Creditor-Initiated Insolvency Resolution Process: Starting Insolvency Without Going to the NCLT First

When a company defaults on a bank loan, the bank’s main insolvency route has been a Section 7 application before the NCLT, followed by a wait for admission. The IBC Amendment Act, 2026 adds a second route. Under the creditor-initiated insolvency resolution process (CIIRP), lenders can start insolvency themselves by appointing a resolution professional, and they go to the tribunal only at later stages.

The process sits in Chapter IV-A of the Insolvency and Bankruptcy Code, Sections 58A to 58K. As of November 2026 it is law but not yet in force. Below we explain what CIIRP will allow, who can use it, and what a company should do if it receives a CIIRP notice. Lenders and promoters who want to plan ahead should speak to a bankruptcy and insolvency lawyer now, before the process goes live.

What is the Creditor-Initiated Insolvency Resolution Process?

CIIRP is an insolvency process that financial creditors start without first applying to the tribunal. In a regular corporate insolvency resolution process (CIRP), the NCLT admits the application, and only then is a resolution professional appointed and the board suspended. Under CIIRP, a notified class of financial creditors approves the process among themselves, notifies the company and appoints the resolution professional. The company’s board stays in office, working under that professional’s oversight.

The NCLT still has work to do. It hears the company’s challenge, can grant a moratorium, approves any extension of time and sanctions the final resolution plan. The change is at the start: creditors no longer wait for an admission order to begin.

Is CIIRP in Force Yet?

Not yet. The Act received Presidential assent on 6 April 2026, and most of its provisions came into force on 26 May 2026. The clause that inserts Chapter IV-A was left out of that notification. Before any lender can use CIIRP:

1. the Central Government must notify Chapter IV-A;
2. it must specify which classes of financial creditors can start CIIRP and which corporate debtors it covers;
3. the IBBI must finalise its regulations, for which it released a discussion paper in April 2026.

That gap is useful. Banks can map which borrowers are likely to qualify, and promoters can fix weak points in their loan accounts, before the first notices go out.

Who can Start CIIRP, and Against Which Companies?

CIIRP is a lenders’ tool. Only financial creditors in a class notified by the Central Government can start it. Operational creditors, such as suppliers and service providers, have no access to it. For them the options remain a Section 9 application or a civil recovery suit.

A notified financial creditor can begin CIIRP when these conditions are met:

• There is a default on debt owed to that creditor. The minimum default amount for CIIRP has not been announced.
• Creditors holding at least 51% of the debt by value within the notified class approve the step. This approval is taken twice: once before the company is notified and again after it replies.
• The company falls within the notified criteria. The Act lets the Government define eligible companies by asset size, income, class of creditors or size of debt. Those criteria are still awaited.

The draft framework also keeps out companies that are already in CIRP, pre-packaged insolvency or liquidation, and those that went through any of these in the previous three years.

How CIIRP works, Step by Step

1. Creditors approve the start. The initiating creditor identifies the eligible financial creditors from information utility records and calls a meeting. Creditors holding 51% of the debt by value must agree.
2. Notice to the company. The creditor tells the company about the default and its intention to appoint a resolution professional. The company has at least 30 days to reply. It can dispute the default, offer to pay or propose a settlement.
3. Second approval. If the creditors still want to proceed after reading the reply, 51% by value must approve again within 30 days.
4. Appointment and public announcement. The resolution professional is appointed, makes a public announcement and informs the NCLT and the IBBI. CIIRP starts on this date, and no CIRP application can be filed or admitted against the company after it.
5. Challenge before the NCLT. The company can object before the tribunal. If there was no default, the NCLT can declare the initiation void. If there was a default but the procedure was not followed, it can convert the case into a regular CIRP.
6. The process runs with the board in place. Directors continue to manage the company. The resolution professional attends board and committee meetings and can reject their resolutions. Under the draft regulations, large transactions need the approval of the committee of creditors (CoC).
7. Moratorium only on application. There is no automatic moratorium. The resolution professional can ask the NCLT for one with the backing of creditors holding 51% of the debt. Until it is granted, other proceedings against the company can continue.
8. Resolution plan. A plan needs the approval of 66% of the CoC by value and then the NCLT’s sanction. The CIRP rules on plan contents, Section 29A eligibility, extinguishment of old claims and avoidance transactions apply here too.
9. Timeline. CIIRP must finish within 150 days of commencement. The NCLT can extend it once, by up to 45 days, if 66% of the CoC agrees.

Conversion to CIRP. The NCLT must convert the case into a regular CIRP if no plan comes in within the time allowed, if it rejects the plan, or if the directors do not cooperate with the resolution professional. The CoC can also vote by 66% to convert at any stage. Officers who manage the company fraudulently during CIIRP face a penalty of up to ₹1 crore.

CIIRP vs Regular CIRP: the Main Differences

CIIRP does not replace Section 7. A bank can still file before the NCLT in the usual way. CIIRP gives it a second option where speed matters and the company’s management is willing to keep working with creditors.

Received a CIIRP notice? What promoters and directors should do

The 30-day reply window is the company’s best chance to change the outcome. Most of the work below should start on the day the notice arrives.

• Check the default. Match the lender’s figures against your loan statements and the information utility record. The 2026 amendment gives these records more weight as proof of default, so correct any error in them at once.
• Check eligibility. Confirm that the creditor belongs to a notified class and that your company falls within the notified criteria. If either is missing, the initiation can be challenged.
• Reply in writing with numbers. A specific repayment or restructuring offer can persuade creditors not to give the second 51% approval. A bare denial rarely does.
• Prepare the NCLT objection in parallel. If the creditors proceed, the objection goes to the tribunal. A company that has shown there was no default can have the initiation declared void.
• Review the last two years of transactions. The 2026 amendment extended the look-back period for avoidance transactions to two years and removed the safe harbour for related-party transfers. The resolution professional can examine these.

Once CIIRP starts, cooperate fully. Non-cooperation is a ground for conversion into a regular CIRP, where the board loses control. Directors who stay in charge should assume that the resolution professional will review every board decision.

Speak to a Bankruptcy and Insolvency Lawyer in Delhi

Raizada Law Associates advises banks, NBFCs and promoters on insolvency under the IBC, including Section 7 and Section 9 applications before the NCLT in New Delhi. For lenders, we review borrower accounts to see where CIIRP may be the faster route once it is notified. For companies, we draft the reply to a creditor’s notice and represent you before the tribunal.