Supplementing the Code, Supplanting the Core: The Paradox of Time and Value in the New CIIRP Framework

The Insolvency and Bankruptcy Code in 2016 came into existence to consolidate a fragmented, contradictory and ineffective bunch of laws into a unified, creditor-in-control process which is contrary to the then-existing debtor-in-control regime. The IBC (Amendment) Act 2026, which received the assent of the President on 6th April 2026, is one of many calibrations addressing the realities, bottlenecks and jurisprudential interpretations that have emerged since. This blog examines the new IBC framework in three parts. It, first, sets out the key provisions of the CIIRP in Chapter IV-A. It, then, turns to Section 58H and the effect of conversion on the resolution timeline. Finally, it considers the constitutional difficulties arising from Section 58A.

Introduction to CIIRP

At the core of the amendment is a pre-CIRP resolution mechanism, the Creditor-Initiated Insolvency Resolution Process (CIIRP), inserted as Chapter IV-A, expanded from Section 58A to 58K. It aims to resolve distress before asset depreciation becomes irreversible.

The financial creditor under the traditional CIRP framework, while filing under Section 7 before the National Company Law Tribunal (NCLT), must prove the existence of a financial debt and a default, defined under Section 5(8) and Section 3 (12) of the IBC, respectively. CIIRP does not remove that requirement, it only shifts the stage at which default is tested. The process begins with the creditors’ notice itself, and it is for the corporate debtor to apply to the Adjudicating Authority under Section 58C within thirty days if it disputes the default. Where the Authority finds that no default has occurred, the entire process becomes void ab initio. Scrutiny of default, therefore, comes after commencement rather than before it, and this, with the absence of judicial supervision at the initial stage, produces a semi-private resolution environment.

A notice must be issued 30 days prior to the initiation of the process by notified financial creditors who collectively hold at least 51% of the total outstanding debt by value. That majority requirement is one of the key distinctions from a Section 7 application, where a financial creditor may trigger the insolvency proceeding subject to 1 Crore threshold and proof of default, regardless of its share of the debt. If the corporate debtor does not contest the notice within the 30-day window, the resolution professional makes a public announcement and the CIIRP formally commences.

Section 58F under CIIRP framework, introduces a nuanced “debtor-in-possession” model, under which the existing board of directors or partners of the corporate debtor retains day-to-day management control and continues to run the enterprise as a going concern. That control is not absolute, since the resolution professional is given extensive supervisory power including a veto over board resolutions and major strategic decisions. The hybrid structure aims to preserve the value of the business by maintaining operational continuity under the very management which has run it since inception.

So far as time is concerned, the CIIRP retains the soul of the code by recognizing that time is the most critical variable in resolution of distressed entities, it proposes highly compressed statutory timelines. Section 58D mandatorily prescribes that the process must be concluded within the baseline 150-days period, while permitting an extension of up to 45 days, provided such an extension is approved by a 66% voting share of the committee of creditors. A process which moves from creditor-in-control to debtor-in-possession may be said to have lost the soul of the Code, but the shift is measured. Possession stays with the management only under the supervision and veto of the resolution professional, and any failure to cooperate pushes the company into the regular CIRP under Section 58H. What the amendment carries forward is value maximisation, not any particular model of control.

Section 58H: How a 195 Day Track may Reopen the Clock for Resolution

The change was the need of the hour, but there are severe gaps within this process. The seminal Bankruptcy Law Reforms Committee (BLRC) Report of 2015 recognized that delayed proceedings severely depreciate asset value, and that speed is an inherent and non-negotiable characteristic of an effective resolution process. Section 12 of the IBC set the deadlines for the standard CIRP, mandating completion within 180 days from admission, with a one-time extension of up to 90 days and an exemption of 60 days for legal proceedings.

The empirical reality has been otherwise, and judicial delays and prolonged litigation have ravaged that discipline. EY’s nine-year IBC analysis citing IBBI data & IIIPI’s study exposes the scale of this collapse, the average time taken for CIRP completion now standing between 597 and 652 days, roughly double the statutory 330-day mandate. Section 58H provides the statutory exit route for a failed CIIRP. Where no viable resolution plan emerges within the 195-day limit, or the plan submitted is rejected, or the management fails to cooperate with the resolution professional, the CIIRP converts immediately into a standard, NCLT-supervised CIRP. Conversion in itself is not the problem, since an uncooperative management must be brought under the supervision of the NCLT. The difficulty lies in what happens to the clock. The prescribed conversion mechanism does not account for the time already consumed in the CIIRP while fixing the timeline of the CIRP. The position is not one of complete restart. Section 58H(1)(ii) requires the NCLT, while ordering conversion, to decide the stage from which the corporate insolvency resolution process shall commence, and Section 58H(3)(c) provides that for Sections 43, 46 and 50 the look-back period shall run from the creditor-initiated insolvency commencement date. The legislature has thus connected the two processes for avoidance transactions, but has not done so for Section 12. Nothing requires the time spent in CIIRP to be counted towards the 330-day limit, and the discretion under Section 58H(1)(ii) goes to the stage of commencement and not to the timeline. In the worst case, this leaves a statutory timeline of 525 days (195 days of CIIRP followed by a fresh 330 days of CIRP) before appellate delays at the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court are even included. In the best case, everything turns on a discretion the statute does not guide, and that uncertainty is itself a cost.

The gap may be exploited by corporate debtors. A CD may opt in solely to exhaust the 195 days, knowing that conversion under Section 58H may still, depending on the stage fixed by the tribunal, give it a substantially fresh multi-year CIRP timeline. This facilitates value deterioration and contravenes the Supreme Court’s mandate in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta regarding value preservation.

Section 58A: A Statute Built on Stilts

Section 58H presents operational risks, whereas Section 58A introduces a fundamental constitutional vulnerability. The amendment leaves asset thresholds, debt thresholds, creditor categories and debtor categories entirely to executive notification. The statute specifies that CIIRP may be initiated by “notified” financial creditors against eligible corporate debtors whose assets, income, or debt levels fall below levels to be “specified” or “notified” by the Central Government.

Nothing in the primary legislation states what these thresholds or categorical boundaries should be, which brings the provision into conflict with the doctrine of excessive delegation. Delegation is permitted in India, but only within limits. In re The Delhi Laws Act, 1912 settled that the legislature may leave the working out of details to the executive, provided it has itself determined the policy and laid down the standard guiding the delegate, which is the essential legislative function it cannot surrender. The limit was put in practical terms in Kunj Behari Lal Butail v. State of Himachal Pradesh, where a proviso inserted by notification into rules framed under a State ceiling legislation was struck down. The Court held that a general delegation to make rules for carrying out the purposes of an Act cannot be exercised so as to bring into existence substantive rights, obligations or disabilities which the parent Act does not itself contemplate.

Section 58A names the variables on which the executive is to act, but supplies no values. It applies to corporate debtors whose assets, income or debt fall below specified levels, to specified classes of financial creditors and to such other categories as may be notified, with companies already in insolvency or liquidation kept outside it. Naming a variable is not the same as laying down a standard. Nothing indicates whether the levels are to follow the size of the enterprise, the nature of the debt or the standing of the lender, and the exclusions identify only the debtors kept outside the chapter. What is left to notification is not the machinery of the process but the right to invoke it, and that right is substantive. On the reasoning in Kunj Behari, it cannot be brought into existence by an executive instrument when the parent statute has not itself said who is to hold it. Such a notification does not supplement the Code by filling a gap in a scheme Parliament has already framed. Since the statute lays down no criteria at all, the notification becomes the scheme, and to that extent it supplants the provision it is meant to serve.

It may be answered that executive rulemaking is familiar in economic legislation, and that the Code, the Companies Act and the SEBI framework all work through delegated instruments which the courts rarely disturb. No objection is taken to delegation as such, and the distinction lies in what is delegated. When the Central Government revises the default threshold under Section 4, or the Board frames regulations under Section 240, the delegate acts within a policy the statute has already declared and the instrument applies uniformly across the class. Section 58A departs from that pattern, because it leaves the executive to decide which creditors will hold the new power at all.

Capricious, Irrational, Without Adequate Determining Principle

The drafting also raises substantial Article 14 concerns that may not survive judicial scrutiny. The Article 14 of the Constitution of India, which guarantees equality before the law and equal protection of laws,  prohibits arbitrary classifications. In addition to the above, any legislative classification must satisfy the twin test of reasonable classification to avoid being struck down as constitutionally invalid. First is there must be an “intelligible differentia” behind the differential treatment. Second, the differentia must have a rational nexus to the object which the statute aims to achieve. The IBC, 2016 survived these profound challenges raised in the landmark judgement of Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17.

The Supreme Court in Swiss Ribbons upheld the validity of the Code precisely because the intelligible differentia between the two classes of creditors was demonstrable from the objective and structure of the statute itself. Financial creditors, typically banks and institutional lenders, provide term loans or working capital with specified repayment schedules and agreements allowing them to recall loans upon default. They are also actively involved in assessing the viability of the corporate debtor from the inception of the relationship. Operational creditors, in contrast, supply goods and services under contracts which rarely contain recall provisions, and generally lack the expertise to make that assessment.

It may be argued in defence that the relevant classification is the one between CIRP and CIIRP, and that a faster, largely out-of-court process for a defined class of cases is an intelligible differentia having a rational nexus with the object of speedy resolution. The challenge, however, is not to the existence of a separate CIIRP track. Swiss Ribbons settles that financial creditors are a distinct class under the Code, and Section 58A carves a further subset out of that class and gives the new power to it alone, without saying who that subset comprises or on what basis it is to be identified. The classification which will govern the rights of financial creditors among themselves is thus left to the executive rather than made by Parliament, and the silence which raises the question of excessive delegation is the same silence that exposes the provision under Article 14. A distressed debt fund or an unnotified Asset Reconstruction Company holding 51% of the debt could be barred from starting a CIIRP, yet a scheduled commercial bank with the exact same financial stake would be allowed.

The Government may rely on Swiss Ribbons to say that the notified class will be marked out by regulatory character and capacity to handle distressed debt, much as financial and operational creditors were separated there by their economic roles. Those features, however, were drawn from the Code itself, whereas here they would be supplied by the executive after the event. Review of economic legislation is no doubt deferential, and courts are slow to displace the judgment of the executive in a specialised field, but that deference attaches to a choice made within a declared policy and not to the absence of one. Where the statute lays down no determining principle, there is nothing for the court to defer to, and the classification remains open to challenge on the ground of manifest arbitrariness recognised in Shayara Bano v. Union of India, for being irrational, capricious and lacking an “adequate determining principle”. The Court has been very clear that arbitrariness is the natural enemy of equality. Any law that runs on a whim instead of objective rules is unconstitutional.

Conclusion: The Fixes

The goals of the IBC can only be achieved if the deadlines are strictly followed, and the historical data shows that whenever the law is vague the process slows down, the current average of 602 days being proof of that. Since these are two different processes with different mechanisms and goals, deducting every day spent in CIIRP from the CIRP timeline might be too aggressive and could cause the second phase to fail before it begins. A more pragmatic course would be to amend Section 58H by creating a procedural bridge between the two frameworks, under which the law mandates that all verified claims and valuations from the failed CIIRP are carried into the CIRP. The transition should be managed through a “reasonable credit” system, under which CIIRP time is deducted but a mandatory 60-day bridge period is guaranteed to handle new CIRP requirements such as the shifting of management control.

To protect these changes from challenge as “manifestly arbitrary” under Article 14, the law must include objective statutory triggers defining who qualifies for the CIIRP. The Code itself should list clear criteria, such as specific debt-to-equity ratios, the size of the enterprise, or the nature of the industry.

The CIIRP framework is a significant step forward for India’s insolvency landscape, offering an escape route from the chronic delays at the NCLT. The timing risks and vague definitions are serious, but they are fixable.

*Swarnendu Chatterjee is an Advocate-on-Record at the Supreme Court of India and a Principal Associate at Economic Laws Practice, New Delhi.

**Manas Raj Singh is an Advocate practising insolvency and debt-recovery litigation in New Delhi and a PGIP-LL.M. candidate at NLU Delhi’s Post Graduate Insolvency Programme.