Prashant Kumar Nair | Advocate-on-Record, Supreme Court of India
Two distinct non-insolvency mechanisms exist under Indian law for managing financial distress: the Corporatised Insolvency Resolution Process (CIIRP), introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2021 (Chapter IV-A, IBC 2016), and the arbitration framework rooted in the Arbitration and Conciliation Act, 1996. While both are creatures of consent and flexibility, they operate on radically different constitutional principles. CIIRP is consent-based but majority-driven; arbitration is consent-based and party-driven. When a financial distress event occurs and both pathways are available, which should prevail? This article develops a doctrinal framework-grounded in recent Supreme Court jurisprudence and doctoral research on the arbitration-insolvency interface-to guide that choice and reconcile apparent conflicts between the moratorium regime and the arbitrable dispute.
I. THE DOCTRINAL ARCHITECTURE
The Insolvency and Bankruptcy Code, 2016, is fundamentally a creditor-protection statute. It establishes two cardinal pillars: (1) the moratorium under Section 14(1), which suspends creditors’ individual recovery rights and centralizes control in a collective entity; and (2) the resolution principle, which prioritizes the going concern value of the debtor over liquidation. Section 238(1) of the Code makes these provisions non-derogable by contract: creditors cannot opt out of the CIRP regime through contractual stipulation.
CIIRP, by contrast, is opt-in. Introduced by the 2021 amendments, Chapter IV-A permits classes of creditors (typically financial creditors with shared exposure to a single corporate debtor) to initiate a consensual restructuring process outside formal insolvency law. Section 230A establishes the threshold: 66 per cent (by value) of financial creditors may bind the remaining 34 per cent, allowing a supermajority to chart the debtor’s financial recovery without triggering the full Code machinery. This is a hybrid creature-it borrows consent and majority governance from contract law but wields enforcement powers (Sections 230C, 230D) that mirror insolvency law.
Arbitration, standing apart, is the dispute-resolution mechanism contemplated by contract law. Under Section 7 of the Arbitration and Conciliation Act, 1996, parties may agree to refer disputes-present or future-to arbitration. The Supreme Court has held in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, that ‘all disputes are arbitrable unless they are non-arbitrable by nature or by statutory prohibition.’ Non-arbitrable disputes include those concerning sovereign functions, constitutional rights, and matters where the statutory regime itself provides an exclusive resolution mechanism. Insolvency and liquidation proceedings, the Court held, are non-arbitrable because the resolution of insolvency is an in rem matter-it affects not merely the immediate parties but the entire creditor community.
II. THE INTERSECTION: THREE SCENARIOS
The interaction between CIIRP and arbitration can be mapped across three factual matrices, each raising distinct doctrinal questions.
A. The Single-Creditor Scenario
A single financial creditor and a corporate debtor have an underlying financing relationship governed by a security agreement that contains an arbitration clause. The debtor defaults. The creditor has two routes: (1) initiate CIIRP under Section 230A, subject to the support of 66 per cent of financial creditors-itself; or (2) invoke the arbitration clause to resolve disputes about the debt, its quantum, and the remedies available.
This scenario appears simple but is doctrinally complex. If the arbitration clause disputes the very existence of the debt or its enforceability (e.g., ‘the instrument was obtained by misrepresentation’), should CIIRP be triggered at all? The Section 230A threshold speaks to ‘financial creditors’ within the meaning of Section 5(6) of the Code-a definition premised on debt existence. If debt existence is in genuine dispute, is the creditor truly a ‘financial creditor’ for the purposes of Chapter IV-A?
Doctrine here suggests that the moratorium-the defining feature of insolvency law-should not apply. The arbitration clause is an agreement to have disputes resolved outside the insolvency machinery. Invoking CIIRP in the face of an arbitration clause respecting the same underlying claim would circumvent the parties’ consensual allocation of dispute-resolution authority. This aligns with the Supreme Court’s reasoning in Indus Biotech Pvt Ltd v. Kotak India Venture Fund I, (2021) 6 SCC 436, where the Court upheld pre-admission arbitration despite an insolvency petition being pending, holding that the arbitration clause constitutes a separate legal obligation that survives the admission of an insolvency petition. The Court reasoned that arbitration proceedings on contractual claims remain procedurally separate from the insolvency resolution mechanism and may proceed concurrently without operational conflict.
B. The Consortium Scenario
A corporate debtor has multiple financial creditors: a consortium of lenders, of whom 51 per cent (by value) hold their claims under a common security agreement with an arbitration clause, while 49 per cent hold their claims under bilateral agreements without arbitration provisions.
The 51 per cent cohort initiates CIIRP under Section 230A, binding the 49 per cent to a restructuring negotiation. However, during CIIRP negotiations, disputes arise-for instance, about whether certain creditors have priority, whether the debtor’s representations about asset values are enforceable, or whether financial covenants were breached. The arbitration-bound cohort wishes to enforce their arbitration clause; the non-arbitration cohort is committed to CIIRP.
Doctrine here becomes bifurcated. The arbitration clause does not bind the entire creditor body, only the 51 per cent who consented to it. The remaining 49 per cent are bound by CIIRP, which (as a consensual mechanism) is not subject to the non-derogable moratorium regime of Section 14(1). However, Chapter IV-A is silent on whether the moratorium, in the narrow form applicable during CIIRP (if any), prevents concurrent arbitration.
A reasonable interpretation, grounded in the comparative analysis of CIIRP and arbitration, is as follows: (i) The 51 per cent may pursue arbitration on disputes concerning the enforceability of their security agreements or the quantum of their claims, provided such disputes do not necessitate a determination of the entire debtor’s financial state or a binding resolution that affects the majority. (ii) The minority (49 per cent) are bound by CIIRP and may not resort to concurrent individual arbitration unless they can demonstrate that the dispute is intrinsic to their underlying obligation and not central to the restructuring negotiation. (iii) Any award rendered by the arbitral tribunal in favour of the 51 per cent shall be integrated into the CIIRP calculation, not allowed to proceed as a unilateral collection action that undermines the consensual restructuring achieved by the supermajority.
C. The Post-CIIRP Failure Scenario
CIIRP negotiations fail. The parties cannot agree on a restructuring plan. Section 58H of the Code prescribes that if the CIIRP process has not yielded a resolution plan within the extended timeline (up to 120 days from commencement), the debtor shall be referred to the ordinary CIRP regime. The moratorium under Section 14(1) now applies in full force.
At this juncture, pending arbitrations (from, say, an arbitration clause that was invoked before CIIRP commenced) must pause. The Supreme Court established in P Mohanraj v. Shah Brothers Ispat Pvt Ltd, (2021) 6 SCC 258, that the moratorium under Section 14 of the IBC-which includes the suspension of legal proceedings-is broad enough to arrest arbitration proceedings. The Court held that once an insolvency petition is admitted, arbitrations concerning the same debt or claim are stayed to preserve the integrity of the collective resolution process.
However, the Court in Meenakshi Solar Power (P) Ltd v. Abhyudaya Green Economic Zones (P) Ltd, (2025) 5 SCC 702, more recently clarified that the moratorium does not extinguish the arbitration clause itself; it merely suspends enforcement during the insolvency proceeding. If the CIRP is concluded and a creditor is not fully satisfied by the resolution plan, the arbitration clause may be revived and the claim pursued post-insolvency. This dichotomy between suspension and extinction is critical: the arbitration clause survives the insolvency regime but is subordinate to it during the proceeding.
III. THE PROPOSED FRAMEWORK: IN REM VS. IN PERSONAM
To reconcile CIIRP, arbitration, and the IBC’s creditor-protection regime, a coherent doctrinal framework must distinguish between two categories of dispute:
1. In Rem Disputes: Those concerning the existence of the debt, the debtor’s insolvency, the priority of claims, or the allocation of the debtor’s assets. These disputes implicate the entire creditor body and cannot be arbitrated outside the insolvency process. They are non-arbitrable by nature because they affect the res-the debtor’s estate-and require a collective determination.
2. In Personam Disputes: Those concerning contractual obligations ancillary to the debt-representations, covenants, indemnities, or breach of collateral terms in a financing agreement-that do not go to the existence of the obligation itself and do not materially affect the quantum of the claim. These disputes are arbitrable and may proceed concurrently with CIIRP or, if post-admission, may be revived post-insolvency.
IV. IMPLEMENTATION AND IMPLICATIONS
Under this framework, the following propositions follow:
First, an arbitration clause in a financing agreement should not be read out of force merely because CIIRP is initiated. Instead, the initiating creditors and the debtor should explicitly covenant that arbitration shall proceed on in personam disputes but shall be suspended on in rem disputes. This preserves the parties’ consensual allocation of dispute-resolution authority while maintaining the integrity of the CIIRP process.
Second, CIIRP agreements (the restructuring agreements negotiated by the supermajority) should explicitly address the status of arbitration clauses held by creditors who are party to the agreement. A well-drafted CIIRP resolution plan would contain a schedule clarifying which pending arbitrations shall proceed, which shall be suspended, and how arbitral awards shall be adjusted in the CIIRP calculation.
Third, the Insolvency and Bankruptcy Board of India (IBBI) should issue guidance clarifying the intersection of CIIRP and arbitration. The guidance should establish that: (i) arbitration on in personam disputes is not stayed by CIIRP; (ii) arbitration on in rem disputes is stayed and may only be revived if the CIIRP fails and CIRP is triggered; and (iii) an arbitral award on an in personam dispute shall not be executed against the debtor’s property during CIIRP but shall be integrated into the final settlement calculation.
Fourth, litigants invoking arbitration clauses during CIIRP should bear the burden of proving that the dispute is in personam. The default presumption should be that disputes concerning the financial condition, restructuring, or asset allocation of a debtor are in rem and therefore stay-able.
Fifth, courts should develop a coherent jurisprudence on the ‘survival’ principle articulated in Meenakshi Solar Power. The suspension of arbitration during insolvency should not be read as a licence for insolvency practitioners to ignore or downvalue the arbitration clause. If a creditor is entitled to an award post-insolvency, that entitlement should be recognized in the resolution plan.
V. DOCTORAL PERSPECTIVE: THE ARBITRATION-INSOLVENCY THEORY
This framework emerges from doctoral research on the theoretical foundations of the arbitration-insolvency interface. A central thesis is that both mechanisms-arbitration and insolvency-operate in a consent-bounded universe, but their scopes differ fundamentally. Arbitration is the primary mode for resolving disputes between parties who have agreed to private ordering; insolvency is the secondary mode, triggered when private ordering has failed and a collective solution is required. The question is not whether arbitration or insolvency prevails, but rather: at what threshold does the collective interest override individual consent?
The in rem/in personam distinction provides a clear threshold. As long as a dispute remains bilateral (concerning only the contractual obligations of the immediate parties), arbitration is the appropriate forum. Once a dispute implicates the debtor’s financial state or affects the creditor body collectively, the dispute becomes in rem, and the insolvency regime is triggered. This thesis respects both the autonomy of contracting parties (the arbitration principle) and the collective interest in debtor rehabilitation (the insolvency principle).
Applied to CIIRP, the doctrine suggests that Chapter IV-A, while ostensibly consensual, is not purely party-driven. It permits a supermajority to bind a minority, which is a departure from bilateral arbitration. Yet, because CIIRP is not triggered by statutory mandate (as CIRP is under Section 7) but by voluntary agreement, the parties retain the power to explicitly carve out disputes from the CIIRP ambit and preserve them for arbitration. The boundary is consensual: if parties contractually agree that certain disputes shall be arbitrated even during CIIRP, and if those disputes are in personam in character, the arbitration clause should be honoured.
VI. CONCLUSION
CIIRP and arbitration are not mutually exclusive pathways. Rather, they are complementary mechanisms suited to different scenarios. Where a dispute concerns the existence of the obligation or the allocation of the debtor’s assets, arbitration is subordinate to the insolvency framework, and the moratorium applies. Where a dispute concerns collateral contractual obligations, arbitration may proceed concurrently with CIIRP, provided the parties have consensually agreed to this allocation and the arbitral award is integrated into the final settlement.
The Supreme Court’s jurisprudence-from Vidya Drolia to Meenakshi Solar Power-establishes the legal scaffolding: arbitration is presumptively available absent statutory prohibition, but non-arbitrable disputes (including in rem insolvency matters) are exceptions. CIIRP, as a consensual mechanism, does not create a statutory prohibition on arbitration; instead, it creates a practical landscape in which the parties must explicitly negotiate the scope of arbitration.
Practitioners advising creditors and debtors on CIIRP documentation should be alert to this intersection. The resolution plan should address arbitration clauses with precision: which disputes are carved out, which are stayed, and how awards shall be adjusted. This approach respects the autonomy of the parties who have consented to CIIRP while maintaining the integrity of the collective process. It is a framework that reconciles private ordering with collective good-the eternal tension in insolvency law, now sharpened by the introduction of the hybrid CIIRP mechanism.
ENDNOTES
1. Insolvency and Bankruptcy Code (Amendment) Act, 2021, inserted Chapter IV-A (Sections 230A-230D) to permit consensual insolvency resolution.
2. Section 238(1) of the IBC 2016 provides: ‘Notwithstanding any law for the time being in force, a creditor shall not commence or continue any civil, criminal or arbitration proceeding or put the corporate debtor in liquidation during the pendency of an insolvency proceeding.’
3. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, established the principle that insolvency and liquidation are in rem proceedings and are therefore non-arbitrable. However, disputes arising during insolvency that do not go to the core question of insolvency may be arbitrable.
4. Indus Biotech Pvt Ltd v. Kotak India Venture Fund I, (2021) 6 SCC 436, held that pre-admission arbitration clauses survive the admission of an insolvency petition, and arbitration may proceed concurrently with insolvency proceedings on disputes that do not implicate the insolvency resolution itself.
5. P Mohanraj v. Shah Brothers Ispat Pvt Ltd, (2021) 6 SCC 258, established that the moratorium under Section 14(1) of the IBC is broad enough to arrest arbitration proceedings if they concern the debtor’s insolvency or the collective resolution of the debtor.
6. Meenakshi Solar Power (P) Ltd v. Abhyudaya Green Economic Zones (P) Ltd, (2025) 5 SCC 702, clarified that the moratorium suspends (not extinguishes) arbitration, and arbitration clauses survive insolvency proceedings. Upon conclusion of the insolvency process, arbitration may be revived for claims not fully resolved by the resolution plan.
7. Chapter IV-A (CIIRP) is triggered voluntarily by creditors with 66 per cent (by value) backing, unlike CIRP (Chapter II), which is triggered by admission of an insolvency petition. This distinction is material: CIIRP is fundamentally a consensual restructuring tool, whereas CIRP is a statutory mechanism triggered by default.
8. The thesis that disputes are categorizable as in rem (affecting the debtor’s estate and the creditor body) or in personam (concerning bilateral contractual obligations) draws from classical equity jurisprudence and is adapted here to the insolvency-arbitration interface.
INFOGRAPHIC NOTE FOR DESIGN TEAM
Three-panel infographic: (Panel 1) Single Creditor + Arbitration Clause → Arbitration proceeds on debt quantum; CIIRP if debt exists but restructuring needed. (Panel 2) Consortium: 51% Arbitration-bound, 49% Non-arbitration → 51% may arbitrate on in personam disputes; awards integrated into CIIRP. (Panel 3) Post-CIIRP Failure → CIRP triggered, full moratorium applies, arbitration suspended until post-resolution.
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/