Breaking Up to Break Through: Rethinking Asset-Wise Bidding and DIP Lessons from the West

[Shailraj is a student at National Law School of India University.]

India’s corporate insolvency framework has seen tremendous structural transformations since introducing the Insolvency and Bankruptcy Code (IBC) 2016. The 2025 amendments to the Insolvency and Bankruptcy Board of India (IBBI) (Insolvency Resolution Process for Corporate Persons) Regulations 2016 reflect the newest thrust towards more efficiency and flexibility. By allowing resolution experts to invite asset-by-asset bids and enabling interim finance providers to attend committee of creditors (CoC) meetings (though without voting rights), the IBBI aims to release more value in stressed assets. These reforms, however, present important design and implementation challenges – how are creditor differences on partial sales to be addressed? What protections and rights do interim financiers require? And what should guard multi-track bidding?

This article argues that India’s new asset-by-asset bidding and interim funding system is a seminal reform. However, how well international models are customized to accommodate local constraints will tell the tale. Borrowing comparative lessons from the US and EU, the essay demonstrates that although these jurisdictions provide valuable tools, DIP financing protections, structured partial sale schemes, and creditor class distinction, India needs to convert these practices into institutionally viable, locally relevant solutions to achieve both value maximization and fair creditor outcomes.

The United States: Chapter 11 and DIP Financing as a Structural Tool

The US is widely regarded as the jurisdiction of choice for asset-based restructuring and DIP lending. Chapter 11 of the US Bankruptcy Code allows companies under financial distress to continue business as a “debtor in possession” under a court’s supervision. One of the very keystone principles of this architecture is the ability to sell assets under §363(b), which permits the selling of discrete assets – complete business lines or IP – that devolve out of the larger reorganization scheme. There is not so much a standard, per se, under Section 363,  but relatively strong judicial control in the US to police such sales. 

The empirical evidence is that pre-plan 363 sales of assets are common, occurring in over 1 of 5 significant Chapter 11 cases during 2001-2010, and bring speed, competitive bidding and release from legacy liabilities. Noteworthy cases such as Chrysler and GM (one of this genre's most absurd and contentious cases) exemplify this elasticity. Here, Courts allowed asset sales to be blessed in a drawn-out expedited process to promote going concern value and, at times, treated post-sale structures as a reorganization ‘in all but name.’ Sections 364(c) and (d) give DIP financing top priority, including liens and court-approved protections, which helps reassure senior and new lenders to provide funds after bankruptcy is filed. Courts must evaluate each financing proposal's utility to the estate and the creditor body.

IBBI’s 2025 regulations, especially Regulation 36B(4B), now permit non-sequential, asset-wise bidding by allowing resolution professionals to solicit separate bids for distinct assets, reducing the need for holistic bankruptcies. However, unlike in the US, India lacks judicial clarity on pre-plan sales and standardized conflict-resolution mechanisms for multiple asset bidders. In the meantime, interim finance providers in India lack statutory protection similar to that provided by Section 364. The U.S. experience strongly suggests that investor confidence and default-avoiding deterrence require a codified DIP regime, with statutory priorities and creditor control, for such confidence and deterrence.

The European Union: Preventive Restructuring and Standardization Challenges

The European Union provides an interesting and evolving model where flexibility is balanced with the security of creditors, and which may present essential lessons for reform in India. The EU’s model institutionalizes principles that are specifically responsive to the challenges of asset-wise bidding and interim financing. The Preventive Restructuring Directive (2019/1023) provides the basis for member states to generate separate creditor classes and to facilitate inter-class cram-down. Inter-class cram-down allows courts to approve a restructuring plan even if some classes of creditors vote against it. It ensures fair treatment by requiring that dissenting classes receive at least what they would get in liquidation and that no junior class is unfairly paid more. This modular architecture is necessary to address the divergent interests involved in partial asset sales (a key challenge for India).

Recent harmonization initiatives add to this model. Moves towards EU-wide “pre-pack” insolvencies, where the selling-off of assets is pre-negotiated ahead of formal proceedings, provide a clear model for India’s aspiration for asset-wise bidding in relation to value-preservation and speed. This is supported by a more developed but locally adapted model of interim financing. Although the Directive requires a lender’s ‘new money’ to be protected against claw-backs by an office-holder, it leaves it to member states to determine whether or not super-priority is awarded, and so shows the importance of aligning principles with national legal systems. This diversity, alongside proposed mandatory creditors’ committees, speaks to a regime seeking a compromise between the interests of secured lenders and the concern for stakeholder protection.

The EU experience should also serve as a reminder for India that having mere enabling provisions does not suffice for a successful partial sale and an interim funding regime. It requires a structured architecture with creditor ranking, a regulated pre-pack-style sales process and robust statutorily-protected rights for new funders. The EU’s journey of difficult compromise and “harmonization à la carte” itself serves as a warning that these tools must be meticulously adapted to India’s institutional realities to prevent procedural deadlocks and ensure equitable outcomes.

The Challenge of DIP Financing in India

Despite statutory super-priority for interim loans, Indian banks and financiers have generally shunned DIP financing. The Reserve Bank of India (RBI) rules play a part: banks are barred from funding promoters’ equity injections, limiting how they can support a debtor’s turnaround. In fact, RBI guidelines explicitly prohibit banks from financing acquisitions of shares or equity infusions by promoters, so banks naturally baulk at extending fresh credit to already-troubled firms. The National Company Law Tribunal (NCLT) has noted this friction. The Chennai Tribunal observed that IBC rules and RBI norms are “disjoint” and one does not invalidate the other. However, in practice, banks still see DIP proposals as high‐risk, with no clear way to mitigate (no personal guarantees, because IBC forbids fresh securities on secured assets under Section 20(2)(c)). Interim finance under a creditor-friendly code like India’s suffers “lower lender motivation” since banks have no controlling stake and no clear repayment timeline. In short, lender incentives are weak: they face repayment uncertainty, strict provisioning norms and limited governance, unlike Chapter 11 DIP loans in the US.

These gaps manifest in case law. In Edelweiss ARC v. Sai Regency (National Company Law Appellate Tribunal (NCLAT), 2019), the Appellate Tribunal was asked to enforce a CoC-approved interim-finance plan (letter of comfort for gas supplies) over the objection of a creditor. The NCLAT upheld the CoC’s decision by majority vote – dissenters could not “scuttle” the process. This confirms that once 66% of creditors green-light DIP financing, minority objectors are bound. In other words, the law permits DIP injection, but finding willing lenders remains the pinch point.

Structural Gaps in India’s Asset-Wise Bidding Framework

India’s insolvency regime has made remarkable strides, but it still faces deep structural hurdles. Backlogs and delays at the NCLT have become chronic. For example, ICRA reported in mid-2025 that the average corporate-insolvency case takes 713 days, far beyond the 270‐day statutory deadline. About 78% of ongoing cases have already breached the 270-day mark. Creditors and promoters spend years in litigation, and empty tribunals threaten the “going concern” value of firms. CRISIL similarly warned that NCLT backlogs (~4,400 cases) and repeated hearings eat into recoveries. In short, lengthy timelines and cross-litigation at the tribunals erase asset value, making any resolution plan harder to implement.

Regulatory gaps further complicate solutions like asset‐wise bidding and DIP (debtor-in-possession) financing. On paper, the IBC and new rules envision flexible sales of parts of a company. In May 2025, the IBBI formally introduced “part-wise” resolution (asset-wise plans) and even allowed interim lenders to attend CoC meetings as observers. These were intended to boost bidders for, say, separate real estate projects or plant units. However, the Ministry of Corporate Affairs has insisted that at least one plan for the whole company (as a going concern) must be sought first. In practice, CoCs and RPs must juggle multiple auctions: one for the business as a whole and others for individual assets. This raises thorny issues – differing eligibility tests, “attribution of liabilities” to each asset, and potential inter-creditor disputes. In short, while asset-wise sales can unlock value, India’s insistence on a whole-company fallback and the need to split debts across plans make the process highly complex and rare.

Similarly, while the Supreme Court of India in Indiabulls v. Ram Kishore Arora and the NCLAT in Umang Realtech has upheld project-wise (asset-wise) resolutions to preserve value in significant real-estate cases, such creative resolutions are still the exception, not the rule.

Finally, India’s creditor profile adds to the strain. Financial creditors (mainly banks and large lenders) dominate the CoC, but fragmented claims (many small bankers, unsecured bondholders, vendors) dilute cohesion. Most operational creditors – especially MSMEs and vendors – often lack meaningful voting power (either because they’re not in the 26% of voting share in the CoC or because homebuyers and small suppliers were long excluded). This “fragmentation” means that achieving a broad consensus (for DIP or breakup plans) is inherently complex. Public-sector banks, which hold the bulk of stressed loans, are especially risk-averse about DIP; they are under RBI oversight, burdened by NPAs, and reluctant to fund a doubtful turnaround without significant recovery visibility.

Conclusion

In sum, India’s unique structure makes both asset-wise bids and DIP financing hard to pull off. Courts and regulators have shown the law can support flexible sales and super-priority finance, but operationally, every step bumps into entrenched obstacles. Delays at the NCLT eat into value and sour deals; RBI lending norms curb bank participation; and a fragmented creditor base struggles to coordinate. Recognition of these constraints underlies recent amendments (e.g. priority payouts to dissenters, CoC observers, part-wise plans, etc.), but the real test will be whether they overcome India’s complex institutional realities. Until then, asset splits and DIP funding will remain far more common in theory than in practice.