By VP Singh
For close to a decade, the defining bargain of the corporate insolvency resolution process (CIRP) under Chapter II of the Insolvency and Bankruptcy Code, 2016 has been a stark one. On admission of an application under Sections 7, 9 or Section 10, a moratorium descends and the Board of Directors stands suspended, the management of the corporate debtor vesting in the resolution professional. Admission has meant dispossession, and this “creditor-in-control” architecture — sustained by the Supreme Court as a matter of constitutional and commercial policy — has been the Code’s centre of gravity and, for the promoter watching control slip away, its sharpest deterrent.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduces a road that runs the other way. Its newly inserted Chapter IV-A (Sections 58-A—58-K) creates the creditor-initiated insolvency resolution process (CIIRP), and it inverts the familiar choreography. A notified class of financial creditors may commence the process out of court, by appointing a resolution professional and making a public announcement, without an admission order from the National Company Law Tribunal (NCLT). Yet the debtor keeps the wheel: under Section 58-F the management continues to vest in the board or the partners of the corporate debtor. The creditor turns the key; the debtor drives; and a resolution professional sits alongside with a hand near the brake. This article maps Chapter IV-A and examines its principal fault-lines from three vantage points — the corporate debtor’s, the creditors”, and the correct legal position that the statute, read as a whole, actually strikes. That threefold reading is, in the author’s experience, the surest way to keep the debate honest, for CIIRP is a chapter on which the debtor’s hopes and the creditors’ fears are unusually easy to state, and unusually easy to overstate.
The Empty Quadrant In The Code’s Toolbox
There are now three doors into resolution. CIRP under Chapter II is adjudication-driven and displaces management. The pre-packaged process under Chapter III-A is debtor-in-possession, but it is the debtor who initiates it, and its base has been the micro, small, and medium enterprises (MSME) sector. CIIRP occupies the quadrant that was empty: it is creditor-initiated, yet debtor-in-possession, and — uniquely — it is commenced without a front-end application to the Tribunal at all. Its self-declared objects are early creditor intervention after default, preservation of management continuity under supervision, a strict time-box, and a seamless fall-back into the full CIRP where resolution does not come. Filling that empty quadrant matters, because the very prospect of dispossession under Chapter II has long kept solvent-but-stressed promoters from coming forward early, when a company is still most capable of being saved.
The design is not conjured from nothing. It gives statutory shape, and general application, to the “reverse CIRP” the courts had already improvised in real-estate matters, where a promoter was permitted to remain at the helm and complete a project under supervision rather than be displaced by an insolvency professional. Eligibility is deliberately confined: Section 58-A opens CIIRP only to categories the Central Government notifies, and bars it where a Part II proceeding is already under way, or where the debtor has been through a CIIRP, a pre-pack, or a completed CIRP in the preceding three years. One caveat colours all that follows: Chapter IV-A received assent on 6 April 2026, but its front end awaits notification of the eligibility categories and of the class of financial institutions, and the Board’s CIIRP Regulations remain at the consultation stage. The architecture stands; the doors are not yet open.
The Mechanics In Brief
Initiation is where CIIRP most obviously breaks with the past. A financial creditor of a notified class, faced with a default, must first assemble the consent of creditors representing not less than fifty-one per cent in value of the debt due to that class; give the corporate debtor notice and at least thirty days to make a representation; and, after considering it, obtain the fifty-one per cent approval a second time. Only then may it appoint a resolution professional, whose public announcement fixes the commencement date and, from that date, bars any competing application under Sections 7, 9, 10 or Section 54-C. The Tribunal has admitted nothing; the process has begun in the market, on a twin super-majority of institutional creditors.
The debtor’s adjudicatory answer comes downstream. Within 30 days it may object to the NCLT, which declares the commencement void ab initio if there was no default, and converts the matter into a CIRP if a default existed but the initiation breached Section 58-A or Section 58-B. The process then runs on a tight clock — one hundred and fifty days, extendable once by forty-five days on a sixty-six per cent vote of the Committee of Creditors (CoC). The resolution professional’s role tracks that of a CIRP professional, with the addition of a report confirming that any plan before him complies with Sections 29-A and 30. Management remains with the board, but the professional attends every meeting and may reject any resolution passed there. The moratorium is not automatic: the professional must apply for it, and the Tribunal grants it only if satisfied it is required for the proper and efficient conduct of the process.
Where no plan arrives, the debtor fails to cooperate, or a plan is rejected, the process converts into a CIRP, the order being deemed an admission under Section 7 with the initiating creditor as the applicant. Withdrawal requires a ninety per cent CoC vote and is time-boxed; plan approval follows the mainstream — sixty-six per cent of the CoC under Section 30, then an order under Section 31 — and Section 58-K carries the committee, class-representation, avoidance and liquidation machinery across mutatis mutandis.
Control And Custody (Section 58-F)
The chapter’s signature move is to separate possession from control. For the corporate debtor, this is a relief the Code had never before offered outside a self-initiated filing: there is no Section 17 displacement, no handover to a professional, none of the value-destruction that a management takeover can trigger in a founder-dependent enterprise. For the creditors, debtor-in-possession is an act of faith — and the professional’s right to attend every board and members’ meeting and to reject any resolution is the reason the faith is not blind. It is a negative control capable of freezing precisely the value-destructive or asset-stripping decisions that creditors most fear, reinforced by the information-memorandum obligations and the promoter’s liability for false or misleading information. What the debtor is given, in truth, is not unfettered possession but positive control of the day-to-day, tempered by the professional’s negative control over anything untoward; and what the creditors are given is not an unsupervised debtor but a supervised one. The correct position is therefore neither debtor-in-possession simpliciter nor creditor-in-control, but debtor-in-possession under supervision. The frontier that will be litigated is the reach of the power to “reject any resolutions” — whether it is a general negative over the board or a targeted veto confined to resolutions that prejudice the process or dissipate value. The words “subject to such conditions and in such manner as may be specified” signal that the regulations are meant to draw that perimeter; and the construction truer to a chapter premised on management continuity is the narrower one.
The Moratorium That Must Be Asked For (Section 58-G)
This is the sharpest departure from the CIRP, where the Section 14 moratorium is automatic on admission. In a CIIRP, it is discretionary and application-based. For the debtor, there is no automatic calm: in the opening phase it may face continuing recovery and enforcement action unless and until a moratorium is confirmed, and — depending on its commercial position — it may either seek the shield or prefer to trade without one. For a creditor outside the initiating class, remedies survive until a moratorium is confirmed, so early enforcement is not foreclosed. The correct position is that the optional moratorium is the price of keeping initiation out of court: because there is no admission order to justify an automatic stay, the stay must be separately earned on the Tribunal’s satisfaction. Practitioners should treat the Section 58-G application as a contested, evidence-led matter rather than a formality, and should watch the exposure window closely, for the estate is unprotected until confirmation. The public-announcement requirement in Section 58-G(3) does double duty here, for it is the means by which third parties dealing with a debtor in CIIRP come to learn where they stand.
Conversion As The Pressure Valve (Section 58-H)
CIIRP is engineered to fail safely. For the debtor, conversion is the sword behind the debtor-in-possession shield — cooperate and deliver a plan, or lose possession, non-cooperation being itself an express trigger. For the creditors, it is the assurance that debtor-in-possession is not a cul-de-sac: if the debtor stalls, they inherit the full CIRP machinery, management displacement included, without re-litigating admission, since the conversion order is deemed a Section 7 admission. The narrow, default-focused admission enquiry the courts have insisted upon since Innoventive Industries maps neatly onto that deemed-admission device. The correct position is that conversion is precisely what makes debtor-in-possession tolerable to creditors — a graduated escalation from a soft entry with oversight to a hard fall-back into CIRP. The area to watch is the Tribunal’s power to decide the stage from which the CIRP is to commence, where disputes over which CIIRP steps survive into the converted process are likely to cluster. The statute does much to smooth the passage — costs incurred in the CIIRP fold into the CIRP costs, and avoidance and fraudulent-or-wrongful-trading proceedings begun earlier continue undisturbed — and the committee may itself resolve to convert at any time on a sixty-six per cent vote, so that the pressure valve lies in the creditors’ hands as well as the Tribunal’s.
Due Process Relocated (Sections 58-B and 58-C)
CIIRP relocates the adjudicatory checkpoint from the front of the process to its back. At the front there is no admission hearing; the debtor’s protection is procedural — notice, a thirty-day representation window, and the opportunity to cure — with its adjudicatory remedy furnished afterwards by the Section 58-C objection. That relocation is constitutionally defensible: the Supreme Court’s treatment of the Code as economic legislation entitled to latitude in its procedural choices turns on there being a meaningful hearing somewhere in the design, not necessarily at the outset. The risk worth flagging is that the first-instance determination of “default” is made by creditors and their professional rather than by the Tribunal; the void ab initio power is the corrective, but it front-loads factual disputes about default into an objection proceeding, and the volume of such objections in the early years will tell us whether the gate holds. It is, at bottom, a considered trade of one protection for another: the debtor loses the shelter of a prior judicial admission, but gains a genuine pre-commencement hearing before its creditors and retains a full adjudicatory remedy the moment the process begins.
Open Questions For The Practitioner
Several seams will draw early litigation. Nothing moves until the Central Government notifies the eligibility categories and the class of financial institutions, and the Board finalises the CIIRP Regulations. Because Section 58-K imports Sections 21, 24 and 25-A, the committee in a CIIRP is built on the same architecture as in a CIRP, including the class-representation mechanism through an authorised representative; allottees, who are financial creditors by force of Section 5(8)(f), will therefore vote through their authorised representative exactly as they do in a CIRP — a point worth emphasising against a persistent misreading of the 2026 amendments as diluting that class vote. The eligibility discipline of Section 29-A is carried in through the front door by the professional’s report under Section 58-E(1)(c), so that the softer entry of CIIRP cannot be used to slip an otherwise-barred plan past the gate. The reach of the professional’s veto under Section 58-F; the priority races that Sections 58-A(2)(a) and 58-B(5) invite between a CIIRP and a pending Section 7 or Section 9 application; and the finality concerns attending withdrawal are each grey areas that reward a close reading of the text now rather than later. Underlying them all is the heightened accountability the 2026 reforms place on the resolution professional, whose conduct in this debtor-in-possession setting will be watched more closely than in any process that came before it.
Conclusion
So who holds the wheel? No one alone, and that is the point. The creditor turns the key and, through the conversion power, can seize the wheel if the journey stalls; the debtor drives, but with a professional’s hand near the brake and a committee watching the road. CIIRP is best understood not as debtor-in-possession and not as creditor-in-control, but as a supervised, reversible custody, with the adjudicatory checkpoints moved from the front of the process to its back. Whether that calibration works will depend on two things still to come — the Regulations and notifications that will give the chapter its working detail, and the discipline with which the NCLT polices the new downstream checkpoints under Sections 58-C, 58-G and 58-H. The text is drafted with unusual care for balance; the measure of it will be in the practice.
—VP Singh is an Advocate and former Member, National Company Law Tribunal
and former Member, National Company Law Appellate Tribunal.
This article first appeared in SCC Times
The post The Creditor Takes the Wheel: Control, Custody and the New Creditor-Initiated Insolvency Resolution Process appeared first on India Legal.