraordinary circumstances even past 270 days. In the case of, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.,[10] the Supreme Court ruled that in exceptional circumstances where the relevant litigants could not be held accountable for the delay and the extension is in the best interests of all parties, the Adjudicating Authority may extend the deadline for completion of CIRP beyond 330 days.


When enterprise value is typically larger than the liquidation value, as is the case when CIRP can be initiated as soon as the first default occurs under the Code, the CoC is motivated to address the corporate’s insolvency rather than liquidate it. It requires prompt resolution to minimize the gradual loss of enterprise value, which lessens the CoC’s incentive to choose liquidation. It facilitates resolution, makes a team of experts accessible to manage the company as a going concern, forbids the suspension or termination of the provision of vital services, makes it possible to raise interim funds needed for the company’s operation, etc. The Code is a significant piece of legislation that has improved India’s insolvency laws, addressed non-performing loans, and raised total creditor recovery. The “creditor in control” paradigm of CD restructuring is used by the CIRP.

Authors Name: Vishnurath Varma (JIS University, Kolkata) & Vishnudath Varma (St. Xavier’s University, Kolkata)

[1] Companies Act, 2013

[2] Insolvency and Bankruptcy Code, 2016

[3] ‘Understanding the IBC Key Jurisprudence and Practical Considerations A Handbook’, (Insolvency and Bankruptcy Board of India) < > accessed 25 February 2023

[4] IBBI CIRP Regulations, 2016

[5] Notification of Ministry of corporate affairs <> accessed 25 February 2023

[6]‘Balancing the interest of Stakeholders’, (Insolvency and Bankruptcy Board of India Newsletter July- September 2017) < > accessed 25 February 2023

[7]Insolvency and Bankruptcy Board of India Newsletter (n5)

[8] Insolvency and Bankruptcy Code, 2016, s.12

[9] Ankita Pugalia, ‘Corporate Insolvency Resolution Process under IBC’ (Incorp Advisory, 25 November, 2022) <,Time%20Limit%20for%20completion%20of%20CIRP%20process,time%20extension%20of%2090%20days. > accessed 25 February 2023

[10] (2020) 8 SCC 531

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