1. Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner.
The primary objective of the IBC is to promote entrepreneurship, ensure credit discipline, and maximize the value of assets of corporate entities. One of the most significant features of this Code is the Corporate Insolvency Resolution Process (CIRP), which provides a structured mechanism for resolving the financial distress of companies.
2. Applicability of CIRP
The CIRP applies to all companies and limited liability partnerships (LLPs) registered under the Companies Act or LLP Act.
It can be initiated by:
- A Financial Creditor (Section 7),
- An Operational Creditor (Section 9), or
- The Corporate Debtor itself (Section 10).
As per the notification dated 24 March 2020, the minimum default amount required to initiate CIRP is ₹1 crore.
3. Identification of Default
Under Section 3(12) of the IBC, “default” means non-payment of debt when the whole or any part of the instalment becomes due and payable.
The creditor must prove the existence of default through documentary evidence such as:
- Loan agreements or invoices,
- Bank statements showing non-payment,
- Records from Information Utility (if any).
This step is crucial as the NCLT (National Company Law Tribunal) admits the application only after being satisfied about the occurrence of default.
4. Initiation of CIRP
A. By Financial Creditor (Section 7)
A financial creditor can file an application before the NCLT in the prescribed form, along with proof of default.
Upon satisfaction, the NCLT may admit or reject the application within 14 days.
Once admitted, the CIRP commences from that date.
Case Law:
Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 – The Supreme Court held that once the Adjudicating Authority is satisfied that a default has occurred, it must admit the application.
B. By Operational Creditor (Section 9)
An operational creditor (such as a supplier or service provider) must first issue a demand notice under Section 8 to the corporate debtor.
If the debtor fails to pay or dispute the claim within 10 days, the creditor may then file an application before NCLT under Section 9.
The notice must include all invoices and documents proving the debt and default.
C. By Corporate Debtor (Section 10)
A corporate debtor may itself initiate CIRP when it is unable to pay its debts.
The process requires:
- A special resolution of shareholders,
- Filing of Form 6 before the NCLT, and
- Disclosure of financial position and records.
This is often used for voluntary insolvency resolution.
5. Admission and Commencement of CIRP
Upon receipt of an application, the NCLT must either admit or reject it within 14 days.
If admitted, the following takes effect immediately:
- Moratorium (Section 14):
All pending legal actions, recovery suits, and enforcement of security interests are stayed. - Appointment of Interim Resolution Professional (IRP):
NCLT appoints an IRP within 14 days from the insolvency commencement date. - Public Announcement:
IRP must make a public announcement inviting claims from all creditors.
6. Role of Interim Resolution Professional (IRP)
The IRP takes over the management and control of the Corporate Debtor during CIRP.
Key functions include:
- Collecting information on assets, liabilities, and operations.
- Receiving and verifying creditors’ claims.
- Constituting the Committee of Creditors (CoC).
- Managing the affairs of the company as a going concern.
7. Committee of Creditors (CoC)
The CoC comprises only financial creditors.
It plays a pivotal role in the CIRP process and has the power to:
- Approve or reject resolution plans.
- Replace the IRP with a Resolution Professional (RP).
- Decide on the continuation of business operations.
The CoC’s decisions are made by voting share (minimum 66% majority).
Judicial Reference:
In K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150, the Supreme Court held that the commercial wisdom of CoC is paramount and cannot be questioned by NCLT or NCLAT.
8. Preparation and Submission of Resolution Plan
The Resolution Professional (RP) invites Resolution Applicants to submit their plans.
Each plan must provide for:
- Repayment structure,
- Management strategy, and
- Compliance with applicable laws.
After scrutiny, the CoC may approve one plan by a 66% voting majority, and the same is submitted to NCLT for final approval.
Case Law:
Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 – The Supreme Court reaffirmed that the CoC’s commercial decision on a resolution plan is not subject to judicial review except on limited grounds.
9. Time Limits under CIRP
- 180 days from the date of admission, extendable by 90 days (maximum 270 days), and
- Overall limit of 330 days, including time spent in litigation (as per Essar Steel, supra).
This ensures a time-bound resolution, which is the essence of IBC.
10. Outcome of CIRP
There are two possible outcomes:
- Approval of Resolution Plan:
- The company continues as a going concern.
- Control was restored to the new management.
- Failure of Resolution Process:
- If no plan is approved, NCLT orders liquidation under Chapter III of the IBC.
11. Key Supreme Court Judgments
| Case Name | Citation | Key Principle |
| Innoventive Industries Ltd. v. ICICI Bank | (2018) 1 SCC 407 | Test of default and mandatory admission by NCLT |
| Swiss Ribbons Pvt. Ltd. v. Union of India | (2019) 4 SCC 17 | Upheld the constitutionality and purpose of the IBC |
| Essar Steel India Ltd. v. Satish Kumar Gupta | (2020) 8 SCC 531 | Commercial wisdom of CoC protected |
| ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta | (2019) 2 SCC 1 | Section 29A – eligibility of resolution applicant |
Difference Between Financial Creditors and Operational Creditors under the Insolvency and Bankruptcy Code (IBC), 2016
12. Conclusion
The CIRP mechanism under IBC has transformed India’s corporate debt resolution landscape.
It ensures speedy, transparent, and value-maximizing resolution while balancing the interests of all stakeholders.
The Supreme Court’s consistent interpretation has strengthened the Code’s foundation, making it a powerful tool for revival over liquidation and improving India’s credit culture and ease of doing business.
13. Frequently Asked Questions (FAQs)
Q1. What is the minimum amount of default required to initiate CIRP?
→ ₹1 crore, as per the latest notification issued by the Ministry of Corporate Affairs (2020).
Q2. Can an Operational Creditor initiate CIRP without issuing a demand notice?
→ No. A demand notice under Section 8 is mandatory before filing an application.
Q3. What happens once a moratorium is declared?
→ All legal proceedings, recovery actions, and foreclosures are suspended until the CIRP ends.
Q4. Who manages the company during CIRP?
→ The Interim Resolution Professional (IRP) or the Resolution Professional (RP) manages the operations.
Q5. What if no Resolution Plan is approved?
→ The company proceeds to liquidation under Chapter III of the IBC.
Adv. Sanjay Sharma is a Practicing Advocate in India, handling matters relating to Civil Law, Criminal Law, Goods and Services Tax (GST), and Insolvency & Bankruptcy laws.
Through Samvidhan Se Samadhaan, he works towards enhancing public legal awareness by presenting legal principles, procedures, and judicial decisions in clear, structured, and easily understandable language, supported by authoritative Supreme Court judgments.
