Continuing the analysis presented in Part I of this blog, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“Bill”), proposes incorporation of the rationale laid down by various judicial forums in the following judgments:

Tata Steel BSL Limited v. Venus Recruiter Private Limited and Ors.[1] (“Venus Recruiter”) – Continuation of avoidance applications post CIRP completion

On January 23, 2023, a Division Bench of the Hon’ble Delhi High Court in Venus Recruiter rejected the premise that avoidance applications cannot survive CIRP conclusion. The Hon’ble Delhi High Court observed that accepting this interpretation would allow beneficiaries of avoidance transactions to walk scot-free, thereby causing unjust enrichment, which is fundamentally contrary to the scheme and objective of the Code. It further emphasised that CIRP and avoidance applications constitute separate proceedings with different timelines and objectives. Significantly, it held that avoidance applications can survive CIRP and continue to be pursued by the RP, who does not become functus officio with respect to such applications. Benefits from avoidance applications should accrue to creditors of the erstwhile corporate debtor, not the resolution applicant, especially when creditors have taken substantial haircuts. This supports the Code’s aim to improve credit availability and safeguard public funds invested by financial institutions.

Relying on Venus Recruiter, the Hon’ble NCLAT in Kapil Wadhawan v. Piramal Capital and Housing Finance Limited and Ors.[2] held that avoidance applications can continue even after CIRP completion.

The Bill takes note of these judicial developments and suggests consequential changes in Sections 26 and 35 of the Code. An explanation is proposed to be added in Section 26, stating that CIRP completion or liquidation process shall not impact the continuation of proceedings related to avoidance transaction, thereby confirming their continuation of avoidance transactions post CIRP. Venus Recruiter also contained a suggestion — when CIRP ends with a liquidation order, the liquidator can pursue the avoidance application, which is reflected in the proposed amendment of Section 35(1)(l) of the Code. The duties of the liquidator under said proposed amendment include continuation or institution of proceedings related to avoidance transaction.

Essar Steel India Ltd. v. Satish Kumar Gupta[3]  (“Essar Steel”) – Codification of Clean Slate Principle

The Hon’ble Supreme Court by its judgment dated November 15, 2019, in Essar Steel, laid down the ‘clean slate’ principle, observing that exposing a successful resolution applicant (SRA) to ‘undecided’ claims after resolution plan approval contradicts Section 31 of the Code and creates uncertainty in payment obligations.

In Ghanashyam Mishra and Sons Private v. Edelweiss Asset Reconstruction Company Pvt. Ltd.,[4] the Hon’ble Supreme Court stated that the legislative intent behind making the resolution plan binding on all stakeholders post-approval is to prevent unforeseen claims against the SRA, implying a fresh start with a clean slate based on the approved plan. Any claims/ debts not included in the plan will be extinguished after the SRA successfully acquires the corporate debtor. The Hon’ble High Court of Judicature at Bombay in Shiv Charan v. Adjudicating Authority,[5] called attention to the intent of providing a ‘clean slate’, which underlines Section 32A’s effect of cessation of liability of the corporate debtor for any offence committed prior to CIRP commencement.

The present Bill codifies this ‘clean slate’ principle by inserting a new sub-section (6) in Section 31 of the Code, clarifying that post the resolution plan approval under Section 31(1) of the Code, all claims prior to the approval date and not covered by the resolution plan, against the corporate debtor or its assets, shall be extinguished. Further, no proceedings shall be instituted or continued against the corporate debtor or its assets basis such claims, including proceedings for assessment of the claims. The first explanation to the sub-section clarifies that the provision does not affect any claim or proceedings against a former promoter or anyone formerly in the management or control of the corporate debtor, a guarantor of the corporate debtor, or any person having a joint liability or a joint and several liability with the corporate debtor.

Arcelormittal India (P) Ltd. v. Satish Kumar Gupta[6] (“ArcelorMittal) – Time-limit for an order on the resolution plan

On October 04, 2018, the Hon’ble Supreme Court issued a judgment in ArcelorMittal case, addressing whether the time taken in litigation for the Hon’ble NCLT and the Hon’ble NCLAT on matters under Section 31 of the Code ought to be excluded from the time-limit under Section 12 of the Code. The Hon’ble Supreme Court noted that the Hon’ble NCLT and the Hon’ble NCLAT deal with a large volume of litigation cases, which often result in delays when deciding matters under Section 31 of the Code. These delays may cause the CIRP to extend beyond the time limit specified in Section 12 of the Code. The Hon’ble Supreme Court reiterated the principle of Actus curiae neminem gravabit (i.e. the act of the court shall harm no man), and stressed on the importance of maintaining a balance between timely CIRP completion, and the corporate debtor being otherwise put into liquidation.

To address these hindrances to timely resolution or timely initiation of the liquidation process, the present Bill proposes to insert a new sub-section (2A) in Section 31 of the Code, which mandates the Hon’ble NCLT to pass an order of approval or rejection of the resolution plan under sub-sections (1) and (2) of Section 31 of the Code, within a thirty-days period from the date of receipt of the resolution plan. The new sub-section mandates the Hon’ble NCLT to record its reasons in writing for any delay beyond the aforementioned time-limit. This amendment is a step towards ensuring timely CIRP completion, which is in line with the Code’s objective.

State Bank of India v. Videocon Industries Ltd.[7],  (“Videocon”) and Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Pvt. Ltd. & Ors.[8] (“Edelweiss”) – Introduction of Group Insolvency

The Code, as was originally enacted, did not contemplate a framework for group insolvency. However, the Indian judiciary has recognised the concept of group insolvency through landmark cases like Videocon and Edelweiss, by application of the substantial consolidation doctrine.

In Videocon, the Hon’ble NCLT, Mumbai Bench, for the first time allowed consolidation of 13 out of 15 group entities into a single entity as a corporate debtor, to maximise asset value and eliminate cross-debts. It established a two-pronged test for ‘substantial consolidation’ derived from the United States of America’s bankruptcy regime, i.e., (a) prima facie existence of elementary governing factors; and (b) categorisation based on governing factors, such as common control, interdependence of operations and intertwined finances, etc. The Edelweiss case was another instance where a joint application against multiple corporate debtors (five companies) was allowed as the said companies had given corporate guarantees/ or were co-borrowers in the loan taken by Adel Landmarks Ltd.

The proposed Bill seeks to institutionalise this judicial principle under the ‘group insolvency’ provision and address the legislative gap. The provision would apply to two or more corporate debtors of the same group for which insolvency proceedings have commenced. The Bill further authorises the Central Government to establish rules and procedures for implementing this regime in India, including provisions for joint proceedings, common resolution professionals, and consolidated creditor committees, etc. This is a welcome reform that codifies judicial innovation and aligns the Code with contemporary global standards, thereby encouraging a commercially pragmatic insolvency regime.

State Bank of India v. V. Ramakrishnan and Anr.[9] (“SBI Case”) – Applicability of Interim Moratorium

Interim moratorium under Section 96 of the Code (“Interim Moratorium”) commences post filing of application by a debtor or creditor under Section 94 and 95 of the Code. While the Interim Moratorium is in effect, all pending legal actions and proceedings related to any debt of the individual/ partnership firm are considered stayed.

The interpretation of the term “any debt” and the applicability of Interim Moratorium to personal guarantors of a corporate debtor under the Code have been highly contentious and litigious topics. The Supreme Court, in the SBI Case, held that in contradistinction to Sections 96 and 101 of the Code, Section 14 cannot possibly apply to proceedings initiated against the personal guarantor. The SBI Case stated that Interim Moratorium applies to all pending or future legal proceedings related to any debt owed by a personal guarantor, highlighting its wide purport. The Hon’ble NCLT in Furnace Fabrica (India) Limited v. State Bank of India[10] discussed the issue of applicability of Interim Moratorium related to proceedings initiated against the personal guarantor of the corporate debtor, and concluded that it cannot be interpreted in such a broad manner that the right of action under Sections 7, 9 or 10 of the Code, which lies against a corporate debtor, is prohibited. The Hon’ble Delhi High Court in Axis Trustee Services Ltd. v. Brij Bhushan Singal & Anr.[11] held that Interim Moratorium should not be interpreted so broadly that it includes all co-guarantors of the same debt of the corporate debtor.

To clarify the ambiguity surrounding Interim Moratorium, the Bill proposes to insert Section 96(4) in the Code, providing that Interim Moratorium does not apply to personal guarantors of a corporate debtor.

Conclusion

The Bill represents a significant legislative response to the evolving jurisprudential landscape surrounding corporate insolvency resolution in India, addressing critical ambiguities and operational challenges that have emerged through landmark judicial pronouncements over the past several years. The Bill’s comprehensive approach to incorporating global best practices, such as the introduction of group insolvency regime, CIIRP and inserting provisions to introduce a framework for cross border insolvency, whilst simultaneously addressing specific judicial interpretations demonstrates the legislature’s commitment to creating a more robust and efficient insolvency framework. The Bill stands as a testament to the dynamic interplay between judicial wisdom and legislative refinement that continues to shape India’s evolving insolvency jurisprudence, promising to strengthen the country’s position as a jurisdiction conducive to business revival and creditor protection.

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[1] (2023) 1 HCC (Del) 301.

[2] 2023 SCC OnLine NCLAT 228.

[3] (2020) 219 Comp Cas 97 (SC).

[4] 2021 SCC Online SC 313

[5] 2024 SCC OnLine Bom 701.

[6] (2019) 2 SCC 1.

[7] 2019 SCC OnLine NCLT 745.

[8] 2019 SCC OnLine NCLAT 592.

[9] (2018) 17 SCC 394.

[10] 2023 SCC OnLine NCLT 805.

[11] (2023) 237 Comp Cas 294.

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