CIRP

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 – 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. 

Spectrum Licensed to Telecom Companies: Another Frontier for the IBC

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Interaction of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) with various sectors of the economy – aviation and real estate – has produced uneven results. Telecom sector brings forth its own set of issues. The Supreme Court in its recent judgment of State Bank of India v Union Bank of India (‘SBI case’) has accorded primacy to the Indian Telegraph Act, 1885 and its attendant regulatory framework, potentially throwing a spanner in the efficacy of IBC for telecom companies. The narrow issue was whether spectrum – held under a license by telecom companies – is an asset that can be subjected to corporate insolvency resolution proceedings (‘CIRP’) under the IBC. The Supreme Court answered in the negative and held that telecom companies do not own the spectrum, and it cannot be categorized as their asset under the IBC. 

The broader framework – previously endorsed in  Property Owners Association & Ors v State of Maharashtra & Ors – within which the Supreme Court decided the case was that spectrum is a finite natural resource and belongs to the people. The Government acts as a trustee in distributing these natural resources and is constitutionally bound to distribute spectrum to sub-serve common good. The Supreme Court held that telecom companies possess a limited right to use the spectrum and do not own it. And treatment of spectrum as an asset by telecom companies in their balance sheet is not determinative of the nature of spectrum. Instead, the relevant telecommunication laws – and license conditions – provide the answer to question if spectrum is an asset or not. Further, the Supreme Court held that the IBC cannot displace telecommunication laws as the latter determine conditions for grant, use, and transfer of spectrum.  

This article attempts to highlight three aspects of the SBI case: firstly, an acknowledgment that natural resources cannot be treated as objects of private ownership does not naturally lead to the conclusion that they cannot be treated as assets for CIRP; there is a ‘reasoning gap’ between the statement and its conclusion; secondly, potential implications for companies in other sectors where use of licenses for exploiting natural resources is the main business activity and, the license, a vital asset of such companies; thirdly, by treating spectrum as incapable of being subjected to CIRP, the recovery of pending dues by the State may not materialize or alternatively, push negotiations outside the framework of IBC. Both eventualities do not serve the IBC’s purpose. Finally, this article examines the broader issue of reconciling telecommunication laws with the IBC and makes a case that the latter should override the former and all sectoral laws should accommodate the contingency of licensee’s insolvency to harmonize the objectives of both laws.    

Background

The Aircel Group entities (‘Aircel’) were granted telecom licenses by the Department of Telecom (‘DoT’) under license agreements which were valid for twenty years. Aircel availed loan facilities from domestic lenders such as the State Bank of India for its business. Aircel, on failure to pay license fees to the DoT, initiated voluntary CIRP under Section 10 of the IBC. The DoT challenged resolution plan approved by the NCLT via an appeal before the NCLAT. The NCLAT’s three observations that are relevant to this article are: (a) spectrum is an intangible asset of Aircel; (b) DoT is an operational creditor of Aircel in relation to pending payment of license fee and usage charges’; (c) spectrum cannot be utilized without clearing pending dues as CIRP cannot be used to wipe out statutory dues. The last two observations are, inter-se, inconsistent. If the DoT was accepted as an operational creditor, it should have been paid as per the approved resolution plan. The NCLAT by observing that payment of pending license fees to the DoT is pre-condition for utilization of spectrum indirectly categorized the DoT as a ‘pre-eminent creditor’. A situation not endorsed by the IBC. The Supreme Court disagreed with the NCLAT’s first observation itself and held that spectrum is not owned by a licensee such as Aircel, is not its asset, and cannot be subjected to CIRP.  

Spectrum Trading Subject to Clearance of Dues   

The Supreme Court examined the nature and conditions of the spectrum license and made three pertinent observations: (a) the DoT’s powers as a licensor are not merely contractual in nature but emerge concurrently from the Constitution and statute; (b) the license does not confer ownership or proprietary interests to the licensee merely a right to use the spectrum for a limited duration; (c) the licensor maintains absolute control over the licensee including rights of the latter to create third-party rights or transfer the spectrum. The latter was evident in The Guidelines for Trading of Access Spectrum, 2015 which stipulate certain conditions that need to be fulfilled for spectrum trading.  The Supreme Court cited Guideline 11 which mandates a licensee to pay all pending dues before concluding any agreement for spectrum trading. And Guideline 12 under which the Government reserves the right to claim any subsequent dues discovered from either of the two parties, jointly or severally. 

Core condition of spectrum trading under the license can thus be spelled out: if a licensee has pending dues, it cannot trade spectrum unless pending dues are paid. But does this condition apply even during a CIRP under the IBC? If a licensee is undergoing CIRP, can a successful resolution applicant can acquire its license without paying the (entirety of) pending dues? The Supreme Court answered in following words: 

The Spectrum Trading Guidelines cannot be overridden or substituted by the insolvency resolution framework. Dues payable to the Licensor, which must be cleared prior to spectrum trading, cannot be relegated to treatment under a Resolution Plan. (para 29)   

The Supreme Court endorsed this position by reasoning that payment of pending dues is an absolute condition. And that the IBC cannot bypass telecommunication laws by treating spectrum as an asset. Nor can the non-obstante clause of the IBC – Section 238 – wherein it overrides all other laws can be used to displace the condition of payment of pending dues before transferring the spectrum. Supreme Court’s reasoning suffers from a few limitations, as I elaborate in the subsequent sections.  

Understanding Implications 

Firstly, Supreme Court’s conclusion is encased in the constitutional framework of natural resources being owned by the people. The emphasis on the absolute and pervasive control of the DoT on all aspects of spectrum – tradability, transferability – was one reason to conclude that licensee did not own the spectrum.  Supreme Court’s understanding that natural resources such as spectrum are licensed by State largesse and do not result in change in ownership is plausible on a standalone basis. However, this understanding does not naturally lead to the conclusion that spectrum cannot be subjected to CIRP. The Supreme Court justified the conclusion by referring to Section 18 of the IBC wherein assets of a corporate debtor include intangible assets owned by the corporate debtor. However, Section 18(f) states that it includes ‘any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor …’. Thus, merely ownership of an asset is not a condition, its reflection as an asset in balance sheet is also crucial. However, the Supreme Court emphasized on the former and reasoned that treatment of spectrum in a balance sheet was not determinative of ownership of an asset. But, did not engage with the language of Section 18(f) which mentions ownership of an asset and its treatment in the balance sheet.     

Also, the Supreme Court arrived at its conclusion by identifying telecommunication laws as the ‘legal province’ of spectrum and observing that the IBC cannot alter conditions for license prescribed by the former. The Supreme Court observed that if the DoT forgoes pending dues under a resolution plan, it will be acting contrary not only to telecommunication laws but also to its constitutional obligations. The IBC’s competing aim of rescuing the licensee pales in comparison to constitutional mandate of distribution of natural resources for the common good. The Supreme Court’s approach does not acknowledge that transfer of spectrum as an asset – under the approved resolution plan – would also take place under a constitutionally valid law, i.e., the IBC. And the DoT’s legal and constitutional mandate of securing pending payments cannot be secured merely under telecommunication laws. Though once the Supreme Court identified latter as the relevant laws, applicability of the IBC was only possible if the special circumstance – of financial distress – that precipitate the CIRP were acknowledged. But the Supreme Court insisted on the absolute nature of telecommunication laws, unqualified adherence to conditions of licenses, and impliedly endorsed the position that any reduction or non-payment of pending dues will be a betrayal of the constitutional mandate to secure natural resources for common good.  

Secondly, the Supreme Court’s observations create potential issues for similarly placed companies whose licenses are one of their most valuable assets. For example, companies that have secured mining licenses – for coal and other natural resources – may face similar legal situations wherein the State may claim priority for any pending dues under the respective licenses. For such companies, a mining license is their core asset and if it does not form part of CIRP, the IBC’s aim to rescue such companies may fail. Other companies will have little incentive to participate in CIRP and rescue the company if they cannot control the latter’s most lucrative asset, i.e., the license. The only caveat is that the Supreme Court’s conclusion in the SBI case is based on its examination of the relevant telecommunication laws. And the specific legal and regulatory framework for such other licenses and terms of licenses may determine the outcome in those cases. Though the State is likely to use the SBI case as an instrument to claim payment of all pending dues under a license.   

Thirdly, it is worth highlighting that the corporate debtor’s unwillingness or inability to pay the pending dues is the reason that CIRP is initiated. In such a situation, the DoT’s insistence that the corporate debtor pay all pending dues may not materialize. The other plausible option is that a resolution applicant’s whose plan is chosen by the CoC makes payment to the DoT before getting the plan approved by the NCLT. But if one operational creditor – the DoT, even if it is a statutory body – gets paid on priority and in full under the resolution plan it prejudices claims of other operational creditors. And payment of dues to the DoT on priority has no statutory basis under the IBC. The third option is of corporate debtor entering negotiations outside the IBC framework. A telecom company – unable to unwilling to pay dues – may enter into an agreement with a willing buyer wherein the latter pays the pending dues and buys the spectrum. The Supreme Court’s judgment may push financial distressed telecom companies towards these negotiations that will occur outside the IBC’s framework. 

I suggest that all three possible options elaborated above defeat the IBC’s objective of providing timely resolution of a distressed corporate, accounting the interests of all stakeholders, and maximizing the value of corporate debtor’s assets. Payment to the DoT, on priority, prejudices other creditors and is at odds with prescribed mechanisms under the IBC. While initiation and completion of any negotiations outside the framework of the IBC prevents the corporate debtor from taking advantage of a law enacted for the purpose of corporate rescue and can potentially sideline other stakeholders. On balance, I would argue that the obligations of outstanding debts and pending dues are better recast and negotiated under the IBC’s framework and not beyond.       

Reconciling Telecommunication Laws with the IBC    

Supreme Court’s judgment in the SBI case implies that all dues that a licensee owes to the State are to be recovered as per the telecommunication laws, and the IBC cannot influence the nature and quantum of pending payments. The fact that the licensee is financially distressed and is seeking rescue under the IBC via CIRP is immaterial. The Supreme Court observed that payment of pending dues is an ‘absolute’ condition under the telecommunication laws and the IBC cannot displace it. There are two aspects worth examining in respect of the Supreme Court’s above observations. 

Firstly, let us look at Explanation to Section 14(1) wherein it is stated that the Central Government, State Government, local authority or sectoral regulator shall not terminate a license, permit or quota on grounds of insolvency; provided there is no default in payment of dues during the moratorium period. This provision reduces the elbow room for a licensor such as the DoT to terminate a telecom license on grounds of non-payment of dues caused by insolvency or initiation of CIRP. While Section 14 of the IBC seemingly constraints the powers of licensors to terminate licenses, it also reveals that a reconciliation between the IBC and licensing powers of the State is possible. Latter is forced to acknowledge financial distress of the corporate debtor, restrain from termination of license, and acknowledge the IBC’s purview. 

In fact, I would argue that Section 14 envisages that all dues relating to licenses should be resolved as part of CIRP and not independent of it. Explanation to Section 14(1) prevents cancellation of licenses to preserve status quo until a resolution plan is approved. The explanation is premised on the fact that all pending dues in relation to a license shall be resolved as per the resolution plan. Else, if the recovery of dues of a license – telecom or otherwise – was envisaged to be independent of the CIRP there is little reason to prevent cancellation of licenses. The presumption is that natural resources in possession of a licensee even if not owned by it have value that can be accounted for in the resolution plan. And pending dues paid accordingly. This ensures that all pending dues under a license are paid to the licensor as part of CIRP, the corporate debtor is rescued, and all its financial obligations are addressed comprehensively under the IBC itself. While it is trite that natural resources cannot be privately owned, it is also vital to acknowledge that a license confers economic and exploitation rights to the licensee. While the Supreme Court – in the SBI case – examined the issue of economic rights, it looked at solely from the lens of ownership of asset and did not engage in a deeper analysis of their interaction with insolvency. Economic rights in relation to the natural resources are a crucial asset that are subject to license conditions, but insolvency is a special condition and provides a persuasive reason to deviate from standard license conditions.     

Secondly, only a related note, it needs to be underlined that non-obstante clause of the IBC serves multiple purposes. To begin with, it indicates that – to the extent of inconsistency – the IBC prevails over all other laws since it is an exhaustive law. The Supreme Court has clarified the exhaustive nature of IBC sufficiently. In matters relating to insolvency, the IBC prevails over all other laws. Even sectoral laws. The IBC does not ‘displace’ sectoral laws but only ensures that in matters relating to insolvency no other law be applicable to ensure predictability and certainty in CIRP. Further, I would argue that the non-obstante clause also underlines that the IBC hovers over all sectors of the economy and applies to all companies. It is sector agnostic. Thus, it is the sectoral laws that need to adjust to the presence of IBC and not the other way around. The Supreme Court – in the SBI case – reasoned that applying the IBC to telecom sector will cause disharmony. And the harmony, as per the Supreme Court could only be served by observing the license conditions in isolation from CIRP. The Supreme Court concluded: 

The two statutes have different subjects to deal with, different purposes to subserve, different laws to abide, protect different rights and create different liabilities. It is necessary for the constitutional courts to recognize their respective provinces and to ensure that they operate with harmony and without conflict. (para 68)         

If both laws operate in their own provinces, then the harmony that prevails is only superficial. The harmonious approach endorsed by the Supreme Court has the potential of each sector regulator – in its capacity as a licensor – claiming a privileged position as a debtor. And, rendering the non-obstante clause of the IBC subject to vagaries of various sectoral laws and license conditions. At the very least, it will jeopardize attempts at rescuing various kinds of companies under the IBC, especially the ones that have secured licenses from the State. 

Conclusion

Supreme Court’s observations in the SBI case, in effect, privileges dues owed to the State under a license. And there are scarcely justifiable reasons why pending dues under a license cannot be recovered – in part or full – as part of the resolution plan. The conditions of payment under a license should be respected unless a CIRP is commenced. The latter – once commenced – should have the effect of varying the contractual obligations as it is a special circumstance. But insistence on absolute nature of payments on constitutional grounds and sub-serving common goods does little to increase the likelihood of payment of pending dues. And if a successful resolution applicant does pay the dues to the State on priority, it amounts to redesigning the IBC in favor of the State. While, ideally, the State should actively concede its claims to help revive a corporate debtor instead of saddling it with full recovery amounts.   

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