IBC (Amendment), 2026 Series – VI | An Overview of the CoC’s Evolving (and Expanding) Role

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – expands role of the Committee of Creditors (‘CoC’) in the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The most notable expansion is that the CoC will oversee liquidation of the corporate debtor. This is in addition to the CoC’s existing responsibility to oversee the Corporate Insolvency Resolution Process (CIRP). Further, while the IBC Act, 2026 does not add a specific provision to this effect, it also does not detract from the Supreme Court’s observations in Kalyani Transco v M/S Bhushan Power and Steel Ltd and Others (‘Bhushan Steel case’) where it was held that the CoC will continue to exist until the resolution plan is implemented. Thus, the CoC will play a role even at the stage of implementation of a resolution plan.  

The IBC Act, 2026 apart from introducing additional responsibilities for the CoC also introduces one notable obligation. Hereon, the CoC is mandated to record reasons for its approval of the resolution plan under the amended Section 30(4). But curiously, while the CoC has power to recommend liquidation before confirmation of a resolution plan under Section 33(2). This decision to liquidate need not be accompanied by recording of reasons. Parity in both provisions would have been ideal. While recording reasons of approval is not, per se, an onerous obligation it is a step in the right direction. Recorded reasons will ensure transparency in decision making by the CoC. In my view, it will enhance trust in CIRP especially of the unsuccessful resolution applicants. Though courts will have to be careful to not use the recorded reasons to – directly or indirectly – judicially review commercial wisdom of the CoC. Judicial remit must remain limited to examining the CoC’s decisions on the touchstone of legality. 

The CoC – since inception – was envisaged as a central actor in CIRP. The IBC Act, 2026 preserves original design of the IBC, but underlines the CoC’s pre-eminent role by assigning it additional responsibilities. This article examines the CoC’s expanded role after the IBC Act, 2026 and various implications that arise from its expanded role. Given the CoC’s multi-faceted role, there are various strands of its working that can be elaborated on, but in the interest of brevity and coherence I’ve chosen only two strands in this article: firstly, the CoC’s obligation to provide reasons for approval of a resolution plan; secondly, the CoC’s power to oversee liquidation of the corporate debtor. 

Admittedly, the CoC will also decide if CIRP should be restored and will also have a role – though not clearly delineated – in implementation of the resolution plan. But I’ve examined both these aspects separately in my previous post here and here. So, I will steer clear of both these aspects in this article.   

The CoC Must Provide Reasons for Approval of a Resolution Plan 

The IBC Act, 2026 amends Section 30(4) which now states that:

The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, and record reasons for its approval, after considering its feasibility and viability …. (emphasis added)

As emphasized, the IBC Act, 2026 has added the phrase ‘and record reasons for its approval’. This amendment was not proposed in the IBC (Amendment) Bill, 2025 and neither does it find place in Report of the Select Committee on the IBC (Amendment) Bill, 2025 (‘Select Committee Report’). Thus, there are no reasons on record as to why the CoC has been mandated to record reasons for its approval of a resolution plan. One possible deduction is that Section 30(4) was amended to improve transparency in the CoC’s decision making. A normative reason is that the IBC’s design is premised on commercial wisdom of the CoC. The CoC is expected to utilize its commercial expertise and take decisions that secure the collective interest of all stakeholders. Thus, mandating the CoC to record reasons for its decisions ensures that the IBC’s premise and expectations of all stakeholders are met and the CoC does not use commercial wisdom as an opaque curtain to prevent accountability of its decisions.      

The more proximate reason for the above amendment could be some judicial precedents where the CoC has been specifically mandated to record reasons for its decisions. The most notable case in this respect is Elegna Co-op Housing and Commercial Society Ltd v Edelweiss Asset Reconstruction Company (‘Elegna Co-op Housing case’) where the Supreme Court approved the NCLAT’s order directing the CoC to record reasons. The NCLAT had observed that while commercial wisdom of the CoC is not amenable to judicial review, it carries a ‘corresponding duty of responsibility.’ And mandated the CoC to record cogent reasons when it took a non-routine or an extraordinary decision. The NCLAT’s observations were approved by the Supreme Court without any change. While the NCLAT waded into regulatory domain by mandating the CoC to record reasons despite no statutory mandate. However, the NCLAT kept its intrusion limited by mandating recording of reasons only for ‘non-routine’ or ‘extraordinary’ decisions. Amendment to Section 30(4) has created a broader obligation for the CoC to record reasons for its approval and is not limited to only extraordinary decisions.     

The statutory mandate to record reasons under Section 30(4) is certainly reconcilable with the doctrine of commercial wisdom of the CoC. The doctrine of commercial wisdom and non-justiciability of the CoC’s decisions apart from attributing business expertise to the CoC also presumes that it will act in a bona fide manner and not take arbitrary decisions. Mandating the CoC to state the reasons for its decisions is a welcome step especially in wake of some recent developments where unsuccessful resolution applicants have challenged rejection of their resolution plans and cast aspersions on the CoC’s intent and decision making. And without recorded reasons it is difficult to know or hold the CoC accountable lending its entire decision making process an unnecessary mystical quality. Finally, though amendment to Section 30(4) is a welcome step, a note of caution is needed. Courts in scrutinizing reasons for the CoC’s decisions, should be careful to not wade into territory of commercial wisdom of the CoC. While the lines between commercial wisdom of the CoC and legality of its decisions are clear in abstract, wherein only latter are subject to judicial review. However, overlaps between commercial and legal aspects can blur in certain situations. Respecting the distinction while facilitating transparency in CIRP is crucial.   

Supervising Liquidation: Streamlining Process and Ensuring Continuity from CIRP 

The IBC Act, 2026 amends Section 35(2), which now states that:

The committee of creditors shall supervise the conduct of the liquidation process by the liquidator under Chapter III in such manner as may be specified.

The CoC constituted during CIRP will thus now have an extended role in the liquidation process. The CoC will supervise conduct of the liquidator and guide it on all commercial matters. Broadly, the CoC’s role in liquidation is akin to its role vis-à-vis the resolution professional during CIRP but a direct comparison maybe pre-mature as various details about roles of both entities in liquidation are unknown. For now, to strengthen the CoC’s role in the liquidation process and its supervision of the liquidator two crucial changes are worth highlighting: 

Firstly, Section 34(4) states that an insolvency resolution professional appointed as resolution professional for CIRP ‘shall not be appointed’ or replaced as the liquidator for liquidation process of the corporate debtor. Section 34, in its previous draft in the IBC (Amendment) Bill, 2025 envisaged that the resolution professional’s appointment as a liquidator shall not be automatic and needs to be approved by the CoC. However, Section 34(4) as finally amended by the IBC Act, 2026 disqualifies a resolution professional from being appointed as a liquidator altogether. The Select Committee Report suggests that various stakeholders had a valid concern that a resolution professional has a ‘perverse incentive’ to favor liquidation over resolution. Since the liquidator gets a percentage of liquidation estate as the liquidator fee. Thus, the Select Committee recommended amendment of Section 34 to state that a resolution professional will be disqualified from being appointed as a liquidator.    

Secondly, Section 34A empowers the CoC to replace the liquidator by a vote of not less than sixty-six per cent of the voting share. The CoC must believe the liquidator appointed under Section 34 ‘is required to be replaced.’ The CoC need not provide any specific grounds for removal and replacement of the liquidator. It is unclear if the CoC’s decision to replace a liquidator can be challenged in the NCLT or not. Or will it be swept under the doctrine of commercial wisdom. 

Nonetheless, Section 34(4) read with Section 34A ensures that liquidator will be someone who was not involved in CIRP of the corporate debtor. And the liquidator so appointed can be replaced by the CoC if it deems fit. The above changes are to ensure that the liquidator’s incentives are not improperly aligned to secure a higher remuneration. And since the liquidator will be a person not involved in CIRP, it will presumably provide the CoC immense scope and greater leverage to guide the liquidator. And, perhaps, retain the balance of power in its favor.        

The IBC Act, 2026 simultaneously favors continuity and disjuncture in liquidation of the corporate debtor. It favors continuity by empowering the CoC to supervise liquidation, which will allow it to apply the learnings from CIRP to liquidation and hopefully maximize value of the corporate debtor’s assets in the entire process. The IBC Act, 2026 favors disjuncture by requiring that a liquidator shall not be a resolution professional involved in CIRP. And to maintain balance between continuity and disjuncture from CIRP, the IBC Act, 2026 has made some additional changes. For example, the IBC Act, 2026 amends Section 35(1)(a) to state that the liquidator shall maintain an updated list of creditors. While previously, the liquidator was required to ‘verify claims of all the creditors’ which would have involved the liquidator initiating the process of verifying claims; a process already undertaken and completed by the resolution professional during CIRP. As the Select Committee noted, this change:

… involves streamlining the claims process and formally extending the role of the Committee of Creditors (CoC) to supervise the liquidation. This streamlined approach is intended to avoid repetition of activities conducted during CIRP and expedite the liquidation process. (para 23.6)

Thus, amendments to provisions relating to liquidation are a mix of ensuring continuity and mandating the need for fresh personnel. But overall objective seems to be to streamline the entire process and ensure that liquidation and CIRP are not treated completely independent processes. And some work completed during CIRP can be utilized to expedite liquidation with the larger objective of maximizing the corporate debtor’s assets.  

Some stakeholders expressed valid concerns to the Select Committee about the CoC’s powers vis-à-vis the liquidator and that there was uncertainty as to the role of each entity. While Chapter II – dealing with CIRP – delineates the powers and role of the resolution professional in detail especially which decisions require prior approval of the CoC and which can be undertaken by the resolution professional independently. A similar detailed statutory prescription for roles of the liquidator and the CoC is amiss in Chapter III relating to liquidation process despite amendments to Section 34 and insertion of Section 34A. The Select Committee has relied on the assurance of the Ministry of Corporate Affairs that concerns of the stakeholders about the CoC’s powers in relation to liquidator will be addressed, but details – for now – are sparse.  

Finally, Section 33(2) has also been amended. A proviso has been added to provide statutory basis for the CoC’s powers to directly dissolve a corporate debtor without confirmation of a resolution plan. Previously, even though Section 33(2) did not expressly empower the CoC to directly dissolve the corporate debtor, the NCLT in the matter of Synew Steel Private Limited permitted the CoC to take such a decision. The NCLT’s rationale was that since all assets of the corporate debtor had been realized, liquidation will serve no useful purpose, and it is deemed to have been completed. The Proviso though states that the CoC’s decision to dissolve a corporate debtor will have to comply with specified conditions. Presumably, the intent is to include some safeguards to consider the corporate debtor’s interests, and the relevant conditions may be included in the CIRP Regulations. While dissolution typically follows liquidation as per Section 54. However, where there are no meaningful or recoverable assets, empowering the CoC to directly dissolve the corporate debtor is practical as it may prevent a cumbersome CIRP and liquidation process.   

Notably, there is no other change in Section 33(2) wherein the CoC can directly decide to liquidate a corporate debtor before confirmation of a resolution plan. Implying that the CoC is not bound to record reasons for such a decision. While the CoC is – under the amended Section 30(4) – required to record reasons for approval of a resolution plan no similar obligation has been introduced in Section 33(2). This asymmetry is hard to understand. The Supreme Court in Elegna Co-op Housing case approved the NCLAT’s observations which had mandated the CoC to:

Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives, in consonance with the objective of the Code.

While the directions were specific to facts of the case which involved stakes of real estate allottees, need for the CoC to record reasons for liquidation is hard to dispute. Under Section 33(2) where the CoC has been empowered to decide directly in favor of liquidation, recording reasons for it may go a long way in ensuring transparency. And for stakeholders to understand the reasons for not completing CIRP. In fact, a decision to liquidate is at odds with the IBC’s objectives which aims to rescue the corporate debtor. In such a scenario, recorded reasons should reflect as to why the IBC’s stated aims are being sacrificed in favor of liquidation.      

The CoC’s power to directly liquidate a corporate debtor instead of completing CIRP is drastic as it may lead to death of the corporate debtor. And, yet the CoC need not provide reasons for such a decision. It is likely, that the CoC’s decision to liquidate a corporate debtor will be based – almost exclusively – on commercial considerations and will be outside the purview of judicial review. However, mandating the CoC to record its reasons would have been ideal and would have ensured parity in its role in CIRP as well as liquidation.  

CoC – An Independent Entity with Immense Responsibility

NCLAT in CoC of Think and Learn Pvt Ltd v Riju Ravindran held that the CoC possesses legal character of a juristic person. And it can sue and be sued in its own name. NCLAT observed that while the financial creditors in the CoC have a common objective, they do not have an identical interest since each one of them pursues their interest as per the independent contract they signed with the corporate debtor. NCLAT defined the CoC’s role in following words: 

Under the scheme of the IBC, the CoC is conceived as a statutory contrivance, an engine, that runs the entire insolvency resolution process. In another sense CoC is also required to be a statutory conscience keeper, as the responsibility it is enjoined with travels far beyond its preference to protect the financial interest of the members constituting it, since it is also required to secure the interest of every creditor of the corporate debtor besides the corporate debtor itself. (para 8.1) (emphasis added) 

In upholding right of the CoC to litigate in its own name, NCLAT underlined that it was a statutory body assigned to take business decisions founded on ground realities which bind all stakeholders. The IBC Act, 2026 has further highlighted and enhanced centrality of the CoC’s role and wide-ranging impact of its business decisions. And the IBC Act, 2026, contemporaneously, has attempted to enhance transparency in the CoC’s decision-making by mandating it to provide reasons for its decision to approve a resolution plan. It may not be an overstatement to conclude that the CoC’s conduct, and decisions will determine the fate and trajectory of CIRP, and in some cases, a timely liquidation of the corporate debtor. An immense responsibility. Thus, once CIRP is triggered, the CoC will expedite or delay the corporate debtor’s journey to the grave, metaphorically or literally.  

IBC (Amendment), 2026 Series – V | Ghost of the Rainbow Paper Case: The Parliament Buries an Unnatural Interpretation 

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Introduction

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – amends Section 53 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The amendment is, largely, in response to the Supreme Court’s decision in State Tax Officer v Rainbow Papers Limited (‘Rainbow Papers case’). The Supreme Court in the Rainbow Papers case held that government or a governmental authority could be considered a secured creditor under the IBC. Immediate effect of the Rainbow Papers case was that the government could claim a higher rank as a secured creditor under Section 53(1)(b)(ii) instead of claiming amounts alongside unsecured creditors under Section 53(1)(e). The Rainbow Papers case detracted from the legislative intent to place government at par with unsecured creditors.   

The legal position got further entangled when subsequently in Paschimanchal Vidyut Vitran Nigam Ltd v Raman Ispat Private Limited & Ors (‘Raman Ispat case’) the Supreme Court confined decision in the Rainbow Papers case to facts of that case alone. And, also commented that the Supreme Court in the Rainbow Papers case did not adequately examine Section 53 and the waterfall mechanism. This was followed by a review petition where the Supreme Court refused to consider its observations in the Rainbow Papers case. And instead took exception to comments made in the Raman Ispat case. The Supreme Court questioned propriety of a co-ordinate bench commenting on judgment of another bench instead of referring the case to a larger bench and observed:

If a Bench does not accept as correct the decision on a question of law of another Bench of equal strength, the only proper course to adopt would be to refer the matter to the larger Bench, for authoritative decision, otherwise the law would be thrown into the state of uncertainty by reason of conflicting decisions. (para 20)

Unsurprisingly, the law was ‘thrown’ into uncertainty after the above set of events.  

The Rainbow Papers case, the Raman Ispat case, and the Supreme Court’s observations in the review petitions meant that position of government as secured creditor was both valid and under scrutiny. And certainty was an enemy. The Rainbow Papers case could be relied on as a binding precedent or plausibly be confined only to facts of the particular case depending on proclivities of the stakeholders involved. It is to rectify this unwelcome legal position that the IBC Act, 2026 inserted an Explanation to Section 53(1)(e) to clarify that amounts due to the Central Government and the State Government shall be distributed under that sub-clause. Thereby, placing the government at par with unsecured creditors and undoing ratio of the Rainbow Papers case. However, I conclude that the amendment to Section 53 may not completely eliminate effect of the Rainbow Papers case. I suggest that one of the Supreme Court’s observations in the Rainbow Papers case: tax claims should be necessarily part of the resolution plan, still survives the IBC Act, 2026. 

In this article, I provide a descriptive context and background that necessitated the amendment to Section 53 effectuated by the IBC Act, 2026. I begin by elaborating on the rationale that underpinned the Rainbow Papers case, the discomforts it caused, and limits of the amendment made to Section 53 by the IBC Act, 2026.        

The Rainbow Papers Case and its Aftermath 

In the Rainbow Papers case, the Supreme Court had to answer the question that whether Section 53 of the IBC overrides Section 48 of the Gujarat Value Added Tax Act, 2003 (‘GVAT Act, 2003’). The latter stated that: 

48. Tax to be first charge on property.— 

Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person.

Similarly, Section 53 of the IBC begins with a non-obstante clause and provides for distribution of assets ‘Notwithstanding anything to the contrary contained in any law …’.

To begin with, the Supreme Court condoned delay by the tax department in filing its claim by reasoning that timelines under the IBC are directory. And even if the claim was not filed before the deadline announced by the resolution professional, it was incumbent on the resolution professional to revise the admitted claims once he came across additional information – relating to outstanding tax claims – warranting such revision. 

The second issue was about the States’ status as a secured creditor. The State’s argument was that definition of secured creditor under Section 3(30) read with definition of security interest under Section 3(31) was wide enough to include a statutory charge such as under Section 48 of the GVAT Act, 2003. The Supreme Court accepted the State’s argument and held that the latter was not contrary to the IBC and:

Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority. (para 57) 

And thus, the Supreme Court concluded that debts owed to the State under the GVAT Act, 2003 were to rank equally with other debts owed to a secured creditor under Section 53(1)(b)(ii). The Supreme Court’s conclusion was based on the definition of security under Section 3(31) which does not exclude a statutory charge as well as the definition of secured creditor which does not exclude the State. The Supreme Court was also influenced by the fact that the impugned resolution plan completely ignored tax dues owed by the corporate debtor to the State and it questioned the validity of a resolution plan that did not incorporate tax dues.     

In some of the subsequent decisions, the Rainbow Papers case was sought to be limited to its facts. For example, in Department of State Tax v Ashish Chhawchharia Resolution Professional for Jet Airways (India) Ltd & Anr (October 2022), the National Company Law Appellate Tribunal (‘NCLAT) had to engage with the question if Department of State Tax was a secured creditor. The NCLAT examined Section 82 of the Maharashtra GST Act, 2017 which provided that the tax payable shall be first charge on the property of taxpayer, except as provided in the IBC. Thus, in view of the specific exception wherein the IBC triumphed the Maharashtra GST Act, 2017 the NCLAT found the Rainbow Papers case to be inapplicable in the impugned case.      

The most notable example of limiting effect of the Rainbow Papers case only to facts of that case was in the Raman Ispat case. In this case, Paschimanchal Vidyut Vitran Nigam Limited (‘PVVNL’) relied on non-obstante clause in the Electricity Act, 2003, relevant clauses of agreement entered to between PVVNL and the corporate debtor, and the Rainbow Papers case to claim priority in liquidation proceedings. PVVNL claimed that it was a statutory corporation and dues owed to it amounted to dues owed to the State. The Supreme Court disallowed its claim and  also expressed its disagreement with the Rainbow Papers case by observing that: 

The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. (para 49)

The Supreme Court in the Raman Ispat case further held that observations in the Rainbow Paper case must be confined to facts of that case. Thus, creating an uncertain legal position wherein two benches of the Supreme Court – of equal strength – took diametrically opposite positions in so far priority to be accorded to government dues under Section 53. In the absence of a reference to a larger bench, the only plausible way of reconciling the two judgments was to deduce that the Rainbow Papers case was be applicable only in cases where provisions like Section 48, GVAT Act, 2003 were applicable. While in other cases the Raman Ispat case had a more persuasive value. Irrespective of this reconciliation, the legal situation was far from satisfactory.     

Limitations of the Rainbow Papers Case

The dissatisfactory legal situation was rooted in the Supreme Court’s reasoning in the Rainbow Papers case which suffered from a few obvious limitations. To begin with, one can argue that since Section 53(1)(e) was a separate category for the amounts due to the Central Government and the State Government, the legislative intent was straightforward: all dues owed to the government were to be classified in that category. And while the definition of security interest and secured creditor did not explicitly exclude the government, reliance on definitions was not conclusive that the government can be a secured creditor. The relevant definitions should have ideally been read with Section 53, which would have pointed towards the government not being a secured creditor. A harmonious interpretation of the relevant statutory definitions with the design of waterfall mechanism under Section 53 was missing from the Rainbow Papers case. 

Another aspect that the Supreme Court overlooked in the Rainbow Papers case was the distinction between a voluntary charge and a statutory charge. Generally, a secured creditor acquires its status because of a voluntary commercial transaction with the corporate debtor. However, the government – especially in the Rainbow Papers case – was claiming status of a secured creditor based on a statutory provision. Equating the government to a secured creditor based on a statutory provision removes element of voluntariness of the corporate debtor and provides the government an easy way to claim status of a secured creditor by adopting similar provisions in existing and future laws. Equating an involuntary charge on property with a charge created by voluntary transaction –disrupted one of the IBC’s aims. The aim, in this context, was to give priority to private secured creditors who undertook the risk of lending capital to the corporate debtor. The waterfall mechanism under Section 53 recognizes the risk undertaken to incentivize similar transactions in the future and help development of the credit market.   

Also, another one of the IBC’s aims, as mentioned in the Preamble is to alter ‘priority of payment of Government dues.’ The lowering of priority of the government’s dues is justifiable on various counts with the primary one being that the government has other avenues to recover money including levy of taxes from financial robust corporates among other taxpayers. Relevance of the IBC’s aim of lowering ranking of the government dues was missing in the Rainbow Papers judgment. And a purposive interpretation of Section 53 would have led the Supreme Court to the conclusion that the government cannot rank high as a secured creditor under Section 53(1)(b)(ii) but should remain confined to Section 53(1)(e) as an unsecured creditor.  

Overall, the Rainbow Papers had weak legs to stand on. The Supreme Court by focusing only on the definition of security interest and secured creditor did not do ample justice to other relevant provisions of the IBC. And, resultantly upset important aims of the IBC, created disharmony amongst the various provisions including between the various categories enumerated for waterfall mechanism under Section 53.  

The IBC Act, 2026 Amends Section 53 

To rectify the above legal position, the IBC Act, 2026 inserts an Explanation to Section 53(1)(e)(i) which states that: 

For the removal of doubts, it is hereby clarified that any amount, whether or not a security interest is created to secure such amount by an act of two or more parties or merely by operation of law, due to the Central Government and the State Government, in respect of the whole or any part of the period of two years preceding the liquidation commencement date, shall be distributed under this sub-clause and any remaining amount, whether or not such security interest is created to secure the amount, due to the Central Government and the State Government, shall be distributed under clause (f);”; (emphasis added)

The Explanation intends to clarify that a security interest created through a voluntary contractual arrangement or by a statutory provision stands on the same footing in so far as the government is concerned. Irrespective of the mode, dues to the Central Government and the State Government are to be paid under Section 53(1)(e)(i) or Section 53(f). But, not under Section 53(1)(b)(ii) as interpreted in the Rainbow Papers case. 

The Rainbow Papers case unleased a flurry of opinions if the ‘crown debt’ should be given priority over private creditors. There are circumstances where the government’s claims can be accorded priority, but my view is that it should flow from the statutory provisions and not judicial innovation. Amendment via the IBC Act, 2026 clearly re-establishes that the Parliament does not wish to accord priority to the government’s claims. The IBC Act, 2026 clarifies that even if relevant statutory provisions provide that the government shall have first charge and thereby status of a secured creditor vis-à-vis unpaid debts, the ranking of Section 53 shall determine the order of payment. And not any other relevant statutory provision. Thus, irrespective if the provision of tax law or otherwise results in the government being a secured operational creditor, it cannot be placed alongside other private secured creditors under Section 53(1)(b)(ii). The government’s dues are to be paid under Section 53(1)(e).    

Sliver of the Rainbow Papers Case May Survive  

If we confine ourselves to one aspect of the Rainbow Papers case discussed above, then the Explanation added by the IBC Act, 2026 undoubtedly negates its ratio. However, in the Rainbow Papers case, the Supreme Court also made another crucial observation: legality of an approved resolution plan. The Supreme Court observed that the NCLT should not approve a resolution plan under Section 31(2) that did not conform to requirements mentioned in Section 31(1). And, concluded that: 

If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan. (para 52)

The Supreme Court clarified that under Section 31 onus is on the NCLT to examine if a resolution plan meets the requirements enlisted in Section 30(2). The relevant parameter under Section 30(2)(b) – in respect of government’s dues – is that a resolution plan must provide for payment of debts of operational creditors. However, if an operational creditor fails to submit their claim to the resolution professional, it stands to reason that their claim is extinguished on approval of the resolution plan. However, implication of the Supreme Court’s above observations in the Rainbow Papers case, in my view, is that unless statutory demands such as tax dues are necessarily incorporated in the resolution plan the NCLT must decline to approve it. Irrespective of whether such claims were submitted within the deadline to the resolution professional. However, amendments to Section 30 and Section 53 via the IBC Act, 2026 do not address this aspect of the Rainbow Papers case. However, one could argue that the contemporaneous amendments made to Section 31 – to underline scope of the clean slate doctrine – do negate the above observation. But, given the history of uncertainty about scope of the clean slate doctrine, one can never be sure. In my view, amendment to Section 53 read with amendment to Section 31 do effectively dilute the above observation made in the Rainbow Papers case. But, there is still possibility of a sliver of ratio to survive by making a case that a resolution plan that does not contain pending tax claims cannot be legally approved by the NCLT under Section 31.  

To conclude, amendments to the IBC via the IBC Act, 2026 convincingly negate ratio of the Rainbow Papers case in so far as it relates to the interpretation of waterfall mechanism under Section 53. And ensures that the government claims it tax dues only under Section 53(1)(e)(i). It is a welcome amendment and ensures that the chaos and uncertainty unleased by the Rainbow Papers case is tamed. However, a statutory amendment is always subject to another judicial ‘innovation’ that frequently erupts in the IBC landscape. Though the scope for such an innovation has been sufficiently narrowed by the IBC Act, 2026.      

IBC (Amendment), 2026 Series – IV | The Clean Slate Doctrine: Another Attempt at Laying Down the Law 

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – amends the Insolvency and Bankruptcy Code, 2016 (‘IBC’) to underline scope of the clean slate doctrine. IBC Act, 2026 is the second attempt to amend Section 31 of the IBC and ensure that once the National Company Law Tribunal (‘NCLT’) approves the resolution plan, it is final and binding on all stakeholders including all statutory authorities. The clean slate doctrine, as encoded in Section 31 has various aims; the primary one is to provide certainty to the successful resolution applicant that all claims not part of the approved resolution plan are extinguished. And the successful resolution applicant can take over and run the corporate debtor without the worry of discharging extraneous liabilities. However, various creditors – including statutory authorities – frequently file claims arguing that they are not bound by the approved resolution plan. The statutory authorities rely on various arguments: they weren’t issued proper notices by the resolution professional, certain claims such as taxes remain unaffected by Corporate Insolvency Resolution Process (‘CIRP’) of the IBC or that they are not bound by the resolution plan since they weren’t part of CIRP. And these arguments have led to mixed results undermining lofty aims of the clean slate doctrine.   

Section 31 originally stated that a resolution plan was binding on guarantors and all stakeholders. Ideally, the latter term – ‘all stakeholders’ – should have sufficed to bind the statutory authorities. However, persistent claims filed by statutory authorities even after approval of the resolution plan prevented the clean slate doctrine from providing complete certainty to the successful resolution applicant. Thus, in 2019, Section 31 was amended to expressly state that an approved resolution plan was binding on the Central Government, State Government or a local authority to whom statutory dues are owed by the corporate debtor. However, it proved insufficient and the IBC Act, 2026 further amends Section 31 on similar lines to clarify the effect of an approved resolution plan and scope of the clean slate doctrine. 

This article provides a descriptive account of the jurisprudence that has emerged under Section 31, conceptual clarity that the courts have tried to introduce, and the pockets of uncertainty that survived the amendment to Section 31 made in 2019. Specifically, uncertainty about claims under tax laws and pending arbitration proceedings. This article thereafter elaborates on the additions made to Section 31 via the IBC Act, 2026 and claims that while the amendment introduces additional clarity and further demarcates scope of the clean slate doctrine, some pending issues may only be resolved through judicial interpretation. Specifically, issues relating to tax dues owed by the corporate debtor and unjust enrichment.       

I. Preventing a Hydra Head from Popping Up 

In CoC of Essar Steel India Ltd v Satish Kumar Gupta & Ors (‘Essar Steel case’), the Supreme Court inter alia addressed challenge to the approved resolution plan by erstwhile promoters who were personal guarantors of loans to the corporate debtor. The resolution plan – as approved by the NCLT – extinguished the right of subrogation of guarantors in respect of guarantees that had been invoked by financial creditors. The guarantors challenged the said clause and argued that since they were not part of the resolution plan submitted by the successful resolution applicant – ArcelorMittal – they cannot be bound by its terms. And that their right to subrogation survives irrespective of the terms of resolution plan. The Supreme Court cited State Bank of India v V. Ramakrishnan (‘SBI case’), to dismiss the promoters claim. The SBI case was a judgment in the context of moratorium in which the Supreme Court held that under Section 31, a resolution plan also binds the guarantors of corporate debtors. 

The Supreme Court relied on observations in the SBI case to set aside observations of the National Company Law Appellate Tribunal (‘NCLAT’). The NCLAT had observed that claims against corporate debtor that remained undecided, can be decided by appropriate forums even after approval of the resolution plan. The Supreme Court disagreed with the NCLAT’s directions and held that: 

A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. (para 67) (emphasis added) 

The Supreme Court, underlining the importance of certainty and finality of CIRP directed that all claims against the corporate debtor must be submitted to and decided by the resolution professional. Thus, a successful resolution applicant, at the time of approval of the resolution plan, can discharge outstanding liabilities of the corporate debtor and start on a ‘clean slate’. The Supreme Court’s observations were accurate not only in respect of the IBC’s aims but also correctly clarified the import of Section 31. As per Section 31, once the NCLT approves a resolution plan it was binding on the corporate debtor and its employees, members, creditors, ‘guarantors and other stakeholders involved in the resolution plan.’ 

II. Ghanashyam Mishra Case Underlines Effect of Section 31 vis-à-vis the State

The above-mentioned ratio of the Essar Steel case should have, ideally, sufficed to clarify legal effect of approval of a resolution plan vis-à-vis the State, including all statutory authorities. As the statutory authorities could reasonably be termed a ‘stakeholder’ in the resolution plan, even if they were not expressly mentioned in Section 31. However, the IBC was amended in 2019, to expressly clarify that the resolution plan was binding on various authorities of the State. In 2019, the following phrase was added in Section 31:  

… including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed … 

Statement of Reasons and Objects of the IBC (Amendment) Bill, 2019 mentioned that tax authorities were also bound by a resolution plan approved by the NCLT. Implying that the tax and other statutory authorities were refusing to accept that statutory dues – for example, outstanding tax payments – were also extinguished or altered as per terms of the resolution plan. The Supreme Court in Ghanashyam Mishra & Sons v Edelweiss Asset Reconstruction Co Ltd (Ghanashyam Mishra case) reiterated the import and rationale of Section 31 and the effect of the amendment made to Section 31 in 2019. Two questions that the Supreme Court had to answer in the Ghanashyam Mishra case were: (i) whether the Central Govt, State Govt or local authority were bound by the resolution plan approved by the NCLT under Section 31?; (ii) whether the Central Govt, State Govt or local authority can initiate proceedings against the corporate debtor in respect of dues not part of the resolution plan approved by the NCLT under Section 31? The Supreme Court answered first question in the affirmative and second question in the negative. 

The Supreme Court elaborated on the various steps in CIRP to underline that a resolution professional prepares an information memorandum to inform the resolution applicants about financials of the corporate debtor. The intent is that the resolution applicants submit resolution plans to satisfy the enlisted financial liabilities and ensure effective running of the corporate debtor. The Supreme Court’s three observations are pertinent: (a) dues arising under any law for the time being in force and payable to the Central Govt, State Govt, or local authority are operational debts, and any entity to whom a statutory dues are owed will be covered by the term ‘creditor’ under Section 31; (b) in the alternative, the Central Govt, State Govt or local authority will be covered by the phrase ‘other stakeholders’ under Section 31; (c) and this observation flowed from the first and second observation: the amendment of 2019 was only clarificatory in nature. The amendment of 2019 to Section 31 only made express what was already implied, i.e., the State and its various statutory authorities were also bound by the resolution plan once it is approved by the NCLT.    

The repeated resistance of statutory authorities such as the Revenue Department to be bound by terms of the resolution plan can – in my view – be attributed to two reasons. Firstly, oversight in submitting the outstanding claims/dues against the corporate debtor during CIRP. Secondly, an erroneous view that the statutory authorities are a distinct and standalone category. Both were understandable in initial few years of the IBC because comprehension about the scope and effect of CIRP was in a nascent stage. But, a continuing insistence, especially by the Revenue Department that outstanding tax dues cannot be reduced or extinguished by resolution plan approved under CIRP even after a decade of the IBC – and several judicial decisions – is inexcusable.  

However, the Essar Steel case and the Ghanashyam Mishra case cumulatively ensured that scope of the clean slate doctrine, interpretation of Section 31, the effect of amendment in 2019 were all clearly established. And these decisions reduced scope for arguments by statutory authorities that they weren’t bound by the resolution plan.          

III. Further Clarifications (and Confusions) 

The Supreme Court’s pronouncement in the Essar Steel case, the Ghanashyam Mishra case, as well as the SBI case – while reduced the scope for statutory authorities to pursue their claims after approval of a resolution plan – were not sufficient to clarify binding nature of an approved resolution plan. Lending finality to the resolution plan proved to be a recurrent difficulty. For example, in Electrosteel Limited v Ispat Carrier Private Limited, the Supreme Court had to clarify that an approved resolution plan extinguishes all previous claims including arbitration proceedings. And an arbitral award passed in respect of pre-CIRP claims but after approval of the resolution plan is null. However, in Ujaas Energy Ltd v West Bengal Power Development Corporation Ltd, the Supreme Court provided a limited relief in respect of pre-CIRP arbitration proceedings against the corporate debtor. The West Bengal Power Development Corporation had filed a counterclaim in respect of arbitration proceedings against the corporate debtor. Subsequently, CIRP was initiated against the corporate debtor. The Supreme Court observed that the resolution plan did not expressly reflect exclusion of the counterclaim and the resolution professional despite being aware of it did not take it into consideration while formulating the resolution plan. Based on facts of the case, the Supreme Court held that while the West Bengal Power Development Corporation cannot pursue its counterclaim as it stands extinguished, it can raise the plea of set-off by way of a defence. While the Supreme Court provided a limited relief based on facts of the case, the Ujaas Energy case exemplified that scope of the clean slate doctrine may require suitable tailoring in some fact situations. And complete clarity may not emerge from statutory provisions alone.  

A crucial site of inconsistency has been tax assessments of the corporate debtor. The Madras High Court in Dishnet Wireless Ltd v Assistant Commission of Income Tax (OSD) (‘Dishnet Wireless case’) observed that proceedings under Section 148, Income Tax Act, 1961 were pending before commencement of CIRP. But appropriate concessions from the Income Tax Department were not included in the final resolution plan. Nor was any notice issued to the Income Tax Department. The Madras High Court held that it was incumbent on the corporate debtor to serve proper notice to the Income Tax Department about CIRP. And thus, permitted continuation of the assessment proceedings even after approval of the resolution plan. But the Delhi High Court in M Tech Developers Pvt Ltd v National Faceless Assessment, Delhi & Anr (‘M Tech Developers case’) in the context of faceless assessment proceedings under Section 144B, Income Tax Act, 1961 held that: 

Any effort to assess, reassess or re-compute could tend to lean towards a re-computation of liabilities which otherwise stands freezed by virtue of the Resolution Plan having been approved. (para 8)

The Delhi High Court expressed its disagreement with the Madras High Court’s view expressed in the Dishnet Wireless case. The Delhi High Court in a few other cases, has taken a view that aligns with the M Tech Developers case, but overall the decisions are inconsistent. Militating against certainty that the clean slate doctrine intends to provide to resolution applicants under Section 31.  

Further, in Tata Steel Limited v State of UP, the Allahabad High Court disallowed assessment proceedings after approval of the resolution plan by relying on the Ghanashyam Mishra case. In appeal, the Supreme Court did not disagree with the Allahabad High Court but left open the issue of unjust enrichment. The issue of unjust enrichment, in this context, involves a determination if the tax collected/deducted by the corporate debtor can be made part of the resolution plan. Or will it have to be necessarily remitted to the Revenue Department. This question is pertinent for any indirect taxes collected or any tax deducted at source under the Income Tax Act, 2025 by the corporate debtor. If resolution plan is approved by the NCLT can such taxes collected by the corporate debtor – yet to be remitted to the State – be made part of the resolution plan? Or do they have to be necessarily set aside. The courts have not pronounced the final word on this issue, but my tentative view is that permitting taxes so collected to be part of the resolution plan may lead to unjust enrichment. And it may be advisable to keep such taxes outside the purview of resolution plan.       

IV. IBC Act, 2026 Lays Down the Law – Again 

The IBC Act, 2026 – partially in recognition of the some of the confusions that survived the 2019 amendment to Section 31 – attempts to again ring fence the approved resolution plan and place a statutory stamp on its finality. Section 31(6) – inserted via the IBC Act, 2026 – is worth extracting:

(6) Where the Adjudicating Authority approves the resolution plan under sub-section (1),––

(a) unless otherwise provided in the resolution plan, any claim, against the corporate debtor and its assets under any other law for the time being in force, prior to the date of approval, shall be extinguished; and

(b) no proceedings shall be continued or instituted against the corporate debtor or its assets on the basis of such claims, including proceedings for assessment of the claims.

The IBC Act, 2026 also inserts three Explanations to the above sub-section. Explanation 1 and Explanation 2 inserted further clarify that proceedings against promoters or a person in control or management shall be unaffected. Further, if a person had joint liability for payment of debt and such a person makes a payment after approval of the resolution plan then right to be indemnified of that person shall be extinguished. 

In view of the above, three additions to the clean slate doctrine – via the IBC Act, 2026 – are: 

(a) to prevent continuation or initiation of assessment proceedings against the corporate debtor after approval of the resolution plan. This restraint is evidently directed at restraining tax authorities. A plain interpretation suggests that the Delhi High Court’s view in M Tech Developers case has been endorsed. Whether the amendment is sufficient to deter the tax authorities, or a further nuance will be added by judicial interpretation remains to be seen. 

(b) a distinction is made between proceedings against promoters or persons in management or control of the corporate debtor and the corporate debtor itself. It is clarified that the clean slate doctrine is only applicable to claims against the corporate debtor and not to persons who managed or controlled the corporate debtor. This again underlines that the corporate debtor’s liabilities are frozen as per the resolution plan. And even the guarantor’s right of indemnification does not survive approval of the resolution plan.  

(c) in part to resolve the controversy that emerged in the Essar Steel case, prevents the guarantor or any person who has a joint liability to repay the corporate debtor’s debts to seek indemnification. 

In summation, one can make a persuasive case that the amendments to Section 31 in 2019 and 2026 – alongside various judicial precedents cited above – are enough to provide certainty and finality to a resolution plan. And claims not included in the resolution plan are extinguished once it is approved by the NCLT. An overwhelming no. of issues have been addressed by both the amendments of 2019 and 2026, but only tenacity of the tax authorities and complexity of fact situations will provide an answer if the IBC Act, 2026 has succeeded in clarifying scope of the clean slate doctrine.  

V. A Hopeful Future 

Section 31 – based on the amendments in 2019 and by the IBC Act, 2026 – provide an insight about the challenge of drafting provisions for the IBC. Until Section 31 was amended to clearly and expressly state that the statutory authorities were bound by the resolution plan, they refused to extinguish their claims against the corporate debtor. The first evidence of this was in 2019, wherein a specific phrase mentioning Central Govt, State Govt and local authorities had to be inserted in Section 31 to clarify that a resolution plan also binds statutory authorities. This was even though the terms ‘creditors’ and ‘other stakeholders’ clearly swept various statutory authorities under their scope and made them bound by the resolution plan. Amendments introduced by the IBC Act, 2026 are a further step in that direction: making express something that was implied in Section 31. For example, preventing the continuation or initiation of assessment proceedings against the corporate debtor. A restraint that should have been evident even after the amendment in 2019 but had to be spelled out expressly. Thus, if something has been implied, or has required judicial interpretation in Section 31, it has not had the desired effect. Legislative interventions have required scope of the clean slate doctrine to be spelled out expressly. 

The IBC Act, 2026 incorporates this lesson and attempts to provide finality to the resolution plan and spells out scope of the clean slate doctrine in express terms. Hopefully, this legislative intervention should provide sufficient deterrence to the statutory authorities to resist binding nature of an approved resolution plan. And get their pending claims incorporated in the resolution plan itself, in a timely and appropriate fashion. Respect for finality and binding nature of the resolution plan will go a long way in serving and achieving the IBC’s objectives.    

IBC (Amendment), 2026 Series – III | Restoring CIRP under the IBC: A New Portal Opens 

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) amends the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and empowers the National Company Law Tribunal (‘NCLT’) to restore Corporate Insolvency Resolution Process (‘CIRP’) before passing an order for liquidation of the corporate debtor. Previously, under Section 31(1) of the IBC, the NCLT could pass an order of liquidation if: (a) it did not receive a resolution plan within the stipulated time; or (b) if the NCLT rejected a resolution plan under Section 31 for failure to meet compliance requirements. Thus, if CIRP failed due to either of two reasons the NCLT’s only option was to order liquidation of the corporate debtor. The IBC Act, 2026 provides for  restoration of CIRP via insertion of sub-section (1A) to Section 33 which states that: 

Notwithstanding anything contained in sub-section (1), where the Adjudicating Authority is satisfied that the grounds mentioned in clause (a) or clause (b) of sub-section (1) of this section exist, it shall, before passing the liquidation order, consider an application made by the committee of creditors, in such manner and subject to such conditions as may be specified, by not less than sixty-six per cent. of the voting share, for restoring the corporate insolvency resolution process… (emphasis added)

The above sub-section substantially alters the IBC’s original design wherein on CIRP’s failure, liquidation of corporate debtor was the sole option. Even though Section 33(1B) states that an order for restoration of CIRP can be passed only once, the option of restoring CIRP accompanies its own set of challenges. Foremost, option of restoring CIRP creates possibility of ‘repeated loops.’ Until now, there is one notable precedent – Chitra Sharma and Ors v Union of India and Ors (‘Chitra Sharma case’) – wherein the Supreme Court restored CIRP in exercise of its powers under Article 142 of the Constitution. While the Chitra Sharma case is not squarely comparable to Section 33(1A), it provides context and reasons as to why in some cases CIRP can be restored.  

Accordingly, this article is divided into two parts: the first part provides relevant details about the Chitra Sharma case and reasons for the Supreme Court’s exceptional order of restoring CIRP; the second part catalogues some of the challenges that accompany introduction of Section 33(1A) and the consequences that may follow from such a legislative choice. This article concludes that while there are some persuasive reasons for restoring CIRP; for example, the corporate debtor retains value or if there is renewed interest from certain investors. However, overall functioning of the IBC – where time limits are frequently breached – does not lend much confidence that restoration of CIRP will meet its intended objectives of rescuing the corporate debtor in a timely fashion. In fact, the option of restoring CIRP may reduce the overall efficacy of CIRP.    

A Notable Instance for Restoring CIRP 

The most notable instance of restoring CIRP was in the Chitra Sharma case. Home buyers, in projects floated by Jaypee Infratech Ltd (‘JIL’), filed a writ petition before the Supreme Court seeking protection of their interests. Home buyers approached the Supreme Court because in CIRP against JIL, they were not allowed to file their claims either as financial or operational creditors. Because the IBC, as it existed then, did not recognize home buyers are stakeholders in CIRP. Home buyers challenged various provisions of the IBC wherein they were not recognized as a stakeholder in CIRP and requested the Supreme Court to protect their interests. 

The Supreme Court encountered a situation wherein no successful resolution applicant was found through CIRP. Thus, as per the IBC only other option was to order liquidation of JIL under Section 33. However, the Supreme Court noted that all stakeholders were of the view that liquidation of JIL will not ‘subserve the interests of the home buyers.’ Thus, the Supreme Court was faced with the task of balancing interests of home buyers and respecting discipline of the IBC. Latter demanded ordering a timely liquidation of JIL since CIRP had not yielded a successful resolution applicant. While serving interests of the home buyers meant opting for a solution which would provide them possession of their intended houses. It was in the backdrop of these facts that the Supreme Court in the Chitra Sharma case ordered that:

… the power under Article 142 should be utilised at the present stage for the limited purpose of recommencing the resolution process afresh from the stage of appointment of IRP by the order dated 9 August 2017 and resultantly renew the period which has been prescribed for the completion of the resolution process. (para 39) 

The Supreme Court’s main reason for restoring CIRP in the Chitra Sharma case was that in initial CIRP, home buyers did not have the status of a financial creditor under the IBC. And were unable to participate in CIRP. While in the intervening period, amendments to the IBC – specifically amendment to Section 5(8) – had accorded home buyers the status of financial creditors. Thus, the Supreme Court ordered restoration of CIRP and reasoned that reconstitution of the Committee of Creditors (CoC) as per amended provisions of the IBC will protect interests of home buyers as they will be able to participate in CIRP in their capacity of financial creditors. Another reason why the Supreme Court chose to restore CIRP was that the other options of providing another opportunity to erstwhile promoters of JIL or the Supreme Court appointing a committee to oversee the resolution process were not found to be viable. Overall, lack of any successful resolution applicant, intent to provide homes to home buyers, and a change in legal position of home buyers under the IBC cumulatively influenced the Supreme Court’s decision to restore CIRP. 

Until now, the Supreme Court’s decision in the Chitra Sharma case remains an exceptional decision because it mandated restoration of CIRP to complete justice. And such a remedy could only be provided by the Supreme Court in exercise of its powers under Article 142 of the Constitution. Neither the NCLT nor the NCLAT possessed the power to order restoration of CIRP under the IBC. Though ironically, the Supreme Court invoked discipline of the IBC to provide this remedy to the home buyers, even though the IBC did not envisage restoration of CIRP. Though this legal position has been altered by the IBC Act, 2026.      

Restoring CIRP: A Catalogue of Challenges and Consequences 

Firstly, Section 33(1A) opens possibility for the NCLT to delve into commercial aspects of CIRP. Under the IBC, the NCLT is expected to perform only a supervisory role while all commercial decisions are the CoC’s remit and non-justiciable. However, Section 33(1A) does not clearly earmark the NCLT’s remit and leaves door ajar for the NCLT to review commercial wisdom of the CoC. Three aspects of Section 33(1A) point towards this possibility: firstly, Section 33(1A) states that the NCLT ‘shall’ consider the CoC’s application for restoration and after its consideration it ‘may’ order restoration of CIRP; secondly, the CoC can only file an application for restoration before the NCLT if it is approved by sixty-six per cent of the votes; thirdly, Section 33(1A) merely states that the NCLT shall order restoration of CIRP in such manner and ‘subject to such conditions as may be specified’. Thus, we currently do not know of the conditions and factors that the NCLT needs to consider before ordering restoration of CIRP. 

The use of both ‘shall’ and ‘may’ at different places in Section 33(1A) indicates that the NCLT is bound to decide the CoC’s application but not obligated to order restoration of CIRP. Thus, if the NCLT rejects the CoC’s application for restoration it can amount to judicial review of commercial wisdom of the CoC. Because the CoC is required to vote in favor of restoration before seeking the NCLT’s approval. The CoC’s decision for restoration of CIRP is likely to be based on commercial considerations such as change in value of the corporate debtor, new market conditions, investor interest and other such similar factors. Even if one accepts that the doctrine of commercial wisdom is applicable to Section 33(1A) it implies that the NCLT shall examine the CoC’s decision of restoration of CIRP on the touchstone of legality. However, no specific parameters are prescribed for judicial review under Section 33(1A). If ‘subject to such conditions as may be prescribed’ implies that substantive parameters will be mentioned in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’), then it is not the ideal way to approach legislative drafting on such crucial issues. And if the CIRP Regulations will only prescribe procedural parameters, then scope for judicial review of commercial wisdom of the CoC remains open. To compare, under Section 31 the NCLT examines the CoC’s approval of a resolution plan, but the touchstone of judicial review is requirements specified in Section 30(2). Not only are those kinds of parameters currently absent from the IBC in relation to Section 33(1A); it is my view that prescribing a list of objective parameters may prove to be difficult in relation to restoration of CIRP. This is because restoration of CIRP is likely to be a fact-based commercial decision with few legalities involved. Perhaps, this is one reason no legal parameters have been included in Section 33(1A) and the Parliament has kicked the onus of identifying the relevant factors into domain of secondary legislation. Thus, once the CoC votes in favor of restoration of CIRP, the NCLT’s review of the CoC’s decision can wade into commercial wisdom and absence of statutory guardrails increases such a possibility.   

Further, Section 33(1A) impliedly endorses the idea that procedural mistakes, failure to meet timelines, and other related omissions during CIRP are curable defects. The mistakes, omissions, and delays are generally attributable to the CoC, resolution professionals, NCLT/NCLAT, and that certain legal aspects of the IBC are unclear. However, permitting restoration of CIRP signals that previous omissions or oversights in following the IBC’s procedures do not lead to the fatal result of liquidation. When there is scope to redo the entire CIRP, it does not incentivize the CoC and/or the resolution professional to adhere to all CIRP procedures and timelines scrupulously. I’ve argued in my previous post that the NCLT sending resolution plans back to the CoC for reconsideration prevents accountability for the latter’s inability to perform its statutory duty. Section 33(1A), in part, reinforces the CoC’s lack of accountability for its failure to meet the statutory obligations in pursuit of the IBC’s aim of rescuing the corporate debtor.  

While the Supreme Court, in CoC of Essar Steel India Ltd v Satish Kumar Gupta & Ors, has held that timelines under the IBC are directory. However, not adhering to timelines defeats the IBC’s purpose of preserving value of corporate debtor’s assets and the endeavor must be to respect the timelines.             By permitting restoration of CIRP under Section 33(1A), the timelines will undoubtedly get extended and corporate debtor’s assets may lose value. Admittedly, the choice for restoration involves a trade-off: rescuing the corporate debtor instead of liquidating it; but the cost of delayed liquidation if the restored CIRP also fails will be much higher as compared to a timely liquidation. The legislative choice seems to be clear: rescue of corporate debtor is preferred over a delay liquidation and probable loss of asset value.      

Further, most CIRPs under the IBC are besieged with the challenge of timely completion. The NCLT admitting a CIRP, approvals by the CoC, and subsequent approvals by the NCLT of a resolution plan, appeals before the NCLAT and the Supreme Court cumulatively add to delays in CIRP since each step is time consuming. And all the steps of CIRP are rarely completed within the one hundred- and eighty-days’ time prescribed under Section 12 of the IBC. In a scenario where delays are commonplace and CIRP continues for an extended time, creating an option for restoration of CIRP hardly invokes confidence that the restored CIRP will be completed in time. Section 33(1A)(b) states that a restored CIRP shall be completed within one hundred and twenty days. It is not far-fetched to presume that if the time under Section 12 is directory, then the time under Section 33(1A)(b) is also directory. And if the time under Section 12 is not respected in various CIRPs, then a similar scene is likely to be witnessed for a restored CIRP. All material factors that contributed to delay in CIRP will also affect the restored CIRP. 

Section 33(1A) also privileges rescue of the corporate debtor over various other aspects of the IBC such as need to complete CIRP in a timely fashion, preservation of assets of the corporate debtor, as well as preventing undue and prolonged uncertainty. Admittedly, the IBC’s aim – as exemplified in its Preamble – is to rescue the corporate debtor and not liquidate it. However, the attempts at rescue need to be defined by time and underlined by certainty. CIRP-related procedures, in so far as possible, should move in a linear direction and any back and forth should be minimal. The discipline of a linear direction makes the relevant entities more mindful of their roles and responsibilities. Creating statutory basis for restoring CIRP opens the possibility of first attempts in CIRP being sub-par. While it is in the CoC’s collective interest to be mindful of CIRP related processes from the beginning, the option of re-attempting leaves room to be lax about the procedural and substantive legal requirements. And that does not bode well for an efficacious CIRP.

Finally, the Select Committee on the IBC (Amendment) Bill, 2025 (‘Select Committee’) seems to have endorsed the idea that restoration of CIRP is also possible if there is failure in implementation of the resolution plan. Technically speaking, failure in implementation of the resolution plan is a failure of CIRP. However, restoring CIRP due to implementation of the resolution plan going off rails implies smoothening a collective failure of the CoC, implementation committee, and the resolution applicant. In SBI v The Consortium of Mr. Murari Lal Jalan, the Supreme Court ordered liquidation when implementation of a resolution plan faced undue delays instead of trying to make another attempt at rescuing the corporate debtor. Restoring CIRP after failure in implementation of the resolution plan has the potential for efforts to rescue the corporate debtor to continue for a duration much beyond originally envisaged in the IBC. On balance, timely liquidation may still lead to better results in terms of releasing stuck capital, providing certainty, and bringing a closure for various stakeholders as opposed to delaying liquidation due to repeated efforts at rescuing the corporate debtor. 

Conclusion

The Select Committee was optimistic that restoration of CIRP will achieve its objective and noted that: 

The Committee find merit in the Ministry’s submission that this provision serves as a final opportunity to rescue the corporate debtor in genuine cases, subject to the commercial wisdom of the Committee of Creditors (66% voting share) and the discretion of the Adjudicating Authority, with a strict timeline of 120 days. (para 20.6.1) 

The Select Committee’s optimism is on three aspects: (a) restoring CIRP will remain confined to genuine cases, and that such cases are easy to detect and distinguish from non-genuine cases; (b) commercial wisdom of the CoC will work seamlessly with the NCLT’s discretion, though deference to the CoC’s wisdom is better respected by providing the NCLT limited discretion; (c) the timeline of one hundred and twenty days for restored CIRP is ‘strict’ and will be followed scrupulously. To conclude succinctly, I do not share the Select Committee’s optimism on all three counts. Section 33(1A) – even if CIRP Regulations enumerate legal parameters for the NCLT to consider – is likely to be another breeding ground of litigation and uncertainty. And both will militate against the IBC’s core objectives.  

IBC (Amendment), 2026 Series – II | CoC’s Role in the IBC: A Case for Greater Legislative Clarity

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The Insolvency and Bankruptcy Code, 2016 (‘IBC’) provides the Committee of Creditors (‘CoC’) a central role in corporate insolvency resolution proceedings (‘CIRP’). The IBC prescribes the CoC’s role in broad terms and specific boundaries are still being delineated through judicial decisions. For example, while courts have consistently endorsed that commercial wisdom of the CoC is non-justiciable, precise extent of judicial oversight over the CoC’s decisions remains uncertain. This article focuses on two aspects of the CoC’s working that have emerged exclusively by judicial innovation and examines whether The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) succeeds in its attempt to provide them a statutory basis. 

Firstly, the IBC did not expressly confer authority on the NCLT to refer resolution plans back to the CoC for reconsideration. Previously, Section 31 of the IBC provided a binary option to the NCLT: approve or reject a resolution plan. Equally, neither Section 61 nor Section 62 of the IBC envisaged that the NCLAT or the Supreme Court can mandate the CoC to reconsider resolution plans. And yet resolution plans were often sent to the CoC for re-examination on various grounds enunciated by the Supreme Court. The IBC Act, 2026 amends the IBC to empower the NCLT to return a resolution plan. The IBC Act, 2026 has inserted a proviso to Section 31(2) and empowered the NCLT to give notice to the CoC ‘to rectify any defects in the resolution plan’ before rejecting the resolution plan. Notes on clauses to the IBC Bill, 2025 – which is pari materia to the IBC Act, 2026 – clarified that the NCLT should provide an opportunity to the CoC when defects are ‘procedural, non-material’ and can be rectified by the CoC. But use of ‘any’ in the proviso, prima facie, provides the NCLT broad powers contrary to intent expressed in notes on clauses.  

Secondly, the IBC’s silence ‘as regards the phase of implementation’ of the resolution plan was noted by the Supreme Court in SBI v The Consortium of Mr. Murari Lal Jalan (‘Jet Airways case’). To overcome the IBC’s silence, the Supreme Court in Kalyani Transco v M/S Bhushan Power and Steel Ltd and Others (‘Bhushan Steel case’) held that the CoC is not functus officio after the NCLT approves the resolution plan. The Supreme Court added that since the CoC has a vital interest in implementation of the resolution plan it will continue to exist until the resolution plan is implemented, or an order of liquidation is passed by the NCLT. The IBC Act, 2026 – to correct statutory oversight on implementation of the resolution plan – proposes to replace Section 30(2)(d) to state that every resolution plan must necessarily provide for constitution of a committee to implement and supervise the resolution plan. I suggest that the IBC Act, 2026 should have ideally clarified role of the CoC vis-à-vis implementation committee. And only left other procedural details for the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’). Else, implementation phase of the resolution plan may face further uncertainties about role of the CoC. Supreme Court’s judgment in Bhushan Steel case and the IBC Act, 2026 together ensure that the CoC and the implementation committee will co-exist during implementation of the resolution plan. How will the two entities interact? Will the implementation committee operate under supervision of the CoC? Clarity on these procedural aspects may emerge from the CIRP Regulations. But it was vital that the statute provided, in clear terms, the CoC’s role during implementation of the resolution plan. 

The IBC Act, 2026 has missed an opportunity to provide legislative clarity on both the above aspects. And leaves ample room for ad hoc judicial solutions that may hamper timely completion of CIRP.   

Reconsideration of a Resolution Plan by the CoC 

The Supreme Court in CoC of Essar Steel India Ltd v Satish Kumar Gupta & Ors (‘Essar case’) correctly held that while the NCLT cannot interfere with commercial decision of the CoC, it can exercise judicial review if the CoC has not taken into account key features of the IBC. For example, the NCLT is permitted to examine if a resolution plan approved by the CoC maximises the value of corporate debtor’s assets and balances the interests of all stakeholders. However, the Supreme Courts’ conclusion that the NCLT can send back a resolution plan to the CoC if key features of the IBC are amiss in a resolution plan is not supported by a plain reading of Section 31 of the IBC.   

Section 31(1) of the IBC states that the NCLT, ‘shall’ by order approve the resolution plan if it is satisfied that the resolution plan approved by the CoC meets requirements enlisted in Section 30(2). And if the resolution plan does not conform  to above stated requirements, the NCLT under Section 31(2) ‘may’ by an order reject the resolution plan. I suggest that interpreting may as directory in this context defeats the IBC’s objective of completing CIRP in a time bound manner. Under Section 31, the NCLT must determine if the resolution plan approved by the CoC satisfies the requirements enlisted under Section 30(2). If the answer is in affirmative, the NCLT must approve the resolution plan or else reject it. The NCLT directing the CoC to reconsider the resolution plan instead of rejecting it, expands time required for CIRP and defeats the aim of maximising the value of corporate debtor’s assets. One can argue that if the prescribed time limit for CIRP has not expired, the NCLT can send the resolution plan to the CoC for reconsideration. But, silence of Section 31 about grounds on which the NCLT ‘may’ send the resolution plan to the CoC for reconsideration suggests that such a possibility was not contemplated by the legislature. The Supreme Court, instead of paying attention to silence of Section 31 on powers of the NCLT to send back resolution plan has created its own parameters to permit reconsideration by the CoC. A legal position that suffers from multiple frailties.   

The Supreme Court has bifurcated judicial role vis-à-vis the CoC in two spheres: commercial decisions of the CoC and legality of resolution plans under the IBC. In Essar case and later in Jaypee Kensington Boulevard Apartments Welfare Association v NBCC (India) Ltd. the Supreme Court reiterated that the NCLT’s jurisdiction in approving the resolution plan cannot extend to altering commercial terms of the resolution plan. But in both cases, the Supreme Court observed that the NCLT can send the resolution plan back to the CoC for re-submission if key parameters of the IBC were amiss – such as those listed in Section 30(2) of the IBC. In both cases, flaw in the Supreme Court’s approach was in equating the NCLT’s power to review legality of the resolution plan with the power to send back resolution plan to the CoC. Section 31 empowers the NCLT with only the former and envisages a rejection of the resolution plan on failure to meet the parameters of Section 30(2). The Supreme Court by equating scope of the NCLT’s judicial review with power to send back resolution plan committed judicial overreach and introduced an additional step in CIRP which contributes to delay in its timely completion.          

Equally, the Supreme Court has not canalized the grounds on which the NCLT can send back the resolution plan. The NCLAT and the Supreme Court – have sent resolution plans for reconsideration on various grounds. Resolution plans have been returned for not providing that dissenting financial creditors must be paid in cash, the resolution professional wrongly rejecting the claim of financial creditor, and that dissenting financial creditors were paid less than stipulated under Section 30(2)(b).  The various grounds have emerged from fact situations and are not framed within any judicial doctrine on the NCLT’s powers of approval of the resolution plan. The NCLT/NCLAT/Supreme Court while sending back resolution plans have reasoned that only the CoC can amend commercial aspects of the resolution plan but have overlooked if they possess the power to send back the resolution plan. In fact, common link in the above-mentioned decisions is that in none of them any judicial forum has examined the legislative intent or text of Section 31 to determine if it permits the CoC to reconsider an approved resolution plan. The IBC Act, 2026 attempts to alter the legislative intent underlying Section 31 to this end but suffers from shortcomings. 

Notes on clauses to the IBC Bill, 2025 indicate that the NCLT must send back resolution plans only if defects are procedural, non-material and can be rectified by the CoC. To begin with, there is an erroneous presumption that substantive and procedural defects are neatly distinguishable categories in CIRP. None of the judicial decisions that have mandated reconsideration of resolution plan by the CoC have identified factors to distinguish substantive defect from a procedural defect. Even presuming that a clear categorization is possible, identifying the category of defect will require further judicial exercise, and create another layer of uncertainty about scope of the NCLT’s power. Not to mention that despite the legislative intent being to limit the NCLT’s power to only procedural defects, the proposed proviso mentions ‘any’ defect. An example of legislative drafting – prima facie – betraying the stated legislative intent.   

Further, the change to Section 31 proposed by the IBC Act, 2026 also prevents accountability of the CoC for its decisions. The commercial aspects of a resolution plan are beyond judicial purview because the IBC presumes that it is the CoC that possesses business expertise and not judicial forums. But the CoC, is obligated to make commercial decisions as per the IBC’s mandate. For example, the CoC must vote on the resolution plan after considering the parameters enlisted in Section 30(2) and obey the mandate of Section 30(4). Thus, if the CoC approves the resolution plan that contravenes clearly enlisted parameters in Section 30(2) or Section 30(4); prima facie, the CoC has committed a dereliction of its duty. And if the NCLT simply sends back a resolution plan – previously approved by the CoC – for reconsideration without any penalty or meaningful legal consequence for the CoC, it avoids accountability for its failure to discharge a statutory duty. The Supreme Court, in Jet Airways case, suggested that the Insolvency and Bankruptcy Board of India should explore the enforcement of standards in Guidelines for the CoC instead of making them self-regulatory to ‘prevent any significant lapse in decision making on the part of the CoC.’ The legal mandate must move towards greater accountability for the CoC instead of the opposite direction.  

Finally, the IBC Act, 2026 suffers from a contradiction in so far as it imagines role of the NCLT in CIRP. While the IBC Act, 2026 amends Section 7 to circumscribe the NCLT’s jurisdiction and expedite CIRP, it does the opposite as regards Section 31. The IBC Act, 2026 proposes to add Explanation 1 to Section 7 wherein if the NCLT is satisfied as to the existence of a default, is sure that the application is complete and no disciplinary proceedings are pending against the proposed resolution professional, it shall admit the CIRP application. Else reject it. The NCLT is not required to inquire into any other factor. Narrowing the NCLT’s jurisdiction under Section 7 is to expedite admission of the CIRP application if default by corporate debtor is proved. On the other hand, the NCLT is being permitted to send back the resolution plan by inserting a proviso in Section 31(2) to that effect. Thereby providing statutory basis to a judicial practice that is already contributing to delays in CIRP. The amendment to Section 31 may negate the amendment to Section 7 in so far as expediting CIRP is concerned.    

The CoC’s Uncertain Role in Implementation of the Resolution Plan

The IBC is silent on the CoC’s role in implementation of the resolution plan. This is evident in the IBC not providing any specific role and functions for the CoC once the resolution plan is approved by the NCLT. For example, if the NCLT has approved a resolution plan, then under Section 33(3) of the IBC any person – other than the corporate debtor – aggrieved by contravention of the approved resolution plan may make an application to the NCLT for liquidation. And Section 33(4) states that if the NCLT determines that a corporate debtor has contravened provisions of the resolution plan it may pass an order of liquidation. There is no express requirement of seeking the permission or even opinion of the CoC before passing the liquidation order. The CoC’s approval for liquidation by sixty-six per cent voting share is needed only if the resolution plan has not been confirmed by the NCLT, i.e., before its implementation begins. Section 33(3) read with 33(4) reveal the CoC’s minimal role during implementation of the resolution plan. 

The lack of any specific role for the CoC during implementation of the resolution plan came to fore in Jet Airways case and Bhushan Steel case. In Jet Airways case, the Supreme Court suggested a monitoring committee for implementation of an approved resolution plan. And that it should consist of resolution professional, nominees from the CoC as well as the resolution applicant. In Bhushan Steel case, the Supreme Court identified the CoC as a vital stakeholder in the implementation of the resolution plan and thus held that it continues to exist until the resolution plan is implemented, or an order of liquidation is passed. In Jet Airways the Supreme Court’s suggestion was motivated by a need to ensure that implementation of the resolution plan is overseen by a specific body consisting of all stakeholders. And the NCLT/NCLAT do not approve changes to timelines or conditions in the resolution plan that de facto amends and affects the viability/feasibility of the resolution plan. While in Bhushan Steel case, the Supreme Court extended lifespan of the CoC to prevent an ‘anomalous situation’ wherein if there is failure to implement the resolution plan, creditors will not be able to take any steps for realization of their dues from the corporate debtor.   

The IBC Act, 2026 – taking a cue from the Supreme Court’s recommendation in Jet Airways case – proposes that every resolution plan must mandatorily provide for constitution of an implementation committee. Section 30(2)(d) amended by the IBC Act, 2026 now mentions that a resolution plan must provide for implementation and supervision of the resolution plan and constitution of a committee for this purpose. Section 30(2)(d) envisages that the committee – an implementation committee – shall comprise of a resolution professional or any other insolvency professional, representatives of a class or classes of creditors and the resolution applicant. However, the IBC Act, 2026 should have gone further and also clarified the CoC’s role during implementation of the resolution plan.  This is because while the IBC Act, 2026 mandates the constitution of an implementation committee it does not detract from the Supreme Court’s observation in Bhushan Steel, i.e., the CoC’s continues to exist until the resolution plan is implemented. If the implementation committee and the CoC are to co-exist during implementation phase, the IBC Act, 2026 should ideally and expressly provide specific roles and functions of the CoC during implementation phase. For example, it is unclear if the implementation committee will be a sub-set of the CoC. And if all requests for time extensions or other amendments need to be necessarily pre-approved by the CoC. Will implementation of the resolution plan be supervised by the implementation committee and the CoC will only approve any requests for amendments in the plan? There is no clarity that emerges from the IBC Act, 2026.    

The CIRP Regulations already provide for constitution of an implementation committee. The IBC Act, 2026 aims to provide a statutory basis to the implementation committee and mandates that every resolution plan must necessarily provide for composition of the implementation committee. But the IBC Act, 2026 leaves the issue of overlapping existence of both entities unaddressed. The CoC should certainly be involved in implementation of the resolution plan. And the rationale for its involvement in implementation of the resolution plan is strengthened by the need to preserve viability and feasibility of the resolution plan. Else, NCLT approving changes to the resolution plan without the CoC’s involvement may alter it to such an extent that it dilutes or defeats commercial wisdom of the CoC. Finally, continued role of the CoC during implementation phase is also relevant because the IBC Act, 2026 proposes that it shall ‘supervise the conduct of the liquidation process by the liquidator’. Notes on clauses state that the CoC should supervise liquidation so that it can apply learnings from CIRP to liquidation. I suggest the same reason is equally relevant to keep the CoC involved in implementation of the resolution plan. Not only will the CoC’s role in implementation of the resolution plan ensure continuity, prevent unwarranted changes, but also – if need arises – keep it abreast of developments that may be helpful during liquidation of the corporate debtor. But clarity about nature and extent of the CoC’s involvement in implementation will be welcome. Specifically, its role vis-à-vis the implementation committee which will now exist under each resolution plan.           

Conclusion

To conclude, it is worth mentioning two related but separate judicial observations about the CoC’s tenure: (a) that the CoC does not become functus officio after the NCLT approves a resolution plan; (b) judicial review of the CoC’s commercial wisdom does not preclude sending the resolution plan back for its reconsideration. Ensuring that the CoC continues beyond approval of the resolution plan is defensible for it ensures a smooth implementation. But the CoC’s continued existence also creates an incentive or at least provides an option to the NCLT/NCLAT/Supreme Court to refer resolution plans back to the CoC. Even though the IBC does not expressly contemplate such a reconsideration. And, in fact, the reconsideration proves counterproductive to timely completion of CIRP without attaching any penalties to the CoC for its failure to perform its statutory duties. The proposed proviso to Section 31(2) has the potential to provide sanctity to an unsatisfactory legal situation instead of streamlining the CIRP-related judicial process. At the same time, the IBC Act, 2026 does not clearly delineate the CoC’s role in implementation of the resolution plan leaving room for uncertainty on that aspect. The CoC and the implementation should have, ideally, clearly defined roles via provisions in the IBC itself and only procedural details should have been left for CIRP Regulations.     

IBC (Amendment), 2026 Series – I | Streamlining Admission and Withdrawal of a CIRP Application: The IBC Ignites Hope

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – amends the Insolvency and Bankruptcy Code, 2016 (‘IBC’) in relation to admission and withdrawal of a Corporate Insolvency Resolution Process (‘CIRP’) application. Both changes have the potential to streamline CIRP hampered by sub-par legislative drafting and judicial innovation. 

In Vidarbha Industries Power Ltd v Axis Bank Ltd (‘Vidarbha Industries case’), the Supreme Court expanded scope of the National Company Law Tribunal’s (‘NCLT’) powers under Section 7 of the IBC. The Supreme Court held that the NCLT can consider viability and overall financial health of the corporate debtor before admitting a CIRP application. This interpretation permitted the NCLT to not admit a CIRP application even if the corporate debtor’s default of debt was established. And detracted from the legislative intent of establishing a ‘default regime’ under the IBC wherein proof of debtor’s default was envisaged to be sufficient for admitting a CIRP application. The IBC Act, 2026 adds an Explanation to Section 7 which clarifies that apart from default of debt and specified procedural requirements, the NCLT cannot take any other factor into consideration before admitting a CIRP application. Clearly, the aim is to expedite the admission of a CIRP application. 

Simultaneously, the process for withdrawal of a CIRP application was unduly complex. Section 12A- until the IBC Act, 2026 amended it – provided that:

The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified.       

A plain reading of Section 12A suggested that withdrawal of a CIRP application is not permissible before constitution of the Committee of Creditors (‘CoC’). But the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) envisaged that it is permissible to withdraw a CIRP application prior to the CoC’s formation subject to the NCLT’s approval. The divergence between Section 12A and the CIRP Regulations resulted in separate procedures for withdrawal depending on the stage of CIRP.  The Supreme Court elaborated the procedures for each stage in Glas Trust Company LLC v Byju Raveendran (‘Glas Trust case’). To simplify the law on withdrawal of a CIRP application, the IBC Act, 2026 amends Section 12A and introduces Section 12A (2) which states that withdrawal of a CIRP application shall not be permitted: (a) before constitution of the CoC; and (b) after invitation for submission of a resolution plan has been issued by the resolution professional. By creating a definite time window within which a CIRP application can be withdrawn, the IBC Act, 2026 intends to create uniform legal conditions for withdrawal of a CIRP application, irrespective of its stage. And hopefully, expedite exit after admission of a CIRP application.    

This article elaborates on the need for above changes as introduced by the IBC Act, 2026 and suggests that – independently and cumulatively – they have the potential to streamline CIRP. And undo some unwarranted judicial interpretation and legal complexities that currently surround admission and withdrawal of a CIRP application.   

I. Admission of a CIRP Application  

(a) Admitting, Rejecting, and Keeping a CIRP Application in ‘Abeyance’  

The Supreme Court in Vidarbha Industries case reasoned that the NCLT had discretion to not admit a CIRP application even if default of debt was established. In Vidarbha Industries, the corporate debtor – an electricity generating company under the Electricity Act, 2003 – had won a case against the Maharashtra Electricity Regulatory Commission (‘MERC’). The corporate debtor claimed that since it had won the case, the MERC owed it Rs 1,730 crores; but the MERC had filed an appeal against the decision. Before the appeal could be decided, Axis Bank filed a CIRP application against the corporate debtor under Section 7 of the IBC. Both, the NCLT and the NCLAT refused to stay the CIRP application by reasoning that once default is established, no other extraneous factor should hinder an expeditious decision on a CIRP application. Both, the NCLT and the NCLAT reasoned that timely resolution of a corporate debtor is crucial to advance the IBC’s aims. 

The Supreme Court, though, observed that under Section 7, the NCLT possesses discretion to not admit a CIRP application even if default is proved. The Supreme Court’s observations were based on three pillars: 

Firstly, the Supreme Court agreed with observations of the NCLT/NCLAT that a struggling corporate debtor should be rescued expeditiously without considering an extraneous factor. But the Supreme Court added that overall financial health of a corporate debtor was not an extraneous factor. And thus, neither was the corporate debtor’s dispute with the MERC an extraneous factor. Especially, when the amount of Rs 1,730 crores awarded to the corporate debtor far exceeded the financial creditor’s claim. In stating so, the Supreme Court ignored that the corporate debtor receiving the said amount was contingent upon it winning against the MERC in the appellate forum. And a corporate debtor could potentially use a pending appeal to delay or even defeat admission of a CIRP application.      

Secondly, the Supreme Court clarified that the NCLT should not confine itself to merely determining if there was default of debt. The default of debt, as per the Supreme Court only provided the financial creditor a right to initiate CIRP. The NCLT was required to:

… apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, … and the over all financial health and viability of the Corporate debtor under its existing management. (para 61)

It is difficult to understand the relevance of a corporate debtor operating under a statutory control to admission of a CIRP application. Technically, all companies operate under one form of regulatory or statutory control. Further, the Supreme Court stating that the NCLT can examine ‘overall financial health’ of a corporate debtor amounts to providing the NCLT discretion to scrutinize business viability of corporates. A commercial decision that the NCLT is not equipped for or can be expected to perform. Neither does the IBC’s design intend that the NCLT wade into commercial aspects.   

Thirdly, the Supreme Court relied on distinction in statutory language under Section 7 vis-à-vis Section 9. The Supreme Court noted that Section 7(5) states that the NCLT ‘may’ admit a CIRP application filed by a financial creditor. While Section 9(5) states that the NCLT ‘shall’ admit a CIRP application filed by an operational creditor. The use of ‘may’ and ‘shall’ in two identical provisions was interpreted by the Supreme Court to mean that the former conferred discretion to the NCLT to admit a CIRP application. Thus, the NCLT may in its discretion choose not to admit a CIRP application of a financial creditor by considering all relevant facts and circumstances. While under Section 9(5) it was mandatory for the NCLT to admit a CIRP application of operational creditors if it complied with all pre-requisites of the IBC. The Supreme Court’s reliance on difference in statutory language of two comparable provisions was defensible; and inadvertently pointed towards a differential treatment in CIRP applications of the financial creditors vis-à-vis operational creditors. Though whether this differential treatment was intended, or a result of legislative oversight is tough to establish one way or the other.    

Supreme Court’s observations in Vidarbha Industries case had the effect of changing a crucial understanding regarding the NCLT’s powers under Section 7. For example, the observations detracted from a notable precedent – E.S. Krishnamurthy & Ors v Bharath Hi-Tech Builders Pvt Ltd – wherein the Supreme Court had noted that under Section 7(5)(a), the NCLT had only two options: admit or reject a CIRP application. The Supreme Court in the review petition of Vidarbha Industrieshowever noted that its observations in Vidarbha Industries were only confined to facts of that case. The Supreme Court’s clarification in the review petition was used in M. Suresh Kumar Reddy v Canara Bank (‘M. Suresh Kumar Reddy case’) to hold that the ratio of Vidarbha Industries case cannot be used as a precedent for all cases. And, thus, in M. Suresh Kumar Redddy case the Supreme Court held that the NCLT under Section 7(5)(a) has only two options of accepting or rejecting a CIRP application. The result was a less-than-ideal legal position wherein Vidarbha Industries case was simultaneously relevant and irrelevant to understand scope of the NCLT’s powers under Section 7.  

(b) The IBC Act, 2026 Clarifies: Admit or Reject a CIRP Application 

The IBC Act, 2026 seeks to resolve the position caused by differing views about the NCLT’s powers under Section 7(5)(a). To begin with, the IBC Act, 2026 amends Section 7 to reiterate two existing mandates for the NCLT: (a) the NCLT shall record reasons for delay, in writing, if it has not passed an order within fourteen days of receipt of a CIRP application; (b) a renewed emphasis on accessing records of financial debt as recorded with the information utility. And to overcome the effect of Vidarbha Industries case, adds Explanation 1 to Section 7. Explanation I states that: 

For the purposes of this sub-section, it is hereby clarified that where the requirements under clause (a) have been complied with, no other ground shall be considered to reject an application filed under this section. 

The requirements under clause (a) are that a default has occurred, a CIRP application is complete, and no disciplinary proceedings are pending against the proposed resolution professional. Clearly, if the procedural requirements of clause (a) are met, the NCLT possesses no discretion to delay admission of a CIRP application. To further expedite the admission of a CIRP application, Explanation II added by the IBC Act, 2026 states that if default in respect of a financial debt recorded with an information utility is provided with a CIRP application, it shall be sufficient to ascertain the existence of a default. 

Finally, Section 7(5) has now been amended to state that the NCLT ‘shall’ admit a CIRP application within fourteen days of receipt, if it is satisfied that a default has occurred. Removing the distinction between Section 7(5) and Section 9(5) underlined in Vidarbha Industries case wherein the Supreme Court said that use of ‘may’ in the former implied that the NCLT had discretion to not admit a CIRP application even if a default was established. While use of ‘shall’ in Section 9(5) did not afford the NCLT such a discretion. With both provisions now deploying ‘shall’, the IBC Act, 2026 – alongside other changes to Section 7 – has effectively made reasoning of Vidarbha Industries case redundant.       

II. Withdrawal of a CIRP Application 

Originally, the IBC did not contain a provision for withdrawal of a CIRP application. Filing a withdrawal application was only permitted under Rule 8 of The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (‘Adjudicating Authority Rules’) which provided that the NCLT may permit withdrawal of a CIRP application if the applicant made a request for withdrawal before it was admitted by the NCLT. There was no statutory provision or a rule for permitting withdrawal of a CIRP application after its admission by the NCLT. 

As a result, if the corporate debtor and creditors arrived at a settlement after the NCLT’s admission of a CIRP application, the withdrawal application was typically allowed by the Supreme Court in exercise of its powers under Article 142 of the Constitution. The Supreme Court in Uttara Foods and Feeds Pvt Ltd v Mona Pharmachem suggested that the relevant rules may be suitably amended to address the above lacuna. And subsequently, the Insolvency Committee examined the issue and recommended that Rule 8, Adjudicating Authority Rules be amended to empower the NCLT to allow withdrawal applications even after admission of a CIRP application provided the CoC pre-approves filing of the withdrawal application.  In 2018, the IBC was amended with insertion of Section 12A, IBC. Alongside, Regulation 30A was inserted in the CIRP Regulations which provided a detailed procedure for the withdrawal of a CIRP application after its admission by the NCLT. 

(a) Interpretation of Section 12A: Swiss Ribbons Plugs a ‘Lacuna’  

Section 12A – even before amendment by the IBC Act, 2026 – stated that the NCLT shall allow withdrawal of a CIRP application if it is approved by ninety per cent voting share of the CoC. However, Section 12A was silent on the phase between admission of a CIRP application and constitution of the CoC. One way to interpret the silence of Section 12A on this interim phase was that the legislature did not intend to allow withdrawal of a CIRP application until the CoC was constituted. And this would have been a reasonable interpretation of Section 12A. Interpreting Section 12A to mean that once a CIRP application has been admitted, its withdrawal can only be permitted with approval of ninety per cent voting share of the CoC and thus obviously only after the constitution of the CoC was a defensible interpretation. The Supreme Court in Swiss Ribbons & Anr v Union of India & Ors (‘Swiss Ribbons case’), though had a different view on the issue. 

In Swiss Ribbons case, one of the petitioner’s challenge was to the constitutionality of Section 12A of the IBC. The Supreme Court upheld the constitutionality of Section 12A and added its observations on the applicable procedure for a withdrawal application in the interim between admission of a CIRP application and constitution of the CoC. In the Supreme Court’s own words:

We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers Under Rule 11 of the NCLT Rules, 2016 allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case.        

The Supreme Court also pertinently clarified that the interim resolution professional has 30 days from the date of its appointment to constitute a CoC. The above prescribed procedure was only relevant if the corporate debtor and the financial creditors arrived at a settlement in this narrow time window.

(b) Reconciling Section 12A with Regulation 30A

Regulation 30A, as originally introduced alongside Section 12A, inserted an outer time limit for the withdrawal application by stating that it should be filed ‘before issue of invitation of expression of interest’, a limitation that was not mentioned in Section 12A. The secondary legislation prescribing a restriction not provided in the statutory provision was partially reconciled by the Supreme Court in Brilliant Alloys Pvt Ltd v Mr. S. Rajagopal (‘Brilliant Alloys case’). The Supreme Court was hearing an appeal against an order of the NCLT which disallowed the withdrawal application because the invitation of expression of interest had already been issued. The Supreme Court observed that Regulation 30A needed to be read with the main provision – Section 12A of the IBC – and the latter contained no stipulation regarding the invitation of an interest. Thus, the stipulation regarding invitation of an expression of interest ‘can only be considered as directory depending on the facts of each case.’  Accordingly, the Supreme Court correctly allowed withdrawal of a CIRP application even after issuance of the expression of interest. There was one issue: the Supreme Court’s caveat that withdrawal of the CIRP application at such a stage should be justified by facts of the case. The caveat ensured that the condition prescribed in Regulation 30A regarding expression of interest wasn’t completely irrelevant.   

After Brilliant Alloys case, the legal position was that withdrawal application could be filed even after issuance of an invitation for expression of interest, if the NCLT was satisfied about the need for withdrawal at such a late stage in CIRP. But, in some cases such as Abhishek Singh v Huhtamaki PPL Ltd, the Supreme Court held that a CIRP application should be allowed to be withdrawn immediately if the CoC was not constituted. And did not perceive any inconsistency between Section 12A and Regulation 30A.  

Regulation 30A was amended after – and partially because of – the Supreme Court’s decision in Swiss Ribbons case and in Brilliant Alloys case. Two elements were added in Regulation 30A that were previously missing: first, it expressly provided for withdrawal of a CIRP application before constitution of the CoC through an application to be submitted by the interim resolution professional; second, Regulation 30A expressly permitted withdrawal of a CIRP application after issuance of the invitation for expression of interest if the applicant states ‘the reasons justifying withdrawal after issue of such invitation.’ The first element provided legislative foundation to the Supreme Court’s observations in Swiss Ribbons case, the latter element to the observations made in the Brilliant Alloys case. The divergence between Section 12A and Regulation 30A still persisted because the former had not been amended.       

(c) Amendment to Section 12A via the IBC Act, 2026

The IBC Act, 2026 amends Section 12A by introducing sub-section (2) which provides for the time window for withdrawal of a CIRP application. Section 12A(2)(a) states that notwithstanding anything contained in any law for the time being in force, a CIRP application admitted by the NCLT ‘shall not be withdrawn’ before constitution of the CoC. Section 12A(2)(b) adds a CIRP application shall not be withdrawn after the first invitation for submission of a resolution plan has been issued by the resolution professional. 

Not allowing withdrawal of a CIRP application before constitution of the CoC makes sense since Section 12A(1) states an application for withdrawal of a CIRP application can only be made by a resolution professional with the approval of ninety-nine per cent voting share of the CoC. One can argue that submitting a withdrawal application is impossible until the CoC is constituted. Section 12A(2) though also provides statutory basis to the outer time limit previously contained only in Regulation 30A. Previously, Section 12A permitted the CoC to agree to withdrawal of a CIRP application without an outer time limit. Insistence on an outer time limit seems to be a balancing act between respecting the commercial wisdom of the CoC and preventing derailment of the CIRP at an advanced stage. The curious part is that previously the statutory provision did not encapsulate this policy dilemma, neither did the Insolvency Committee examine this issue in any meaningful detail. But the Insolvency and Bankruptcy Board of India (‘IBBI’) – which primarily drafts the rules and regulations – recognized the need for an outer time limit by introducing it in Regulation 30A. The IBBI’s intent was laudable, but it created a divergence in Section 12A and Regulation 30A. And, the IBC Act, 2026 seems to have resolved the divergence.    

Conclusion   

The IBC Act, 2026 suitably amends provisions relating to admission of a CIRP application and its withdrawal. The bottlenecks caused by sub-par drafting and judicial innovation have been suitably removed to streamline CIRP. And to that extent, if the NCLT adheres to the letter of law we are likely to see a more disciplined CIRP process. The only note of caution that I would like to state here is something that is often said about the IBC: merely improving the letter of law is insufficient if the infrastructure remains inadequate. The NCLTs – across India – need a massive overhaul in terms of personnel and infrastructure. Hopefully, the necessary improvements will be prioritised and will follow the improved letter of law. 

Amendments to the IT Rules, 2026: Effectuating the Tiger Global Case 

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On 31st March 2026, the Central Board of Direct Taxes (‘CBDT’) notified amendment to two sub-rules of Rule 128, The Income Tax Rules, 2026 (‘IT Rules, 2026’). Reactions to the amendments are neatly divided: while a few believe that the amendments are to effectuate the Supreme Court’s decision in The Authority for Advance Rulings (Income Tax) and Others v Tiger Global International II Holdings (‘Tiger Global case’), others have observed that the amendments are to dilute its impact. In this article, I suggest that the CBDT has amended the IT Rules, 2026 to codify the ratio of Tiger Global case. Though before I elaborate on my claim, three preliminary things: 

Firstly, in this article I’ve not elaborated either facts or the Supreme Court’s decision in the Tiger Global case; for context, you can read my preliminary comments on the case. 

Secondly, before reading this article you may want to look at the side-by-side comparison of the pre-amendment and post-amendment rules.

Thirdly, Rule 10U, IT Rules, 1962 is pari materia with Rule 128, IT Rules, 2026. Former was the subject of discussion in the Tiger Global case and latter, as its successor, is the subject of recent amendments discussed in this article.      

In this article, my first claim is that amendments to the IT Rules, 2026 have been introduced to eliminate any confusion about the applicability of General Anti-Avoidance Rules (‘GAAR’) to investments made before 1st April 2017. A confusion that was partly caused by use of the phrase ‘without prejudice’ in Rule 10U(2), Income Tax Rules, 1962 (‘IT Rules, 1962’). I underline this claim by analyzing relevant portions of the Delhi High Court’s judgment that was overruled by the Supreme Court in the Tiger Global case. My second claim is that amendment to the IT Rules, 2026 brings greater clarity about the Income Tax Department’s (IT Department) stance on the interaction of GAAR with Double Taxation Avoidance Agreement (‘DTAA’) benefits. Specifically, the India-Mauritius DTAA. However, the Supreme Court’s interpretation of cut-off date in the Tiger Global case has not been diluted by the amendment. Finally, a crucial piece of the puzzle is still missing. We still do not know judicial meaning of the term ‘arrangement’ – and by extension impermissible avoidance arrangement – despite the Supreme Court relying on it to decide the Tiger Global case. Thus, despite the amendments to the IT Rules, 2026, the crucial test of applying Rule 128 to facts will determine the tax fate of future investments. And the tax fate may, in most cases, hinge on how courts interpret the term arrangement.    

Grandfathering of Investments  

Grandfathering in the IT Rules, 2026 is rooted in grandfathering in the India-Mauritius DTAA. Originally, an import of Article 13(4) of the India-Mauritius DTAA was that capital gains earned by a resident of Mauritius from securities listed in Indian stock exchanges were taxable only in Mauritius, the state of residence. While the vice-versa was also true, it mainly benefited companies incorporated in Mauritius aiming to access the Indian stock market. In 2016, Protocol to the India-Mauritius DTAA amended Article 13 – inserted Article 13(3A) – to provide taxation rights to the source country. Implying that India now had taxation rights on capital gains earned by companies incorporated in Mauritius. But Article 13(3A) was to be only applicable to gains from alienation of shares acquired on or after 1st April 2017. Article 13(3A) thus grandfathered investments and taxability of securities acquired before 1st April 2017 which were to be governed by the original provision. 

Rule 10U(1) of the IT Rules, 1962 intended to achieve the same effect as Article 13(3A) of the India-Mauritius DTAA, but in relation to GAAR. Specifically, Rule 10U(1)(d) provided that GAAR shall not apply to any income that arises, accrues, is received or deemed to accrue, arise or received by any person from transfer of investments made before 1stApril 2017 by such person. However, Rule 10U(2) stated that: 

Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017. (emphasis added)

A combined reading of Rule 10U(1) and 10U(2) suggested that while grandfathering benefit was available for investments, arrangements could not claim the same benefit. But this was not the only possible interpretation. Use of the phrase ‘without prejudice’ created room to suggest that Rule 10(2) did not completely override Rule 10U(1)(d). And it is on this specific point that the Delhi High Court made a few pertinent observations.    

‘Without Prejudice’ in the IT Rules, 1962 

The IT Department argued before the Delhi High Court that ‘without prejudice’ clause implies that Rule 10U(2) overrides Rule 10U(1)(d). Even though an arrangement may have been entered before 1st April 2017, any benefit obtained from it after 1st April 2017 will be subject to GAAR. On the other hand, the counsel for Tiger Global resisted the IT Department’s interpretive approach, and argued that use of ‘without prejudice’ cannot permit interpreting Rule 10(2) inconsistently with Rule 10U(1)(d).  

The Delhi High Court refused to accept the IT Department’s argument and observed that: 

Apart from the above, if the argument of Mr. Srivastava were to be accepted, it would amount to sub-rule (2) immediately taking away what stood saved in the immediately preceding provision, namely, clause (d) of sub-rule (1). If the submission of Mr. Srivastava were to be upheld, it would lead to a wholly irreconcilable conflict between the two aforenoted provisions. However, the arguments addressed along the aforesaid lines are clearly erroneous since it fails to consider the meaning liable to be ascribed to the expression ―without prejudice to…..which appears in sub-rule (2). (para 231) (emphasis added)

The Delhi High Court thus clearly stated that accepting the IT Department’s argument would amount to Rule 10U(2) taking away the benefit conferred by Rule 10U(1)(d). Additionally, the High Court elaborated on the meaning of ‘without prejudice’ by relying on ITO v Gwalior Rayon Silk Manufacturing (Weaving) Co Ltd. In short, the meaning of ‘without prejudice’ in the context of Rule 10U can be distilled as: (i) Rule 10U(2) cannot be inconsistent to or prejudicial to Rule 10U(1)(d); (ii) while Rule 10U(2) was an independent provision it was subject to Rule 10U(1)(d). 

Apart from the meaning of ‘without prejudice’, the Delhi High Court also invoked the grandfathering benefit introduced via Article 13(3A) of the India-Mauritius DTAA. The High Court observed that the India-Mauritius DTAA had clearly provided safe passage to transactions completed before 1st April 2017. And accepting the IT Department’s argument that Rule 10U(2) overrides the grandfathering benefit provided in Rule 10U(1)(d) would mean:

…a delegatee of the Legislature while framing subordinate legislation being competent to override a treaty provision. A subordinate legislation would thus stand elevated to a status over and above a treaty entered into by two nations in exercise of their sovereign power itself. (para 230)

The Delhi High Court held that permitting secondary legislation to override international treaty obligations is unacceptable. Cumulatively, Article 13(3A) of the India-Mauritius DTAA and meaning of ‘without prejudice’ was used by the Delhi High Court to prevent the IT Department from invoking GAAR against Tiger Global. The High Court’s observations on Rule 10U are an important reference point to understand interpretation of secondary legislation, meaning of the phrase ‘without prejudice’ and how DTAA obligations can and do influence domestic laws. 

Amendments Align with Ratio of the Tiger Global Case

The Supreme Court in the Tiger Global case overruled the Delhi High Court. The IT Department’s stance before the Supreme Court can be summarized as: Rule 10U(1)(a) grants grandfathering benefit only to investments made before 1stApril 2017 and not to arrangements entered before 1st April 2017. Thus, Rule 10U(2) can be applied to deny benefits to arrangements entered before the said date. The Supreme Court agreed with the IT Department and held that: 

Therefore, the prescription of the cut-off date of investment under Rule 10U(1)(d) stands diluted by Rule 10U(2), if any tax benefit is obtained based on such arrangement. The duration of the arrangement is irrelevant. (para 46)

It stands to reason that the Supreme Court interpreted ‘without prejudice’ to have same meaning as ‘notwithstanding’. And, by doing so, clarified that the relationship of Rule 10U(2) with Rule 10U(1)(d) is that the former occupied a higher pedestal. It is to reinforce this legal position that Rule 128(2), IT Rules, 2026 has been amended to state that:

The provisions of Chapter XI shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st April, 2017, except for that income which accrues or arises to, or deemed to accrue or arise to, or is received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person. (emphasis added) 

There are two inter-related reasons why I suggest that the above amendment is to effectuate ratio of the Tiger Global case. Firstly, the removal of ‘without prejudice’ clause eliminates any confusion as to whether Rule 128(2) overrides Rule 128(1)(d). A confusion that was evident in the Delhi High Court’s judgment which was not in favor of the IT Department. Secondly, Rule 128(2) now uses the word ‘irrespective’. This aligns with the new legislative policy under the IT Act, 2025 to use ‘irrespective’ instead of ‘notwithstanding’. If we tentatively understand that meaning of irrespective is equivalent to notwithstanding, then Rule 128(2) overrides Rule 128(1)(d). And it is the primacy of Rule 128(2) that the IT Department successfully argued before the Supreme Court in the Tiger Global case. 

Thus, I suggest that the IT Rules, 2026 now codify the Tiger Global ratio and not dilute it. Grandfathering benefit is available only to investments, not to arrangements. The date on which the arrangement was entered – before or after 1st April 2017 – is immaterial as GAAR can be invoked against all arrangements. 

No Change in Cut-Off Date

The Supreme Court in the Tiger Global case suggested that gains arising after cut-off date of 1st April 2017 cannot claim the grandfathering benefit. Supreme Court’s observations on Rule 10U(1)(d) were that the cut-off date was for capital gains and not the investments. See, for example, the Supreme Court’s following observation: 

… in the case at hand, though it prima facie appears as if the assessees acquired the capital gains before the cut-off date, i.e., 01.04.2017, it is to be noted that the proposal for transfer of investments commenced only on 09.05.2018. (para 47)

The Supreme Court is clearly concerned that capital gains were not earned by Tiger Global before the 1st April 2017 instead of determining if the investment was made before that date. The Supreme Court also elaborated that the underlying transaction was only completed after the 1st April 2017 to underline that capital gains were only earned after cut-off date. However, grandfathering – under the India-Mauritius DTAA and the IT Rules, 1962 – protected investments made before 1st April 2017 and did not require that income should be earned before the said date. Since Rule 10U(1)(d) and Rule 128(1)(d) contain substantially the same language the Tiger Global ratio is certainly not diluted by amendment to the IT Rules, 2026. Rule 128(1)(d) of the IT Rules, 2026 states that GAAR shall not apply to: 

any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person.”; (emphasis added) 

Rule 128(1)(d) clearly states that investments were made by a person before 1st April 2017 but the income transfer of such investments was realised after the said date, GAAR shall be inapplicable. Rule 10U(1)(d), reproduced below also stated the same: 

any income accruing or arising to, or deemed to accrue arise to, or received or deemed to be received by, any person from transfer of investments made before the first day of April, 2017 by such person.(emphasis added)

The addition of ‘which were’ in the amended rule is hardly a substantive amendment. In the absence of any substantial difference between Rule 10U(1)(d) and Rule 128(1)(d), the Supreme Court’s observations on cut-off date remain the law until their basis is removed by a statutory amendment or subsequent decision(s).  

Meaning of ‘Arrangement’ May Continue to be Contentious 

The above changes though still leave us searching for one crucial answer. The meaning of arrangement. GAAR is applicable only if the arrangement is an impermissible avoidance arrangement. The Supreme Court referred to the statutory definition of an impermissible avoidance arrangement – in Section 96, IT Act, 1961/Section 179, IT Act, 2025 – which states that it is an arrangement whose main purpose is to obtain a tax benefit and is carried out by means or manner which is not ordinarily employed for bona fide purposes. In the Tiger Global case the Supreme Court stated that transaction in question was an impermissible avoidance arrangement because: the transaction entered by Tiger Global was exempt from tax under the Mauritius tax law and it was also seeking exemption under the Indian income tax law. Thereby presenting a strong case for the IT Department to deny the benefit under the India-Mauritius DTAA as such an arrangement is impermissible. 

The Supreme Court made no precise observation as to which aspect of the transaction or corporate structure/arrangement adopted by Tiger Global amounts to an impermissible avoidance arrangement. The Supreme Court’s above observations suggest that to claim tax benefit under a DTAA, the taxpayer must pay tax in at least one of the contracting states. And since the case involved an indirect transfer, the Supreme Court’s observations can be applied to similar such transfers in the future. But, overall, specificity as to what constitutes an impermissible avoidance arrangement is missing in the Tiger Global case. Largely, we have the statutory definition of an impermissible avoidance arrangement to rely on for future cases, but the exact scope may emerge through future decisions and as new fact situations require judicial attention. 

Overall, though amendments to the IT Rules, 2026 have ensured that any confusion that could emerge from interpretation of the ‘without prejudice’ clause is removed. And the IT Department is intent on effectuating ratio of the Tiger Global case in so far as application of GAAR in relation to grandfathering benefit is concerned. In short, arrangements entered before 1st April 2017 will be subject to GAAR, only investments can claim the grandfathering benefit. But distinguishing one from the other will require strenuous efforts and contentious interpretations.      

PS: Amendments to the IT Rules, 2026 were uploaded via a notification on the IT Department’s website without any accompanying explanation. Taxpayers were left to their own devices to decode rationale and implication of the amendment. Perhaps the IT Department could have made some effort in communicating its intent.   

Income Tax Act, 2025: A ‘Reform’ Comes to Life 

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The Income Tax Act, 2025 (IT Act, 2025) – after almost a decade of attempts to redraft income tax law – comes into force on 1 April 2026 and replaces the Income Tax Act, 1961 (IT Act, 1961). It’s a unique legislative achievement for various reasons. Two noteworthy reasons are: (a) there was no widespread or pressing demand for enacting a new income tax law; (b) the IT Act, 2025 does not effectuate any major change in tax policy. No other comparable ‘legislative replacement’ comes to mind where a new law was implemented without intending to change the previous policy. Instead, the IT Act, 2025 is an attempt ‘simplify’ the income tax law, remove redundant provisions and overall change the sequence and arrangement of various provisions. A rewriting of the income tax law, if you may.      

The attempt at simplification required the Income Tax Department (‘IT Department’) to devote a significant time – 75,000 person hours – but some of the re-drafted provisions have raised concerns. Until now, the most notable concern has been about the scope of search and seizure powers and their impact on digital privacy of taxpayers. A pre-mature Public Interest Litigation challenging constitutionality of Section 247, IT Act, 2025 – which contains search and seizure powers – was filed before the Supreme Court. But the Supreme Court did not entertain the petitioner’s plea and allowed the petition to be withdrawn. 

In this article, I attempt to provide a descriptive account of three aspects of the IT Act, 2025: origin of the reform, the lack of legislative scrutiny, and a brief comment on the expanded scope of search and seizure powers.    

Forgotten (and Opaque) Roots 

In November 2017, the Union of India constituted a Task Force to draft a new income tax law. The Task Force was mandated to draft an income tax law in consonance with the economic needs of India and that aligned with international best practices. The Task Force was not constituted because of any major or specific concerns about the IT Act, 1961. In fact, major concerns were about the IT Department’s propensity to amend the IT Act, 1961: frequently and retrospectively. And this propensity was fuelled by an intent to overcome loss in courts. The Press Information Bureau’s communication dated 22 November 2017 only states that there was a concern that the IT Act, 1961 was more than five decades old. And there is need to draft a new income tax law. A generic and weak concern that triggered the mammoth exercise of drafting a new income tax law. 

In July 2019, the Finance Minister Ms Nirmala Sitharaman informed the Rajya Sabha that there was no proposal under consideration regarding the Direct Taxes Code, but a task force had been constituted to draft a new income tax law. This statement, in my view, was an attempt to distinguish the NDA government’s attempt to rewrite the income tax law with the UPA government’s previous attempt of overhauling the IT Act, 1961 via a Direct Taxes Code. Nonetheless, she also informed that the remit of Task Force had been expanded and it will now provide suggestions on faceless assessments, reducing litigation, making compliance burdens less onerous, and examine sharing of information with indirect tax departments.  In August 2019, there were sporadic news reports that the Task Force had submitted its report. But the report and recommendations of the Task Force were never made public. The report, its recommendations, and its draft of income tax law – if any – remain a blackhole in India’s income tax law reform history. A Task Force on income tax law, funded by taxpayers, but whose final recommendations and work remain beyond the taxpayers’ access. Irony sometimes visits Indian tax reform, only to mock us taxpayers.      

Any reports or information on the Task Force’s recommendations died a natural death after 2019. There is no public record of any progress or discussion on income tax reform. And, then, after 5 years of silence, in her Budget Speech of 2024, Finance Minister Ms Nirmala Sitharaman announced a ‘comprehensive review’ of the IT Act, 1961. She informed the Parliament that the purpose was to make the statute more lucid, easy to read, and reduce disputes and litigation. She added that the entire exercise was to take six months. But there was no reference to the recommendations or work of the Task Force constituted in November 2017 or whether the ‘comprehensive review’ was an extension of their work. Or whether Union of India had decided to reject all recommendations of the Task Force. Since the Task Force was mandated to draft a new income tax law, presumably its draft was unacceptable to the Union of India necessitating the need to initiate a complete review five years after the Task Force had submitted its report. 

Nonetheless, first draft of the IT Bill, 2025 was introduced in the Lok Sabha in the Budget Session of 2025. It is anyone’s guess as to whether the draft is based on, similar to, or a complete variation from the one drafted by the Task Force in 2019. Anyhow, the introduction of first draft unleashed the vocabulary of ‘simplification’ of income tax law. The Union of India – under the NDA government – wanted that the IT Bill, 2025 be examined on the touchstone of leanness and simplification. And not whether the IT Bill, 2025 was necessary in the first place. Thus, one question that slipped through the cracks: what made the IT Act, 1961 cumbersome? One vital reason: tendency of the IT Department to amend the law each time they lost a major case. The most dramatic and popular amendment is the retrospective amendment made in 2012 in aftermath of the Vodafone case. But, in my view, amending the IT Act, 1961 as an annual ritual – during the Budget- contributed to making it cumbersome. In short, it is not solely the age of IT Act, 1961 that made it cumbersome and complicated. Tax administration was also responsible to making the law unwieldly.   Unless the IT Department’s habit of effectuating annual amendments – to overcome a loss in courts – is brought to a halt, the IT Act, 2025 will suffer the same fate. 

Quick Legislative Passage and Amendments 

The Select Committee on the IT Bill, 2025 submitted its recommendations in July 2025 and, one month later, the IT Act, 2025 was passed by both Houses of the Parliament in the Monsoon Session of 2025. I’ve remarked elsewhere – of course, in jest – that the hurry with which the IT Bill, 2025 was passed should not lead courts to ascribe any ‘legislative wisdom’ to drafting of its provisions. The legislative hurry ensured that there was no meaningful legislative scrutiny of various provisions by either the Lok Sabha or the Rajya Sabha. Thus, it is not a stretch to say that the IT Act, 2025 is a law conceived and drafted by the executive and the Parliament merely rubber stamped it. While the Parliament rubber stamping various laws has been an increasing trend for various laws, in the context of income tax law such a practice brings into focus the idea of no taxation without representation. Elected representatives – especially in the Lok Sabha – should ideally scrutinise the quantum and methods with which the Union of India wishes to extract income tax from the taxpayers. But income tax policies are hardly the subject of any legislative debates and scrutiny. Executive fiat is determining our income tax burdens.   

Which brings me to, what I suggest, is a related issue. Frequent amendments to income tax laws. The IT Act, 2025 possesses the rare distinction of being amended before its implementation. The IT Act, 2025 comes into force on 1 April 2026 and in February-March of 2026, the Budget of 2026 proposed to amend some of its provisions. One reason for amendments to a law that was yet to be implemented was partially tied to the swiftness of its legislative passage. If the IT Bill, 2025 was never examined by either the Lok Sabha or the Rajya Sabha, there were bound to be some errors and oversights. While it is true that the IT Department spent a considerable time in drafting the law, the Select Committee prepared a gargantuan report detailing its observations and views of various stakeholders; there is no replacing a meaningful legislative debate.   

Of course, I don’t mean to say that if a meaningful and substantive legislative debate takes place, it cannot stop errors from creeping in the statute. Neither does it mean that the law will not be frequently amended. However, legislative debates – at the very least – can serve as useful insights into legislative intent. And this can be particularly useful because the IT Department frequently reasons that a particular provision is being amended because courts misunderstood legislative intent. In the absence of a legislative debate, what was the legislative intent remains only in the executive’s knowledge. Taxpayers only find out about the legislative intent if and when the executive chooses to reveal it. And while, in courts, the IT Department does frequently cite legislative intent to support its interpretation of the provision it is not supported by any legislative debates. The closest source we get are some statements by the Finance Minister in the Parliament while introducing or clarifying the amendments. Or if the amendments were made as part of the Finance Act, then the accompanying Memorandum might contain some brief explanations. But that is not true for all amendments as several provisions are amended via the Finance Act but no corresponding explanation for the amendment is found in the Memorandum. 

A quick-paced legislative passage, no meaningful legislative debate or scrutiny of the relevant provisions means that the income tax law becomes the site of back and forth between the IT Dept and courts. That is what frequently happened with the IT Act, 1961. And unless there is a serious change in the tax administration’s approach and the Parliament becomes more robust, we are likely to witness a similar scenario with the IT Act, 2025.  

Powers of Search and Seizure 

This brings me to third aspect of the IT Bill, 2025 that has caught attention in some quarters. To begin with, there is need to clarify that the IT Dept possessed search and seizure powers under the IT Act, 1961 too. Section 132 of the IT Act, 1961 empowered income tax officers to enter any building or place, seize any books of account or documents, place marks of identification on books of account or make copies. The corresponding provision in the IT Act, 2025 – Section 247- makes a crucial addition and extends the powers to electronic records. 

Section 247 states that where the competent authority has reason to believe that any person to whom summons have been issued has omitted or failed to produce any documents any books of account or documents are may be required by summons or notice; it may authorise relevant officers to enter and search a building, vessel or aircraft where it has reason to suspect that such books of account or documents are kept. Section 247(1)(a)(II) extends this power to ‘any information in an electronic form or a computer system’ which will be relevant to proceedings under the IT Act, 1961 or IT Act, 2025. Section 247(b)(ii) takes this power even further and states if a person is found in possession of an electronic record, information in electronic form or a computer system; the officer may require such person to:

such reasonable technical and other assistance (including access code, by whatever name called) as may be necessary to enable the authorised officer to inspect such books of account or other documents or such information;  

Thus, the officer can demand the person whose electronic record it is trying to access to provide technical assistance for accessing the record. 247(b)(iii) further states that if the access code to a computer system is not available, the officer can override it. Thus, the extension of powers to access computer systems and electronic records is comes with the power to obligate the person to provide access, and on refusal override the access codes. The extension of search and seizure powers to electronic records and computer systems can be justified by pointing towards ubiquitous nature of digitalisation. If the income tax officers had similar powers in respect of physical books of accounts and documents, their extension to digital sphere is an example of the law keeping abreast of contemporary practices. Equally, the threshold of ‘reason to believe’ needs to be satisfied, and the powers of search and seizure contain in-built safeguards.  

I’ve expressed my preliminary views on the interface of privacy and tax previously. But, two quick points on widening of search and seizure powers under Section 247 of the IT Act, 2025. First, extension of search and seizure powers to computer systems has a high probability of bringing personal devices within their scope. If not, personal devices per se, the IT Dept can gain access to a taxpayer’s personal data on an official computer system. In fact, the IT Department – even before implementation of the IT Act, 2025 – has confiscated mobile phones and laptops raising concerns of privacy and potential leak of personal data on these devices. The IT Department’s assurance that the device and data will be used in accordance with the law is effectively lack of any legal protection against invasion of privacy. Second, it is worth examining if the threshold of ‘reason to believe’ is sufficient protection vis-à-vis computer systems and electronic records. The courts have consistently upheld that reason to believe is a subjective standard and requires a speaking order detailing reasons. But, have refrained from scrutinising the material or information that led to the concerned officer arriving at the belief. But, with the Supreme Court endorsing right to privacy and introduction of personal data laws, it is worth examining if reason to believe provides adequate protection in the emerging landscape on privacy. My tentative view is: reason to believe is insufficient.    

There needs to be a safeguard, that if the computer system especially a mobile phone/laptop is used for personal and professional purposes, the income tax officer cannot seize or access it without any prior restrictions. An additional filter, on a priori basis, is necessary to provide a meaningful safeguard. Else, an officers’ reason to believe is sufficient for them to gain access to a taxpayers’ social media accounts, personal communication, financial records, and other personal data. The kind of information that is likely to be on mobile phone or laptop if it is also used for personal purposes. Reason to believe may be sufficient for income tax officers to gain access to business premises of a taxpayer, and conduct search for physical books of account; but extending it computer systems is fraught with the risk of violation of privacy.                

The Future Beckons   

Indian income tax  – and its reform – has a long history. The latest addition to it – IT Act, 2025 – has its roots in the Task Force constituted in 2017. But, since 2019, the Union of India has avoided any reference to recommendations and report of the Task Force. The second wind for replacing the IT Act, 1961 caught momentum in 2024 and will reach its conclusion on 1 April 2026. We can only speculate how much of the efforts to simplify the law are attributable to the Task Force. Nonetheless, what we do know is that the IT Act, 2025 is leaner and shorter with fewer provisions. I’m tempted to analogise it with being lean, but not healthy. But, it is difficult to say with certainty if the change in language and use of alternate vocabulary will create less litigation, free up capital caught in pending court cases, or otherwise contemporise India’s income tax law. What we do know is that there are two major trends that are almost contemporaneous to simplification of the income tax law: first, a movement to new tax regime as the default regime; second, a push, even if marred with controversies, towards faceless assessment. A third crucial aspect remains uncertain: India’s stance on digital taxation. While the equalisation levy has been made redundant, what follows its removal is not entirely certain.  

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