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.
