CIRP Under IBC — Step-by-Step Corporate Insolvency Resolution Process in India

The Corporate Insolvency Resolution Process (CIRP) is a time-bound process under the Insolvency and Bankruptcy Code, 2016 for resolving corporate insolvency. When a company defaults on its financial or operational debt obligations, CIRP provides a structured mechanism to either revive the company through a resolution plan or liquidate it if revival is not possible. Here is the complete step-by-step process.

Who Can Initiate CIRP?

• Financial Creditor (Section 7): Banks, NBFCs, bondholders with a financial debt of ₹1 crore or more in default
• Operational Creditor (Section 9): Suppliers, vendors, employees with operational debt of ₹1 crore or more in default after issuing a demand notice
• Corporate Debtor itself (Section 10): The company voluntarily initiates its own insolvency when it is unable to pay debts

The minimum default threshold for triggering CIRP is ₹1 crore (raised from ₹1 lakh to ₹1 crore in 2020 to prevent misuse).

Step 1 — Filing Application Before NCLT

The creditor or corporate debtor files an application before the NCLT bench having jurisdiction. The application must include proof of the debt, proof of default, and (for Sections 7/9) that no discipleship arrangement exists. NCLT must admit or reject the application within 14 days. In practice, this takes longer due to procedural delays.

Step 2 — Declaration of Moratorium (Section 14)

On admission of the application, NCLT declares a moratorium — a legal freeze during which: no suits, proceedings or enforcement action can be initiated against the corporate debtor; no asset can be transferred, encumbered or sold; no licences, permits or registrations can be suspended or terminated. The moratorium provides breathing room for the resolution process.

Step 3 — Appointment of Interim Resolution Professional (IRP)

Simultaneously with the admission order, NCLT appoints an Insolvency Resolution Professional (IRP). The IRP takes control of the corporate debtor's management, collects financial information, constitutes the Committee of Creditors (CoC) and publishes public announcement inviting claims from creditors.

Step 4 — Constitution of Committee of Creditors (CoC)

The IRP constitutes the CoC consisting of all financial creditors of the corporate debtor. Operational creditors are generally not members of the CoC (unless there are no financial creditors). The CoC makes all key decisions by vote — decisions require 51% or 66% vote depending on the matter. The CoC replaces the Board of Directors as the governing body during CIRP.

Step 5 — Resolution Professional and Expression of Interest

The CoC appoints a Resolution Professional (RP) who may be the same as or different from the IRP. The RP invites Expression of Interest (EoI) from prospective resolution applicants (buyers/investors). Based on EoI, an information memorandum about the company is prepared and shared with shortlisted applicants.

Step 6 — Resolution Plans Submitted

Resolution applicants submit resolution plans — proposals for taking over the company, paying creditors and reviving the business. The RP evaluates plans against the eligibility criteria (Section 29A) and places eligible plans before the CoC for approval. The CoC approves a plan with 66% vote.

Step 7 — NCLT Approval of Resolution Plan

The approved Resolution Plan is submitted to NCLT for approval. On NCLT approval, the plan becomes binding on the corporate debtor, all creditors, employees, guarantors and other stakeholders. The successful resolution applicant takes over the company.

The 180/270 Day Timeline

CIRP must be completed within 180 days from the date of admission. This can be extended by up to 90 days (total 270 days) on NCLT approval. If no resolution plan is approved within this timeline, NCLT passes a liquidation order.

Conclusion

CIRP under IBC is India's primary mechanism for resolving corporate insolvency in a time-bound, transparent manner. Understanding the process helps creditors, investors and companies navigate insolvency situations effectively. SPOTON provides advisory support for IBC-related matters affecting Kerala businesses. Contact us for expert corporate law advisory.