Insolvency and Bankruptcy Code: What Foreign Investors Must Know Before Investing in Stressed Assets

India’s distressed asset market has seen some of its biggest acquisitions through the insolvency process, including ArcelorMittal’s acquisition of Essar Steel, Tata Steel’s takeover of Bhushan Steel, and JSW Steel’s entry into Bhushan Power. These are not small transactions. They are large, complex, hard-fought deals that were completed through the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, and they changed what foreign investors thought was possible in Indian stressed asset acquisitions.For IBC in India Foreign Investors, CIRP offers a rare opportunity to acquire an operating business with NCLT-sanctioned clean title and without its pre-existing liabilities. The challenge is execution. As of March 31, 2025, 78% of ongoing CIRP cases had exceeded the 270-day timeline because of promoter litigation, creditor disputes, and judicial interventions. The IBC (Amendment) Bill 2025 introduced CIIRP and mandatory NCLT admission to address these concerns. This guide covers what foreign investors need to understand before entering the distressed asset market through the IBC route.

What Is the Corporate Insolvency Resolution Process Under IBC in India, Foreign Investors Should Understand?

Under CIRP, the applicant proposes an Interim Resolution Professional (IRP). After the CIRP commences, the Committee of Creditors (CoC) either confirms the IRP as the Resolution Professional (RP) or appoints another insolvency professional , invite bids, and submit the selected resolution plan to the NCLT for approval. IBC in India for foreign investors can participate as resolution applicants, subject to FDI and FEMA rules. Once approved, the plan extinguishes the company’s pre-existing liabilities. CIRP begins when a financial creditor, an operational creditor, or the company itself approaches the NCLT under Sections 7, 9, or 10 of the IBC. Following the IBC Amendment Bill 2025, the NCLT must admit a Section 7 application once a default is established and the filing requirements are met. The discretionary rejection that previously created litigation around NCLT admission decisions is removed for qualifying applications. Once admitted, the NCLT declares a moratorium under Section 14, which freezes all pending legal proceedings against the corporate debtor, prevents asset disposals, and stops creditor recovery actions.  The affairs of the corporate debtor vest in the Resolution Professional who takes control of the company’s operations for the CIRP period. In this case the powers of the Board are suspended. The CIRP timeline in statute is 180 days, extendable to 330 days by NCLT order for complex cases. Reality, as of March 2025, is that 78% of ongoing cases exceeded 270 days. Resolution applicants bidding on stressed companies should build realistic timelines into their investment models, not statutory ones.

Can Foreign Investors Participate in the CIRP Process Under IBC?

Yes. IBC in India Foreign Investors rules permit non-residents to participate in a CIRP as resolution applicants and acquire a corporate debtor through a sanctioned resolution plan under IBC, subject to compliance with the FDI policy’s sectoral caps and government approval requirements. The NCLT-sanctioned resolution plan is the instrument of acquisition; no separate FDI approval is needed if the sector permits the foreign investment and the resolution plan is structured accordingly. This is the provision that opened distressed asset investment in India to foreign capital. The Chambers and Partners 2025 checklist on Indian investment confirmed this: subject to sectoral limits and government approval requirements under the FDI Policy, a non-resident may participate in a CIRP and acquire an Indian company through a resolution plan. If the Committee of Creditors approves and the NCLT sanctions the resolution plan submitted by a non-resident, the foreign investor acquires ownership and control of the company, subject to the plan’s terms. The FDI policy conditions that apply:

• The sector in which the corporate debtor operates must permit the level of foreign ownership proposed in the resolution plan
• If the sector requires Government Route approval above a threshold, prior government approval must be factored into the resolution plan
• FEMA pricing norms apply to the valuation of shares being acquired under the resolution plan
• Post-acquisition FC-GPR filing is required within 30 days of share allotment

For stressed companies in sectors with Government Route FDI (defence above 74%, multi-brand retail, print media), the foreign investor must build the government approval timeline into the resolution plan and secure the approval as a condition precedent to plan implementation. NCLT sanction of the plan does not override the FDI policy.

What Is the Resolution Plan Under IBC and What Must It Contain?

A resolution plan under IBC is the binding document submitted by a resolution applicant to the Committee of Creditors proposing how the corporate debtor will be restructured, how creditors will be repaid, and how the company will continue as a going concern. The plan must be approved by the CoC with a 66% majority voting share and then sanctioned by the NCLT. Once sanctioned, the plan binds all stakeholders including dissenting creditors, guarantors, employees, and all parties to contracts with the corporate debtor. The binding nature of the NCLT-sanctioned resolution plan is the central value proposition of buying stressed companies in India through the IBC route. An investor acquiring a company outside the IBC in a negotiated transaction inherits the company’s liabilities, litigation risks, and creditor claims. An investor acquiring through a sanctioned resolution plan gets what the plan specifies — and the rest of the liabilities are extinguished by statutory operation. What the resolution plan must cover:

• Payment to financial creditors (secured, then unsecured), operational creditors, workmen, and employees in the waterfall order specified by Section 53 of IBC
• The acquisition price and structure (debt, equity, a mix)
• Treatment of existing shares — whether current shareholders are wiped out or partially retained
• Operational restructuring commitments: which facilities continue, which are closed, employment guarantees
• Capital investment commitment post-acquisition
• Avoidance transaction proceedings: since the 2022 CIRP Regulation amendment, the plan must specify how fraudulent trading, wrongful trading, and preferential transaction proceedings will be pursued post-approval

The recent IBBI April 15, 2026 discussion paper on CIRP Regulations proposes further changes to the information memorandum quality requirements and CoC voting procedures, reflecting ongoing regulatory refinement.

What Changed Under the IBC Amendment Bill 2025 That Affects Distressed Asset Investors?

The IBC (Amendment) Bill 2025 introduced the Creditor-Initiated Insolvency Resolution Process (CIIRP) as an alternative to CIRP, where the corporate debtor remains in management control during the resolution period. It amended NCLT admission from discretionary to mandatory, introduced cross-border insolvency provisions for the first time, enabled group insolvency handling through a common NCLT bench and joint CoC, and introduced Section 28A allowing guarantor assets to be transferred into the corporate debtor’s CIRP pool. These are the most significant structural changes to the Insolvency and Bankruptcy Code compliance framework since the 2019 amendment. For foreign investors evaluating stressed assets, four changes matter most:

• CIIRP: The Creditor-Initiated Insolvency Resolution Process allows creditors to initiate resolution mechanism where the corporate debtor stays in management control subject to statutory conditions. Unlike CIRP, the RP does not displace management. The NCLT plays a supervisory role at key stages. If no resolution plan is received within 150 days (extendable by 45 days) or if the corporate debtor fails to cooperate, the NCLT mandatorily converts the CIIRP to a standard CIRP. For foreign investors, the CIIRP is relevant primarily as a risk factor — a company in CIIRP may be acquired through that process rather than a standard CIRP, with different competitive dynamics.
• Mandatory NCLT admission: The change from “may” to “shall” in Section 7 eliminates the litigation strategy that promoters of defaulting companies used to challenge admission on discretionary grounds. Applications that establish default and meet procedural requirements cannot be rejected. This makes the CIRP trigger more predictable, which is positive for investors planning to acquire assets through the insolvency route.
• Cross-border insolvency: For the first time, the IBC Amendment Bill 2025 enables the government to prescribe procedures for cross-border insolvency cases. This is directly relevant for IBC in India for foreign investors acquiring companies with overseas subsidiaries or operations. The framework for recognising foreign insolvency proceedings and coordinating with overseas courts is now being built into the IBC rather than handled case-by-case.
• Group insolvency: The amendment enables connected insolvency proceedings for corporate groups to be handled by a common NCLT bench with a joint CoC. For foreign investors looking at conglomerate acquisitions where multiple group entities are in distress, this significantly simplifies the acquisition process by consolidating proceedings that previously ran separately.

What Are the FEMA and Tax Implications of Stressed Assets Acquisition in India?

Stressed assets acquisition in India through the CIRP route triggers FEMA compliance at the point of share allotment under the resolution plan. FC-GPR must be filed within 30 days of allotment in case where the resolution plan involves fresh allotment of shares to a foreign investor. The acquisition price in the resolution plan must comply with FEMA pricing norms. A key tax benefit: the IBC specifically provides that NCLT-approved resolution plans take precedence over income tax demands, meaning the Income Tax Department cannot recover pre-CIRP dues from the resolution applicant after the plan is sanctioned. The tax precedence point is one of the most commercially significant features of the IBC route for distressed asset investment in India. Before this was clarified by the Supreme Court in Ghanashyam Mishra and the subsequent statutory amendment, Income Tax demands against the corporate debtor created uncertainty for resolution applicants who feared inheriting tax liabilities not disclosed in the information memorandum. Post-amendment, the position is clear: the NCLT-sanctioned resolution plan extinguishes all claims of all creditors, including the Income Tax Department and GST authorities, that are not explicitly provided for in the plan. The tax departments must file claims before the Resolution Professional during the claims submission period. Claims not filed are extinguished by operation of law. Other tax considerations for IBC in India for foreign investors:

• Depreciation benefits on assets acquired through resolution plans must be calculated from the original date of asset creation, not the acquisition date — the Essar Steel and Bhushan Steel acquisitions established this through tax litigation;
• GST on the going-concern transfer is not applicable if the acquisition is structured as a transfer of the enterprise as a going concern, which most CIRP acquisitions are;
• Stamp duty on transfer of assets under the resolution plan is subject to state-level variations; some states have specific concessions for CIRP-related transfers

What Risks Should Foreign Investors Understand Before Bidding in a CIRP?

The primary risks for IBC in India for foreign investors in the CIRP process are timeline uncertainty (78% of cases exceed 270 days), litigation risk from former promoters challenging the resolution plan after NCLT sanction, information asymmetry in the information memorandum, and post-acquisition operational risks in businesses that have been in distress for extended periods. The 2025 ICRA data showing Q4 FY2025 peak realisations of approximately 70% against admitted claims reflects improving but still significant haircuts for financial creditors. Timeline risk is the most quantifiable. A foreign investor’s capital is committed once a resolution plan is submitted with an earnest money deposit. If the CIRP extends beyond the statutory timeline through litigation, judicial intervention, or CoC disagreements, the committed capital is locked. Financial models that assume 12-month CIRP completion regularly face 18-24 month realities. Promoter litigation is the most disruptive risk. Former promoters of corporate debtors have repeatedly challenged resolution plans on grounds ranging from procedural non-compliance to constitutional challenges to the IBC itself. The Supreme Court has, in most significant cases, upheld the IBC framework, but individual challenges continue and have overturned specific resolution plans even after NCLT sanction in some instances.  The Supreme Court’s decision in the AGI Greenpac–HNG matter clarified that Competition Commission of India (CCI) approval under the Competition Act is mandatory before the Committee of Creditors (CoC) approves a resolution plan where the transaction requires merger control clearance. The judgment was intended to clarify the legal position rather than create uncertainty. Information memorandum gaps are a structural risk. The RP prepares the information a Foreign Investorsmemorandum based on available records of a company that has often been in financial distress for years with deteriorated record-keeping. Due diligence windows in CIRP are typically shorter than in negotiated M&A transactions. Post-acquisition discoveries of liabilities not in the information memorandum must be resolved against the backdrop of the resolution plan’s finality.

What Is the NCLT Insolvency Process for Approving a Resolution Plan?

Under IBC in India Foreign Investors , the Resolution Professional invites bids, conducts the resolution process, and places the CoC-approved plan before the NCLT after securing a 66% vote. The NCLT examines only whether the plan complies with the law and must approve it if the legal requirements are met. The NCLT’s review is specifically limited to:

• Whether the plan meets the requirements of Section 30(2) — including payment of insolvency resolution process costs in priority, the prescribed minimum payment to operational creditors, compliance with applicable law, and provisions for implementation and supervision of the plan. Whether the plan is compliant with applicable laws
• Whether the plan has been approved by the requisite CoC majority
• Whether the resolution applicant meets the eligibility conditions of Section 29A

Section 29A eligibility is a significant filter for IBC in India for foreign investors. It bars promoters of the distressed company, wilful defaulters, persons convicted of economic offences, undischarged insolvents, and their connected persons from submitting resolution plans. A foreign investor who has a business relationship with the defaulting promoter that brings them within the definition of a “related party” may face Section 29A eligibility questions. The CoC’s evaluation of competing resolution plans is on value maximisation. The CoC evaluates competing resolution plans primarily on the basis of their commercial viability, feasibility, implementation capability, and overall value maximisation. While higher recoveries for creditors are an important consideration, they are not the only factor influencing the CoC’s commercial decision. . The NCLT cannot substitute its commercial judgment for the CoC’s on which plan is better — it can only check legal compliance.

Conclusion

IBC in India Foreign Investors have access to one of the most structured distressed asset acquisition frameworks in Asia. Clean title through NCLT sanction, statutory extinguishment of pre-existing claims not provided for in the approved resolution plan , tax department precedence provisions, and a recovering realisation rate that hit approximately 70% in Q4 FY2025 all make the CIRP route genuinely competitive with negotiated transactions. The 2025 Amendment Act’s mandatory admission provision, cross-border insolvency framework, group insolvency mechanism, and CIIRP alternative have addressed several of the process frictions that deterred earlier-stage foreign participation. What remains are the timeline risks, the litigation culture around promoter challenges, and the information quality gaps in stressed company due diligence. Foreign investors entering the distressed asset market through the IBC route need legal, financial, and FEMA advisory working in parallel from the expression-of-interest stage. Corporate Legit Consulting LLP advises IBC in India for foreign investors on resolution plan structuring, FEMA and FDI compliance for stressed assets acquisition India, Section 29A eligibility analysis, post-acquisition corporate and tax compliance, and FC-GPR filing for CIRP-acquired companies. Reach out to Corporate Legit before submitting an expression of interest in any CIRP process..