Prashant Kumar Nair | Advocate-on-Record, Supreme Court of India
I. EXECUTIVE SUMMARY
The insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC or Code) has witnessed significant legal evolution, particularly following the 2019 and 2020 amendments. For a prospective resolution applicant (RA), the scope of pre-bid due diligence has expanded materially. The avoidance transaction window now runs from the filing date of the insolvency petition, not from the commencement date. The clean slate doctrine applies more expansively. The two-stage approval mechanism for plans has introduced fresh complexities. And the regulatory approval regime for plan implementation has tightened. This article provides a structured twelve-category due diligence checklist, grounded in Supreme Court precedent, to guide counsel and practitioners through the RA’s investigative obligations.
Core Legal Position: An RA’s due diligence must encompass not merely historical corporate debt, but the legal and commercial remediation challenges that arise on the statutory timeline imposed by the Code.
II. SECTION 29A ELIGIBILITY: THE GATEWAY SCREEN
Section 29A of the IBC creates disqualification categories for RAs. The Supreme Court in Arun Kumar Jagatramka v Jindal Steel and Power Ltd (2021) 7 SCC 474 held that the determination of eligibility must occur at the moment of submission of the resolution plan, and that disqualification bars are strictly construed.
The timing of the eligibility check matters. If an applicant was, for instance, a supplier or service provider to the debtor within the preceding year, the officer or employee bar does not automatically apply; however, if that person held any formal appointment or contractual status that resembled employment, the disqualification is strict.
III. OUTSTANDING CLAIMS: MAPPING THE LIABILITY UNIVERSE
Before submitting a resolution plan, an RA must understand the full quantum and priority ranking of claims that will be processed during the resolution process.
Note: The Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta (2020) 8 SCC 531 established that claim adjudication is performed strictly in accordance with Section 21, and security interests are measured against the insolvency law framework, not solely by corporate law debt characterization.
IV. AVOIDANCE TRANSACTION EXPOSURE: THE FILING DATE WATERSHED
A critical 2019 amendment extended the lookback period for avoidance transactions from the date of commencement of the CIRP to the date of filing of the insolvency petition. This expansion increases RA exposure to historical transfer reversal risk.
The statutory basis for avoidance claims is Chapters IV and V of the Code, which permit recovery of preferential transactions and undervalued transfers. An RA’s exposure is indirect but material: if the plan fails to allocate sufficient reserves or mechanisms to account for avoidance recovery, the plan implementation may falter.
V. REGULATORY APPROVALS AND LICENSES: PLAN CONDITIONALITY
Many debtor companies operate under sector-specific regulatory regimes (e.g., financial services licensing, telecom spectrum, pharmaceutical product approval, real estate RERA registration, infrastructure concessions). The validity of the plan often hinges on whether regulatory approvals will be granted to the RA or to the reconstituted entity.
VI. GOVERNMENT DUES AND TAX EXPOSURE
Government dues-including income tax, GST, customs duties, excise, and local levies-rank as operational creditor claims and must be quantified and provided for in the resolution plan.
VII. GROUP ENTITY LIABILITIES: CROSS-COMPANY EXPOSURE
If the debtor is part of a larger corporate group, exposure extends to guarantees, cross-collateralization arrangements, inter-company loans, and contingent liabilities owed by or to group entities.
VIII. PERSONAL GUARANTEES AND GUARANTOR LIABILITY
Many corporate debts are secured or supported by personal guarantees from the company’s promoters or directors. The status and enforceability of these guarantees are relevant to the RA’s understanding of the debtor’s leverage during plan negotiations.
IX. LAND AUTHORITY AND PROPERTY ENCUMBRANCE
Real estate and immovable property are often the debtor’s most valuable assets. Title defects, encumbrances, or regulatory restrictions can materially affect plan viability.
X. EMPLOYEE AND WORKMEN DUES: STATUTORY PRIORITY AND CAP
Employee and workmen dues rank high in the statutory waterfall and are subject to Section 32 caps. However, the calculation of these dues and verification against actual records is essential.
XI. CIRP COSTS AND PRIORITY: PROFESSIONAL FEES AND RUNNING COSTS
The costs incurred during the CIRP (including the IRP’s remuneration, insolvency professional team costs, and court fees) rank first in the statutory waterfall under Section 53 and must be clearly quantified.
XII. TWO-STAGE APPROVAL MECHANISM AND PLAN CONDITIONALITY
The 2020 amendment introduced a two-stage mechanism: the CoC approves the plan at Stage 1, and the NCLT grants approval at Stage 2. The plan must be conditioned on the occurrence of precedent events (e.g., regulatory approvals, third-party consents, refinancing closure).
Post-Plan Obligations: An RA must understand that approval of the plan marks the beginning of implementation risk, not its end. The RA becomes responsible for satisfying Conditions Precedent, executing the plan as approved, and managing stakeholder expectations during the implementation phase.
XIII. CLEAN SLATE DOCTRINE AND LIABILITIES POST-PLAN
The Supreme Court in Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss ARC Ltd (2021) 9 SCC 657 articulated the clean slate doctrine: once a resolution plan is approved and becomes effective, the debtor company is freed from liabilities incurred pre-plan, except to the extent provided in the plan. However, this protection is not absolute.
XIV. CASE LAW SYNTHESIS: PLAN VIABILITY AND APPROVAL STANDARDS
Maharashtra coordinated Ltd v Padmanabhan Venkatesh (2020) 11 SCC 467:
The Supreme Court held that the NCLT must assess whether a resolution plan is feasible and credible. The standard is not perfection but reasonable confidence that the RA can execute the plan materially as proposed. Counsel should ensure that the due diligence findings are transparently disclosed in the plan, and that the plan’s feasibility narrative accounts for material risks (e.g., regulatory delays, asset valuation sensitivity, group entity complexity). The NCLT is empowered to reject a plan if it is patently infeasible or lacks a credible implementation pathway.
Arun Kumar Jagatramka v Jindal Steel (cited above):
Emphasizes that Section 29A eligibility is determined at the time of plan submission, not retroactively. An RA’s counsel should confirm eligibility afresh no later than 15 days before plan submission to the CoC, to avoid a last-minute disqualification challenge.
Essar Steel and Committee of Creditors (cited above):
Establishes that claim adjudication is strictly procedural; creditors have a right to assert claims, and the adjudication is fact-driven. An RA cannot negotiate down claims arbitrarily; the IRP’s adjudication is binding absent manifest error. An RA’s due diligence should include a realistic assessment of which claims are likely to survive adjudication and which are vulnerable to challenge or waiver.
CONCLUSION: FROM CHECKLIST TO PLAN SUBMISSION
The twelve-category checklist above is not a linear sequence but an integrated investigative framework. Counsel for an RA should work in parallel across categories, validating findings through multiple sources, and maintaining contemporaneous documentation (evidence files, verification certificates, professional opinions). The due diligence outcomes feed directly into the plan’s recitals, feasibility narrative, and risk disclosures.
An RA’s competitive advantage lies not in the depth of the financial model (which may be preliminary at plan submission) but in the clarity and credibility of the legal and regulatory due diligence. A well-documented due diligence foundation gives the CoC, the IRP, and the NCLT confidence that the plan reflects a mature commercial and legal assessment.
The expanded avoidance window, the two-stage approval mechanism, and the regulatory complexity of post-COVID restructurings demand that RA counsel invest time in systematic, checklist-driven due diligence. The stakes are high: inadequate due diligence discovered post-approval leads to plan failure, claw-back litigation, and commercial embarrassment. Diligent counsel builds credibility early.
Final Note: This checklist is a practical tool for in-house teams and external advisors. It is not exhaustive; sector-specific considerations (e.g., financial services, infrastructure concessions, real estate projects) may require tailored additions.
ENDNOTES
1. Insolvency and Bankruptcy Code, 2016, Section 29A.
2. Arun Kumar Jagatramka v Jindal Steel and Power Ltd (2021) 7 SCC 474 (SC).
3. Insolvency and Bankruptcy Code, 2016, Section 21(2).
4. Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta (2020) 8 SCC 531 (SC).
5. Insolvency and Bankruptcy (Insolvency Resolution Process II) Regulations, 2016.
6. Insolvency and Bankruptcy Code, 2016, Chapters IV and V (avoidance clauses).
7. Insolvency and Bankruptcy Code, 2016, Section 32 (workmen and employee dues priority and caps).
8. Insolvency and Bankruptcy Code, 2016, Section 53 (priority of CIRP costs).
9. Insolvency and Bankruptcy Code, 2016, Section 30(4) (NCLT approval criteria).
10. Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss ARC Ltd (2021) 9 SCC 657 (SC) (clean slate doctrine).
11. Maharashtra coordinated Ltd v Padmanabhan Venkatesh (2020) 11 SCC 467 (SC) (plan feasibility).
INFOGRAPHIC NOTE FOR DESIGN TEAM
A 12-step visual checklist flowchart, color-coded by category (Section 29A in red, claims/avoidance in orange, regulatory/government in yellow, employee/costs in green, plan mechanics in blue). Each step should show a checkbox and a brief icon representing the category (e.g., gavel for Section 29A, rupee for financial claims, briefcase for regulatory, people for employees, clipboard for plan).
Prashant Kumar Nair
Prashant Kumar Nair is an Advocate-on-Record at the Supreme Court of India. He practises across insolvency and restructuring, arbitration and dispute resolution, real estate and infrastructure, corporate and commercial law, taxation, intellectual property, regulatory and compliance, and capital markets law. He is a doctoral researcher at RGNUL focusing on the arbitration-insolvency interface. He is the founder of Corpus Lawyers. LinkedIn: linkedin.com/in/prashant-kumar-nair/