REASSESSING THE POSSESSION MODEL IN INDIAN INSOLVENCY: EXPLORING THE NEED FOR A STRATEGIC SHIFT

Abstract

Since its adoption in 2016, India’s insolvency regime—which is regulated by the Insolvency and Bankruptcy Code (IBC)—has mostly adopted a creditor-in-control framework, emphasizing quick resolution through resolution and protecting the interests of creditors.  The United States (US), on the other hand, have more debtor-centric insolvency systems.  Businesses are permitted to continue operating under their current management and create reorganization plans in order to maintain business continuity under Chapter 11 of the U.S. Bankruptcy Code.  Similarly, a debtor-in-possession moratorium and restructuring plans with cross-class cram-down capabilities were introduced by the United Kingdom’s (UK) Corporate Insolvency and Governance Act (CIGA) of 2020, which gave directors of the company the ability to guide the company through financial difficulties while maintaining certain protections for creditors. Recent court decisions in India have raised questions about the uniformity and dependability of the IBC, most notably the recent May 2025 Supreme Court’s judgment to revoke a $2.3 billion acquisition deal between JSW Steel and Bhushan Power due to procedural irregularities, which was approved by NCLT in 2019 after 770 days from initiation and final acquisition in 2021.  Aiming to enable out-of-court remedies led by creditors, the Creditor-Led Insolvency Resolution Procedure (CLRP) was introduced concurrently, allowing financially troubled businesses to continue operating without an instant change in management control.

By contrasting India’s creditor-driven structure with the more debtor-oriented systems in the US and the UK, this study examines the shifting dynamics of insolvency regimes.  It examines the benefits and drawbacks of migrating to a debtor-supportive system in India, taking into account operational continuity, creditor safeguards, and legal outcome predictability.  The study aims to assess whether this change could enhance India’s financial stability and increase its attractiveness to foreign investors.