The Corporate Insolvency Resolution Process (CIRP) is the cornerstone mechanism under the Insolvency and Bankruptcy Code, 2016 (IBC) for resolving corporate distress. It provides a time-bound, creditor-driven framework to either rescue a financially troubled company through a viable resolution plan or, failing that, to proceed to orderly liquidation. CIRP aims to maximise the value of assets and balance the interests of all stakeholders.
Initiation of CIRP — Sections 7, 9 & 10
CIRP may be initiated by three categories of applicants: a financial creditor under Section 7, an operational creditor under Section 9, or the corporate debtor itself under Section 10. In each case, the applicant must demonstrate that a default of at least ₹1 crore (the current threshold, raised from ₹1 lakh) has occurred. The application is filed before the National Company Law Tribunal (NCLT), which admits or rejects it after examining whether the default is established.
Timeline — 180 + 90 Days
Once admitted, CIRP must be completed within 180 days from the insolvency commencement date. The Adjudicating Authority (NCLT) may grant a one-time extension of up to 90 days if 66% of the Committee of Creditors (CoC) votes in favour. The Supreme Court in Essar Steel India Ltd. v. Satish Kumar Gupta emphasised that the outer limit of 330 days (including litigation time) is mandatory, reinforcing the time-bound nature of the process.
Committee of Creditors (CoC)
The CoC comprises all financial creditors of the corporate debtor and is the principal decision-making body during CIRP. Voting rights are proportional to the financial debt owed to each creditor. The CoC evaluates resolution plans, appoints or replaces the Resolution Professional, and makes critical commercial decisions. Operational creditors attend CoC meetings but do not have voting rights unless they hold financial debt as well.
Resolution Plan & Approval
The Resolution Professional invites prospective resolution applicants to submit plans for reviving the corporate debtor. Each plan must comply with Section 30(2) of the IBC, providing for payment to operational creditors, dissenting financial creditors, and workmen's dues. The CoC approves a resolution plan by a vote of not less than 66% of voting share. The approved plan is then submitted to the NCLT for final sanction. Once approved, it is binding on all stakeholders, including dissenting creditors.
Moratorium & Its Effect
Upon admission of a CIRP application, the NCLT declares a moratorium under Section 14, which prohibits the institution or continuation of suits, enforcement of security interests, recovery actions, and transfer or disposal of the debtor's assets. The moratorium protects the corporate debtor as a going concern during the resolution period, ensuring that assets are preserved for the benefit of all creditors collectively.
CIRP vs Liquidation
CIRP is a resolution-first mechanism — liquidation is the last resort. If no resolution plan is approved within the prescribed timeline, or if the CoC decides to liquidate, the NCLT orders liquidation under Section 33. While CIRP seeks to revive the company and protect jobs, liquidation involves the orderly winding-up and distribution of assets according to the statutory waterfall under Section 53.
Key Points
- CIRP can be initiated by financial creditors (Sec 7), operational creditors (Sec 9), or the debtor itself (Sec 10).
- The minimum default threshold is ₹1 crore.
- CIRP must be completed within 180 days, extendable by 90 days (maximum 330 days including litigation).
- The Committee of Creditors (CoC) is the decision-making body with 66% approval required for a resolution plan.
- A moratorium under Section 14 protects the debtor's assets during CIRP.
- Liquidation under Section 33 is the last resort when resolution fails.