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Cyril Shroff and Dhananjay Kumar*

The Insolvency and Bankruptcy Code, 2016 (Code) was introduced to address chronic delays in resolving insolvent companies in an economy grappling with non-performing assets of the banks. In the last two years and a half, the Code and the related jurisprudence has constantly evolved and treaded uncharted territory of ‘resolution‘ of Indian companies. As per the recent statistics released by the Insolvency and Bankruptcy Board of India (IBBI), by June 2019, corporate insolvency resolution process (CIRP) has been initiated in relation to 2162 corporate debtors (CDs), 174 have been closed by appeal or reviewed or settled, 475 have ended in liquidation and 120 have ended in approval of a resolution plan.2

One of the most significant changes observed on implementation of the Code is the behavioural change in the stakeholders involved in the resolution process. As per the statistics presented by the Finance Minister during the Monsoon parliamentary session, approximately 6,079 cases were disposed of prior to admission, which meant an amount of approximately Rs. 2,84,000 crore being redressed.3 These figures reflect that promoters and management are increasingly being wary of financial indiscipline. The change in behaviour of stakeholders outside the process prescribed under the Code but on account of the promulgation of the Code is outside the scope of this article.

One of the objectives of the Code is to ‘balance the interests of all the stakeholders.’ Further, a resolution plan cannot pass the muster of the Code without dealing with the interest of all the stakeholders.4 As pointed out by the Chairperson of IBBI, Dr. M. S. Sahoo ‘while in the works for many years, the insolvency reforms suddenly took shape with the enactment of the Insolvency and Bankruptcy Code, 2016 on 28 May, 2016. In no time, it became a reform by the stakeholders, of the stakeholders and for the stakeholders.’ (emphasis supplied).5

Further, the Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law (UNCITRAL) provides that:

‘…when a debtor is unable to pay its debts and other liabilities as they become due, most legal systems provide a legal mechanism to address the collective satisfaction of the outstanding claims from assets (whether tangible or intangible) of the debtor. A range of interests needs to be accommodated by that legal mechanism….Generally, the mechanism must strike a balance not only between the different interests of these stakeholders, but also between these interests and the relevant social, political and other policy considerations that have an impact on the economic and legal goals of insolvency proceedings. ‘6

In light of the above, it becomes essential to analyse the behavioural changes of the various stakeholders involved in the CIRP as such behaviour may significantly impact the resolution of a CD. 7 It is not out of place to mention that, till June, 2019, realisation by financial creditors (FCs) in comparison to liquidation value in respect of the CD was 188 per cent, while realisation by them in comparison to their claims was 43 per cent, an improvement over the previous regime which yielded a recovery of 25 per cent for creditors and entailed a cost of 9 per cent. 8 These numbers would prompt the FCs to take proactive measures to resolve a stressed account. During or in the vicinity of the period of resolution process also, the stakeholders tend to behave in a certain way and the Code is evolving to provide for ways to dealing with the stakeholders during the CIRP as well.

This article deals with behavioural changes that have been witnessed and that may be required in relation to the different stakeholders post the introduction of the Code.


Studies reveal that for an organisation in crisis, it becomes essential to understand, amongst others, what kinds of stakeholders are the most influential in the organisational survival.9 One model identifies the stakeholders in two groups, i.e. (a) primary stakeholder without whose continuing participation a corporation cannot survive as a going concern; and (b) secondary stakeholders, who influence or are influenced by the firm, but who are not essential to its survival.10 Another model suggests that the classes of stakeholders are identified by their possession of power, legitimacy and urgency. 11 It is well accepted that enhanced participation of different actors, unobtrusive leadership, anticipation, adequate information sharing and open dialogue about an organisation goals may avert a crisis.12 While the said theory was primarily based on assessment of an organisation on the verge of crisis, it may very well be made applicable in case of an ongoing CIRP wherein an attempt is made to revive the operations of a CD on a going concern basis.

Importing this background, from an insolvency resolution perspective under the Code, the following objectives become relevant: (a) to identify the stakeholders who are vital for success of the CIRP ; (b) to assess the behavioural changes in the approach of the different stakeholders; and (c) to reconcile the conflicting interests of various stakeholders in order to accomplish the objectives of the Code. Currently, these variants are being regularly monitored on a case-to-case basis by the Government and the regulator (IBBI) and adequate legislative and policy changes are being introduced to address the related issues. It would also be relevant for the insolvency professionals, who are entrusted with running the business of the CD on a going concern basis during the CIRP, to understand and respond to the behavioural changes of various stakeholders during the CIRP period. Further, it would also become relevant for the committee of creditors (CoC) to understand the behavioural pattern of different stakeholders, given that CoC is entrusted with the task of overseeing the insolvency resolution process and is also expected to balance the interest of all the stakeholders while exercising its commercial wisdom for maximisation of value of the CD (including for negotiation and approval of the resolution plan). The study would also be relevant for the resolution applicants for the purpose of proposing a holistic and compliant plan in terms of the Code.

Set-out below is a brief assessment of the behavioural pattern of certain stakeholder who may impact the outcome of the CIRP in relation to a CD.


Under the provisions of the Code, upon commencement of the CIRP, the powers of board of directors of the CD are suspended and are exercised by the insolvency professional (IP) (i.e. the interim resolution professional or the resolution professional, as the case may be). The personnel of the CD, its promoters or any other person associated with the management of the CD are mandatorily required to extend all assistance and cooperation to the insolvency professional as may be required by him in managing the affairs of the CD. 13 However, there have been multiple instances wherein the promoters or the management have refused to co­operate with the IP or have provided unsymmetrical information. This behaviour may be a consequential result of the fear of loss of control of the company, stigma, unwelcome vigilance from an outsider, etc. As a result, various IPs sought relief from the National Company Law Tribunal (Adjudicating Authority). The Adjudicating Authorities (AA) have taken stern measures and issued requisite directions to the management and have also imposed costs in certain cases.14

Another aspect pertains to the attempts made by the promoters to regain the control of the CD. In stark departure from the erstwhile insolvency and restructuring regime in India, which was effectively led by promoters, the resolution process under the Code requires recalcitrant promoters to clear the eligibility test in order to regain control of the CD. The Supreme Court (SC) in the Swiss Ribbons 15 matter, while upholding the constitutional validity of the Code observed as follows:

‘It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a  corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the  corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those  who are in management.’ (emphasis supplied)

The Hon’ble President of India in his address to the Joint Session of Parliament on June 20, 2019 stated as follows:

‘Insolvency and Bankruptcy Code is among the biggest and most impactful economic reforms undertaken in the country With the coming into force of this Code, banks and other financial institutions have been able to settle directly or indirectly an amount of more than Rs. 3 lakh 50 thousand crore. This Code has also curbed the tendency of wilfully defaulting on loans taken from banks and other financial institutions.’ (emphasis supplied)

Repeated attempts by the promoters to regain control of the CDs have been subjected to intensive judicial scrutiny. 16 In other words, the defaulter’s paradise is lost.17 On multiple occasions measures have also been taken by the promoters to settle the debt rather than lose control of the business. As on June, 2019, there were 101 withdrawals of the CIRP applications (post introduction of section 12A in June, 2018), of which 76 were owing to settlement with the creditors.

Further, while the SC has allowed the directors to have access to the resolution plans submitted in relation to a CD,18 the fallout, if any, on account of factors like conflict of interest are yet to be assessed. Having said that, while there is apparent conflict between the promoters / management and the IP (who takes charge of the CD as an outsider professional with negligible knowledge of the operations of the company), it is crucial that the suspended management of the CD extends adequate co-operation and allows smooth flow of information sharing with the IPs and FCs so as to accomplish the objective of resolution of the CD.


The Code envisages ‘collective decision makinL‘ by bringing all the FCs on one table to make a decision for the resolution of the CD. 19As was observed in the Report submitted by the Bankruptcy Law Reforms Committee:

‘The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it.’

Under the Code, while an IP runs the resolution process, the CoC has been entrusted with substantial decision making powers. The CoC is also entrusted with the task of protecting the interest of all the stakeholders while evaluating the feasibility and viability of a resolution plan. While the commercial wisdom of the CoC may not be interfered (unless contrary to the provisions of the Code) 20 the degree of accountability of the CoC has only increased. The  National Company Law Appellate Tribunal (NCLAT) in Essar Steel 21 (hereinafter ‘Essar Steel’ )held that the CoC must approve that resolution plan (which is a compliant plan under the provisions of the Code) which maximises the value of the assets of the CD and balance all the stakeholders, irrespective of realisation for creditors under the plan. This has led to a significant behavioural change in the manner CoC conducts itself before and during the resolution process. During the resolution process also, the FCs engage professionals (such as evaluation agent, legal advisors, etc.) to assist them in handling the resolution process. In terms of filings also, while there was initial reluctance from the FCs, as on June, 2019, 40 per cent of the CIRPs were initiated pursuant to the FCs applications.

It would also be important to ascertain inter se relationship between the members of the CoC, who are accountable to take care of interests of all the stakeholders as a group, however, at the same time have vested interests in terms of their respective claim amount as a FC. The English law principles limit the power of majorities to bind minorities, unless it is exercised in good faith and in the best interests of the group as a whole.22 In India, this issue remains untested. As regards the distribution of the monies proposed by a resolution applicant, the NCLAT in Essar Steel held that the FCs being claimants at par with other claimants like other FCs and the operational creditors (OCs) having conflict of interest, are not empowered to decide the manner of distribution between the creditors. However, the recently notified Insolvency and Bankruptcy (Amendment) Act, 2019 (2019 Amendment Act) allows the CoC to consider the manner of distribution proposed, which may take into account the order of priority amongst creditors in case of liquidation, including the priority and value of the security interest of a secured creditor. Both the judgments of the NCLAT and the constitutionality of the 2019 Amendment Act are at present pending adjudication of the SC.

In few cases, FCs have also raced to collect their dues subsequent to the order of moratorium, through different modes such as encashment of cheques, debit from the account of the CD, etc. However, courts have denied such actions and held that any such action would be subjected to moratorium under the provisions of the Code.23

Another aspect pertains to the increasing inclination of hedge funds and stressed asset funds in investing in stressed assets undergoing insolvency in India. The interests and objectives of banks and such funds may be at different ends of the spectrum during the CIRP.

Outside the Code, the Reserve Bank of India (RBI) has also played a pivotal role in developing an environment of financial discipline in dealing with stressed assets. Amongst others, the circular dated June 7, 201924 encourages restructuring and allows lenders to come up with a resolution strategy during the review period. While there is no long stop date by which the resolution plan should be implemented, additional provisioning norms would presumably create a deterrent effect for early detection and resolution of a stressed account.


Unlike the FCs, OCs have limited representation during the insolvency resolution process under the provisions of the Code. Despite this, statistics show that as on June, 2019, 50 per cent of the CIRPs were initiated pursuant to application by OCs, followed by 40 per cent by FCs and remaining 10 per cent by CDs.25

Research suggests that an organisation in crisis must ensure the support of critical stakeholders.26 Continued cooperation of OCs is essential for running the operations of the CD on a going concern basis during the CIRP period. However, there have been instances where the OCs have threatened or opted for termination of the contracts during CIRP, since section 14 of the Code does not prohibit termination of contracts. For instance, in Chirag Associates Pvt. Ltd. v. Aircel Limited the CD had not paid rent to the owners of the leased premises. The resolution professional was directed to vacate the premises (as they were not in business use) and the payment of electricity dues and the rent incurred during the CIRP period were to be considered as CIRP costs. Further, in ABG Shipyard Ltd. v. ICICI Bank Ltd. & Ors.28 the workmen and employee of the CD filed an application before the AA for payment of their outstanding salaries, wages and other dues. The AA directed the resolution professional to apportion a portion of the amount received by the company from Coast Guard through Comptroller of Defence towards the dues of workmen and employee.

In relation to the dues of the OCs as on the insolvency commencement date, the Code requires a resolution applicant to provide for the payment of debts of OCs in such manner as may be specified by IBBI which shall not be less than (i) the amount to be paid to such creditors in the event of a liquidation of the CD under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher. In any event, most costs incurred for running the business of the CD as a going concern would be classified as CIRP costs.

Although the SC has held that fair and equitable treatment should be accorded to the OCs29 and the same has been re-emphasised vide the 2019 Amendment Act, the jurisprudence in this regard is still evolving. The reluctance of the resolution applicants in proposing an amount above liquidation value to the OCs who are not involved in the negotiation process has resulted in multiple litigations before different forums. This has also caused the OCs to have a relook at their contractual arrangements with the CDs to build-in adequate safeguards to seek advance payments, adequate security, etc. Further, the fact that there is a threat to the solvency of small and medium enterprises who suffer major haircuts or receive negligible payments towards their operational debt from larger enterprises they support cannot be disregarded.

Various statutory authorities have raised challenges to the classification of their debt as operational debt, extinguishment of their dues under the resolution plan, issues in relation to attachment of property of a CD during the CIRP period, etc. For instance, the SC in the matter of Monnet Ispat30 upheld the decision of the Delhi High Court which ruled that the moratorium under the provisions of the Code will also apply to appeals being made by the Income Tax Department against the orders of Income Tax Appellate Tribunal, in respect of tax liability of a debtor under CIRP. The Department of Telecommunication has recently challenged the transfer of spectrum and extinguishment of their claims as OCs. 31 To address these issues, section 31 of the Code has been amended vide the 2019 Amendment Act which makes the resolution plan binding on, amongst others, the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed.


Whilst a resolution applicant has no vested right in its resolution plan until the same is approved by the AA (or the appellate authorities), 32 it cannot be disregarded that a resolution applicant who can continue to run the CD as a going concern would be preferred for ensuring resolution and maximisation of value of a CD.

While the 270 day statutory timeline for resolution invited interest from various strategic investors globally, there are cases which are pending at various levels of judiciary and have not been resolved for more than 2 years leading to concerns on deterioration in value of the CD and growing concern amongst the investors on account of delays. Responding to this situation, the Government has appointed 29 new members (judicial and technical) to clear the backlog. We also need to use effective case management tools to boost investor confidence.

There have been instances where preferred resolution applicants have raised diligence issues, delayed payments, or just walked away from implementation of a resolution plan. However, timely intervention by regulators by amending the applicable regulations has ensured that the resolution applicants put some skin in the game upon being declared as a successful resolution applicant.33 Moreover, the removal of the requirement to disclose liquidation value as a part of the information memorandum has put the onus on the resolution applicants to justify the feasibility of their financial proposal as liquidation value can no longer be a benchmark for the resolution amount.

There is a growing awareness amongst the resolution applicants that the Code does not operate in isolation and is not a single window clearance and accordingly, taking control of the companies on a ‘clean-slate’ basis may not be possible. Recently, the AAs have also not allowed various reliefs and waivers sought by the resolution applicants and directions have been issued to seek reliefs from the relevant authorities in view of the approved resolution plan. 34 These aspects will eventually vary the price discovery and the financial proposal put forth by the resolution applicants.

Recently, NCLAT has also held that the AA has the power to order IBBI/ Ministry of Corporate Affairs to initiate criminal investigations against resolution applicants under section 74(3) of the Code, provided they are given a proper hearing.3 This would presumably impact the behaviour of non-serious resolution applicants who would not attempt to be a part of the process without adequate financial strength.


IPs acting as interim resolution professional or resolution professional, as the case may be, are primary stakeholders. However, their role in the CIRP is central.

An IP, who exercises the powers of the board of directors of the CD during the CIRP period is also required to maintain complete independence while conducting the CIRP. The IPs are also required to operate the CD as a going concern during the entire CIRP period and in doing so, they deal with all the stakeholders (detailed above) during the entire CIRP period till the time the resolution plan is implemented. The SC and the Tribunals have time and again emphasised that the role of an IP is to run the process as a facilitator. For instance, for claim

verification of the creditors of a CD, the role of an IP clarified by the SC in Swiss Ribbons 36 wherein it was held that an IP is merely required to act as a facilitator for conducting the CIRP and does not have any adjudicatory powers. Similarly, for the purpose of evaluating the resolution plans, the SC in Essar Steel37 held that the role of an IP is limited to providing a prima facie opinion regarding the compliance of the resolution plans with the applicable law (including with the section 29A of the Code) and to place the compliant plans before the CoC, who may or may not approve it.

In view of the above, the behavioural change in IPs can be construed to be shifting towards more of a facilitator for the resolution of a CDs.


Behavioural responses of the stakeholders have so far worked in tandem with one of the core objects of the Code, i.e. to balance the interest of all the stakeholders. Though the implementation of the Code is still at a nascent stage and effectively evolving on a regular basis, it may be stated for certain that the Code has set in motion an environment of better financial discipline and has shaped the roles that the stakeholders play in revival of a CD. The Code has also changed the behaviour of the key stakeholders, i.e. the creditors, with FCs using it as a last resort and OCs using it as a weapon of choice to recover their dues.


1 The authors would like to thank their colleagues Ms. Surbhi Pareek and Ms. Tweisha Mishra for their assistance in writing this article.

2 Quarterly Newsletter of IBBI, April-June (Vol. 11), 2019.

3Ms. Nirmala Sitharaman, Rajya Sabha Debates dated July 27, 2019 (RSS-RPM/1A/11.00).

4Regulation 38(1A), IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 and section 30 of the Code

5Sahoo, M.S. (2019). A Journey of Endless of Hope, 2nd Annual GRR Live, Singapore.

6UNCITRAL Legislative Guide on Insolvency Law (August 14, 2019),

7This article looks at ‘stakeholders’ in the same way as in the IBBI (Liquidation Process) Regulations, 2016, i.e. persons who are entitled to receive dividends from the CD.

8 Supranote 2.

9Pajunen, Kalle (2006). Stakeholder Influences in Organizational Survival. Journal of Management Studies, Wiley Blackwell, Vol. 43(6), pp. 1261-1288.

10Clarkson, M.B.E. (1995). A Stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 20, pp. 92-117.

11 Mitchell, R.K. Agle, B.R. and Wood, D.J. (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts. Academy of Management Review, 22, pp. 853-86.

12Rosenblatt, Z. Rogers, K.S. and Nord, W.R. (1993). Toward a political framework for flexible management of decline. Organization Science, 4, pp. 76-91.

13Sec tion 19 of the Code. See also Mis Educomp Infrastructure & School Management Limited v. 9inod Kumar Dandona, & Ors (CA No.335/ 2018 in CP (1B) No.10/ Chd/Hry/ 2018).

14Amandeep Singh, Resolution Professional v. Mandeep Singla & Ors. (CP (1B) No.60/Chd/PB/2017); See also Anil Kumar vs. Rolex Cycles Private Limited & Ors. (C.A. Nos. 122-124/2017 in CP (1B) No. 37/CHD/PB/2017).

15Swiss Ribbons v. Union of India, 2019 SCC Online SC 73.

16ArcelorMittal India Private Limited v. Satish Kumar Gupta & Ors. (2019) 2 SCC 1; See also Standard Chartered Bank v. Satish Kumar Gupta & Ors. (Company Appeal (AT) (Ins.) No. 242 of 2019).

17Vijay Kumar Jain v. Standard Chartered Bank, 2018 SCC Online SC 3152.

18 Id.

19 Bankruptcy Law Reforms Committee (2015). The report of the Bankruptcy Law Reforms Committee, Volume I: Rationale and Design. Tech. rep. Department of Economic Affairs, Ministry of Finance, Government of India, Nov. 2015.

20 K. Sashidhar v. Indian Overseas Bank & Ors., 2019 SCC Online SC 257.

21Standard Chartered Bank v. Satish Kumar Gupta & Ors. (Company Appeal (AT) (Ins.) No. 242 of 2019).

22Redwood Master Fund v. TBD Bank Europe Ltd, [2002] EWHC 2703 (Ch.) and Assénagon Asset Management SA v. Irish Bank Resolution Corpn Ltd, [2012] EWHC 2090 (Ch.). 3.

23State Bank of India v. Mr. ;. Ramakrishnan (Company Appeal (AT) (Insolvency) No. 213 of 2017); See also State Bank of India v. Debashish Nanda, (Company Appeal (AT) (Insolvency) No. 49 of 2018) and ICICI Bank Limited v. Interim Resolution Professional for Ruchi Soya Limited (Company Appeal (AT) (Insolvency) No. 390 of 2018).

24Prudential Framework for Resolution of Stressed Assets, RBI Circular No: RBI/2018-19/203 DBR.No.BP.BC.45/21.04.048/2018-19.

25Supra note 2.

26Arogyaswamy, K., Barker III, V. L. and Yasai-Ardekani, (1995). Firm turnaround process: an integrative two-stage model. Journal of Management Studies, 32, pp. 493-525.

27 MA 492/2018, MA 987/2018 & MA 945/2018 in CP (IB)-298/(MB)/2018.

28 IA No. 78 of 2018 in CP(IB) No. 53/19/NCLT/AHM/2017).

29Swiss Ribbons, supra note 15.

30 Pr. Commissioner of Income Tax v. Monnet Ispat And Energy Ltd., Petition No. (C) No(s). 6483/20.

31Telecom Department rejects Aircel’s resolution proposal. The Economic Times, (July 1, 2019)

32 Essar Steel, supra note 10.

33Regulation 36B(4A) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 requires a successful resolution applicant to provide performance security, which shall stand forfeited if the resolution applicant fails to implement or contributes to the failure of implementation of that plan in accordance with the terms of the plan and its implementation schedule.

34Resolution Professional and AION Investment Private Limited and JSW Limited M.A. 346/2018 in CP (IB) 1139 (MB)/2017 (Order dated July 24, 2019); See also, Resolution Professional of Essar Steel India Limited IA No. 431 of 2018 in CP (IB) 39 and 40 of 2017 (Order dated March 8, 2019). 3Committee of Creditors of Amtek Auto Ltd. through Corporation Bank v. Mr. Dinkar 9. Venkatasubramanian & Ors. (Company Appeal (AT) (Insolvency) No. 219 of 2019).

36Swiss Ribbons, supra note 15.

37Essar Steel, supra note 21.

Source- https://ibbi.gov.in/uploads/whatsnew/2456194a119394217a926e595b537437.pdf

*( Mr. Cyril Shroff is the Managing Partner at Cyril Amarchand Mangaldas, Advocates & Solicitors and Mr. Dhananjay Kumar is a Partner at Cyril Amarchand Mangaldas, Advocates & Solicitors.)


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