1. Introduction
The Insolvency and Bankruptcy Code, 2016 (“Code”), while started from a Code to resolve the Company in distress and maximize the value, has reached to a point that the Code is requiring maximization itself by way of amendments. Due to the pendency of unresolved cases before the National Company Law Tribunal (“NCLT” / “Adjudicating Authority”) and the subsequent Appeals to the National Company Law Appellate Tribunal (“NCLAT”), innovative solutions in the Code itself seem to be the only way for achieving time bound resolution.
With this objective, the Insolvency and Bankruptcy Board of India (“IBBI”), is constantly amending the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (“CIRP Regulations”) and the Code, to keep up with the fast pace and complex transaction involving multiple players, multiple assets and multifold debts.
One such amendment aimed to address the unique complexities such as the one that arose in the real estate sector in order to assist stakeholders at large, while supporting the sector itself i.e., the asset-wise corporate insolvency resolution process (“asset-wise CIRP”)[1], a potential solution for achieving resolution of a corporate debtor having various assets. However, during the brief period since the amendment, this innovative solution to a significant problem has received both a nod from the creditors and a thumbs down by the NCLT in certain instances. The question is whether the amendment is seeking to resolve assets or divide liabilities?
2. The whys of Asset-Wise CIRP and the framework
One-size-fits-all approach to insolvency resolution could lead to suboptimal outcomes, jeopardizing the timely completion of projects and the interests of stakeholders, including homebuyers, financial creditors, operational creditors and workmen.
In this regard, asset-wise CIRP, hits a nail on this coffin and focuses on individual assets, and enables granular analysis of each asset’s financial health, legal status, and market value, allowing Resolution Professional (“RP”) to invite plans that maximize value realization for each asset, benefiting all stakeholders. Further, it focuses on offering a more nuanced method by tailoring strategies to address each asset individually, and resolving the Corporate Debtor, asset-wise!
The Code and the CIRP Regulations primarily govern the legal framework for asset-wise CIRP. The Regulation 36B(6A)[2] of the CIRP Regulations enables RP to invite resolution plans for each asset of the Corporate Debtor separately. In turn, Regulation 37(m)[3] of the CIRP Regulations allows a Prospective Resolution Applicant (“PRA”) to submit a resolution plan for seeking sale of one or more assets of Corporate Debtor and the Corporate Debtor to be resolved asset-wise.
The framework permits the formulation of separate resolution plans for individual assets, thereby authorizing the RP to devise strategies for the resolution of the Corporate Debtor in a more efficient and time-bound manner. It further facilitates the invitation of plans that are tailored to specific industries, thus attracting the interest of investors and PRAs in asset-wise resolution. This ultimately catering the interests of all stakeholders.
3. What led to asset-wise CIRP?
Project-wise resolution or Reverse CIRP laid the foundation for asset-wise CIRP as well as pushed the asset-wise CIRP amendment to bring the Code at pace with the Courts and judicial innovations. Even though project-wise CIRP and asset-wise CIRP differ in their resolution approaches, the transition from project insolvency to asset-wise CIRPs can be evidenced by the decisions made by the NCLAT and the Hon’ble Supreme Court (“Supreme Court”).
The Supreme Court in the case of Indiabulls Asset Reconstruction Company Limited v. Ram Kishore Arora and Others[4] upheld the decision of the NCLAT's "project-wise resolution" approach, allowing all projects except Eco Village-II to continue under the IRP’s supervision, with the ex-management's assistance and let the project Eco Village-II to be resolved separately and for the Committee of Creditors (“CoC”) to be constituted.
NCLAT, in the CIRP of Umang Realtech Pvt. Ltd.[5], recognized that real estate companies often manage multiple projects at various stages of development. It held that applying CIRP to the entire entity could be detrimental to stakeholders, particularly homebuyers, and therefore allowed CIRP to be restricted to the specific project under default, enabling other viable projects to continue operations. This ruling provided relief to stakeholders and set a precedent for isolating distressed assets within a single corporate debtor.
Similarly, NCLT Chennai, in the case of Religare Finvest Limited vs Mr. N. Kumar[6] and NCLT Mumbai, in the case of Bank of India vs Housing Development and Infrastructure Limited[7] allowed the project-wise resolution of the Corporate Debtor without interfering the commercial calls taken by the CoC. NCLT Mumbai went on to observe that the project-wise CIRP, as the settled position under law and once such resolution was approved by the majority of CoC members, then the Adjudicating Authority was bound to accept it.
NCLT Amravati has approved the resolution plan of one hospital of a corporate debtor while the other asset is yet to be resolved. NCLT upheld the commercial wisdom of CoC in issuing the Request for Resolution Plan seeking asset wise resolution of the corporate debtor[8].
4. Asset-wise CIRP, so far-so good?
While asset-wise CIRP has been in practice since 2022, only a few instances have proven beneficial for stakeholders, while in other cases, stakeholders have been left questioning the NCLT, asking "why?"
Case of Hindustan Photo Films[9]
Hindustan Photo Films was one of the first cases where the NCLT saved the corporate death of the corporate debtor by segregating the infected arm and proceeded with asset-wise CIRP for one asset. Despite a detailed CIRP process, including two rounds of Expression of Interest (“EOI”), the corporate debtor as a whole could not be resolved. Creditors, who had been awaiting resolution for an NPA of more than three decades, were able to receive a realization that would otherwise have remained unresolved indefinitely.
However, with the CoC at the helm and the RP assisting, asset-wise resolution plans were invited. This resulted in an effective resolution for the assets, which otherwise might have remained dormant. The NCLT approved the demerger, allowing the Corporate Debtor to be resolved on an asset-wise basis.
The latest saga in Jaiprakash Associates Limited (JAL)[10]
Recently, the RP of JAL invited an EOI as per Form-G as per Regulation 36B(6A), seeking plans for both the Corporate Debtor as a whole and on an 'asset-wise' basis. While the admitted debt of JAL exceeds INR 57,000 Crores, the company holds approximately eight types of businesses, including cement, highways and roadways, infrastructure, sports, fertilizers, aviation, and agriculture, along with various assets and wholly owned subsidiaries. Given the diverse nature of the businesses and the size of the admitted debt, asset-wise CIRP appeared to be the most appropriate and efficient way to resolve the conglomerate.
However, the Form-G was challenged by the ex-director before the NCLT, Allahabad Bench, on the grounds that it was not in accordance with the law. The RP argued that the Form-G was issued with the goal of value maximization and time-bound resolution of the Corporate Debtor, considering both the extensive nature of its business operations and the admitted liability of INR 57,000 Crores.
The NCLT, Allahabad, has held that while Regulation 36B (6A) allows for inviting separate plans for each asset, there is no provision stating that this measure can be applied initially, without first inviting plans for the Corporate Debtor as a whole. Only once this exercise fails in the first instance can the RP move towards inviting resolution plans on an asset-wise basis.
While this emphasizes the strict interpretation of the law, the NCLT has created an impediment for the expeditious and innovative resolution of the Corporate Debtor. The essence of the Code is to maximize value and resolve the Corporate Debtor as a going concern. Such impediments not only prolong the CIRP process but also give ex-directors, like the one in the instant case, an opportunity to intervene and cause disruption where it is unnecessary.
With mixed views from NCLT, and uncertainty on the lack of legal precedents, a push from the CoC could do only as much.
5. Conclusion
Asset-wise CIRP represents a significant advancement in addressing insolvency in complex, multi-asset structures by isolating distressed projects and focusing on individual resolutions. This approach ensures that viable assets can continue to operate, protecting stakeholders’ investments and supporting a more targeted debt recovery. The model’s success is strengthened through judicial intervention and consequent legislative framework.
The continuous evolution of asset-wise CIRP signals a promising future for resolving insolvency in a balanced, targeted and time bound manner.
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