Corporate Insolvency Resolution Process (CIRP) Explained Step by Step

Vikrant D. Shetty

Sep 4

10 min read

Corporate Insolvency Resolution Process (CIRP): A Step-by-Step Guide

The corporate insolvency resolution process (CIRP) is the time-bound mechanism under Sections 6, 7, and 9 of the Insolvency and Bankruptcy Code, 2016 by which a financial creditor, an operational creditor, or the corporate debtor itself can apply to the National Company Law Tribunal to resolve a company's insolvency, ordinarily within 330 days including litigation. The process moves through admission, a Section 14 moratorium, appointment of a resolution professional, formation of the committee of creditors, and approval of a resolution plan or, failing that, liquidation. This article walks through each step of CIRP from filing to plan approval.

Step 1: Filing the Application Before the NCLT

The process begins with an application to the National Company Law Tribunal. A financial creditor applies under Section 7, an operational creditor under Section 9, and the corporate debtor itself under Section 10. A financial creditor must establish a financial debt and a default; an operational creditor must establish an operational debt, serve a demand notice under Section 8, and wait ten days for payment or for the debtor to raise a dispute. The minimum default that will support an application is one crore rupees. The Tribunal is required to admit or reject the application within fourteen days of filing, although in practice admission often takes longer while the Tribunal satisfies itself that the debt and default are made out.

Step 2: Admission and the Section 14 Moratorium

On admitting the application, the Tribunal immediately declares a moratorium under Section 14. During the moratorium, no suit against the corporate debtor may be instituted or continued, its assets may not be transferred, encumbered, or disposed of, no security interest may be enforced, and no owner or lessor may recover property in the debtor's possession. The purpose of the moratorium is to provide breathing space for the resolution process and to prevent a disorderly race between creditors to seize the company's assets. It preserves the company as a going concern for the period in which a resolution is attempted.

How Is the Interim Resolution Professional Appointed?

The Tribunal appoints an interim resolution professional, who makes a public announcement inviting all creditors to submit their claims within the time specified, ordinarily fourteen days. The professional takes over the management of the corporate debtor from its board, whose powers are suspended for the duration of the process, and gathers information on the company's assets, finances, and operations. From this material the professional prepares an information memorandum, which gives prospective resolution applicants the picture they need to frame a plan. The professional also runs the company as a going concern in the meantime, which can involve difficult decisions about continuing supplies, retaining employees, and honouring essential contracts.

How Is the Committee of Creditors Constituted?

Within thirty days of appointment, the professional constitutes the committee of creditors, made up of the financial creditors of the corporate debtor, with related parties excluded from voting. The committee is the central decision-making body of the process. It may confirm the interim professional or replace that person with a resolution professional of its choice by the prescribed majority, it approves the professional's fees and the cost of the process, and it takes the decisive votes on the resolution plan. Where a company has only operational creditors and no financial creditors, the Code provides for a differently constituted committee, but in the ordinary case it is the banks and other financial creditors who hold the votes.

How Are Creditor Claims Verified and Classified During CIRP?

A creditor's place in the process depends on getting its claim in and correctly classified. Financial creditors, operational creditors, and other claimants submit their claims in the prescribed forms with proof, and the resolution professional verifies them and records the amounts admitted. The classification matters because only financial creditors sit and vote on the committee, while operational creditors do not vote but are entitled to the statutory minimum in any plan. Homebuyers in real estate projects are treated as financial creditors, which gives them representation on the committee through an authorised representative. A creditor who misses the deadline or under-documents its claim can find its recovery reduced, so prompt and complete filing of claims is essential.

Step 5: Resolution Plans and Eligibility Under Section 29A

The resolution professional invites expressions of interest and circulates the information memorandum to prospective resolution applicants, who then submit resolution plans. Every applicant must satisfy the eligibility conditions of Section 29A, which disqualifies promoters, related parties, and wilful defaulters, among others, in order to stop the very persons who ran the company into default from recovering it at a discount. A compliant plan must provide for the payment of the costs of the process and the dues of operational creditors in priority, and must set out how the corporate debtor will be revived or its business preserved. The committee evaluates the plans against the evaluation matrix it has approved and selects the plan it considers best, subject to the statutory floor for dissenting and operational creditors.

The Commercial Wisdom of the Committee of Creditors

A central feature of the Code is that the committee's choice of plan is treated as a commercial decision that the courts will not ordinarily disturb. In K. Sashidhar v. Indian Overseas Bank [(2019) 12 SCC 150], the Supreme Court held that the commercial wisdom of the committee of creditors, whether to approve or reject a plan, is non-justiciable, and that neither the Tribunal nor the Appellate Tribunal has jurisdiction to evaluate that commercial decision. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531], the Court reaffirmed the primacy of the committee and held that the Appellate Tribunal cannot substitute its own view for the committee's commercial wisdom, while also clarifying that a plan cannot ignore operational creditors altogether and must treat different classes of creditors fairly. The practical effect is that judicial review at the approval stage is confined to whether the plan complies with the mandatory requirements of the Code, not whether it is the commercially best outcome.

Step 6: NCLT Approval, Binding Effect, and Liquidation

Once the committee approves a plan by the prescribed majority, the resolution professional submits it to the Tribunal. The Tribunal examines whether the plan meets the requirements of the Code and, if satisfied, approves it. An approved plan is binding on all stakeholders, including the equity shareholders, every creditor whether or not it voted for the plan, employees, guarantors, and government authorities, and it gives the successful applicant a clean slate free of undisclosed past claims. If no viable plan is approved within the permitted period, the Tribunal orders the liquidation of the corporate debtor, and the process moves into the liquidation waterfall under Section 53.

Timeline: the 330-Day Outer Limit

The Code sets an outer limit for the whole process. The resolution is to be completed within one hundred and eighty days, extendable by ninety days, and in any event within a total of three hundred and thirty days including any time spent in litigation. The three-hundred-and-thirty-day limit was itself the subject of litigation, and the courts have accepted that in exceptional cases the period may be exceeded where the delay is not attributable to the parties, but the clear legislative intent is that insolvency should be resolved quickly, before the value of the business erodes.

What Happens to the Board of Directors During CIRP?

The suspension of the board is one of the most disorienting features of the process for a company's management. On admission, the powers of the board and the officers vest in the resolution professional, and the directors must hand over the books, records, and control of the assets. The directors are not, however, entirely dismissed: they are obliged to cooperate with the professional, to provide information, and to attend meetings of the committee of creditors, although without a vote. A failure to cooperate, or the concealment or removal of assets, can attract penal consequences and can also feed an avoidance application in respect of past transactions. For directors, the sensible course once admission looks likely is to prepare a clean handover and to document the company's recent dealings, rather than to resist a process that the Code makes very difficult to reverse.

Frequently Asked Questions

What is the minimum default amount required to initiate CIRP?

The minimum default that will support a Section 7 or Section 9 application is one crore rupees, raised from one lakh rupees in 2020. Below this threshold, a creditor cannot maintain a CIRP application before the NCLT, regardless of how the debt arose.

What is the difference between a Section 7 and a Section 9 application?

A Section 7 application is filed by a financial creditor, who must prove a financial debt and default. A Section 9 application is filed by an operational creditor, who must first issue a statutory demand notice under Section 8 and wait ten days, in addition to proving an operational debt and default, and can be defeated by a genuine pre-existing dispute.

What does the Section 14 moratorium prevent once CIRP is admitted?

The Section 14 moratorium bars the institution or continuation of suits against the corporate debtor, the transfer or disposal of its assets, the enforcement of security interests, and the recovery of property in the debtor's possession, freezing the position while the resolution process runs its course.

Can a court review the committee of creditors’ decision to approve a resolution plan?

Only to a limited extent. In K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150 and CoC of Essar Steel v. Satish Kumar Gupta (2020) 8 SCC 531, the Supreme Court held that the commercial wisdom of the committee is non-justiciable, and courts confine themselves to checking compliance with the mandatory requirements of the Code rather than second-guessing the commercial choice.

What happens if no resolution plan is approved within the CIRP timeline?

If no viable resolution plan is approved by the committee of creditors and the NCLT within the outer limit of three hundred and thirty days, including extensions and litigation time, the NCLT orders the liquidation of the corporate debtor under the Code's liquidation provisions.

Can a CIRP application be withdrawn after the NCLT admits it?

Section 12A of the Insolvency and Bankruptcy Code, 2016 allows the National Company Law Tribunal to permit withdrawal of an admitted CIRP application on an application by the original applicant, but only with the approval of ninety percent of the voting share of the committee of creditors, or, before the committee is constituted, at the Tribunal's discretion. Withdrawal is common where the debtor and the applicant creditor settle the underlying default after admission.

What are avoidance transactions and can the resolution professional claw them back?

Avoidance transactions are dealings entered into by the corporate debtor before CIRP that unfairly reduce the assets available to creditors, covering preferential transactions under Section 43, undervalued transactions under Section 45, extortionate credit transactions under Section 50, and fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code, 2016. The resolution professional investigates these dealings and applies to the National Company Law Tribunal to have them reversed.

Does a CIRP release personal guarantors of the corporate debtor from their guarantees?

No. The Section 14 moratorium protects only the corporate debtor, not its personal guarantors, and the Supreme Court confirmed in Lalit Kumar Jain v. Union of India that approval of a resolution plan does not automatically discharge personal guarantors from their independent liability, so a creditor can pursue a personal guarantor separately even while or after CIRP is under way.

How are creditors paid once liquidation proceeds are distributed?

Distribution in liquidation follows the statutory waterfall in Section 53 of the Insolvency and Bankruptcy Code, 2016, which places insolvency resolution process costs and workmen's dues first, followed by secured financial creditors, unsecured financial creditors, government dues, and equity holders last. A resolution plan need not follow this waterfall exactly, but Section 30(2)(b) requires it to pay operational creditors and dissenting financial creditors not less than what they would receive in liquidation.

What is the pre-packaged insolvency resolution process and how does it differ from CIRP?

The pre-packaged insolvency resolution process, introduced for micro, small, and medium enterprises under Chapter III-A of the Insolvency and Bankruptcy Code, 2016, lets the corporate debtor negotiate a resolution plan with creditors informally before filing, then seek the National Company Law Tribunal's approval on an expedited timeline of 120 days. Unlike ordinary CIRP, the debtor's management typically stays in control during the process rather than being suspended.

Is an appeal available against an NCLT order admitting or rejecting a CIRP application?

An order of the National Company Law Tribunal admitting or rejecting a CIRP application, or approving or rejecting a resolution plan, is appealable to the National Company Law Appellate Tribunal under Section 61 of the Insolvency and Bankruptcy Code, 2016, ordinarily within thirty days, extendable by a further fifteen days on sufficient cause. A further appeal on a point of law lies to the Supreme Court under Section 62.

Does the information memorandum shared with resolution applicants remain confidential?

The resolution professional prepares and shares the information memorandum only with members of the committee of creditors and prospective resolution applicants who have submitted a confidentiality undertaking, and the regulations restrict its use strictly to formulating a resolution plan, since it typically contains commercially sensitive financial, operational, and litigation information about the corporate debtor.

What disqualifies a resolution applicant from submitting a plan under Section 29A?

Section 29A disqualifies, among others, an undischarged insolvent, a wilful defaulter, a person whose account has been classified as a non-performing asset for a specified period without having made specified repayments, a person convicted of certain offences, and a person connected to any of these categories, from submitting a resolution plan, to prevent the corporate debtor's own promoters from regaining control cheaply.

What is the difference between the interim resolution professional and the resolution professional?

The interim resolution professional (IRP) is appointed by the National Company Law Tribunal on admission of the CIRP application to take initial control of the corporate debtor and constitute the committee of creditors. At the first meeting, the committee either confirms the same person as the resolution professional (RP) by a majority vote or replaces them with a different insolvency professional, who then manages the process through plan approval or liquidation.