Written by Mohammad Shajee Abbas Naqvi and Shreya Malviya

“We legislate first and think afterwards; complexity is heaped upon complexity and confusion becomes worse confounded.” 

1. Background 

On 6 March 2025, in the case of Sunil Kumar Sharma v. Bhuvan Madan, the Resolution Professional (“RP”) had published the Expressions of Interest (“EOI”), inviting submissions of resolution plans both for the Corporate Debtor (“CD”) as a whole and for one or more clusters of assets simultaneously. This was done to maximise the assets of the CD and expedite the Corporate Insolvency Resolution Process (“CIRP”). 

The National Company Law Tribunal (“NCLT”), Allahabad, clarified that as per Regulation (“Reg.”) 36A (1) read with Reg. 36B (6A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (“Regulations”), the RP must first invite EOIs for submitting resolution plans that deal with the entire CD as a going concern, requiring prospective resolution applicants to submit plans for the company as a whole. However, if no such plan is received, the RP may, with the support of the Committee of Creditors (“CoC”), call for the sale of one or more assets through EOI.  
It seems that as a prompt reaction to the aforementioned judgment, on 26 May 2025, the Insolvency and Bankruptcy Board of India (“IBBI”) issued The IBBI (Insolvency Resolution Process for Corporate Persons) (Fourth Amendment) Regulations (“Fourth Amendment”). It sparked a polar reaction among the legal and financial experts as it modified the Reg. 36A (1), which pertains to the invitation for EOI for submission of resolution plans while omitting Reg. 36B (6A). Under this amendment, the RP, with the approval of the CoC, is allowed to invite EOI “for the corporate debtor as a whole, or for sale of one or more assets of corporate debtor, or for both.”  

2. Criticism 

By permitting asset-wise resolution plans during the CIRP, the amendment may seem commercially viable; however, it overlooks certain unintended consequences. Furthermore, a massive overhaul that ignores judicial observations and the statutory definitions of the Insolvency and Bankruptcy Code 2016 (“IBC”) can be validated only through a parliamentary amendment to the Code itself. 

2.1 Departure from Core-Tenets of IBC 

This amendment marks a significant departure from the core tenets of the IBC, wherein the objective of CIRP was to preserve and revive the CD as a going concern. This intention is central to the definition of a resolution plan under S. 5 (26) of the IBC and has been affirmed in cases such as Pioneer Urban Land and Infrastructure Ltd. v. UOI (“Pioneer Urban Land”) and Swiss Ribbons (P) Ltd. v. UOI (“Swiss Ribbons”), wherein it was clarified that CIRP is not a recovery mechanism for creditors but a beneficial legislation, which aims to put the CD back on its feet. 

The amendment seems to be ultra vires because, as affirmed in State of Karnataka v. H. Ganesh Kamath, delegated legislation cannot be repugnant to its parent act. By fundamentally contradicting the IBC’s statutory definition of a “resolution plan”, the new regulation appears to be an act of excessive delegation inconsistent with the IBC’s core scheme.  

This Amendment creates a direct conflict with the RP’s statutory duties under S. 25 (1) of the IBC, which obligates the RP to “sustain and guard the assets” of the CD. This duty aligns with the objective of preserving the company as a going concern. 

The Fourth Amendment, however, now empowers the RP to invite plans for the piecemeal sale of those same assets from the very beginning of the process. This forces the RP to abandon the statutory duty to sustain the company as a whole, replacing it with a mechanism to dismantle it. This new process, which encourages cherry-picking of the most viable assets by bidders, can deplete the company’s value, harm the interests of stakeholders like employees, and ultimately defeat the purpose of the moratorium, which exists to prevent such asset depletion during the resolution phase. 

2.2 Allowing ipso facto liquidation before liquidation 

S. 36 of the IBC clarifies that the sale of assets is a part of the liquidation process, which is initiated under S.33 only if the CIRP fails or becomes futile. However, by allowing asset-wise plans during CIRP, the Fourth Amendment weakens the prospect of reviving the CD from insolvency.  

Therefore, the Amendment categorically allows liquidation during the resolution process itself, an approach cautioned against by the Hon’ble Supreme Court in Swiss Ribbons, where it was clarified that liquidation should only be “availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark.”  

2.3 Enhances the Vulnerability of the CD 

S. 14 of the Code imposes a moratorium during CIRP, which bars the “transferring, encumbering, alienating or disposing” of any of the assets of the CD. As clarified in P. Mohanraj v. Shah Bros. Ispat, the object of S. 14 is: 

“to see that there is no depletion of a corporate debtor’s assets during the insolvency resolution process so that it can be kept running as a going concern during this time.” 

 It safeguards the interests of employees and focuses on the recovery of the CD as a whole. However, the asset-centric approach of the amendment defeats the purpose of Section 14, as employees might be stripped of their jobs due to the sale of assets at the resolution stage. Moreover, operational creditors and other stakeholders might suffer injustice at the hands of the RP and the CoC as they are left with claims against a depleted company that, having been stripped of all its income-generating assets, has no realistic ability to pay its remaining unsecured debts.   

2.4 Futile Commercial Justification  

Enabling asset-wise resolution plans may yield higher commercial value as it would unlock broader investor participation, optimise asset value, and increase the likelihood of resolution rather than liquidation. Although this commercial logic appears to have particular relevance in companies with diverse asset portfolios, it overlooks a quintessential consequence: the amendment effectively enables buyers to cherry-pick only the most viable assets. Consequently, certain poorly performing assets may never find a buyer, leading to a lower net recovery for creditors. 

Earlier during the liquidation, the assets were offered as a collective bundle; therefore, bidders could not cherry-pick the viable assets. Bids were placed for the entire assets of the CD, regardless of feasibility. This would permit better aggregate recovery. 

Furthermore, when the aforementioned commercial logic is observed in light of the Hon’ble Supreme Court’s judgement in Pioneer Urban Land, where it was emphasised that CIRP is not a recovery mechanism but a process of reviving the solvency of the CD, it becomes evident that this amendment fails to uphold the insolvency-resolution spirit of the Code. 

2.5 Creates Unnecessary Hurdles 

The IBC intends to facilitate the resolution of insolvency within a time period for the maximization of asset value. Since the CIRP already operates within rigid timelines, which cannot extend beyond 330 days in general, requiring the CoC to examine multiple asset-wise resolution plans for the sale of different assets instead of plans that are for the CD as a whole will create procedural clutter and increase delays as the amendment requires the CoC to conduct a far more fragmented and complex analysis, increasing the likelihood of disputes and delays that threaten to breach the statutory timelines. 

Consequently, this will cause the very erosion of asset value that the Apex Court warned against in Ebix Singapore v. Educomp Solutions. Delay undermines a company’s “going concern” value as tangible assets depreciate, intangible assets like customer trust erode, key employees depart, and cash reserves are consumed on basic operations. This destruction of value directly results in lower financial recovery for creditors. 

2.6 Incompatible with Priority Payment to Dissenting Creditors 

Under the Fourth Amendment, the IBBI inserted a proviso to Reg. 38(1)(b), stating that, in a case where the resolution plan suggests payment in stages, the dissenting creditors should be paid on a pro-rata basis in priority over the assenting creditors. Under S. 30(2)(b), the resolution plan must ensure that dissenting financial creditors receive at least the amount they would have obtained in the event of liquidation, and such payment must be made in priority to any distribution to assenting creditors. 

However, the aforementioned provisions operate on the premise that there is a single resolution plan that addresses the CD as a single entity. In contrast, when each asset or multiple sets of assets attract separate plans, a creditor may assent in respect of one asset and dissent in respect of another, creating ambiguity and disputes over the application of priority payment rules, which blurs and erodes the watertight classification between assenting and dissenting financial creditors.  

Under a holistic resolution plan, the classification was simple and based on the opinion of the creditor toward a single plan. However, multiple asset-wise resolutions dilute the intended hierarchy of creditor treatment under the IBC, creating ambiguity and disputes over the application of priority payment rules, thereby complicating the execution and enforcement of the Code’s resolution objectives. 

3. Conclusion 

The Fourth Amendment appears to be a response by the IBBI to the Sunil Kumar Sharma case. By allowing asset-wise resolution plans during CIRP, it shifts the paradigm from rescue to asset-value maximisation. It dilutes the sanctity of the IBC and strays away from its core objectives. Such a departure should be implemented through a parliamentary amendment, rather than delegated legislation.  

It is also pertinent to study the rate at which the Principal Regulations are being altered. Since 2016, CIRP Regulations have undergone 33 amendments, and around 20 notifications have modified 133 clauses. While many of the above amendments were necessary to meet the evolving commercial requirements, reactionary and hasty amendments often cause inconveniences to the people due to uncertainty, delay, and legal inconsistencies. As the opening quote warns, legislating before and thinking later leads to complexity heaped upon complexity.  

Some clarifications would help stabilise the framework. Asset-wise resolution can only be effective if the IBBI clearly explains how partially resolved companies will be treated, whether the remaining assets can be sent to liquidation, or whether a hybrid approach will be adopted. Similarly, allowing interim finance providers to attend CoC meetings enhances transparency; however, the scope of information they can access must be clearly defined to prevent breaches of confidentiality.  

The new rule granting earlier and proportionate payments to dissenting financial creditors promotes fairness but may unintentionally discourage cooperation; setting basic payment thresholds or standard formats for staggered payments could help maintain balance. Flexibility in considering partly non-compliant plans is also a welcome step, provided it is supported by mechanisms that prevent delays at the adjudication stage. 

To restore stability, it becomes quintessential that major changes undergo parliamentary scrutiny and be preceded by transparent impact evaluations. Furthermore, any reform must be supported by institutional capacity-building, including improved digital infrastructure and trained professionals, to ensure that changes are implemented effectively rather than merely adding complexity.