Experts skeptical of new CIRP rules, say some provisions not aligned with IBC

Since the enactment of IBC in 2016, IBBI has issued approximately 20 distinct notifications up to May 2025, and modified around 133 regulatory clauses.

Legal experts and analysts are sceptical about the key IBC-related regulatory amendments notified last week by the Insolvency and Bankruptcy Board of India (IBBI), which are aimed at "strengthening and streamlining" the corporate insolvency resolution process (CIRP). They say the some of the new key-regulatory changes are not completely aligned with the provisions of IBC, which may raise legal hurdles for stakeholders going forward.

On May 30, the insolvency regulator amended "IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016" to facilitate part-wise resolution of corporate debtor (CD), harmonise timelines for payment under resolution plan, enable presentation of all plans before the committee of creditors (CoCs), as well as empower CoC to direct the resolution professional (RP) to invite the providers of interim finance to attend creditors' meetings.

While these regulations have been introduced to "streamline and strengthen" CIRP, certain changes raise significant concerns, say experts. The amendment which allows RP--with the approval of COC--to invite expression of interest (EoI) for submission of resolution plans for the corporate debtor as a whole, or for sale of one or more of assets of the corporate debtor, or for both, raises important legal and procedural concerns, they say.

"The definition of 'resolution plan' under Section 5(26) of the IBC only envisages resolution of the corporate debtor as a going concern. The law does not support asset wise sale of the corporate debtor within the scope of resolution. Allowing such flexibility through subordinate legislation risks rendering the provision constitutionally void," said Misha, Partner, Shardul Amarchand Mangaldas & Co.

"Further, questions as to how the CoC will vote on such plans, how the security interest will be treated etc. remain unaddressed," she added.

Some experts, however, say that the new approach will unlock better value by attracting a wider pool of investors and offering more tailored or focused investment opportunities.

"For instance, in the case of large infrastructure or concession-based entities, such as toll road operators, certain ancillary assets like hospitals or hotels or real estate projects may not align with the strategic interests of potential buyers focused solely on core infrastructure concessions. Allowing these non-core assets to be carved out and sold separately will enhances valuation of all these assets, will get better investor interest and ensures more efficient resolution outcomes," noted Hardeep Sachdeva, Senior Partner, AZB & Partners.

The other amendment, which mandates presentation of all resolution plans to CoC, is also a departure from the tenets of IBC, say analysts. The duty of the RP to present all resolution plans to the CoC is limited to presenting such plans that may be considered by the committee to rescue the corporate debtor. Such interpretation is supported by Section 30(3) of the IBC which clearly "only requires" the RP to present such plans that comply with the mandatory requirements listed in Section 30(2). Thus, presenting non-compliant resolution plans to the CoC may be inefficient and cause confusion, they say.

"The CoC has limited time to evaluate resolution plans, negotiate its terms and approve the most value maximising plan. Adding complexities to this process disproportionately may increase delays and ultimately erode the value available to stakeholders," said Misha.

Sumant Nayak, Senior Partner at Desai & Diwanji, still feels that the change is needed as it promotes transparency in plan evaluation. "It may result in increased involvement of CoC in evaluation of all the plans in order to make better-informed decisions, and might also lead to reconsideration or rectification of plans previously deemed non-compliant," Nayak added.

Since the enactment of IBC in 2016, IBBI has issued approximately 20 distinct notifications up to May 2025 to amend various regulations governing the insolvency process. These amendments have cumulatively led to modifications in around 133 regulatory clauses.

"While many of the amendments were welcome and necessary to address gaps or comply with judicial pronouncements, however, the frequency and volume of regulatory updates pose significant challenges for stakeholders. It also introduces element of compliance fatigue among insolvency professionals and CoC members, as each change often requires recalibration of templates and processes," stated Mukesh Chand, Senior Counsel, Economic Laws Practice.