The Original Promise
When the Insolvency and Bankruptcy Code, 2016 (IBC), was enacted, it was hailed as a landmark reform in India. For the first time, India had a unified framework to deal with insolvency across corporates, partnerships and individuals. The preamble of IBC promises time-bound resolution, maximisation of asset value, promotion of entrepreneurship and balance of stakeholder interests.
But nearly a decade later, IBC is struggling. Instead of maximising value, regulatory inaction and unchecked experiments have eroded public confidence, delayed outcomes and undermined the very objectives IBC was meant to serve. Even the crucial credit recovery test has failed.
Success Story
The December 2025 report of the regulator of the IBC (IBBI) reveals the scale of the problem:
- Successful CIRP: 1,376 cases concluded, but with an average duration of 619 days, compared to the prescribed period of 270 days.
- Liquidations: 2,952 cases ended in liquidation after an average of 527 days, against a prescribed period of 270 days.
- Closed Liquidation Processes: 1,613 cases took an average of 675 days to close.
- Recovery Rates: After including the data of liquidation cases, the overall recovery rate (without accounting for the time value of money) is less than 16% (after including a historic recovery rate of liquidation cases and recovery in CIRP cases) but higher recovery rate of nearly 32% in CIRP cases is shown as an achievement under IBC.
By contrast, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has a provisional recovery rate of 24.7% (nearly ₹30,640 crore on nearly ₹1.23 lakh crore) at the end of the financial year 2023–24, as mentioned in the report of Parliament’s standing committee on finance (December 2025). Therefore, the recovery rate under the SARFAESI Act is six times higher than the recovery rate in liquidation cases under IBC and one-and-a-half times higher than the overall recovery rate under IBC.
These figures expose a system that is slow, inefficient, and destructive of value, as no effective steps are being taken to put the house in order despite the high stakes. The national company law tribunal (NCLT), acting as the adjudicating authority under the IBC, often takes more than a year merely to admit insolvency petitions.
The Pre-pack Experiment and Its Failure
After COVID-19, the Indian government introduced pre-packs under IBC, marketed as a debtor-in-control lifeline for medium, small and micro enterprises (MSME) as discussed in Pre-Packs in
“Indian Insolvency Law: Lifeline for MSMEs or a Risky Gamble?”. But the pre-pack mechanism failed due to its fundamental structural flaws. Now even the Indian government has, in the economic survey of 2025-26, acknowledged that the existing pre-pack mechanism is inappropriate for the target segment, i.e., MSMEs.
Instead of fixing loopholes by strengthening the IBC eco-system, improving regulatory action and accountability, the Indian government has now proposed another experiment: the Creditor-Initiated Insolvency Resolution Process (C-IIRP), another debtor-in-control model in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (IBC 2025 Amendment Bill).
The C-IIRP is based on the ‘Report of the Expert Committee on a Creditor-Led Resolution Approach - May 2023’ constituted by the IBBI (expert committee report). The fact that the C-IIRP is experimental is evident from the deposition made by the IBBI before the select committee of Parliament on the IBC 2025 Amendment Bill.
What the Expert Committee Report Proposed
According to the expert committee report, the C-IIRP framework is borrowed from:
- Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 (RBI 2019 Framework).
- International models in the United Kingdom, United States of America, Singapore, Australia and Germany.
- India’s own experience with CIRP and pre-packs.
Key features the C-IIRP mentioned in the expert committee report include:
- Initiation by unrelated financial creditors (initially scheduled commercial banks) holding at least 51% of the debt.
- No NCLT admission process; initiation is out-of-court.
- Resolution professionals are appointed by financial creditors, not by NCLT.
- Debtor-in-control regime, with promoters allowed to bid or match offers.
- Market-based resolution plans, with a challenge mechanism modelled on pre-packs under IBC.
- Avoidance transaction provisions under Sections 43, 45, 50 or 66 of IBC as well as disqualification of the promoters under section 29A of the IBC is applicable.
- Most importantly, the C-IIRP is supposed to work on a cooperative basis with promoters, following a time-efficiency model.
On paper, the C-IIRP appears to be a streamlined, cooperative process. In reality, however, it raises serious concerns: the process is unlikely to facilitate resolution, may achieve little and the cost of the experiment could be significant: negative outcomes such as adverse impacts on entrepreneurship, delayed resolutions, value destruction, and continuous asset diversions.
Analysis of the C-IIRP Provisions in the IBC 2025 Amendment Bill
The statement of objects and reasons of IBC 2025 Amendment Bill states that the objective of this amendment inter alia is “to reduce delays, maximise value for all stakeholders, and improve governance of all processes under the Code”. It further states that proposed legislation introduces “Creditor-Initiated Insolvency Resolution Process with an out-of-court initiation mechanism for genuine business failures to facilitate faster and more cost-effective insolvency resolution, with minimal business disruption. Once implemented, this will help ease the burden on judicial systems, promote ease of doing business and improve access to credit.”.
The Fundamental Flaws in the C-IIRP
- No Adjudication: India is a common law country. Any process (administrative or judicial) must follow the principles of natural justice. Yet, the C-IIRP bypasses adjudication at the initiation stage. Companies will be pushed into the resolution process without judicial adjudication of debt and default. Notably, if NCLT later finds that the C-IIRP was initiated in contravention of the prescribed procedure but a default exists, it simply converts the C-IIRP into CIRP adding further time and complexity.
- Threshold of Financial Creditors Holding 51% Debt: In India, all lending is not based on a consortium or syndication. Lenders also lend money individually and sometimes even without the consent of existing lenders. Hence, such a threshold of 51% will create another chaos as opposed to the individual action of a lender who can anytime initiate the CIRP in the event of debt and default above the minimum threshold.
- Independence of Resolution Professionals: The resolution professional is appointed by the financial creditors rather than by NCLT. This raises doubts about independence, whether resolution professionals will be considered neutral officers of the court or agents of creditors. The credibility of the process depends on this distinction. Already the insolvency professionals have lost their independence by becoming sub-servient to the committee of creditors.
- Promoter Cooperation: The C-IIRP presumes promoters will cooperate. But under normal CIRP in IBC, an application for non-cooperation is filed in almost every case and many of them are not decided by the NCLT even after completion of 270 days. Why would promoters cooperate when they risk losing control of their business and avoiding the transaction will increase their liability? This is especially true when the IBBI fails to implement the criminal provisions of IBC and NCLT orders are frequently ignored.
- Debtor-in-control Contradictions: Like pre-packs, the C-IIRP is a debtor-in-control model. But the resolution professional has veto power over management decisions. This contradiction breeds conflict, as promoters may continue diverting funds and undermining value maximisation. Notably, such a diversion will not be classified as an avoidance transaction, because the initiation date for this purpose will be the date of the C-IIRP, not of a normal CIRP.
- No Moratorium: The C-IIRP does not automatically impose a moratorium. Creditors and statutory authorities can pursue claims by escalating pending legal proceedings which is one of the major litigations in CIRP under the IBC. Worse, Section 74 of the IBC punishing creditors for violating moratorium is proposed to be deleted in the IBC 2025 Amendment Bill to save the statutory authorities in the guise of bona fide resolution applicants especially when the trend of resolution plans in the form of asset monetisation is increasing. Financial creditors (especially those who are not part of the consortium) having better or exclusive security are most likely to pursue the action under the SARFAESI Act. Litigation is likely to escalate further.
- Funding of Litigation: In CIRP, promoters bear litigation costs. In the C-IIRP, the company will pay for it. This incentivises promoters to drag creditors into endless litigation with company funds footing the bill, if the company is generating cash-flow.
- Third-party Bidding Risks: The objective of insolvency law is to help genuine distressed businesses, not facilitate hostile takeovers. Yet, the C-IIRP allows third-party bidding, repeating the failed pre-packs model. Promoters are discouraged, recovery rates plummet, and diversion of assets becomes rational in such situations, especially when the IBBI is reluctant to perform its duties by invoking the criminal provisions of the IBC.
- Lengthy and Time-consuming Process: The IBC 2025 Amendment Bill claims the C-IIRP will expedite resolution. But with complex structures and conversions of almost every case into CIRP, it risks being a slower, lengthier and more time-consuming process than the CIRP that it seeks to replace.
- Avoidance Transactions: Fraudulent diversions of funds/ business by promoters are a major reason for liquidation in IBC. If resolution professionals file avoidance applications, promoters cannot participate in the C-IIRP. If so, where is the incentive to cooperate and make the C-IIRP successful unless a third-party front of the promoter is bidding as seen in some cases.
Constitutional Question
The C-IIRP is bound to face constitutional challenges. Bypassing adjudication at the initiation stage risks violating natural justice. Similar issues arose with personal guarantors, leading to writ petitions before the Supreme Court in “Dilip B Jiwrajka v/s Union of India & Ors [Writ Petition (Civil) No 1281 of 2021]”. While allegedly pro-government Indian courts may ultimately uphold the C-IIRP, litigation is inevitable and value addition will be negligible.
(This is first part of a two-part series)
(Jitender Kumar Jain is a Mumbai-based advocate with over two decades of practice in corporate and commercial laws, including insolvency law.)
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There is no point in churning out new structures every now and then while the current structure languishes. I request the government to rethink on the proposed CIIRP.