CIIRP: देनदार प्रबंधन का वापसी और IBC की चुनौतियाँ

An analysis of the creditor-initiated insolvency resolution process (CIIRP) introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, examining the return of debtor management, information asymmetry, creditor protection, Section 65 and Section 66 safeguards, and the need for stronger regulatory oversight.

Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC or the Code) fundamentally restructured corporate debt resolution in India. Among its defining architectural choices was the suspension of the Board of Directors upon admission of a corporate insolvency resolution process (CIRP) application, with management immediately vesting in the interim resolution professional (IRP). That choice was deliberate: the management that may have contributed to the financial distress of the corporate debtor should not be permitted to obstruct or influence the resolution of that distress.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (the Amendment Act or Act 6 of 2026), which received presidential assent on 7 April 2026, inserts a new Chapter IV-A into the IBC comprising Sections 58-A to 58-K. These provisions establish the creditor-initiated insolvency resolution process (CIIRP). The CIIRP is designed as an out-of-court initiation mechanism for “genuine business failures”, aimed at reducing admission delays, lowering resolution costs, and minimising business disruption. Unlike the CIRP, the CIIRP permits the corporate debtor’s incumbent management to continue operating the business during the process, subject to the oversight of a resolution professional (RP).

This article identifies and examines a systematic tension at the heart of the CIIRP’s design. The CIIRP places initiation rights in the hands of creditors while leaving operational control with the debtor. This hybrid architecture creates legal risks that the Amendment Act’s existing safeguards do not adequately address. Specifically, this article argues: 1) the CIIRP’s supervised management model lacks the fiduciary infrastructure that makes debtor-in-possession (DIP) frameworks function in other jurisdictions, 2) the extension of Section 65 penalties to CIIRP deters creditor misuse but leaves misuse by the debtor’s management materially unaddressed, and 3) the information asymmetry between management and the supervising RP is structurally acute and currently unresolved.

Existing commentary on the Amendment Act has focused primarily on its group insolvency and cross-border insolvency chapters. The CIIRP’s management continuity design and the legal risks it creates for creditors, has received comparatively little analytical attention. This article seeks to address that gap.

The IBC’s architecture: Why management suspension matters

Under Section 17 IBC, from the date of the IRP’s appointment, the management of the affairs of the corporate debtor vests in the IRP, and the powers of the Board of Directors stand suspended. The suspension is express and immediate: Section 17(1)(b) provides that the “powers of the Board of Directors… shall stand suspended and be exercised by the interim resolution professional”.

This suspension is not incidental; rather, it is constitutive of the CIRP’s architecture. The Supreme Court in Swiss Ribbons (P) Ltd. v. Union of India1 explained that the Code deliberately shifts control from promoters and management, who may have contributed to the financial distress, to an independent professional, in order to preserve enterprise value and protect the interests of creditors. The creditor-control model was drawn in part from the UK administration regime, in which an administrator displaces incumbent management and owes fiduciary duties to the general body of creditors.

The Supreme Court reinforced this design in Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta2, where it affirmed the primacy of the Committee of Creditors (CoC) in resolution decisions. The court held that the commercial wisdom of the CoC must prevail. That holding rests implicitly on a critical assumption: that the prior management has been removed from positions of information and influence. The CoC’s independent judgment is meaningful only when it is insulated from the management whose decisions preceded the insolvency.

Management suspension also serves a specific investigative function. The IBC’s avoidance transaction framework3, Sections 43—51, covering preferential, undervalued, extortionate, and fraudulent transactions, empowers the RP to identify and challenge value-eroding transactions entered into during a look-back period. Under Section 18 IBC4, the IRP has the right to take custody of assets and records, access all books, accounts, and financial statements, and appoint forensic professionals. These powers presuppose operational authority, an assumption that the CIIRP fundamentally alters.

The CIIRP: Structure and design

The Amendment Act (Chapter IV-A, Sections 58-A—58-K) establishes the CIIRP framework. Its principal features are as follows.

Initiation requires the approval of at least 51 per cent of specified financial creditors by value of outstanding debt. Commencement occurs upon the RP issuing a public announcement, not upon National Company Law Tribunal (NCLT) admission. This departure from the adjudicatory entry model is the CIIRP’s central procedural innovation. A moratorium (analogous to that under Section 14 IBC, with modifications) prevents individual creditor enforcement during the process.

During the CIIRP, the corporate debtor’s management continues to operate the business, subject to the RP’s oversight. The avoidance transaction framework (Sections 43—51) and the CoC provisions (Sections 21, 24, 25-A, 26-29, 32, and 32-A) are extended to apply to the CIIRP with modifications. The NCLT retains a supervisory role and may convert the CIIRP into a regular CIRP in specified circumstances, including where the debtor’s objection to the process is upheld.

The Statement of Objects and Reasons of the Amendment Act describes the CIIRP as combining “the flexibility and efficiency of an out-of-court process with the statutory backing of a court-approved resolution plan that is binding on all stakeholders”. Finance Minister Nirmala Sitharaman, introducing the Bill in the Lok Sabha, stated that the CIIRP would “facilitate faster, cost-effective insolvency resolution with minimal business disruption”.

The debtor-in-possession analogy and its limits

The CIIRP’s management continuity feature invites comparison with the debtor-in-possession (DIP) model under Chapter 11 of the United States Bankruptcy Code.5 Under Chapter 11, an insolvent company’s existing management may continue to operate the business as a DIP while a reorganisation plan is developed. The DIP model has attracted substantial academic support, on the ground that management continuity preserves going-concern value in cases where the distress is financial rather than managerial. This argument has also influenced restructuring design debates in India.

The DIP model in the United States, however, is architecturally distinct from the CIIRP in a critical respect: the DIP is subject to a comprehensive statutory fiduciary framework. Under Section 1107(a) of the US Bankruptcy Code6, the DIP possesses the rights and powers of a trustee. DIP management accordingly owes fiduciary duties to all creditors of the estate, including duties to avoid self-dealing, to preserve the value of estate assets, and to refrain from preferencing particular creditor groups. The US Supreme Court in Commodity Futures Trading Commission v. Weintraub7 confirmed that the debtor in possession is a fiduciary of the estate. The DIP model is further disciplined by Section 1104, which empowers the court to appoint an independent trustee and displace the DIP in cases of fraud, dishonesty, incompetence, or gross mismanagement. This displacement mechanism functions as a credible deterrent.

The CIIRP, by contrast, provides management continuity without either element. The Amendment Act does not impose explicit fiduciary obligations on the management of the corporate debtor during the CIIRP. Management continues to operate under its existing duties under the Companies Act, 20138, which run primarily to the company and its shareholders, not to creditors as a class. Nor does the Amendment Act provide a mechanism analogous to Section 1104 for displacing the management without full conversion to a regular CIRP.

The CIIRP resembles a DIP in form because management continues in possession, but it lacks the legal infrastructure that enables DIP models to function effectively. It is a supervised management structure that lacks the fiduciary architecture typically associated with meaningful supervisory oversight.

The oversight gap: Information asymmetry and the RP’s constrained role

The effectiveness of the CIIRP turns substantially on the RP’s capacity to exercise meaningful oversight. That capacity depends, in the first instance, on the RP’s access to information about the corporate debtor’s assets, liabilities, and transactions.

Under the existing IBC framework, the IRP’s powers under Section 189 are plenary: the IRP may take custody of all assets and records of the corporate debtor, access all books, accounts, and financial information, and appoint accountants, valuers, and forensic professionals. The management is legally obligated to cooperate and provide information on demand. The IRP is, operationally, the corporate debtor during the CIRP.

Under the CIIRP, the RP’s role is supervisory rather than operational. The RP does not displace management; management continues. This creates a significant information asymmetry: the RP must rely substantially on management’s own disclosure for information about the entity’s assets and transactions. Management, knowing that a CIIRP has commenced and that conversion to a regular CIRP is possible, has incentives to manage information flows strategically, surfacing what supports a resolution outcome favourable to equity while obscuring related-party transactions or preferential payments that may benefit creditors upon investigation.

This asymmetry is acutest in the context of the avoidance transaction investigation. Identifying preferential or fraudulent transactions requires the RP to trace historical transactions across related entities, inter-company accounts, and banking records, all of which are controlled by management. A supervisory RP, without the operational authority of an IRP, is poorly positioned to conduct this investigation. Although the Amendment Act extends the avoidance transaction provisions to the CIIRP, the legal entitlement to challenge a transaction is distinct from the practical capacity to discover it.

A comparative parallel exists in the UK’s Company Voluntary Arrangement (CVA) framework under the Insolvency Act, 198610, which also maintains management continuity during a restructuring. A 2014 Government-commissioned review identified the information asymmetry between management and the CVA nominee, a role analogous to the CIIRP’s RP, as a systemic limitation on effective oversight. The review noted that the nominee’s capacity to identify pre-process value-eroding conduct was structurally constrained by dependence on management’s own disclosure.

The Section 65 problem: Misuse and the direction of deterrence

Section 65 IBC imposes penalties on persons who initiate CIRP proceedings fraudulently or with malicious intent, for purposes other than insolvency resolution. The Amendment Act extends this provision to cover CIIRP initiations. This is a sensible safeguard: it deters creditors from using the threat or commencement of a CIIRP to extract preferential payment or commercial concessions from a financially distressed debtor.

However, Section 65 is directed at the initiating party, the creditor. It does not address the conduct of the debtor’s management during the CIIRP. A management that exploits the CIIRP window, by accelerating related-party transactions within the look-back period, selectively preferring certain creditors, or allowing asset deterioration, is not deterred by Section 65. The deterrent effect of the provision operates only in one direction.

Section 66 IBC11 imposes liability on officers of the corporate debtor for fraudulent or wrongful trading conducted before the “insolvency commencement date”. Section 66 is designed to deter officers from conduct that deepens the insolvency at creditors’ expense. However, the scope of Section 66 in the CIIRP context is ambiguous: the CIIRP is not a formally admitted insolvency proceeding. No NCLT admission order has been passed. Whether the public announcement of the CIIRP would be treated as the relevant trigger for the purposes of Section 66 remains unclear under the Amendment Act.

This creates a material gap. During the CIIRP, the debtor’s management operates with both the ability and the incentive to act adversely to creditors. The Amendment Act’s conduct regime deters the initiating creditor (Section 65) but leaves the debtor’s management insufficiently disciplined. Creditors who initiate a CIIRP may find that the management nominally under their RP’s oversight is engaged in value-eroding conduct for which the statutory remedy is uncertain.

Engaging with the counter-arguments

The government’s rationale for management continuity is not without force. The Amendment Act targets “genuine business failures”, cases where the financial distress is acute, but management is cooperative, competent, and not itself responsible for the distress. In such cases, management displacement may destroy value: institutional knowledge, client relationships, and operational continuity may be disrupted if a capable management team is replaced by an IRP unfamiliar with the business.

The United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency Law (2004)12 explicitly identifies management competence as a relevant consideration in the design choice between DIP and trustee-led models, noting that where incumbent management is not responsible for the distress and retains relevant expertise, continuity may yield better resolution outcomes. This observation is well-founded and reflects the experience of jurisdictions that have adopted DIP-style frameworks successfully.

These arguments address the cooperative case, where management is genuinely cooperative and the business failure is genuinely financial. The concern addressed in this article arises in adversarial cases, where management cooperation may be strategic rather than genuine. A framework designed for cooperative cases must also be resilient against non-cooperative ones. The CIIRP as enacted provides management continuity as a default design choice, not as a conditional benefit available only upon demonstration of cooperation. This constitutes the principal design concern within the CIIRP framework.

The counter-argument that the NCLT conversion is available as a backstop is imperfect. Conversion requires an NCLT order, reintroducing precisely the delay the CIIRP was designed to avoid. More importantly, value erosion that occurs between the public announcement and the conversion order may not be fully recoverable even if avoidance applications are subsequently filed. The retrospective remedy is imperfect compensation for prospective vulnerability.

Suggestions for reform

Three targeted reforms would address the systemic concerns identified in this article without requiring fundamental reconception of the CIIRP framework.

Firstly, the Insolvency and Bankruptcy Board of India (IBBI) should, through implementing regulations, impose explicit obligations on the management of the corporate debtor during the CIIRP. These obligations should require management to act in the interests of the creditor body as a whole, to refrain from related-party transactions outside the ordinary course of business, to maintain the value of assets, and to provide continuous full disclosure to the RP. A useful reference is the Insolvency, Restructuring and Dissolution Act, 201813, which under its judicial management regime restricts the disposal of company property without the judicial manager’s or court’s approval, effectively constraining management’s unilateral authority during the restructuring process.

Secondly, the RP’s information access during the CIIRP should be enhanced through the IBBI Regulation to be equivalent, for investigative purposes, to the IRP’s access under Section 18 IBC. The RP should be entitled to access books, records, accounts, and information systems of the corporate debtor and to appoint forensic professionals, even while management remains in operational control. Investigative access can be clearly distinguished from operational authority.

Thirdly, Section 66 IBC should be expressly applied to the CIIRP period, either by legislative amendment or by clarificatory regulation. The period from the public announcement of the CIIRP to its conclusion should be designated a relevant period for wrongful trading liability. Officers of the corporate debtor should clearly be subject to Section 66 liability for conduct during this window. This would create statutory symmetry: Section 65 deters creditor misuse, Section 66, as clarified, would deter debtor misuse.

Conclusion

The CIIRP represents a conceptually sound and pragmatically necessary evolution in India’s insolvency architecture. The combination of out-of-court creditor initiation with court-approved, binding resolution plans addresses genuine limitations of the existing CIRP, including the NCLT admission backlogs, high resolution costs, and value erosion caused by management displacement in operationally viable businesses.

However, the CIIRP’s current design rests on an unexamined assumption: that management continuity does not require the legal infrastructure that makes DIP models functional in other jurisdictions. That assumption is not warranted. Management continuity without fiduciary obligations to creditors, a supervisory RP without adequate investigative access, and a deterrence regime directed only at the initiating creditor, these features, taken together, produce a CIIRP that is efficient in the cooperative case but structurally vulnerable in the adversarial one.

The Amendment Act is a significant step forward in India’s insolvency framework. The CIIRP’s potential will be fully realised only if the regulatory and legislative follow-through addresses these gaps. The three reforms proposed in this article are incremental, implementable largely through the IBBI Regulation, and targeted at preserving the CIIRP’s stated purpose while protecting against its institutional vulnerabilities. Absent such safeguards, the efficiency gains promised by the CIIRP may come at the cost of creditor protection; with them, the framework has the potential to become a significant and durable innovation in India’s insolvency architecture.

*Law student, Jindal Global Law School. Author can be reached at: 23jgls-yatharth@jgu.edu.in.

1. (2019) 4 SCC 17 : (2019) 213 Comp Cas 198.

2. (2020) 8 SCC 531 : (2020) 219 Comp Cas 97.

3. Insolvency and Bankruptcy Code, 2016, Ss. 43, 45, 50, 66; collectively constituting the Code’s avoidance transaction regime.

4. Insolvency and Bankruptcy Code, 2016, S. 18(1)(a), (b), (f).

5. 11 U.S.C. §§ 1101—1174 (Ch. 1: Reorganization).

6. 11 U.S.C. § 1107(a); Commodity Futures Trading Commission v. Weintraub, 1985 SCC OnLine US SC 115, p. 355; see also 11 U.S.C. § 1104(a).

8. Companies Act, 2013, S. 166.

9. Insolvency and Bankruptcy Code, 2016, S. 18.

10. Insolvency Act, 1986, Part I, Ss. 1—7-B; Teresa Graham CBE, Graham Review into Pre-Pack Administration, 36 (June 2014).

11. Insolvency and Bankruptcy Code, 2016, S. 66; the provision’s application to the pre-NCLT admission CIIRP window is not addressed by the Amendment Act.

12. UNCITRAL, Legislative Guide on Insolvency Law (United Nations, 2004), Part Two, Ch. II, para 39.

13. Insolvency, Restructuring and Dissolution Act, 2018, Part 7, S. 95; see also IBBI, Report of the Working Group on Group Insolvency, (September 2019) para 1.2.

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