Corporate Insolvency Resolution Process

Also called: CIRP · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

Corporate Insolvency Resolution Process (CIRP) is the time-bound process under the Insolvency and Bankruptcy Code (IBC), 2016. A company defaults on its debt, and its financial creditors try to approve a resolution plan (a bid to revive the company). The deadline is 180 days plus a 90-day extension, with an outer limit of 330 days including litigation (2019 amendment) [3]. If no plan is approved, the company goes into liquidation (it is shut down and its assets are sold).

It matters because the CIRP is the main way Indian banks recover NPAs (non-performing assets: loans whose interest or principal is unpaid for 90 days). It also moved control of a defaulting firm from the promoter to the lenders.

Key formulas

• Plan approval: votes in favour (by value of claims) ÷ total claims in the Committee of Creditors ≥ 66%
• Haircut (%) = (Admitted claim − Amount realised) ÷ Admitted claim × 100
• Realisation (%) = 100 − Haircut (%)

Explanation

How the CIRP works, step by step

• Trigger: a default of Rs 1 crore or more. It was raised from Rs 1 lakh in March 2020 to keep small, mostly COVID-era cases out of the tribunals.
• Financial creditors (those who lent money, such as banks and bondholders) can file.

• Operational creditors (those owed for goods, services, wages or government dues) can also file.

• Admission: the NCLT (National Company Law Tribunal) must decide within 14 days. If it takes longer, it must record its reasons in writing (IBC Amendment Act 2026) [2][3]. Once the legal conditions are met, admission is mandatory [2].

• Moratorium under s.14: this is a legal "freeze". Once the case is admitted, no new suits, recovery actions or asset sales can start against the company.

• Under the 2026 Act, the freeze also covers guarantees. Creditors can no longer use a guarantee to get around the process [3].

• Change of management: the Interim Resolution Professional (IRP), and later the Resolution Professional (RP), takes over from the company's board.

• Employees and promoters now have a wider duty to cooperate with the RP [3].

• Committee of Creditors (CoC): made up of financial creditors only. It invites resolution plans and votes on them. A plan needs 66% of the vote by value.

• End point:
• A plan is approved, so the company is revived under new owners or new terms.
• No plan is approved within the time limit, so the company goes into liquidation.

Worked example: voting by value

• The CoC holds Rs 1,000 crore of claims: Bank A has Rs 500 crore, Bank B Rs 200 crore and Bondholder C Rs 300 crore.
• A (50%) and B (20%) vote yes. That is 70% ≥ 66%, so the plan is approved.
• A and C vote yes. That is 80%, so the plan is approved.
• B and C vote yes. That is 50% < 66%, so the plan is rejected, even though two of the three creditors agreed.
• Lesson: votes are counted by the size of the claim, not by the number of creditors.

Guard rails in the process

• s.29A: bars defaulting (wilful or NPA-holding) promoters and connected persons from bidding. This stops a promoter from buying back their own company cheaply. Its eligibility rules were changed in 2018 [3].
• Essar Steel (SC, 2019): the CoC's "commercial wisdom" is final. Courts cannot rewrite the business terms of an approved plan.
• Dissenting creditors (2026 Act): a creditor who votes against a plan must get at least the lower of:
• (a) its liquidation value, or

• (b) what it would get if the plan money were shared under the s.53 waterfall [3].

• Withdrawal (2026 Act): a case can be withdrawn only after the CoC is formed and before resolution plans are invited, and only with 90% CoC approval [2][3].

• Other 2026 changes:
• Plans can be approved in phases [3].
• The company's licences and permits are protected after the plan is approved [3].
• Guarantors' assets can be brought into the process if creditors approve [3].
• Cases on avoidance transactions (unfair preference, transfers below value, fraud) and fraudulent or wrongful trading (s.66) can continue after the CIRP ends [3].
• A one-time restoration of the CIRP is allowed before liquidation is final [3].

Outcome measure: haircut, with a worked example

• Haircut: the loss creditors accept when they recover less than they are owed.
• Example: admitted claims are Rs 1,000 crore and the plan pays Rs 330 crore.
• Haircut = (1,000 − 330) ÷ 1,000 × 100 = 67%
• Realisation = 33%

• If the liquidation value is Rs 200 crore, the plan gives 330 ÷ 200 = 165% of liquidation value.

• Reading it: the haircut is high, but creditors still get far more than they would by shutting the firm down.

• What makes outcomes worse: delay.
• Cases stay pending longer, so the business keeps losing value.
• As a result, bids get lower and haircuts get bigger.

In India

• Law: the IBC 2016 replaced SICA/BIFR (1985). The Supreme Court upheld the IBC in Swiss Ribbons v. Union of India (2019).

• The model shifted from "debtor in possession" (the promoter keeps running the firm) to "creditor in control" (the lenders decide its future).

• Institutions:

• IBBI (Insolvency and Bankruptcy Board of India) is the regulator. It oversees processes and insolvency professionals, and frames regulations [3].
• NCLT admits and decides corporate cases. Appeals go to NCLAT [3], and then to the Supreme Court.
• Insolvency professionals run the distressed firm during the CIRP [3].

• Information utilities store electronic records of debts. Under the 2026 Act, an IU record is enough proof of default [2].

• IBC (Amendment) Act, 2026: passed by the Lok Sabha on 30 March 2026 and the Rajya Sabha on 1 April 2026 [2]. It reshaped many CIRP rules (see the guard rails above).

• Latest data:
• 8,987 CIRPs admitted and 1,419 companies resolved through approved plans (till March 2026) [3].
• Creditors realised about Rs 4.32 lakh crore, which is over 94.56% of fair value (March 2026) [3].
• Average recovery was 33% of admitted claims (as of 30 June 2025) [2].
• Average resolution time was 602 days, against the 330-day legal limit (30 June 2025) [2].
• 43% of closed cases ended in liquidation, that is 2,824 of 6,587 (30 June 2025) [2].
• The IBC brought in Rs 54,528 crore (52.4%) of banks' Rs 1,04,099 crore recoveries in 2024-25. That is more than SARFAESI, DRTs or Lok Adalats [3].

Don't confuse with

• Liquidation: the CIRP tries to save the company as a going concern. Liquidation shuts it down and pays creditors in the s.53 waterfall order. Liquidation starts only when the CIRP fails.
• Pre-packaged insolvency (PPIRP, 2021): it is for MSMEs only, with a default of Rs 10 lakh or more. It must finish in 120 days, and the debtor keeps control. In the CIRP, the RP takes control and the threshold is Rs 1 crore.
• Creditor-Initiated Insolvency Resolution Process (CIIRP, 2026 Act): it starts out of court, with no NCLT admission stage. Only notified financial institutions can start it, with 51% by debt value agreeing. The debtor stays in possession, and the deadline is 150 + 45 days [2]. The CoC can convert it into a regular CIRP at any time [2].
• SARFAESI: it lets a secured lender seize and sell collateral without going to court. It is individual recovery by one lender. The CIRP is a collective process in which all financial creditors decide the fate of the whole company.

Prelims Hooks

• CIRP timeline: 180 days + 90-day extension, with an outer cap of 330 days including litigation (2019 amendment) [3].
• Threshold: a default of Rs 1 crore, raised from Rs 1 lakh in March 2020.
• The CoC has financial creditors only. A plan needs 66% by value. Operational creditors can file a case but cannot vote.
• Sections: s.14 is the moratorium. s.29A bars defaulting promoters from bidding. s.53 is the liquidation waterfall. s.66 covers fraudulent or wrongful trading.
• Case-law trap: Swiss Ribbons (2019) upheld the IBC's validity. Essar Steel (2019) made the CoC's commercial wisdom supreme.
• Control trap: in the regular CIRP the RP takes over management. In PPIRP and CIIRP the debtor keeps control.

Mains Points

• Haircuts vs value saved:
• Critics point to recovery of only about 33% of claims and an average of 602 days to resolve (June 2025) [2].
• But the right benchmark is liquidation value. Plans have delivered over 170% of liquidation value (August 2025) [1].

• Delay itself destroys value. So the fix is more NCLT capacity and less litigation, not weaker creditor control.

• Twin balance sheet problem and credit discipline:

• The CIRP gives lenders a credible threat: default, and the promoter can lose the company.
• This has made the IBC the largest recovery channel, with 52.4% of bank recoveries in 2024-25 [3].
• Loans now become "normal" again faster. The time fell from 248–344 days to 30–87 days (IIM Bangalore study) [3].

• This supports lower NPAs, stronger bank capital (Basel III) and financial stability.

• Unfinished agenda:

• 43% of closed cases end in liquidation (June 2025) [2], and tribunal vacancies remain.
• Operational creditors, often MSMEs, have no vote in the CoC, and workers rank low in the waterfall. This raises questions of fairness and inclusive growth.
• Group and cross-border insolvency have only rule-making powers so far [2]. That limits CIRPs for large business groups and multinational debtors such as Jet Airways.

Related concepts

• Insolvency
• Bankruptcy
• Committee of Creditors
• Resolution professional
• Liquidation waterfall
• Haircut
• Pre-packaged insolvency
• Financial and operational creditors
• Cross-border insolvency

Read more

• The Insolvency and Bankruptcy Code: CIRP, pre-packs and haircuts