How the 2026 IBC Amendment Splits Plan Approval in Two

Vikrant D. Shetty

2 days ago

12 min read

How the 2026 IBC Amendment Splits Plan Approval in Two

A resolution plan can be commercially sound and still sit unimplemented for the better part of a year because two groups of creditors cannot agree on how a fixed pot is divided. The Insolvency and Bankruptcy Code (Amendment) Act, 2026, in force since 26 May 2026, responds by letting the National Company Law Tribunal split its approval into two orders. This post covers how staged approval works, the related changes to section 31, and how a resolution applicant and an objecting creditor should each position themselves.

What the Second Proviso to Section 31(1) Actually Permits

Until 26 May 2026 the Adjudicating Authority had one question to answer under section 31(1) of the Insolvency and Bankruptcy Code, 2016 (the Code): whether the plan approved by the committee of creditors met the requirements of section 30(2). Approval carried the whole plan, distribution included. The 2026 Amendment inserted a second proviso permitting the Tribunal to first approve implementation of the plan and thereafter approve the manner of distribution provided in it, within thirty days of the first order. The plan does not change. The Tribunal's engagement with it now happens in two sittings.

Who Files for a Bifurcated Approval and at What Threshold?

Staged approval is an option, not the default, and the route into it is narrow. The application must come from the resolution professional and must carry the approval of the committee of creditors (the CoC) by a vote of not less than sixty-six per cent of the voting share. A resolution applicant cannot apply. Nor can an individual financial creditor, however large its exposure. A creditor that wants the business handed over while the allocation fight continues has to win that argument inside the CoC, which is a different exercise from persuading a bench.

Regulation 39(3C) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, inserted by the Third Amendment Regulations notified on 1 June 2026, requires that application to be filed in a form notified by the Board through circular. The same amendment gave the resolution professional thirty days rather than fifteen to place a CoC-approved plan before the Tribunal, and advanced that step in the model timeline at regulation 40A from T plus 165 to T plus 150.

What Is Fixed at Stage One and What Remains Open?

Total consideration is settled when implementation is approved; only its allocation is deferred. The distinction is easy to state and easy to forget mid-fight. A creditor arguing at the second stage is arguing for a larger share of a sum that will not grow, and it is arguing against other creditors rather than against the resolution applicant.

Feasibility, viability, insolvency resolution process costs, compliance with section 30(2) and eligibility under section 29A all belong to the first stage. So does the floor for dissenting financial creditors, which the 2026 Amendment recast as the lower of liquidation value or the amount payable if resolution proceeds were distributed in the order of priority in section 53. A creditor that has not modelled its own floor before the vote has given away its best piece of negotiating information.

The Inter-Creditor Deadlock That Bifurcation Was Built to Break

The cost of a distribution dispute is not borne by the parties to it. With the board suspended under section 17, the resolution professional runs the company in a holding pattern: capital expenditure deferred, facilities unrenewed, senior staff fielding offers, customers quietly qualifying a second supplier. None of that appears in the pleadings and all of it appears in the value of the business being contested. Staged approval accepts some untidiness in return for stopping that clock.

Essar Steel and the Narrow Ground for Attacking Distribution

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531] remains the reference point for what a distribution objection can realistically achieve. The Supreme Court held that allocation of resolution proceeds between classes falls within the commercial wisdom of the CoC, that equitable treatment is owed to creditors within the same class rather than across classes, and that the Adjudicating Authority's scrutiny is bounded by section 30(2). Operational creditors could not be left with nothing, but they had no claim to parity with secured financial creditors.

Two features of that litigation explain the amendment better than any policy note. The distribution question travelled up to the Supreme Court while the plan waited, and the eventual holding vindicated the allocation the CoC had approved at the outset. The same dispute, run alongside implementation instead of ahead of it, costs the estate far less.

Two Stages, Two Orders: Who Decides What and By When

The sequence below assumes a plan that has cleared the CoC with an application under the second proviso filed alongside it.

Stage	What is decided	Who decides	Timeline
CoC vote on the plan	Feasibility, viability, total consideration and the proposed distribution	Committee of creditors, 66 per cent of voting share	Before submission to the Tribunal
CoC vote to seek staged approval	Whether to ask for the approval to be split at all	Committee of creditors, 66 per cent of voting share	Before the application under the second proviso
Application to the Tribunal	That staged approval is sought, with reasons	Resolution professional, in the form notified by the IBBI	Filed with the plan under section 30(6)
First order	Implementation of the plan and its compliance with section 30(2)	Adjudicating Authority	Thirty days from receipt of the plan, per section 31(2A)
Second order	The manner of distribution provided in the plan	Adjudicating Authority	Thirty days from the first order
Defect in the plan	Whether to allow rectification or to reject	Adjudicating Authority, after notice to the CoC	No fixed period; reasons recorded for any delay

Competition Approval Moves From the Committee Room to the Tribunal Filing

The proviso to section 31(4) used to require a resolution applicant whose plan contained a combination as referred to in section 5 of the Competition Act, 2002 to obtain approval of the Competition Commission of India prior to approval of the plan by the committee of creditors. The 2026 Amendment substituted a requirement to obtain that approval before the plan is submitted to the Adjudicating Authority under section 30(6). The obligation survives intact; its trigger point has moved by one step, and that step is the whole of the reform.

Why Was the Earlier Competition Approval Trigger Unworkable?

Independent Sugar Corporation Ltd. v. Girish Sriram Juneja [2025 INSC 124], decided on 29 January 2025 out of the corporate insolvency resolution process of Hindustan National Glass and Industries Limited, settled that the old proviso was mandatory and not directory. By a majority of two to one the Supreme Court declined to read it purposively, held that a CoC approval granted in October 2022 without prior clearance could not stand, and set it aside. A plan that had survived a creditors' vote and two tiers of tribunal came undone on sequencing.

The difficulty was structural rather than doctrinal. An applicant had to secure merger clearance before anyone knew whether its plan would be chosen, notifying the Commission on a transaction that might never happen while rivals did the same. The Commission's review runs on its own timetable and does not bend to a resolution calendar. Moving the trigger to the moment of filing gives the successful applicant the interval between the CoC vote and submission under section 30(6), now thirty days rather than fifteen.

What to Change in the Request for Resolution Plans

Request for resolution plan documents drafted before May 2026 still carry the old condition and should be corrected. An evaluation matrix should treat a filed but undecided combination notice as execution risk to be priced, not a disqualification. The plan should record an undertaking to obtain clearance before submission under section 30(6), a longstop date, and an express allocation of the consequence if clearance is refused or made conditional.

Pricing the Gap: Conditions Precedent, Drawdown and Objection Strategy

Staged approval changes the transaction documents on both sides. The applicant takes control of a company whose payment waterfall is unsettled; the objecting creditor tries to keep a live grievance without becoming the reason the business decays further.

Sequencing Funding Around a Staged Approval

Conditions precedent written for a single approval order do not survive contact with two. Split the list into implementation conditions, satisfied against the first order, and distribution conditions, satisfied against the second. The effective date, from which the applicant assumes control and the management obligations that come with it, should attach to the first.

An applicant should resist paying the full consideration into a distribution account on the first order while allocation is unsettled, because money paid out on an allocation later disturbed is very hard to recall. The workable structure is payment into an escrow or designated account with release keyed to the second order, and undisputed tranches released at once so that creditors whose entitlements nobody contests are not held hostage to a dispute they are not party to.

Financing documents deserve a separate look. Commitment letters, availability periods and long-stop dates should run from the first order. Lenders should confirm in terms that the pendency of a distribution proceeding is neither a material adverse change nor a failure of a condition precedent, because a generic material adverse change clause read against a half-approved plan is an argument waiting to be made. A bank guarantee callable on the plan not being approved needs redrafting to say which approval is meant.

Objecting to Distribution Without Stalling Implementation

A creditor can oppose the allocation and support staging at the same time, and usually should. Withholding support for staging to gain leverage on distribution is the tactic the proviso was written to defeat, and it damages the objector's own recovery, because the pool being argued over shrinks with the business.

The record matters more than the rhetoric. The 2026 Amendment requires the CoC to record its reasons for approving a plan, and a dissenting creditor should ensure the minutes carry its objection with equal specificity, identifying the head of distribution challenged and the basis. Where the objection turns on status, whether a claim is operational or financial, whether a creditor is secured, what the security is worth, the determination application should be filed early rather than held back as a second-stage surprise. The explanation added to section 3(31), confining a security interest to one created by agreement or arrangement, has already moved the answer for several categories of claimant.

At the second stage the practical ask is narrow: escrow of the disputed tranche pending the order, and release of the undisputed amounts. A creditor seeking that, rather than a stay on implementation, is asking for something a bench can grant without defeating the object of the proviso.

When the Thirty Days Lapse

The proviso fixes a period and attaches no consequence to its expiry. Section 31(2A), inserted by the same amendment, requires the Tribunal to pass an order under section 31(1) or (2) within thirty days of receiving the plan and to record reasons in writing if it does not. The second proviso carries no equivalent, and nothing in section 31 suggests a first-stage order lapses because the distribution order is late. The Ministry of Corporate Affairs told the Select Committee examining the Bill that the timeline was directory, which is the reading the text supports.

Plan on the basis that thirty days is a target. Where the underlying question is a contested classification of claims or a disputed valuation of security, thirty days is optimistic, and what emerges will be interim directions rather than a lapse of the first order. The corporate debtor stays with the resolution applicant while the argument carries on around it.

The Moratorium Question the Drafting Left Open

Section 31(3)(a) was not amended. On its face the moratorium under section 14 ceases when the Adjudicating Authority passes an order of approval under sub-section (1), and a first-stage order is such an order. The notes on clauses to the Bill indicated a different intention, that the moratorium should run until the distribution stage concludes. Both readings are available on the present text. A counterparty weighing proceedings against a corporate debtor between the two orders should treat the question as open and price the risk.

Frequently Asked Questions

Can a resolution applicant insist on a bifurcated approval?

No. The application under the second proviso to section 31(1) comes from the resolution professional and needs sixty-six per cent of the committee of creditors by voting share, so a resolution applicant has no standing to seek it. What you can do is make your plan easy to stage: keep the consideration a single fixed sum, express distribution as percentages of that sum by class, and avoid tying operational obligations to payments to named creditors.

Does the total amount payable under the plan change at the second stage?

No. Quantum is fixed when implementation is approved, and the second order settles only how that fixed sum is allocated. Your exposure as a resolution applicant is execution risk, meaning who must be paid against what evidence and what releases, rather than price risk.

What happens if thirty days pass without a distribution order?

The Code does not say the first order lapses and attaches no penalty to expiry. The proceeding continues and the Tribunal can pass interim directions meanwhile. Build your timetable on the assumption that the second order may take longer than a month, particularly where a claim classification or a security valuation is in dispute.

Does the clean slate under section 31(6) operate from the first order or the second?

Section 31(6) is triggered where the Adjudicating Authority approves the resolution plan under sub-section (1), and a first-stage order is an order under that sub-section. The better reading is that extinguishment of prior claims, and the protection given to licences, permits and grants by section 31(5), attach on the first order. The point has not been tested, so state your position on it in the plan rather than leave it to inference.

Is CCI approval still mandatory where the plan involves a combination?

Yes; only the timing changed. Approval must now be obtained before the plan is submitted to the Adjudicating Authority under section 30(6) instead of before the committee of creditors votes. The requirement remains mandatory, and Independent Sugar Corporation Ltd. v. Girish Sriram Juneja [2025 INSC 124] shows what happens to a plan that ignores it.

Can the two orders be appealed separately?

Each is an order of the Adjudicating Authority and each can be appealed under section 61 of the Code within the limitation that section prescribes. In practice a creditor whose complaint is confined to allocation should aim its challenge at the distribution order. An appeal against the implementation order brought to create leverage invites the answer that the appellant is doing what the proviso exists to prevent.

Does bifurcation change the resolution applicant's payment obligation?

The applicant's obligation is to pay the amount the plan provides, and bifurcation does not alter that total. What the second stage settles is how the fixed sum is apportioned among creditors, which is a matter between them rather than between them and the applicant. An applicant should nonetheless confirm that its payment mechanics do not require a final distribution schedule before drawdown, since that would reintroduce the very delay bifurcation exists to remove.

Who carries the risk if the distribution order takes longer than expected?

The implementation timetable is fixed by the first order, so the applicant's obligations run from that point regardless of when distribution is finally settled. Creditors carry the timing risk on their own recoveries. That allocation is deliberate: it allows the company to be rescued while creditors argue about shares, rather than holding the rescue hostage to that argument.

Can a dissenting creditor block the first order by objecting to distribution?

That is precisely what bifurcation is designed to prevent. A creditor's disagreement with its share is directed to the second stage, and the tribunal can approve implementation without first resolving it. The dissenting creditor keeps its remedies on distribution, but it no longer holds implementation of the plan as leverage while pressing them.

Does bifurcation change what the committee of creditors must approve?

The committee still approves the plan by the statutory majority before it reaches the tribunal. Bifurcation concerns how the tribunal deals with the approved plan, not how the committee arrives at its decision. Committees should nonetheless record the distribution basis clearly in their deliberations, since an unclear record is what generates second-stage litigation in the first place.

Should a request for resolution plans be redrafted for bifurcation?

Yes. A request drafted on the assumption of a single approval order can leave conditions precedent, drawdown triggers and long-stop dates tied to an order that may no longer settle distribution. Those provisions should be re-pegged to the implementation order, with distribution expressly carved out, so that the plan's commercial timetable matches the approval structure actually available.

How does bifurcation interact with an appeal?

Two orders create two appealable events, and an appeal against distribution does not automatically disturb implementation already ordered. Parties should be alert to which order they are actually challenging and to the limitation running from each, because an appeal aimed at the wrong order, or filed late against the right one, forfeits the point regardless of its merit.

What should a lender funding the applicant look for in a bifurcated plan?

A funder should confirm that disbursement is conditioned on the implementation order rather than on a final distribution order, that the total payable is fixed and cannot increase at the second stage, and that security can be created on the timetable the first order sets. Funding documents drafted before the amendment commonly assume a single approval and need amendment to reflect the staged structure.