Legitimacy Begins with Notice: CIIRP and the Collective Character of Insolvency

[Devansh is a student at Dr Ram Manohar Lohiya National Law University.]

The Indian insolvency framework has always been internally contradictory. It promises speed, but is invoked through tribunal infrastructure that is overloaded. It promises value maximisation, but often loses value at the very first step of admission. It promises creditor control, but only after crossing a public adjudicatory threshold. The 2026 amendments to the IBC, by introducing the creditor-initiated insolvency resolution process (CIIRP), attempt to resolve this contradiction by introducing a faster out-of-court route for resolution commencement.

The reform is understandable. By June 2025, thousands of corporate insolvency resolution process (CIRP) cases had been commenced, resolved cases were taking far longer than the statutory 330 days, and indeed a significant majority of CIRPs that were ongoing had crossed 270 days. Delay thus becomes a structural rather than an accidental feature of the regime. CIIRP therefore emerges as a response to a real institutional failure.

From Tribunal-Gated to Creditor-Gated Entry

What is the harder question, though, is whether insolvency can be validly commenced via creditor act without the initial adjudicatory admission stage. The 2026 amendment does not merely overlay another procedural track. It alters India’s insolvency entry model from NCLT-gated insolvency to creditor-gated insolvency. That shift calls for scrutiny. Insolvency is not a private method of recovery between lender and borrower; it has ramifications for operational creditors, employees, guarantors, statutory authorities, shareholders, suppliers and future resolution applicants.

By the new mechanism, where a default has occurred, a financial creditor of a class of financial institutions that have been notified may invoke CIIRP. They have to obtain the consent of notified financial creditors whose debt is not less than 51% in value of the total debt, inform the corporate debtor of his intention to have a CIIRP and give the debtor at least 30 days to make a representation. If the creditor proceeds after hearing the representation, he may appoint a resolution professional and the latter gives a public announcement. Thereupon, CIIRP is deemed to have begun.

The Collapsed Threshold

This is where the doctrinal difficulty begins. In a CIRP, formal or regular, the order of admission by the National Company Law Tribunal (NCLT) does not just have an administrative effect. It has a ‘gatekeeping’ function: it renders certain that default has taken place, the application is proper in form and substance and the statutory conditions intervening at that point have been fulfilled. In Innoventive Industries Limited v. ICICI Bank, the Supreme Court of India called admission under Section 7 a “threshold moment” in the architecture of the statute. CIIRP collapses this threshold. It allows for commencement by creditor approval and public announcement, while further adjudicatory scrutiny is thin and largely reactive.

The amendment does have safeguards. The corporate debtor may seek to object before the Adjudicating Authority within a period of 30 days of commencement. If default has not occurred, or if the process has been undertaken in violation of the statutory requirements, the NCLT may declare the commencement void ab initio. If default has occurred but commencement was procedurally defective, the NCLT may convert CIIRP into a CIRP. These safeguards are important. They are, however, debtor-centric. They do not do justice to the collective character of insolvency.

Four Concerns for the Collective Character

The first problem is one of creditor equality. CIIRP can be triggered only by financial creditors of classes of financial institutions notified by the Central Government beforehand. While restricting CIIRP to financially sophisticated — and familiar — institutions is a useful step to avoid abuse, the reason why this restriction should not apply to all financial creditors is not clear. CIIRP creates a new hierarchy among financial creditors — notified financial creditors who can knock at the CIIRP gate, and everyone else who can only wait, object off-file, or enter their claims once it has begun. The IBC already recognised a difference between financial and operational creditors; CIIRP threatens to create a further second-order classification even among financial creditors.

The other problem is that of sidelining operational creditors. Operational creditors are often able to see distress much before institutional lenders — trade debt unpaid, invoices unpaid, niggardly supplies — these are the early signals of dilapidation of the corporate project. However, CIIRP is to be a financial-creditor-led process. Not only that — the amendment bars filing or admitting applications under Sections 7, 9, 10 and 54C once a CIIRP has commenced. In practice, what this means is this: once the CIIRP is publicly announced, the operational creditor cannot itself trigger a separate CIRP application against the same corporate debtor for the CIIRP period; in effect, the first move has created the universe of insolvency.

This attaches a race problem for the operational creditor. If the operational creditor begins a CIRP first, CIIRP may not be available. If notified financial creditors begin a CIIRP first, he is compelled to enter a process designed by creditors, once the threshold decision has already been taken. The second concern is the risk, if not the reality, of insolvency being driven by only a notified subset of creditors. The Supreme Court in Swiss Ribbons Private Limited v. Union of India has affirmed the dichotomy between financial and operational creditors. The question is not control, but whether a process that binds all stakeholders can be triggered by just a notified subset of them without prior public check.

The third concern of abuse related to timing arises from the attractive option of using CIIRP when lenders seek to preserve business continuity, avoid delays in commencement and maintain debtor-in-possession management subject to RP supervision. These are all positive economic intentions. However, the same flexibility can allow creditors to control when to commence the CIIRP proceedings until such time as they have enough established momentum to disadvantage dissenting lenders, undermine other operational creditors resting elsewhere, and pull the debtor into a controlled corridor for restructuring, before the other parties can respond. The concern here therefore is not about blatant illegal conduct; rather it is about the capture of a legitimate process.

The fourth concern relates to the public announcement notifying that a CIIRP proceeding has commenced. Under traditional CIRP proceedings, the announcement is made to the public only after the commencement order has been issued; however, under CIIRP proceedings, the public announcement of the commencement itself occurs, and therefore the public announcement is transformed from an ancillary act to a constitutive act. The impact on reputation and commerce due to the public announcement made prior to any adjudicative controls is immediate and, for all practical purposes, irreversible.

Repairing CIIRP: Confirmation, Disclosure and Objection

The most logical approach to take to resolve CIIRP conflicts would not involve discontinuing its use as that would also disregard how significant the delays have been in terms of India’s admission. Becoming reliant on a tribunal-based process could also diminish value. Therefore, an alternative and more effective solution would be to consider CIIRP as being part of a supervised, out-of-court approach rather than purely one controlled by creditors. The CIIRP procedure would still proceed as swiftly as possible but with a minimal amount of institutional legitimacy being added to it.

In terms of limiting engagement from NCLT, the use of a confirmation window prior to any public announcement would be effective. The purpose of this window would be solely to confirm that CIIRP had been appropriately initiated; however, a full admission hearing would not occur. The NCLT would only have to verify five specific factors: (1) the creditor that initiated the CIIRP process is a member of the designated class; (2) the approval of 51% of creditors was properly obtained; (3) there is sufficient evidence in support of the default from an information utility or other reliable source; (4) there was adequate opportunity for the debtor to submit their representation within 30 days; and (5) all known operational creditors above a certain amount and all known guarantors have been notified. This type of process could take place in less than fourteen days. The NCLT must provide a written explanation for not taking any action.

In addition, if neither the regulator nor Parliament wants to include an ex ante tribunal step, the IBBI could create a public CIIRP registry to register CIIRPs before initiating the process. When filing for CIIRP, the proposed RP would create a public registry for creditor approvals, the notice to the debtor, the debtor’s response (if any), proof of default, and notice to stakeholders.

A public announcement need only occur after registering with the above existence requirements. The foregoing would not slow the process down; rather, it would create an auditable CIIRP.

The objection process also needs to have more opportunity for parties to object to a CIIRP than is currently the case. The current objection process is limited in that only a corporate debtor can make an express objection to a CIIRP. An operational creditor whose claim exceeds a threshold, a dissenting financial creditor or a guarantor to a corporate debtor should also have the opportunity to make limited objections based on the grounds of ineligibility, the lack of default, defectively approved creditor consent, suppression of material information and abuse of process. These limited objections, however, shall not form the basis of a trial. They must be heard summarily and in accordance with a timeline and supported by costs. However, if limited objections were permitted, it would show that the mechanics of initiating an insolvency will affect more than just the debtor and the creditor filing the CIIRP.

Conclusion

CIIRP is best seen as India’s effort to push speed into a system fatigued by congestion in adjudicatory institutions. However, speed cannot displace legitimacy. The IBC was never meant to be a code of private enforcement. It is a statute of public restructuring, where creditor control is legitimate because it is bound by statute and under adjudicatory supervision. CIIRP diminishes the first moment of that supervision and must therefore heighten the requirements of notice and objection rights.

The real test of CIIRP will not be whether it diminishes admissions to the NCLT. It surely will. The real test of CIIRP will be whether it does so while preserving the collective character of insolvency. If CIIRP becomes a corridor controlled by creditors, in which commencement comes first and the entry of other stakeholders is only a procedural afterthought, the likely outcome will be delayed and solved by eroding legitimacy. If, however, it is accompanied by limited confirmation, public disclosure, and narrow stakeholder objections, it may be a genuine restructuring innovation.

India does not need to choose between speed and due process. It simply needs to find a design that contemplates that insolvency begins with default. Legitimacy begins with notice.