The Evolving Landscape and Challenges to Insolvency and Bankruptcy Code, 2016: A Road Ahead for Resolution of Distressed Assets Amid Covid-19?

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The Evolving Landscape and Challenges to Insolvency and Bankruptcy Code, 2016: A Road Ahead for Resolution of Distressed Assets Amid Covid-19?

April 2, 2022

The IBC came in as landmark legislation and is one of the most dynamic laws of the country. The roller coaster journey of the Code since its enactment weighed on market-driven forces to balance the interest of all stakeholders. The Code was enacted with overriding powers under section 238 to nullify the applicability of all other laws. The underlying intent was to provide the lifeblood to the sinking company as soon as possible. 

The Code has undergone various legislative amendments and judicial interpretations from the time it has been enacted to adapt itself to the dynamic market conditions. Below are few changes in the framework of the Code to plug in loopholes:

1. Exclusion Of Promoters And Erstwhile Directors From Bidding For Their Own Company/ Enactment Of Section 29A:

Once a corporate insolvency resolution application has been approved by the Adjudicating Authority and a committee of creditors has been formed to invite claims from the creditors, the resolution professional with the approval of the CoC form eligibility criteria for resolution applicants and invite expression of interest. Previously the Code did not specify the eligibility criteria for resolution applicants and was solely an issue for consideration by the CoC. The erstwhile directors and the promoters of the Corporate debtor took advantage of this provision and took a back entry by submitting a resolution plan for their own company. Interpreting this loophole, the legislature’s intention was never to return the control and management of the corporate debtor to the defaulting promoters or directors who failed to keep the corporate debtor as a profitable and viable business free from all debts.[1]
An amendment was made to the Code for the first time in 2017 which amended the definition of a resolution applicant under the Code and inserted a new section 29A which provided for eligible resolution applicants for submission of resolution plan. It prohibited persons who are connected or related parties of the erstwhile promoters, holding, subsidiary, and associate companies of the corporate debtor to submit a resolution plan under the Code.[2] The clause was under challenge in the case of Arcelor Mittal[3], where the Apex Court upheld the validity of the Code and reiterated that such a person who has made a bid is a connected person or a related party or a person acting in concert but has repaid the debt with interest before the submission and approval of the resolution plan can become an eligible applicant.[4] On a later occasion also the Apex court upheld the constitutional validity of the Code.[5] Supreme Court has time and again ruled that section 29A must be adhered to in the strictest way and wilful defaulters shall be kept away from the CIRP process.[6]

Section 29A is a restrictive provision that has been criticized by a lot of corporates. Recently the conundrum around promoters finding a way through the Companies Act to get back to the management was settled by the Apex Court, wherein the Court held that promoters ineligible under section 29A are also barred from filing an application for compromise and arrangement under section 230 and 232 of the Companies Act even during the period of liquidation.[7]

However, the Insolvency Law Committee of 2018 was of a different view with respect to unreasonable restrictions on eligibility criteria. The Committee recommended that the section has a very broad ambit disqualifying a wide range of applicants.[8]


The IBC Amendment Ordinance of 2018 lowered the threshold limit for approval of a resolution plan by the Committee of Creditors from 75% to 66%. This amendment was promulgated to discourage liquidation and keep companies as a going concern. Further, the amendment laid an important exemption for the resolutions of MSMEs, it provided that ineligibility criteria under section 29A shall not be applicable to MSME.[9]
Another significant amendment brought in the Code is the change in the definition of Financial Creditors to include home buyers of real estate projects. In the recent past infrastructure projects have taken the highest amounts of loan from the public sector banks as well as specialized and commercial banks. With the global slowdown of the economy, the infrastructure sector was hit the most as the period of loan repayment is comparatively longer which lead their businesses to suffer huge losses. An appeal was made to the Supreme Court by homebuyers of the real estate project companies seeking allotment of their apartments or refund their money. The Supreme Court in Pioneer Urban[10] interpreted the definition of the Financial Creditor under the Code. The Code originally did not recognize real estate allottees or home buyers as financial creditors. The Supreme Court interpreting the definition of financial debt held that home buyers fall under the definition of the financial creditors as there was time value for money.[11] Later a legislative amendment in the Code validated and upheld the constitutionality of the Supreme Court’s judgment. The second amendment of 2018 recognized allottees of the real estate projects as financial creditors and such creditors can file an application under section 7 as well as have a representation on the Committee of Creditors. The Insolvency Law Committee of 2017 observed that “the amounts raised under the contracts of home buyers are in effect for the purposes of raising finance, and are a means of raising finance… such amounts raised under a real estate project from a home buyer fall within entry (f) of section 5(8).[12]” The ordinance clears all ambiguities with respect to the inclusion of real estate allottees as financial creditors however, it fails to specify their treatment as secured or unsecured creditors. Determination of whether real estate allottees are treated as secured or unsecured creditors will imply their rank of payment at the time of liquidation. “Under IBC, a secured creditor is one against whom a security interest is created, it guarantees certain rights on failure to make repayment, subject to any contractual relationship between the creditor and the debtor. Therefore, it can be said that a creditor secured or unsecured are matters of contractual relationship between the parties and cannot be labelled under the Code”, MS Sahoo, Chairman IBBI.[13]

Later by an amendment in 2020 introduced a threshold limit for real estate creditors for filing an application for corporate insolvency under section 7 of the Code. The amendment inter alia stated that an application can be made jointly by the real estate allottees by not less than 100 allottees or 1/10th of the total allottees of the project, whichever is lower. The constitutionality of this provision was recently challenged in the case of Manish Kumar v. Union of India.[14] The Supreme Court upheld the constitutionality of the amendment and the further threshold limit was not discriminatory.


The 2018 amendment also introduced section 12A, it states that the Adjudicating Authority may withdraw an application made under section 7, 9 and 10 by the applicant with approval of 90% of the CoC.[15] The intention behind including this section is to give creditors a better opportunity to choose from the most viable bids which were earlier forced to take higher haircuts despite a better offer from the promoters.[16] The section was inserted after the decision of the Supreme Court in Lokhandwala Kataria Construction Pvt. Ltd. v. Nisus Finance and Investments Managers LLP.[17] It settled the issue of whether a compromise can be made between the creditor and debtor after admission of the application. The Court held that a settlement between the parties will pave way for achieving the objectives of the Act which is the continuance of business and value maximization of all stakeholders. The section also passed the challenge of constitutional validity in the case of Swiss Ribbons.[18]


The third amendment to the Code amended section 30, which granted creditors to exercise their commercial wisdom while looking into the manner of distribution under the resolution plan. Further section 53 dealing with the waterfall mechanism was now applicable not just in cases of liquidation but in CIRP proceedings also. Earlier in the case of Binani Industries,[19] the NCLAT ruled that the CoC has to balance the interest of the Operational creditors as well and look into the feasibility of the plan which aims value maximization of each stakeholder. Under section 30, a clause was inserted requiring minimum liquidation value to be paid in priority to operational creditors and dissenting financial creditors in the same manner as it is paid under section 53. The issue first surfaced in the case of Essar Steel,[20] where the NCLAT held that section 53 would not apply to CIRP. Setting aside the order of the NCLAT, the Supreme Court held that the commercial wisdom of the CoC shall not be interfered by the Adjudication Authority. The manner of distribution of the bid amount is at the discretion of the CoC by exercising their commercial wisdom. The Adjudicating Authority can only look into whether the CoC has followed due procedure under section 30. 

Further section 53 could also be applicable in CIRP and would give operational creditors a benefit of being paid higher of either the liquidation value or distribution under section 53. Prior to the amendment, the Code did not provide any provision to cater to the interest of dissenting secured financial creditors. In the case of K. Sashidhar,[21] the Apex Court reiterated that exercise of commercial wisdom by the CoC in approving or rejecting a resolution plan is outside the ambit of judicial review. The Adjudicating Authority only has jurisdiction to ascertain whether the statutory mandate under section 30 is fulfilled. The adjudicating authority can intervene only in cases where the resolution plan did not satisfy the requirements under section 30 and the same was rejected by the CoC.


The Code recently included Financial Service Providers under the ambit of the Code. The Central Government notified in 2019 rules relating to Insolvency and liquidation of Financial Service Providers (other than banks) and non-banking financial institutions with assets of more than 500 Cr. However, the CIRP against Financial service providers can only be initiated by the Reserve Bank of India and the administrator who shall act as a resolution professional shall also be appointed by the RBI.[22] Pursuant to the FSP circular, RBI initiated the first-ever insolvency proceeding against DHFL. Owing to the exorbitant amount of money (1 Lakh Crore) involved and the number of individual retail investors of DHFL, the application was admitted quickly. 24 resolution plans were submitted by different corporate entities of which the resolution plan of Piramal Capital and Housing Finance Limited was approved by the CoC which later got approved by the NCLT in an order dated June 7th 2021.[23] The resolution plan provides for an aggregate of Rs. 33,250 crores, of which Rs. 13,700 is offered to secured creditors upfront in cash and the remaining Rs. 19,550 by way of issue of Non-convertible debentures. The dissenting financial creditors under the plan were also offered cash or debt securities, but later the NCLT modified this treatment referring to the case of Jaypee Kingston[24] wherein the Supreme Court held that the dissenting financial creditors shall be paid in cash only. The NCLT also suggested a differential treatment to retail investors of the corporate debtor who had made deposits by way of fixed deposits which would yield them assured returns. The NCLT directed CoC to allocate more funds to these retail investors to protect their interests.[25]


A dishonoured cheque under the Negotiable Instruments Act, 1881 can attract criminal proceedings against the drawer under section 138 of the Act. A common situation arises when a corporate debtor defaults on payments as a result of dishonour of cheques. The question which arose before adjudicating authorities was the validity of a criminal proceeding initiated against the defaulter during the subsistence of the moratorium period under section 14. Section 14 of the Code bars any institution of suit or continuation of a pending suit once an order of moratorium is passed. The Bombay High Court in a ruling [26] was of the opinion that a proceeding under section 138 can be initiated simultaneously even after the winding up of the company is in force. The Court opined that suits and proceedings under the Companies Act do not cover criminal proceedings. However, recently the Supreme Court [27] took a different view, it said criminal proceedings are construed as “Proceedings in the court of law” and such a proceeding is prohibited under section 14, therefore, a proceeding against the corporate debtor to recover a dishonoured cheque under section 138 of NI Act would not be maintainable during the period of moratorium.[28]


The rising problem of NPA and the indebtedness of companies has made a serious impact on the financial growth of banks and financial institutions. The government of India enacted the SARFAESI Act to provide relief to financial institutions to efficiently reduce their problem of bad debt. Under the Act, the lender can enforce its rights by issuing a notice to the borrower to make payments within 60 days failing which the lender shall have the right to enforce the security by taking possession of the secured assets to fulfil the debt amount. However, after the enactment of IBC, creditors find the IBC route more speedy and efficient.[29] There are situations where the creditors have initiated proceedings under the SARFAESI Act and simultaneously have commenced proceeding under IBC too.[30] The issue came up for adjudicating on various occasions before different NCLT’s. In a recent case[31] the NCLAT held that a creditor is not prohibited from initiating a proceeding under section 7 of the Code during the pendency of the proceeding under SARAFESI Act. It further was of the view that section 238 of the Code creates an overriding effect of the Code over other laws and shall prevail over other legislations.[32]


Generally, the lenders secure their loan by an assurance made by the guarantor. The contract act under section 128 stipulates that the liability of the guarantor is co-extensive with that of the principal debtor. The creditor has the right to invoke the debt against the debtor as well as the guarantor, his remedy is not exhausted until invoking the guarantee. The creditors can also invoke the guarantee before making any recovery from the principal debtor. The purpose of notifying part III of the Code to personal guarantors of the corporate debtors is to widen the scope of recovery available to creditors. This move will also create deterrence in promoters and guarantors from alienating their assets and make them accountable under the contract of guarantee where the liability of the guarantor is co-extensive with the borrower. The contract of guarantee is an independent contract and shall not absolve the guarantor from his liability in the case where the principal borrower is relieved from his liability. This will strengthen the position of the creditors under the Code.[33]

There have been instances where issues have been raised involving an interplay between the Contract act and the Code. A plethora of judgments have been passed by various NCLTS’s on this debatable issue. It first arose in the case of Piramal Industries, the NCLAT held that “ There is no bar in the Insolvency and Bankruptcy Code, 2016 for filing simultaneously two applications under Section 7 against the ‘Principal Borrower’ as well as the ‘Corporate Guarantor. However, once for the same set of claim application under Section 7 by the financial creditor is admitted against one ‘Corporate Debtor’ i.e. ‘Principal Borrower’ or ‘Corporate Guarantor’, second application by the same financial creditor for the same set of claim and default cannot be admitted against the other ‘Corporate Debtor’ i.e. ‘Principal Borrower’ or ‘Corporate Guarantor”. [34] This created an uproar and many appeals were filed against the said judgment before the Supreme Court. While the decision of the Supreme Court is awaited on the Piramal matter, recently the NCLAT took a subtle turn on its view pertaining to the issue at hand in the matter of State Bank of India v Athena Energy Ventures Private Ltd.[35] The contrary view taken by the NCLAT was that a simultaneous claim filed against a guarantor is maintainable and the balance amount can be adjusted in the other proceeding.[36] The NCLAT since has dissented from its judgment passed in the case of Piramal.  Later in cases of Zenith Finesee[37] and Edelweiss Asset Reconstruction Company [38] the NCLAT declined to apply the view in Piramal case and held that a creditor can file claims against the principal borrower as well as the guarantor and shall have a right of representation in the CoC along with voting rights. Thus the view taken by NCLAT is now settled that lenders of the corporate debtor can simultaneously proceed against the guarantor and the principal borrower at the same time for the same debt, similarly, they can file claims in both CIRP’s for the same amount of debt. [39] The position of creditors is more strengthened after the Supreme Court’s position in the case of Lalit Kumar. However, the appeal filed against the NCLAT judgment in the Piramal case still awaits the final order from the Apex Court.

The 2020 report of the Insolvency Law Committee suggested that a “creditor is not entitled to recover more than what is due to it, an action against the surety cannot be prevented solely on the ground that the creditor has an alternative relief against the principal borrower. Further, as discussed above, the creditor is at liberty to proceed against either the debtor alone, or the surety alone, or jointly against both the debtor and the surety. Therefore, restricting a creditor from initiating CIRP against both the principal borrower and the surety would prejudice the right of the creditor provided under the contract of guarantee to proceed simultaneously against both of them.”[40] In another issue, the Tribunals determined the scope of application of section 14 to guarantors and held moratorium is not applicable to properties and assets of persons other than the corporate debtor.[41] The issue was reaffirmed by the Supreme Court in the case of SBI v V. Ramakrishnan & Anr., where it opined that section 14 would not apply to a guarantor. It further held that “guarantors cannot escape their independent and coextensive liability to pay off the entire outstanding debt. It is for this reason that the moratorium mentioned in Section 101 would cover guarantors, as such moratorium is in relation to the debt and not the debtor.”[42] It also held that guarantors cannot rely on section 133 of the Contract Act and alter the debt of the corporate debtor approved in a resolution plan, it would not relieve the guarantor for the remaining debt. The Central Government notified part III of the Code (section 94 to 187) dealing with the insolvency and bankruptcy of individuals and partnership firms applicable to personal guarantors of a corporate debtor from 1st December 2019. The Ministry of Corporate Affairs, through a notification, introduced rules and regulations applicable to only personal guarantors. The regulation was challenged in the High Court of Delhi by Anil Ambani after the State Bank of India filed two applications under section 95 for the appointment of a resolution professional in an insolvency proceeding against Mr. Ambani. Mr. Ambani was a guarantor in the credit facility provided by SBI to Reliance Communications and Reliance Infratel. In 2017 both their loan accounts were declared NPAs for making defaults in repayments. Both the companies were already undergoing CIRP. NCLT further appointed a resolution professional in the insolvency proceedings against Mr. Ambani.[43] He then moved to the High Court challenging the order of NCLT for appointment of resolution professional and to challenge the Rules and Regulations pertaining to insolvency proceedings against personal guarantors of the corporate debtor. The petition stated that there are no enabling provisions in the Code for insolvency against personal guarantors. The Delhi High Court [44] stayed the proceedings against Mr. Ambani under part III of the Code and ordered for continuation of CIRP proceedings against both the companies. Further, the Court ordered a resolution professional to examine the liability of Mr. Ambani in both the CIRPs. It restrained him from disposing, transferring, alienating, or dealing in any manner, of his property.[45] The provisions of the regulation relating to personal guarantors were under constitutional scrutiny but with the recent ruling of the Apex Court in Lalit Kumar Jain, the debate is settled.

In a landmark judgment of the Supreme Court in Lalit Kumar Jain v Union of India,  it upheld the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 and held that the “approval of the resolution plan does not ipso facto discharge a personal guarantor of her/his liabilities under the contract of guarantee. As held by this court, the release of discharge of a principal borrower from the debt owed buy it to its creditors, by an involuntary process, that is by operation of law or due to liquidation or insolvency proceeding, does not absorb the surety or guarantor of his or her liability, which arises out of an independent contract. It is also held at approval of resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of the personal guarantors.”[46]


The present IBC regime deals with insolvency of a corporate entity on a standalone basis, the provisions under the Code do not provide for insolvency of a corporate group as a whole neither does it stipulates insolvencies of different corporates under the same application. Presently, insolvencies against different corporate debtors belonging to the same corporate group are dealt with separately by filing independent CIRP applications. However, this setup does not provide maximum value maximization to the creditors as well as the debtor. Although the Code is silent on this aspect the Courts have been playing a proactive role in filling this loophole through judicial pronouncements.[47] The principal bench of NCLT in the insolvency matter of Videocon group ordered that all the applications filed against the Videocon group in different NCLT’s shall be heard by a single bench and all independent proceedings shall be consolidated to avoid any conflicting orders. The Adjudicating Authority ordered [48] for consolidation of all assets and liabilities of 13 Videocon companies as they were under common control, common directors, the interlacing of finance, pooling of resources, intertwined accounts, singleness of economics of unit, common financial creditors, and common group of corporate debtors. All 13 Videocon companies were considered as one economic unit and a single CIRP proceeding was conducted. The group insolvency proceeding of Videocon group is one of the first cases of group insolvency in India carried out by the Courts. The IBBI constituted a working group on group insolvency for designing a framework for group insolvency of companies, it submitted its recommendations in its report of the Working Group on group insolvency on September 23, 2019.[49]


The present IBC regime attempts to deal with international insolvency under sections 234 and 235. An international insolvency or cross border insolvency means insolvency of companies or group of companies which are located in different parts of the world where their assets or creditors are situated in more than one country. The section dealing with cross-border insolvency in the Code is not notified and therefore no proceeding can be initiated under it. The Insolvency Law Committee constituted in 2016 prepared model laws on cross-border insolvency in consonance with the UNCITRAL Model Law.[50] The committee made a report recommending amendments in the Code in order to give effect to the UNCITRAL laws. Cross-border insolvency commenced in India with the Jet Airways case.[51] Creditors in India filed an application for initiation of CIRP against Jet Airways and NCLT admitted the application on June 20, 2019. Later the Courts in the Netherlands initiated a bankruptcy proceeding against Jet Airways by appointing a bankruptcy administrator to take possession of its assets in the Netherlands. Thus, there were two simultaneous proceedings running against Jet in two different jurisdictions with varied insolvency and bankruptcy regimes. NCLT held that an order made by Netherland Courts is not maintainable in India under the Code. NCLAT set aside this order of the NCLT. NCLAT took a pragmatic approach in recognizing the bankruptcy proceedings in the Netherlands by directing the Insolvency professional in India and bankruptcy administrator in the Netherlands to make an arrangement that is beneficial to the creditors.[52]


Section 32A was introduced through the 2020 amendment made to the Code w.e.f. December 28th 2019.[53] The section provides immunity to the corporate debtor from prosecution for an offense committed prior to initiation of CIRP proceeding after the resolution plan has been approved by the Adjudicating Authority. It further provides protection to the property of the corporate debtor included in the resolution plan. However, such immunity shall not be available to promoters and directors of the corporate debtor as they stand individually responsible for committing offenses under the name of the corporate debtor. In the CIRP proceedings of Bhushan Power & Steels Limited, JSW Steel Ltd. submitted their resolution plan which was approved by the Adjudicating Authority vide order dated September 5th 2019. Post-approval of the plan the Enforcement Directorate attached assets of the corporate debtor under section 5 of the Prevention of Money Laundering Act. The main bone of contention in this case was can the enforcement directorate attach assets of the corporate debtor under PMLA after approval of a resolution plan under section 31. The NCLT interpreting section 32A denied the above contention and held that the enforcement directorate could not attach properties of the corporate debtor.[54] The Enforcement Directorate made a contention that the amendment cannot apply retrospectively to resolution plans which have been approved. NCLAT in its order dated February 17th, 2020[55] rejected the said plea and inter alia held that a plain reading of Section 32A(1) and (2) clearly suggests that the Directorate of Enforcement/other investigating agencies do not have the powers to attach assets of a corporate debtor, once the resolution plan stands approved and the criminal investigations against the corporate debtor stand abated. Section 32A of the Code does not in any manner suggest that the benefit provided thereunder is only for such resolution plans which are yet to be approved.[56]



Even though the Code was enacted with an intention to provide a one-stop solution for a time-bound resolution preventing the corporate entities from collapsing and with an aim to promote ease of doing business with Indian companies the ground realities are different as it may seem. Irregularities such as the implementation of the resolution plan and difference of opinion among NCLT’s in approving a resolution plan have had negative market sentiments on the success of the Code. Approval of a resolution plan by NCLT under section 31 of the Code requires conditions to be satisfied stipulated under section 30. But even after NCLT approves such a plan there have been instances where the approved plan has not been implemented and the successful Resolution applicant has expressed difficulties arising due to inadequate support from investigative agencies and corporate debtor itself. Such a delay in approval or rejection of the resolution plan would hamper the viability of the plan. The resolution plan is a document that is an output arising from the approval of the commercial wisdom of the members of the Committee of Creditors. Any delay in mere approving the plan by the NCLT where the same has already been approved by the Committee of creditors will give room to more litigations and would ultimately defeat the purpose of time-bound resolution.[57]

A critical situation arose after the breakdown of the pandemic of Covid-19, the economic condition created an adverse impact on the Companies to fulfill their debt obligation and keep themselves afloat from the wrath of liquidation. The government has taken steps to safeguard the interest of all stakeholders by increasing the threshold limit for filing an application under the Code from Rs. 1 Lakh to Rs. 1 Crore[58] and a blanket suspension from filing an application under section 7, 9, and 10 for defaults arising after March 25th.[59] An important question was raised concerning the implementation of the resolution plan of companies that are undergoing CIRP. The initiatives taken by the Government only aim at safeguarding those corporates who might have to undergo insolvency due to national lockdown leading to disruption in business operations. The Code fails to address issues pertaining to the implementation of a feasible resolution plan approved by the CoC. It puts the resolution applicant in a difficult situation and consequentially failure of implementation of the resolution plan will result in the liquidation of the corporate debtor. Presently, the Code fails to contemplate any provision which aims at rescuing the corporate debtor from liquidation at such times. The NCLAT is of the firm view that an approved resolution plan cannot be rectified or modified by the adjudicating authority under section 31 through the inherent powers of the adjudicating authority.[60] The only way out at present to rescue companies from liquidation is to approach the adjudicating authority to seek a proper modification of the plan with few relaxations on the timeline.[61]


One of the main aims of the Code is to abide by the statutory timelines for the completion of insolvency resolution. The code originally provided for competition of Corporate insolvency resolution process in 270 days. However, through an amendment in 2019 which provided that all CIRP shall mandatorily be completed within a period of 330 days which shall include the period of legal proceedings which arise during the subsistence of the process.[62] Although the Apex Court struck down the word ‘mandatorily’ prescribed under section 12 of the Code introduced by the 2019 amendment in the matter of Essar Steel. The Court was of the view that NCLT and NCLAT’s can exercise their discretion in extending the time limits for competition of the CIRP proceedings. The timelines provided under the Code and in the amendment are not mandatory but only directory.[63] Such discretion on the ends of adjudicating authority will further create a backlog of cases when the adjudicating authorities are already swamped with a huge list of pending cases. NCLT’s and NCLAT’s are heavily congested with IBC matters. They act as a judicial forum under both the Companies Act as well as the Insolvency and Bankruptcy Code. The cases from the Company Law Board as well as Board for Industrial and Financial Reconstruction were also transferred to the NCLT’s which further created an inherited backlog of cases.[64] Recently, the Central Government has increased the minimum threshold amount of default under the Code from 1 lakh to 1 crore which might reduce their burden to some extent.


With the sudden pandemic, the economy also suffered from an unprecedented downturn, and to minimize the lethal economic effect the Government of India initiated a bold step by releasing a notification to be in effect from March 24th 2020, which prescribed increasing the minimum default amount from Rs. 1 Lakh to INR 1 Crore. With effect from the date of notification, this step has been widely appreciated in the current realm of the pandemic in providing considerable relief and has been successful in efforts to curb the impact on the economic supply chain for numerous business units in every sector.
The increased threshold is a game-changer amendment for the Medium and Small and Macro Enterprises as it would help them to keep afloat at the time when the economy is slumping. The government indicated that such a step is taken to rescue corporate debtors from the Covid 19 pandemic. The Insolvency Law Committee Report released on February 20, 2020, also recommended an increase of threshold limit under section 4, the intention behind was to reduce the burden of the NCLT. The NCLT Chennai bench recently in its order[65] dated June 2, 2020, held that the notification regarding increase of threshold limit will have a prospective application and shall not be applicable to matters already admitted where the CIRP is ongoing. 
The flip side of the notification is that it has given a harsh blow on operational creditors and other stakeholders such as workmen and employees.[66]

The major brunt will be faced by operational creditors whose claims are generally lower in value and in most cases are unsecured. The notification will have a detrimental effect on the existence of those operational creditors who might become a prospective corporate debtor. The 18th Quarterly Report of IBBI revealed that 80% of CIRPs were initiated by the OC’s having default less than 1 crore. The total number of CIRP’s initiated in the previous year reveals an increase in initiation of CIRPS’s by OC’s in comparison to previous years.[67] This reflects the distress caused to small creditors and operational creditors because of defaults caused by the corporate entities due to the pandemic.[68]  Moreover, operational creditors under the Code cannot file a joint application under section 9, however, such a joint application could be filed by a financial creditor under section 7. The Supreme court has many times reiterated that the Code cannot be detrimental to the interest of the Operational creditors.[69] Another type of stakeholder who would have to face serious repercussions of this notification are the employees and workmen of the corporate debtor whose claims are smaller in amount and would not be able to meet the new criteria. Both the operational creditors as well as employees have to take recourse under other recovery legislations which are not as effective and speedy as the Code. 


In the wake of Covid 19, the Government notified the Insolvency and Bankruptcy Suspension Ordinance. The suspension ordinance suspended the application of sections 7, 9, and 10 of IBC for initially six months which was later extended to one year on defaults that arose after 25th March 2020. The suspension ordinance was enacted under section 10A of the Act which states that no application for initiation of the CIRP of a corporate debtor shall be filed for any debt arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year from such date, as maybe notified on this behalf. Provided that no

application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. 

The intention of the Government was to protect businesses from the fear of insolvency during the time when most of the businesses are on the verge of collapsing. But the blanket exclusion from filing an application after 25th March 2020 for all defaults after the date could be arbitrary. Any default made immediately prior to the suspension date will also enjoy the same blanket inclusion. The section lacks clarity as it fails to answer whether the default will continue when the suspension is lifted or such default can never be claimed as even after the suspension is lifted the protection of the ordinance continues. The ordinance, on one hand, can help small businesses and MSMEs from the death of liquidation and on the other hand, it may potentially create huge losses for banks and operational creditors.[70]

The suspension under the Code finally expired on March 24, 2021. However, there have not been surge of cases as expected during the suspension period. The RBI has given relief to those borrowers under distress a six month moratorium and a scheme for one-time restructuring. It seems that creditors are not following the IBC route rather are inclined to restructure the default through other mechanisms. 


3.5.1 Resolution of stressed assets pre-covid and post covid

IBC pre-covid has been a game-changer legislation and has projected India in the World Bank’s Doing Business rankings from 143 to 2019 in four years. Although the Code was enacted with the sole object to recover debts but rather to rehabilitate debt trapped companies. Since its enactment, the recovery rate of stressed assets has drastically gone down to 26% from 48%.[71] The Code is still in its nascent stage but it has made an impactful transformation on the credit market and a significant change on the growing NPA’s. A data released by the Reserve Bank of India shows that with the enactment of IBC the banks have been able to recover 42.5% claimed under IBC, which has been the highest in the year 2018-19 among all other recovery legislations. In a report published by IBBI about “1800 Corporate Debtors have been admitted into CIRP by the end of March 2019. Of these, 152 have been closed on appeal or review or settled; 91 have been withdrawn; 378 have ended in liquidation and 94 have ended in approval of resolution plans”.[72] In the latest report published by the IBBI in October-December, 2020, “a total of 4139 CIRP’s have commenced by the end of December 2020. Of these, 601 have been closed on appeal or review or settled; 378 have been withdrawn; 1126 have ended in orders for liquidation and 317 have ended in approval of resolution plans. Operational Creditors triggered 50.54% of the CIRPs followed by about 43.01% by Financial creditors and remaining by the corporate debtors. However, about 80% of the CIRP having an underlying default of less than Rs. 1 crore were initiated on applications by Operational creditors while about 80% of CIRPs having an underlying default of more than Rs. 10 crores were initiated on applications by Financial creditors.”[73] The numbers indicated in the report show that the CIRP initiated by Operational creditors is declining due to a high threshold limit which is not met by the operational creditors.  

The RBI published a list of 12 defaulters which combinedly hold 25% of the country’s total NPA. RBI directed banks to initiate CIRP proceedings against these defaulters under the Code. “Collectively these twelve big defaulters had an outstanding claim of Rs. 3.45 lakh crore as against liquidation value of Rs. 73,220 crore. Of these, the resolution plan in respect of nine corporate debtors was approved and orders for liquidation were issued in respect of two corporate debtors. The CIRP and liquidation proceedings against all these entities are ongoing at different stages of the process”. [74]

The Report on Trend and Progress of Banking in India 2019-20 released by RBI draws a comparison of recoveries under IBC and other legislations. “Recoveries by scheduled commercial banks (SCBs) through the IBC channel increased to about 61% of the total amount recovered through various channels in 2019-20 against 56% in 2018-19.SCB’s have recovered 45.5% of their claims through IBC which is the highest as compared to recovery under other mechanisms such as SARFAESI, RDDBI and Lok Adalats.”[75]

The jurisprudence of the Code since its enactment has been evolving and fine-tuned according to the dynamics of the market. The Apex Court in many instances has upheld the provisions and constitutionality of the Code.[76] The erstwhile legislation governing the insolvency and recovery of debts and liquidation of companies followed the debtor-in-possession model. However, with the introduction of IBC, the creditors were given primacy and the Code instills a creditor-in-possession model. Similarly, the previous insolvency model did not aim at balancing the interest of all stakeholders, on the contrary, the IBC in its statement of purpose focuses on balancing the interest of all stakeholders. To give effect to this principle, the Code under various sections reflect the balancing interest of stakeholders like the workmen, employees, government unsecured creditors, operational creditors, etc. Section 53 of the Code is a perfect example of how the claims of all the stakeholders are addressed orderly and most importantly the claims of the workmen and employees which were ignored in the previous legislations. This justifies the objective of the Code to keep the corporate debtor as a going concern and to save the employment of those related to the business activities of the Corporate debtor.


3.6.1 Mediation in Insolvency

Despite the evolving jurisprudence and legislative gaps and active judicial intervention by the Courts in interpreting the Code, IBC has come a long way and has been fundamental in imbibing faith in investors that they won’t be remediless in case their investment goes in vain. Another crucial issue mitigated by the successful implementation of the Code is that it has successfully managed to excavate all the capital locked in a debt trapped business back to the banks and have increased the credit inflow in the market. 

Even though the Code has witnessed various success stories from the time it was enacted, it still has scope for adapting to new methods of resolution. For instance, insolvency mediation is still not a preferred choice for resolving insolvency disputes in India. The Supreme Court[77] has shown its acquiescence in promoting out-of-court resolution of insolvency and bankruptcy matters. However, the Code still has not taken any proactive steps to encourage mediation in insolvency. As a result of this, the number of court proceedings and litigation is on a rise, and the NCLT’s are burdened with huge pendency of cases.[78]

3.6.2 Pre-packaged insolvency

With an increased threshold limit of default and suspension of the Code, the existing resolution landscape has taken a turn and changed the pre-existing framework. It has necessitated the stakeholders to adopt and evolve a varied mechanism to resolve and restructure the debt. Among many options available to the creditors one effective way to resolve the issue at hand is adopting the ‘pre-package resolution’ route. Under the pre-packaged insolvency route, the creditor and the debtor amicably negotiate between themselves and formulate a resolution plan first without any court intervention, later the same plan is finally approved by the procedure of CIRP. Similarly, out-of-court settlements between the parties through arbitration or mediation can also prove to be a good mechanism. Back in 2015, the Bankruptcy Law Reform Committee did not approve of the idea of adopting a pre-pack insolvency mechanism in the Indian insolvency regime. The committee believed that the Indian markets are not equipped with a mechanism that will sanction an out-of-court restructuring without the court’s intervention. But later with evolving jurisprudence and to address loopholes in the Code, the government and the IBBI considered adopting a pre-pack insolvency framework, which is the need of the hour during the Covid 19 pandemic. A report on the pre-packaged insolvency resolution process was prepared by the Sub-committee of the Insolvency Law Committee to make recommendations on the framework of pre-pack insolvencies. On March 4th, 2021, the government issued an ordinance introducing pre-packaged insolvency for MSME’s with default upto Rs. 1 crore. The advent of a pre-pack insolvency framework will serve in rescuing the corporates from undergoing a formal process CIRP caused due to the aftermath of covid 19. Such a framework will facilitate an efficient and smooth resolution of distressed corporates. Although such a framework is presently applicable only to MSME’s and an application for a pre-pack insolvency can only be initiated by the corporate debtor itself. The scope of pre-pack resolution is limited and therefore the government should consider widening the scope of its application to all corporates.[79]

3.6.3 RBI Guidelines

The government and the regulatory bodies have taken active steps to find a way out and curb the menace arising due to the outbreak of the pandemic. The RBI introduced a framework on a resolution for Covid 19 related stress to give some breathing space to the creditors and borrowers. It also issued a circular for One-time restructuring of the loan affected by the pandemic. Under both these frameworks, the creditors shall make a viable resolution plan to adjust and restructure the debt without any change in the management and ownership of the promoters or directors in the company and without any degradation in the asset classification, which is terming such assets as non-performing assets. Further, RBI through various circulars extended the period of moratorium on repayment of the loan and interest amount on term loans and working capital facilities to mitigate the burden of debt and to ensure continuity of viable businesses. It further provided that since moratorium is granted specifically to tide over unprecedented economic condition such loans shall not result in asset classification downgrade and as a result be termed as NPA’s. In addition, such default accounts shall not fall under the supervisory reporting of Credit Rating Agencies.[80]

3.6.4 Recourse under Companies Act

Another mechanism available to the lenders is under section 230 of the Companies Act. Section 230 could be used as a feasible alternative to IBC. Any reconstruction under this section shall become binding on all stakeholders and the creditor scheme shall be approved by not less than 75% of each class of creditors.


The Insolvency and Bankruptcy Code is still at a nascent stage and the insolvency jurisprudence is evolving at a greater pace. The Code is developing through judicial pronouncements and amendments on a daily basis, since enactment it has undergone various changes. Even though the Code was enacted with an intention to provide a one-stop solution for a time-bound resolution preventing the corporate entities from collapsing and with an aim to promote ease of doing business within Indian companies the ground realities are different as it may seem. One can say that even after a roller coaster journey the Code has lived upto the expectations and has brought a behavioural change among promoters and owners of the corporate entities. The situation before IBC was way different as the laws did not create a deterring effect the same way IBC does. The indicator of the Code’s success is India’s ranking in the World Bank’s Ease of doing Business, which has dropped from 100th in 2018 to 63rd in 2020, making India a desirable market. 

This year has been momentous in terms of amendments made to the Code which have also faced a lot of criticism since its enforcement. With the sudden pandemic, the economy also suffered from an unprecedented downturn, and to minimize the lethal economic effect the Government of India initiated a bold step by passing the Ordinance of 2020. The Ordinance promulgated a complete suspension from filling any new application post 25th March 2020. Although the ordinance was to safeguard companies from being dragged into insolvency and to avoid any disruption on the continuance of their business but instead in times to come will cause a serious impact on the financial market vis-vis an exponential rise in bad debts. 

Increasing the threshold limit is another step taken by the government to rescue MSME’s from being driven into insolvency at the present market disruption. However, the object and reason behind this notification were to reduce the burden of the Adjudicating Authorities. Altering the threshold would not serve the purpose rather improving infrastructure and increasing the number of NCLT’s and members can be a possible solution. More so, small creditors and operational creditors will be affected the most, as they have a lesser amount of debt and are most often unsecured. Such an amendment with a minimum threshold limit would leave them remediless under the Code and would pave the way to recover their rightful dues under other ineffective statutes. Further delays in the recovery of their dues will lead them to become prospective defaulters under the Code.

The ordinance of 2020 and the threshold notification is a miscalculated decision taken in haste that may have a negative impact on the interest of small creditors, operational creditors, and other stakeholders such as workmen and employees. Such challenges imposed by the government require jurisprudential and legislative amendments. 

The focus has been to safeguard corporate debtors from financial stress and give them some breathing space. Further considerations are required in cases where the resolution plan has become defunct or is devoid of being implemented. The Covid related defaults and those resolutions which have failed execution can be addressed by adopting out-of-court restructuring and settlement options. Intro duction of a prepacked insolvency resolution framework in a positive step towards reducing the burden of the creditors and rescuing the corporate debtors from liquidation. In order to properly implement pre-packs, an amendment with respect to section 29A must be promulgated, which allows promoters and guarantors to submit a resolution plan. . Further, the Code needs an amendment in case where under an ongoing CIRP, feasible resolution plan approved by the CoC is not implemented due to the present economic disruption. The successful resolution applicant is unable to implement the plan and hence the delay in restructuring and reviving corporate debtor becomes more difficult. Lastly, a clarification is still awaited with respect to the defaults arising during the suspension period and its treatment which may be declared as NPA.


[1] Injeti Srinivas, ‘The Story Behind Section 29A of IBC – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
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[2] The Insolvency and Bankruptcy Code (Amendment) Ordinance 2017, s 5.
[3] Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta, [2019] 2 SCC 1
[4] Poornima Advani ‘Indian Bankruptcy Code A Landmark Statute – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
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[5] Swiss Ribbons Ltd. v. Union of India, [2019] 4 SCC 17
[6] Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank, [2020] 8 SCC 401
[7] Arun Kumar Jagatramka & Gujarat NRE Coke Limited v. Jindal Steel and Power Limited, [2021] SCC Online SC 220
[8] Shivangi Pathak & Aherar Patel, ‘Critical Analysis of Section 29A of the Code’ (IBC Laws, 24 January 2020)
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[9] The Insolvency and Bankruptcy Code (Amendment) Ordinance 2018, s 23.
[10] Pioneer Urban Land and Infrastructure v. Union of India [2019] 8SCC 416, Chitra Sharma v. Union of India [2018] 18 SCC 575
[11] Abhilash Pillai & Tarun Agarwal, ‘Home Buyers = Financial Creditors: Supreme Court Reigns’ (Mondaq, 15 August 2019)
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[12] Insolvency Law Committee, The Report of the Insolvency Law Committee (2018) para 1.6
[13] Banikinkar Pattanayak, ‘Bankruptcy Code: Are homebuyers secured financial creditors? Read agreement
builder agreement carefully’ The Financial Express (Delhi, 12 July 2018)
[14] Manish Kumar v. Union of India, [2020] 1 SCC Online SC 30
[15] The Insolvency and Bankruptcy Code (Amendment) Ordinance 2018, s 9.
[16] U. K. Sinha and Saparya Sood, ‘The IBC Imbroglio : Challenges in light of COVID-19 and Solutions – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
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[17] Lokhandwala Kataria Construction Pvt. Ltd. v Nisus Finance and Investments Managers LLP [2018] 15 SCC 589
[18] Swiss Ribbons Ltd. v. Union of India [2019] 4 SCC 17
[19] Binani Industries Limited v Bank of Baroda [2018] SCC OnLine NCLAT 565
[20] Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta [2020] 8 SCC 531
[21] K. Sashidhar v Indian Overseas Bank & Ors. [2019] SCC OnLine SC 257
[22] The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules 2019
[23] R. Subramaniakumar v Committee of Creditors through Union Bank of India, [2021] IA. No. 449/MB/ C-II/2021 in CP (IB) No. 4258/MB/C-II/2019
[24] Jaypee Kensington Boulevard Apartments Welfare Association and Others v NBCC (India) Ltd. [2021] SCC OnLine SC 253
[25] Atul Bhatia, ‘Key takeaways from the 1st Resolution Plan approved for a financial service provider under IBC 2016’ (IBC Laws, 15 June 2021) < for-a-financial-service-provider-under-ibc-2016/?print-posts=pdf> accessed 6 March 2021
[26] Tayal Cotton v State of Maharashtra, [2018] SCC OnLine Bom 2069
[27] P. Mohanraj & Ors. v M/S Shah Brothers Ispat, [2021] SCC OnLine SC 152
[28] Reema Jain, ‘Dishonor of Cheque: The duality of IBC and Negotiable Instruments Act, 1881’ (IBC Laws, 4 May 2021) <> accessed 6 March 2021
[29] Divyansh Nayar, ‘Interplay between the IBC and SARFAESI for Recovery of Dues’ (Indian Commercial Law Review and Practice Blog, 6 June 2020) <> accessed 6 June 2021
[30] Sachin Gupta & Amir Ali Bavani, ‘Overriding Effect of IBC on DRT Proceedings: The NCLAT Perspective’(Mondaq, 10 March 2021)
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[31] Punjab National Bank v M/s Vindhya Cereals Pvt. Ltd. [2020] SCC OnLine NCLAT 957
[32] Innoventive Industries v ICICI Bank, [2018] 1 SCC 407
[33] Aparna Ravi, ‘Treatment of Guarantors and Guarantees under the IBC – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
[34] Vishnu Kumar Agarwal v M/s Priramal Enterprises Ltd. [2019] SCC OnLine NCLAT 81
[35] “It is clear that in the matter of guarantee, CIRP can proceed against the Principal Borrower as well as Guarantor. The law laid down by the Hon’ble High Courts for their respective jurisdictions, and law as laid down by the Hon’ble Supreme Court in the whole country is binding. In the matter of Piramal, the Bench of this Appellate Tribunal “interpreted” the law. Ordinarily, we would respect and adopt the interpretation but for the reasons as discussed above, we are unable to interpret the law in the manner as it was interpreted in the Piramal matter. For such reasons, we are unable to uphold the judgment as passed by the Adjudicating Authority. The appeal is allowed.”
[36] Aditya Vikram Dua, Aniket Sawant, ‘Guarantees will ensure better payment of debts’, (2021) IBLJ
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[38] Edelweiss Asset Reconstruction Company Ltd. v Gwalior Bypass Project Ltd [2021] Company Appeal (AT) (Ins) No.1186 of 2019
[39] Supra 21
[40] Insolvency Law Committee, The Report of the Insolvency Law Committee (2020)
[41] Schweitzer Systemtek India Private Limited v Phoenix ARC Private Limited, (2017) SCC OnLine NCLT 7532
[42] SBI v V. Ramakrishnan & Anr. [2018] 17 SCC 394
[43] State Bank of India v Anil Dhirajlal Ambani, [2020] SCC OnLine NCLT 779
[44] Anil Dhirajlal Ambani v State Bank of India & Ors., [2020] W.P.(C) 5712/2020
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[46] Lalit Kumar Jain v Union of India, [2021] SCC Online SC 396
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[48] State Bank of India & Anr. v Videocon Industries Ltd. & Ors., [2018] SCC OnLine NCLT 13182
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[51] In Re: State Bank of India v Jet Airways(India) Limited, [2018] CP No. 02/2018
[52] Sudhaker Shukla and Kokila Jayaram, ‘Cross Border Insolvency – A Case to Cross the Border Beyond the UNCITRAL – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
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[53] Insolvency and Bankruptcy Code (Second Amendment) Bill 2019, s 10.
[54] Faranaaz Karbhari & Maaz Hashmi, ‘Section 32A of the IBC’ (Mondaq, 2 July 2020)
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[55] JSW Steel Ltd. v. Mahender Kumar Khandelwal & Ors, [2020] SCC OnLine NCLAT 55
[56] Yashika Savaria, ‘India: Insolvency and Bankruptcy Laws: Key Developments’ (Mondaq 15 April 2020)
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[57] Manoranjan Ayilyath, ‘Roadblocks Under Insolvency And Bankruptcy Code, 2016 – Need For Capacity Building’, (2019) 7 MLJ 7
[58] Ministry Corporate Affairs, ‘Notification F. No. 30/09/2020- Insolvency’(24 March 2020)
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[59] The Insolvency and Bankruptcy Code (Amendment) Ordinance 2020, s 2.
[60] QVC Exports Pvt. Ltd. v United Tradeco FZC, [2020] SCC OnLine NCLAT 555
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[62] Supra 9.
[63] Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta [2020] 8 SCC 531
[64] Shivam Goel, ‘The Insolvency and Bankruptcy Code, 2016: Problems & Challenges’, (2017) 3(5) IIJR
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[65] Arrow line Organic Products Private Limited. v Rockwell Industries Ltd., (2020) CRP SR No.40137 of 2020
[66] Anant Merathia & Rishi Srinivas, ‘IBC Amendment Ordinance – Immediate Impact on Operational Creditors’ (IBC Laws, 29 June 2020) <> accessed 7 June 2021
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[69] Supra 11
[70] Namrata Langade & Aman Kumar Saini, ‘IBC Ordinance 2020: A Way Forward or Backwards?’ (IBC Laws 17 September 2020) <> accessed 10 June 2021
[71] EY, ‘Evolving landscape of corporate stress resolution December 2019’ (7 January 2020)
[72] Insolvency and Bankruptcy Board of India, ‘Individual Insolvency: The Next Big Thing’ (Quarterly
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[73] Insolvency and Bankruptcy Board of India, ‘Insolvency Reform Developing Metrics, Tracking Outcomes (Quarterly Newsletter – Insolvency and Bankruptcy Board of India, Vol. 18, January – March 2021
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[74] Ibid
[75] Ibid
[76] Supra 4, 11
[77] V.K. Parvinder Singh v. Intec Capital Ltd. & Anr., [2019] Company Appeal (AT) (Insolvency) No. 968 of 2019
[78] Rajiv Mani, ‘Mediation in Insolvency Matters – In Publication: Insolvency and Bankruptcy Regime in India A Narrative’ (IBBI, October 2020)
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[80] Covid-19 regulatory Package, RBI Circular 27 March 2020,
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Author: Moulshri Shrivastava, Associate.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at

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