Conducting CIRP in India: Process Flow, Key Roles, and Legal Framework

What happens when a company can no longer pay its dues?

Instead of collapsing into chaos or litigation, Indian law provides a lifeline—the Corporate Insolvency Resolution Process (CIRP). Introduced under the Insolvency and Bankruptcy Code (IBC), 2016, this structured framework helps resolve financial distress fairly, quickly, and transparently.

Whether you’re a creditor, business owner, or legal advisor, this guide will help you understand who can initiate CIRP, how the process unfolds, and what outcomes it may lead to.

What is CIRP Process?

CIRP, or Corporate Insolvency Resolution Process, is a legal procedure initiated when a company fails to repay its debts. Instead of going through years of uncertain litigation, CIRP provides a time-bound framework which is regulated under the Insolvency and Bankruptcy Code (IBC), 2016. The CIRP offers two solutions:

• Revive the company through a resolution plan 
•  Liquidate it, if revival isn’t possible

The primary aim of this process is to protect the interests of creditors, offer businesses a fair shot at recovery, and avoid abrupt closures that can hurt employees, lenders, and the economy. By ensuring faster debt resolution, CIRP helps maintain financial discipline, saves jobs, and promotes a healthier business environment in India.

Now that we understand why CIRP exists, let’s explore what the process really involves.

What Is Insolvency Process?

Before exploring the concept of  Corporate Insolvency Resolution Process (CIRP), it’s important to first understand the concept of insolvency and how the insolvency process works.

Insolvency refers to a situation where a person, business, or company is unable to repay debts when they become due. When this happens, the law provides a structured and time-bound way to deal with such financial distress—this is known as the insolvency process.

The insolvency process is a formal legal mechanism that helps resolve such situations by either:

• Restructuring the debt, allowing the debtor time or flexibility to pay it back, or
• Liquidating the assets of the debtor to repay creditors in a fair and orderly manner.

To fully grasp CIRP, it’s important to first understand the broader concept of insolvency.

Who can Initiate the CIRP Process?

Now, let’s understand who has the authority to initiate the CIRP if a company defaults on its financial obligations. Mainly, 3 parties have the authority to initiate a CIRP process against the company.

Financial Creditor 

A financial creditor is someone who has extended financial credit to a company; this includes entities like banks, non-banking financial companies (NBFCs), bondholders. They can initiate the CIRP only if the company has defaulted on a loan of ₹1 crore or more. There’s no requirement to issue prior notice before filing. The application can be submitted directly to the National Company Law Tribunal (NCLT) using Form 1. 

Operational Creditor 

An operational creditor is a person or entity owed money for goods or services provided to the company, such as suppliers, service providers, and contractors. Before approaching the NCLT, they are required to send a demand notice using Form 3 or Form 4 to the debtor. If the company fails to repay or respond within 10 days, the creditor becomes eligible to file an application using Form 5. However, if the company raises a genuine dispute about the claim, the tribunal may dismiss the application.

Corporate Debtor 

A corporate debtor is the company itself, unable to repay its debts. In such cases, the company can voluntarily initiate the CIRP through the passing of a resolution by the Board of Directors approving the move. Along with the resolution, the company must submit appropriate financial documentation proving insolvency. The application is then filed with the NCLT using Form 6. This route is commonly taken when the company seeks to restructure its affairs under the guidance of the court.

CIRP Timeline at a Glance

Before diving into the detailed steps, here is a quick snapshot of the key stages of the Corporate Insolvency Resolution Process (CIRP) with their respective timelines:

Stages of CIRP Process

Now, let’s explore the key stages involved in conducting the CIRP. The process follows a systematic and strategic framework under the Insolvency and Bankruptcy Code (IBC), designed to ensure fairness, transparency, and timely resolution for all stakeholders.

1. Initiation Stage

The initial stage in a CIRP Process is that the eligible parties has to file an application. This application will be reviewed by the National Company Law Tribunal (NCLT) and further will be admitted or rejected within 14 days

2. Moratorium and Public Announcement

Once an application is admitted a moratorium  is declared under S.14 of Insolvency and Bankruptcy Code (IBC). During this  moratorium:

•  No lawsuits or legal recovery proceedings can be proceeded or contiued against the company.
•  No assets of the company can be sold, transferred, or foreclosed during the process.

Once the moratorium is declared by the NCLT, the next crucial step is the appointment of an Interim Resolution Professional (IRP). This professional is selected and approved by the tribunal and immediately takes charge of the corporate debtor. At this point, the existing Board of Directors is suspended, and all powers of management and decision-making shift to the IRP. 

The IRP is responsible:

• running the day-to-day affairs of the company,
•  safeguarding its assets,
•  collecting creditor claims, 
•  initiating the process to form the Committee of Creditors (CoC). 

After taking charge, the Interim Resolution Professional (IRP) is required to make a public announcement of the Corporate Insolvency Resolution Process. This announcement is published in newspapers and on the IBBI website, as per the IBC guidelines. Its main purpose is to invite all creditors financial, operational, and others to submit their claims against the corporate debtor within a specified time frame. The Committee of Creditors (CoC) based on verified claims.

 3. Committee of Creditors (CoC) Formation

Within 30 days from the commencement of the CIRP, the Interim Resolution Professional (IRP) must collect, verify, and consolidate all claims submitted by creditors. Based on this, the IRP forms the Committee of Creditors (CoC)—which usually consists of the company’s financial creditors. 

The CoC plays a central role in the resolution process, taking over all major decision-making responsibilities. The key roles of CoC includes;

• appoint a permanent Resolution Professional (RP),
•  evaluate and approve resolution plans, 
• recommend liquidation if revival isn’t possible.

Importantly, for any decision to pass, the CoC must reach a minimum of 66% majority based on the voting rights assigned to each creditor. This ensures that key actions reflect the collective interest of those most impacted by the company’s insolvency.

4. Submission and Evaluation of Resolution Plan

Once the Committee of Creditors (CoC) is in place, the focus shifts to finding a practical solution to revive the company. Resolution applicants which can include promoters, outside investors, or third-party firms are invited to submit a resolution plan to the Resolution Professional (RP). These plans typically outline strategies such as;

•  restructuring existing debt, 
• injecting fresh capital, 
• selling underperforming assets,
• changing the management team.

The RP carefully reviews each plan to ensure it complies with the Insolvency and Bankruptcy Code (IBC), and forwards the eligible ones to the CoC. The CoC then assesses each proposal for its viability, fairness, and feasibility. If a plan gains at least 66% of the voting share, it is approved and submitted to the NCLT for final clearance. However, if no plan is approved, the company moves into liquidation, where its assets are sold off to repay creditors.

The ultimate aim of the Corporate Insolvency Resolution Process (CIRP) is to either revive the company by approving a structured resolution plan or, if revival is not possible, move towards liquidation in a reasonable and time-bound fashion. The process ideally should lead to the approval of a resolution plan that reconciles the interests of the creditors, employees, and other stakeholders. But if no acceptable plan is available within the stipulated time frame, the assets of the company are sold and used to refund debts, with accountability and closure.

Frequently Asked Questions (FAQ’S)

1. How long does the CIRP Process take?

CIRP must be completed within 180 days from admission, with a possible extension of 90 days. However, the maximum time allowed, including extensions, is 330 days.

2. What is the process of declaring insolvency?

To initiate a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016, a creditor must file an application with the National Company Law Tribunal (NCLT). The company must have defaulted on a payment of at least ₹1 crore.

3. What is the time limit for insolvency resolution process?

According to Section 12(1) of the IBC, the entire CIRP must be completed within 180 days from the date of admission. This can be extended, but the total duration cannot exceed 330 days.

4. What is the minimum amount for insolvency?

As per the IBC Code, the minimum amount of default required to initiate a Corporate Insolvency Resolution Process (CIRP) against a company or LLP is Rs. 1 Crore. 

5. Who is a Corporate Debtor?

A corporate debtor is a company or LLP that owes money and has defaulted on repaying its debt under the Insolvency and Bankruptcy Code (IBC), 2016.

6. What is a Moratorium in CIRP?

A moratorium is a temporary legal freeze that begins once the CIRP is admitted by the NCLT. It prevents:

1. The initiation or continuation of lawsuits against the company
2. The sale, transfer, or seizure of the company’s assets

7. Is the Insolvency Process and CIRP Process the Same?

Not exactly. The insolvency process is a broader term covering all legal procedures to resolve financial distress. CIRP is a specific process under the IBC, applicable only to companies and LLPs.

Conclusion

To effectively and equitably resolve financial distress,it is important to strictly follow the Corporate Insolvency Resolution Process (CIRP). Whether you’re trying to recover unpaid dues or save your company from collapse, the CIRP process provides a fair, structured, and time-bound solution.