CIIRP: India’s Boldest Insolvency Experiment Since 2016

Prashant Kumar Nair | Advocate-on-Record, Supreme Court of India

The loan defaulted on a Thursday. By the next Tuesday, the creditors had voted to restructure it themselves, without court involvement, without a moratorium that nobody wanted, and without removing the management that knew the business. Under the IBC 2016, this would have been impossible. Under CIIRP, it is now the standard. The Insolvency and Bankruptcy Code (Amendment) Act, 2024 introduced the Creditor-Initiated Insolvency Resolution Process in Chapter IV-A (Sections 58A-58K), reshaping the relationship between lenders, borrowers, and the judiciary in ways that challenge assumptions built into the 2016 architecture. This article unpacks what CIIRP is, how it works, and the structural questions it leaves unresolved.

CIIRP is not a minor edit to the insolvency regime. It is a philosophical pivot. The original IBC’s CIRP (Corporate Insolvency Resolution Process) assumed that courts must oversee the process, that a moratorium must suspend all claims, and that management must yield to a Committee of Creditors. CIIRP inverts each assumption. Financial creditors holding 51% of total financial debt can initiate a resolution process outside court, the moratorium is optional, and the debtor’s management stays. The process runs for 150 days (extendable by 45) with no NCLT involvement unless creditors vote to convert to CIRP under Section 58H. It is out-of-court insolvency law’s most ambitious deployment in India.

I. MECHANICS: HOW CIIRP INITIATES AND RUNS

Initiation turns on a simple threshold: financial creditors holding 51% or more of total financial debt circulate a Notice under Section 58A. The notice must comply with rules, it names the corporate debtor, discloses the reasons for initiation, specifies how much debt the initiating creditors hold, and provides the debtor 10 days to respond. The debtor can dispute the aggregate debt amount or the holding percentage. If the dispute is resolved (by majority vote among initiating creditors), the process formally commences. This design reflects a deliberate choice: a simple majority of financial creditors, not a supermajority, can unilaterally trigger resolution.

Once initiated, the process enters a governance structure markedly different from CIRP. Under CIRP, an Insolvency Professional administers the estate and reports to the Committee of Creditors. Under CIIRP, there is no Committee of Creditors in the classical sense. Instead, creditors who initiated the process (the Initiating Creditors) select an Insolvency Professional to conduct the process. The Insolvency Professional’s role is to facilitate resolution negotiations, to structure proposals, solicit plans, and manage due diligence, but not to administer a liquidation or oversee a mandatory restructuring. The debtor’s management, critically, continues to operate the business.

The moratorium is optional. Under CIRP, Section 14 imposes a mandatory moratorium: all insolvency proceedings against the debtor, all enforcement actions, and all individual proceedings against promoters are suspended on the commencement date. CIIRP’s Section 58E allows creditors to decide whether to invoke a moratorium at all. This is radical. Operational creditors and secured creditors may prefer not to suspend their claims, allowing them to pursue remedies in parallel. A lender content with monthly interest payments may see no benefit in freezing operations; a vendor owed 90 days may prefer to pursue a suit. The optionality shifts bargaining power.

II. THE 150 + 45 DAY TIMELINE AND PLAN SUBMISSION

CIIRP prescribes a compressed timeline. Section 58C mandates a primary period of 150 days from commencement, within which the debtor must submit a resolution plan to the Insolvency Professional. The plan must outline how the corporate debtor will be revived, restructured, or liquidated, essentially, it performs the function that a Committee of Creditors performs in CIRP, but unilaterally and under time pressure. The debtor, not a committee of creditors, determines its own fate.

If the debtor cannot finalise a plan within 150 days, Section 58C permits a single extension of up to 45 days, taking the maximum period to 195 days. Extensions require creditor approval (a simple majority of Initiating Creditors). This compressed timeline aims to reduce the uncertainty and cost that plague longer CIRP proceedings. It also creates pressure, a debtor cannot procrastinate or build consensus across competing stakeholder groups; it must move.

The plan submitted by the debtor must be approved by a simple majority of Initiating Creditors (by value of financial debt). There is no requirement for all creditors, only the 51%+ who initiated the process need to consent. This is where the structural tension emerges. What of the 49% of creditors who opposed initiation? Or the operational creditors? Or the lenders whose money was not counted toward the 51% threshold?

III. THE CONVERSION MECHANIC: SECTION 58H

Section 58H is the safety valve. If creditors fail to approve a plan within the prescribed timeline (150 + 45 days), or if the plan is rejected, the process automatically converts to CIRP under the classical architecture. The NCLT must then supervise the process: a Committee of Creditors is formed, an Administrator takes charge, a moratorium is triggered, and the full statutory framework applies. Conversion is not discretionary. It is mandatory.

This conversion design creates a two-tier system. CIIRP is the debtor’s and the creditor-majority’s game, a negotiation between a financially strapped corporate and its primary lenders. If negotiation fails, the state apparatus (via the NCLT) takes over. The threat of conversion disciplines both sides. A debtor knows that failure to propose a credible plan will trigger an NCLT-supervised process where it loses operational control. Creditors know that unreasonable demands on the debtor may push them toward CIRP, where administration costs and delay multiply. The mechanism is elegant: creditors must police themselves, because the alternative is costlier for everyone.

Notably, the conversion process does not restart the clock. The time spent negotiating under CIIRP counts toward CIRP’s statutory timeline. This preserves the pressure to resolve quickly and prevents strategic abuse, a debtor cannot use CIIRP to delay and then exploit CIRP’s longer timelines.

IV. THE ABSENCE OF NCLT OVERSIGHT: CONSTITUTIONAL IMPLICATIONS

CIIRP’s most distinctive feature is the absence of NCLT jurisdiction during the process itself. The Insolvency and Bankruptcy Code Chapter IV-A does not grant the NCLT the power to intervene in CIIRP proceedings unless the process converts to CIRP. This stands in sharp contrast to CIRP, where the NCLT oversees every material decision, approval of Committee of Creditors resolutions, adjudication of claims, approval of resolution plans, and much more.

The constitutional question is implicit: does an out-of-court insolvency process that binds dissenting creditors, affects third-party rights (e.g., unsecured creditors, operational creditors), and is enforceable by law, without judicial oversight, comply with Article 21 of the Constitution (right to life, liberty, and property) and the principles of natural justice? This question is not answered in the 2024 amendments.

The Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17 framework is instructive here. The Supreme Court, upholding the IBC’s constitutionality, emphasised that the IBC is a valid exercise of Parliament’s legislative power because it creates a code that pursues a legitimate objective (expeditious resolution and value maximisation) and does so through a process that includes safeguards, judicial review, due process, rights of affected parties. The Court noted that the IBC’s structure, while curtailing procedural rights in some respects, does so to achieve efficiency and recovery. But Swiss Ribbons predated CIIRP. Does an entirely out-of-court process, with no NCLT oversight and no mandatory moratorium, satisfy the rationality and proportionality scrutiny that Swiss Ribbons set out?

V. THE 51% THRESHOLD: TOO LOW, TOO HIGH, OR JUST RIGHT?

The legislative choice of a 51% threshold deserves scrutiny. Why not a supermajority, say, 75% or 80%, to protect minority creditors? Conversely, why not a lower threshold, say 40%, to make initiation easier?

The 51% threshold reflects a deliberate policy judgment. A simple majority is the standard corporate governance threshold, it is the measure used in shareholder voting, board decisions, and most statutory corporate decisions. Applying it to creditor consent treats creditors as quasi-shareholders with a stake in the company’s direction. This lowers the barrier to collective action and reflects the view that creditors, as financiers of the enterprise, should not be held hostage by a minority.

But the threshold carries risks. A 49% minority of creditors, creditors who believe the debtor is viable and restructurable, are bound by the majority’s resolution process. They have no veto, no appeal mechanism, and no seat at the negotiating table (unless they are part of the Initiating Creditors). Their interests are represented only by the debtor’s incentive to propose a plan that satisfies the majority. In a bipolar creditor base (two large lenders), a 51-49 split could strand the minority creditor entirely.

Moreover, the threshold is calculated on the basis of total financial debt, not the number of creditors. A single secured lender holding 51% of all financial debt can initiate unilaterally. There is no requirement that a minimum number of creditors consent, it is purely a value test. This concentrates power in larger lenders and marginalises smaller ones.

VI. OPERATIONAL CREDITORS AND THE MORATORIUM VOID

CIIRP’s optional moratorium creates a stark problem: operational creditors are left in limbo. Under CIRP, an operational creditor’s claim is suspended by the mandatory moratorium, which at least provides clarity, they cannot pursue recovery, but their claim is preserved and will be adjudicated under the statutory process. Under CIIRP, if the Initiating Creditors choose not to invoke a moratorium, an operational creditor can continue to pursue claims against the debtor while the debtor is in the middle of negotiating its own restructuring.

Imagine a corporate debtor with 100 operational creditors (vendors, employees, service providers) and two large financial creditors. The financial creditors initiate CIIRP without a moratorium. The debtor is negotiating restructuring with the financial creditors, but vendors are simultaneously suing for unpaid invoices, employees are moving toward a labour tribunal, and service providers are seeking injunctions to prevent delivery of goods. The debtor’s management is simultaneously restructuring and defending litigation, an untenable position.

The statute gives operational creditors no special status in CIIRP. They are not Initiating Creditors, cannot approve plans, and have no voice. They are third parties to a process that affects their interests. The resolution is either that (a) operational creditors are implicitly protected by the debtor’s own interest in maintaining supplier relationships and employee morale during restructuring, or (b) operational creditors are vulnerable to being subordinated or eliminated if the restructuring plan prioritises financial creditors. Neither position is clearly stated in the statute.

VII. COMPARISON: CIIRP VS CIRP

VIII. DOCTRINAL QUESTIONS UNRESOLVED

The statute raises questions that case law will have to settle. First: what is the binding effect of a CIIRP resolution plan? Does it bind all creditors or only the Initiating Creditors? If a creditor who did not initiate the process votes for a plan that is approved, is it estopped from later challenging the plan? The statute is silent, and the answer will determine whether a plan is truly final or remains vulnerable to challenge.

Second: what are the grounds for judicial review of a CIIRP conversion or of the Insolvency Professional’s actions during the process? Under CIRP, the NCLT supervises every step and can overturn Committee of Creditors decisions that are arbitrary, oppressive, or violate procedure. Under CIIRP, there is no such oversight. Can the Insolvency Professional be challenged in High Court for breach of fiduciary duty? Can a dissenting creditor seek an injunction from the High Court to prevent a plan’s execution? The statute provides no forum, no procedure, and no explicit remedy.

Third: how does CIIRP interact with other insolvency proceedings? Can a debtor simultaneously undergo CIIRP and face a petition for liquidation filed by an operational creditor? If so, does the operational creditor petition take priority, or does CIIRP proceedings suspend it? Can an individual promoter face an insolvency petition under the Personal Insolvency Code (not yet operational, but anticipated) while CIIRP proceeds against the corporate entity? The crossover is unaddressed.

Fourth: what is the status of the plan once executed? Is it a contract binding the debtor and creditors in perpetuity, or is it an instrument that can be modified if circumstances change materially? CIRP plans are typically deemed final once approved and confirmed; the debtor and creditors are bound. But CIIRP plans lack the NCLT’s confirmation order. Are they weaker?

IX. DESIGN PHILOSOPHY: CREDITOR AUTONOMY OVER COURT OVERSIGHT

CIIRP reflects a philosophical choice: creditors are sophisticated repeat players who are better placed to negotiate resolution than courts are to supervise them. This reflects a broader global trend toward contractual and out-of-court insolvency mechanisms. The UK’s Moratorium Procedure and the US’s prepackaged bankruptcy emerge from similar logic, that time and cost can be saved if creditors negotiate directly rather than litigate.

But the choice carries trade-offs. Court oversight, for all its cost and delay, provides transparency, due process, and appellate correction. An out-of-court process is faster but less visible. Decisions made in a boardroom are not written out in reasoned orders. Losers have fewer avenues of redress. Dissenting creditors and third parties have less information and fewer levers to contest outcomes.

The statute suggests that Parliament believes the benefits of speed (150 days vs 330) and cost-saving outweigh the costs of reduced oversight. Whether that calculus holds will depend on how CIIRP functions in practice. If large creditors use it fairly, it will be faster, cheaper, and fairer than CIRP. If large creditors use it to subordinate smaller creditors and operational suppliers, it could become a tool of oppression.

X. ANTICIPATED CHALLENGES AND LIMITATIONS

CIIRP’s success will depend on creditor homogeneity and alignment. If the debtor has multiple large creditors with conflicting interests, CIIRP may fail. Imagine a debtor financed by a state bank, a private lender, and a foreign DFI, each with different risk appetites and recovery expectations. The 51% threshold gives control to whoever holds 51%+, but the other lenders remain vulnerable. That vulnerability may breed litigation. Dissenting creditors may challenge the Insolvency Professional’s neutrality, dispute the aggregate debt calculation, or challenge the plan’s treatment of their claims.

Moreover, CIIRP assumes the debtor’s management is fit to remain in control. But what if the debtor’s default stems from management fraud or gross incompetence? CIIRP provides no mechanism to remove management during the process (unlike CIRP’s automatic removal). The statute’s silence here is a vulnerability. A debtor whose management caused the insolvency cannot be replaced without court oversight, but CIIRP provides no court oversight.

The optionality of the moratorium creates another risk: a debtor in CIIRP without a moratorium is fighting on two fronts, negotiating restructuring while defending litigation. This may push debtors toward demanding a moratorium, which in turn pushes toward CIIRP + moratorium, which increasingly resembles CIRP (but without NCLT oversight). The optionality may thus collapse into uniformity, negating the supposed efficiency gain.

Finally, CIIRP’s applicability is limited to corporate debtors who can initiate or be the subject of creditor initiation. It does not apply to personal insolvencies, LLPs, partnerships, or sole proprietorships. For a large non-corporate enterprise, CIIRP is unavailable.

XI. THE CONVERSION DECISION: RATIONAL CREDITOR BEHAVIOR

Section 58H’s automatic conversion to CIRP after 195 days (if no plan is approved) creates an incentive structure. Creditors who initiate CIIRP are betting that they can extract value faster through negotiation than through CIRP. If they fail, the game shifts to NCLT, where the rules change: the debtor’s management is removed, a moratorium is automatic, a Committee of Creditors forms, and an Administrator assumes charge. The Administrator’s job is to pursue all options: restructuring, sale as a going concern, asset liquidation. The Administrator is independent and reports to the Committee, not to any single creditor.

This means creditors face a choice at the 150-day mark: approve a plan (even if imperfect) or risk conversion to CIRP, where they lose the ability to negotiate directly and where the Administrator may pursue strategies they dislike. A rational creditor must weigh the immediate offer (a plan negotiated with the debtor) against the uncertain option (CIRP, which is longer, more adversarial, and subject to the Administrator’s judgment).

Conversely, a debtor faces pressure to propose a plan that is palatable to the majority creditors. A debtor cannot stall and hope for CIRP (where the Administrator might be friendlier), because the creditors can unilaterally vote to convert if the debtor seems unserious. The mechanism thus aligns incentives toward negotiation and resolution, rather than endless dispute.

XII. ENDGAME: CIIRP IN CONTEXT

CIIRP is the IBC’s answer to a question: can creditors resolve insolvency without courts? The statute says yes, at least for 150 days (extendable to 195), at least if financial creditors holding 51%+ agree, and at least if the process ends in either a consensual plan or a conversion to CIRP. It is not a permanent out-of-court regime; it is a staging ground. If creditors fail to agree, the matter flows to NCLT, and the classical CIRP architecture takes over.

The design is clever: it preserves the safety valve (NCLT oversight) while trying to avoid the regular case by incentivising early resolution. But it also redistributes power. Instead of the NCLT (a neutral arbiter) overseeing the process and protecting all stakeholder interests, creditors (repeat players with leverage) oversee it. The question whether that distribution is ultimately fair, whether it will protect smaller creditors, operational suppliers, and the public interest, is not answered in the statute. It will be answered in practice, in the cases that follow.

ENDNOTES

1. Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17 (SC), foundational decision upholding the IBC’s constitutionality against challenges to the exclusion of jurisdiction of ordinary courts, the dilution of procedural rights, and the vesting of significant discretion in the Adjudicating Authority (NCLT) and Insolvency Professional. The Court held that the IBC’s architecture is rationally connected to the objective of expeditious resolution and value maximisation.

2. K Sashidhar v Indian Overseas Bank (2019) 12 SCC 150 (SC), established the principle that the Committee of Creditors’ commercial wisdom and decisions command respect and are not subject to NCLT’s review unless they are arbitrary, oppressive, or patently illegal. This doctrine underpins the rationale for out-of-court creditor discretion in CIIRP.

3. Pratap Technocrats (P) Ltd v Monitoring Committee of Reliance Infratel Ltd (2021) 10 SCC 623 (SC), clarified that the NCLT’s jurisdiction is limited and cannot be exercised to micromanage the CoC’s decisions on matters of commercial judgment. This principle supports CIIRP’s design by emphasising creditor autonomy in restructuring decisions.

4. Ebix Singapore Pvt Ltd v Committee of Creditors of Educomp Solutions Ltd (2022) 2 SCC 401 (SC), reaffirmed that a resolution plan, once approved by the requisite majority of the CoC and confirmed by the NCLT, is final and binding and cannot be challenged on the basis that it is allegedly unfair or oppressive to any particular class of creditors. The doctrine of plan finality is critical to CIIRP, where no NCLT confirmation occurs.

5. Sections 58A-58K of the Insolvency and Bankruptcy Code, 2016 (as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2024), new Chapter IV-A introducing CIIRP. Section 58A defines the commencement conditions; 58B-58E govern the initiation and moratorium; 58F-58G detail the resolution process and plan submission; 58H prescribes the conversion mechanism to CIRP; 58I-58K contain supplementary provisions.

6. The IBC does not define a ‘resolution plan’ exhaustively. The statute specifies that the plan must set out how the debtor will be revived or its assets liquidated, and must address the treatment of creditors’ claims. In CIRP, the Committee of Creditors and the Insolvency Professional structure the plan; in CIIRP, the debtor structures the plan and presents it to creditors for approval.

INFOGRAPHIC NOTE FOR DESIGN TEAM

Visual aids recommended: (1) Timeline diagram comparing CIIRP (150+45 days) with CIRP (330+ days). (2) Decision tree showing initiation → moratorium decision → plan submission → creditor vote → approval or conversion. (3) Venn diagram showing overlap between CIIRP and CIRP, and the universe of creditors affected by each process. (4) Organisational chart showing governance roles in CIIRP (Initiating Creditors, Insolvency Professional, debtor management) vs CIRP (Committee of Creditors, Administrator, NCLT). (5) Flowchart illustrating Section 58H conversion mechanics and the factors triggering conversion.

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/

This article is for informational purposes only and does not constitute legal advice. The views expressed are those of the author in a personal capacity. Readers should seek independent legal counsel before acting on any matter discussed herein. While every effort has been made to ensure accuracy, the author makes no representation as to the completeness or currency of the information at the time of reading.