Resolving Resolution: IBBI’s Remedy for Creditor Confidence

[Paras and Arartrik are students at Ram Manohar Lohiya National Law University.]

The Insolvency and Bankruptcy Board of India (IBBI) has, on 26 May 2025, notified the IBBI (Insolvency Resolution Process for Corporate Persons) (fourth amendment) Regulations 2025, to further amend the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (CIRP Regulations). The fourth amendment seeks to amend certain key provisions of the regulations. These amendments are in line with the issues that were identified by the IBBI in its discussion paper on 'Streamlining Processes under the Code: Reforms for Enhanced Efficiency and Outcomes' dated 4 February 2025 (Discussion Paper). The fourth amendment brings in significant procedural reforms which will strengthen the stakeholder participation, transparency and overall fairness in the resolution process. 

Interim Finance Providers

Interim finance providers are the financiers who generally provide short-term funding during the corporate insolvency resolution process to cover essential costs and maintain the corporate debtor’s operations during the insolvency proceedings. The financers are typically banks or financial institutions that extend the funding with the expectation of getting back the amount on a priority basis, as envisaged under Section 5(15) and Section 30(2) of the Insolvency and Bankruptcy Code 2016 (IBC). Despite the protections and importance, interim financiers have always been reluctant to fund due to a lack of transparency and access to the committee of creditors' (CoC) meetings. The lack of transparency prevents the financiers from assessing and monitoring risks associated with the funding, potentially leading to limited participation.

One of the most significant amendments brought in by the fourth amendment is the insertion of sub-regulation (5) to Regulation 18 of the CIRP Regulations, which now permits the CoC to invite the interim finance providers to attend its meetings as observers, though without voting rights. This amendment implements the proposal laid down in point 6 of the Discussion Paper, which proposed to allow interim finance providers to attend CoC meetings. This change will reduce the financier’s hesitation by increasing transparency and further enabling informed funding. However, solely inviting the financiers may not suffice, and lenders might still remain hesitant. In order to build financer confidence, additional safeguards and some rights or say of the lender may be necessary to ensure that the lender feels protected and confident.

Dissenting Financial Creditor

The code requires the resolution plan to be approved by a majority of the CoC, which generally comprises financial creditors. One of the core objectives of the code is to maintain a balance of interest for all creditors that are involved in the resolution process. The financial creditors in the CoC vote on the proposed resolution plan; a dissenting financial creditor is a creditor who votes against the resolution plan. The code ensures fair and equal treatment of all financial creditors, including dissenting financial creditors. Section 30(2)(b) of the code ensures that the dissenting creditors receive an amount that is not less than what they are entitled to after the liquidation. Furthermore, Regulation 38 of the CIRP Regulations lays down mandatory contents of the resolution plan, and earlier provided that the dissenting creditors should always be paid in priority to those who voted in favor.

This position has been further strengthened by the fourth amendment, which now explicitly provides that in resolution plans involving staged payments, dissenting financial creditors must be paid pro-rata and in priority at each stage over other creditors. The amendment is also in accordance with the recent ruling of the National Company Law Appellate Tribunal in RBL Bank v. Sical Logistics Limited, where the court held that the dissenting financial creditors are entitled to receive payments on a pro-rata basis and not merely the liquidation value and must be paid before other creditors. Hence, this fourth amendment strengthens the legal framework protecting dissenting creditors and aligns the regulatory provisions with judicial interpretation, reinforcing the principles of equitable distribution under the code’s waterfall mechanism. 

Asset-wise Resolution

In the extant regime, resolution professionals (RPs) were first required per Regulation 36B(6A) of the CIRP Regulations to invite expressions of interest for the corporate debtor entity as a whole. Where no interest was received for such an arrangement, RPs were then allowed to invite interest for individual assets of the corporate debtor. This requirement naturally became an encumbrance to speedier asset resolution, as interests usually do not align such that buying the entirety of a business is lucrative for individual bidders. Breaking the business up into parts, on the other hand, is much more likely to lead to interest from a combination of bidders. It allows businesses engaged in various sectors to be broken up into smaller businesses, or even stripped down to their valuable assets, that may cater to the needs of businesses that specialize in a specific sector. 

Hence, vide the amendment, Regulation 36B(6A) has been omitted and a new Regulation 36A(1A) has been inserted. This allows RPs to invite interest for the corporate debtor entity as a whole, as well as interest for specific parts of the same. This is in furtherance of the spirit of the IBC read with Regulation 37, which envisions flexibility in choosing resolution plans. This flexibility was initially clarified in the 32nd Report of the Standing Committee on Finance, which discussed the barriers to the implementation of IBC. One such barrier that was addressed was removing ambiguity in allowing partial sales, and so Regulation 36A(1A) flows from the same line of thought. Point 8 of the Discussion Paper points to the commercial wisdom underpinning this change. Valuable segments of the business concerned may lose their value over time, leading to situations where recoverability suffers on the whole.

New Framework for Submission of Resolution Plans

Courts in India have time and again upheld the supremacy of the CoC commercial wisdom when evaluating and choosing the resolution plan. As a non-justiciable right, the entire resolution process hinges on the process of selection of the resolution plan being fair and just. Regulation 39 lays down the procedure for approval of resolution plans. In the extant regime, only those plans which were deemed to be compliant with all the applicable statutory requirements were to be submitted per the erstwhile Regulation 39(2). This has been changed via the amendment, wherein the details of “non-compliant plans” are also to be submitted. This must also be accompanied with the recorded reasons for the plan being deemed non-compliant by the resolution professional. Eventually, however, only those plans that are compliant with the statutory requirements will be considered by the CoC, per the new Regulation 39(3)(a).

While intuitively this may seem like an unnecessary additional burden on the process and its efficiency, it is warranted by the current statutory regime for submission of resolution plans. Section 25(2)(i) and Section 30(3) of the IBC both envisage that all plans be placed before the CoC. A bare reading of Section 30(3) does state that such resolution plans which confirm the conditions referred to in sub-section (2) (i.e., Section 30(2) of the IBC) are to be placed before the CoC, which was then supported by the previous version of Regulation 39(2). In the view of the IBBI, however, if there is to be elimination of plans on the basis of non-compliance, the same must be done in a manner that is transparent, i.e., with recorded reasons that the CoC can evaluate. This also creates a situation where the CoC can evaluate plans that may have had valuable elements worth considering that would not have been considered earlier due to said non-compliance. This process should also be straightforward, since Section 30(2) of the IBC provides clearly the checklist for compliant resolution plans. With the knowledge that all resolution plans have at least once been evaluated, it is expected that frivolous litigation from disgruntled applicants against resolution professionals will reduce.

Conclusion

The philosophy underpinning most of these major changes is quite clear. The IBBI has realized the value of market-driven resolution which it has effectively pivoted towards. The timing of the notification of these amendments must also be appreciated. India is notoriously a slow insolvency jurisdiction, and such perceptions can seriously damage credit availability in markets. Coupled with the recent Bhushan Power and Steel decision, the regulators clearly sensed the need for reforms to regain investor confidence. 

For creditors across markets, inclusiveness in the resolution process is key for confidence in the process. This is even more crucial for dissenting creditors. Measures towards enhancing transparency and efficiency that also provide technocratic innovation usually make for good policy, which is the case here. Predictability is a key tenet for investor confidence, and that can only be enhanced by a continued focus on transparency. An insolvency regime should always aim to provide a variety of tools to key stakeholders. Keeping these principles in mind, IBBI has made strides in enhancing our insolvency ecosystem.