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

April 27, 2026 by Rav Singh

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 – III | Restoring CIRP under the IBC: A New Portal Opens

April 20, 2026 by Rav Singh

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.