Understanding Corporate Insolvency in India
Corporate insolvency occurs when a company becomes financially distressed and cannot meet its debt obligations. In India, the Insolvency and Bankruptcy Code (IBC), 2016 revolutionized insolvency resolution by introducing a structured, time-bound process to protect businesses, creditors, and employees.
Key Laws Governing Corporate Insolvency
- Insolvency and Bankruptcy Code (IBC), 2016
- Provides a 180-330 day resolution process (CIRP)
- Ensures creditor-driven resolution via Committee of Creditors (CoC)
- Mandates liquidation if resolution fails
- Companies Act, 2013 (Sections 271–365)
- Governs winding up, restructuring, and compromises
- Works alongside IBC for voluntary liquidation
- SARFAESI Act, 2002
- Allows secured creditors to recover NPAs without court intervention
Corporate Insolvency Resolution Process (CIRP) Under IBC
| Stage | Key Actions | Timeline |
|---|---|---|
| 1. Initiation | Financial/Operational Creditor or Corporate Debtor files application before NCLT | 14 days for admission/rejection |
| 2. Moratorium | All legal proceedings, debt recovery, and asset sales halted | Until resolution/liquidation |
| 3. IRP Appointment | Interim Resolution Professional (IRP) takes over management | Within 14 days |
| 4. CoC Formation | Financial creditors form Committee of Creditors (CoC) to evaluate resolution plans | Within 30 days |
| 5. Resolution/Liquidation | If no resolution approved, company enters liquidation | Max 330 days (including extensions) |
Landmark Insolvency Cases in India
1. Essar Steel (ArcelorMittal Acquisition)
- Resolution: ₹42,000 crore acquisition
- Key Takeaway: Supreme Court upheld CoC’s authority in deciding repayment distribution
2. DHFL (Piramal Capital Takeover)
- Resolution: ₹34,250 crore recovery
- Significance: First financial services firm resolved under IBC
3. Bhushan Steel (Tata Steel Acquisition)
- Resolution: ₹35,200 crore deal
- Impact: Early successful large-scale resolution under IBC
4. Jet Airways (Jalan-Kalrock Revival)
- Status: Approved resolution, yet to fully revive operations
- Challenge: Operational delays post-resolution
5. Videocon Industries (95% Haircut)
- Outcome: Creditors faced massive losses
- Lesson: Need for better valuation mechanisms
Challenges in India’s Insolvency Framework
✔ Delays in NCLT Proceedings – Cases often exceed 330-day limit
✔ Low Recovery Rates – Haircuts of 80-90% common in many cases
✔ Cross-Border Insolvency – No formal mechanism for global cases
✔ Group Insolvency Issues – Complexities in resolving interconnected companies
Key Strategies for Companies & Creditors
✅ Early Warning Signs – Monitor cash flow, debt ratios, and creditor demands
✅ Pre-Insolvency Options – Explore debt restructuring, OTS (One-Time Settlement)
✅ Engage Insolvency Professionals (IPs) – Early intervention improves recovery chances
✅ Creditors’ Rights – Secured creditors can enforce SARFAESI, while unsecured creditors rely on IBC
✅ Compliance & Transparency – Maintain proper financial records to avoid liquidation
Future of Insolvency Law in India
🔹 Faster NCLT Processes – Govt. plans more tribunals & digital hearings
🔹 Cross-Border Insolvency Framework – Likely adoption of UNCITRAL Model Law
🔹 Stricter Haircut Regulations – IBBI may enforce better asset valuation norms
🔹 Pre-Packs for MSMEs – Faster resolution for small businesses
Conclusion: Navigating Insolvency Effectively
The IBC has transformed India’s insolvency landscape, but challenges remain. Companies must:
✔ Act early to avoid liquidation
✔ Engage legal experts for restructuring advice
✔ Stay updated on evolving insolvency laws
For creditors, timely action under IBC or SARFAESI maximizes recovery chances.
Authored by:
B S Makar, Advocate
Punjab & Haryana High Court
📞 +91-9878131111 | 🌐 www.makarlaws.com
Specializations:
🏛 Corporate Insolvency & Bankruptcy Advisory
💰 Debt Recovery & Banking Disputes
⚖ Financial Fraud Litigation
📜 Regulatory Compliance under IBC
