Strengthening Transparency in CIRP: IBBI’s New Safeguard Proposals Explained

The Insolvency and Bankruptcy Code (IBC) has been one of India’s most transformative economic reforms. It was designed to revive financially distressed companies through a time-bound and transparent process. While the framework has delivered many successes, the practical implementation has revealed gaps,especially around disclosures, decision-making, and stakeholder participation.

To address these challenges, the Insolvency and Bankruptcy Board of India (IBBI) has released a new discussion paper proposing strong safeguards to improve transparency, fairness, and accountability within the CIRP ecosystem. These proposals aim to make the process more inclusive, better informed, and aligned with the principles on which the IBC was built.

This article breaks down the proposed changes in a simple, comprehensive manner,helpful for professionals, homebuyers, creditors, and anyone who wants to understand how India’s insolvency framework is evolving.

1. Why Did IBBI Introduce These Proposals?

In recent years, several issues have come to light during corporate insolvencies:

• Important financial information, such as receivables or rights under joint development agreements, was missing from the Information Memorandum (IM).
• Homebuyers in real-estate insolvencies often remained excluded if they did not formally file claims.
• Some CoCs consisted entirely of unregulated entities, allowing a single creditor to dominate decision-making.
• Liquidation was sometimes chosen over a viable resolution plan, without proper justification.

These gaps create uncertainty, reduce value for stakeholders, and lead to unnecessary litigation. The new proposals aim to close these loopholes and build a more robust CIRP environment.

2. Proposal 1: Mandatory Inclusion of All Homebuyers in Real Estate Insolvency

The Issue

Real-estate insolvency cases involve hundreds of homebuyers with varying claim statuses. Many homebuyers fail to file claims, but their details appear in the company’s books. As a result, they get excluded from the Information Memorandum and even from the final resolution plan.

This leads to appeals, delays, and disputes.

The Solution Proposed

The IBBI wants to ensure homebuyers are never ignored.

The proposal requires:

• All homebuyers (allottees) recorded in the corporate debtor’s books must be included in the Information Memorandum.
• Resolution plans must clearly state how these allottees will be treated,whether or not they filed claims.

Why This Matters

This provides better protection to homebuyers, reduces litigation, and ensures complete transparency for resolution applicants evaluating real-estate projects.

3. Proposal 2: Comprehensive Disclosure of Receivables, JDAs, and Attached Assets

The Issue

A company’s value is often hidden in details like:

• Trade receivables
• Inter-corporate receivables
• Rights and obligations under Joint Development Agreements (JDAs)
• Assets attached or seized by government departments

When these items are missing in the Information Memorandum, resolution applicants cannot assess the true financial position. This leads to undervalued bidding or sometimes a complete lack of interest in the company.

The Solution Proposed

IBBI proposes that the Information Memorandum must include:

1. Full receivable details (trade, contractual, inter-corporate).
2. Specifics of JDAs,rights, obligations, interests, and revenue-sharing structures.
3. Details of attached assets,what is attached, by whom, and the stage of proceedings.

Why This Matters

When bidders receive complete information, they can:

• Make better offers
• Reduce risk
• Improve value realisation for creditors
• Strengthen trust in the insolvency process

It is a direct push towards greater transparency and professionalism in CIRP.

4. Proposal 3: Checks & Balances When CoC Has No Bank or Financial Institution

The Issue

In some insolvency cases, especially when banks have no exposure, the Committee of Creditors (CoC) is formed entirely of unrelated or unregulated operational creditors.

If one operational creditor holds a high voting share, they can dominate proceedings,raising concerns of bias or unfair influence.

The Solution Proposed

IBBI proposes that when the CoC does not include any regulated financial institution:

• The five largest operational creditors (by claim value) must be invited as observers.
• Observers will receive:
  • Meeting notices
  • Agenda papers
  • Minutes of meetings
• Observers can participate and raise questions but will not vote.
• The CoC must record detailed reasons behind every major decision.

Why This Matters

This ensures:

• Balanced decision-making
• Greater oversight
• Reduced chances of a single creditor influencing the process
• Better transparency for stakeholders

5. Proposal 4: CoC Must Justify Liquidation When Viable Resolution Exists

The Issue

There have been cases where:

• A complete, compliant, and viable resolution plan was received,
• The plan offered higher value than liquidation,
• Yet, the CoC still opted for liquidation,without recorded reasoning.

Such decisions harm value maximisation, which is the core objective of the IBC.

The Solution Proposed

When a viable resolution plan exists but the CoC still wants liquidation, they must:

• Record detailed reasons for rejecting the plan
• Submit these reasons to the Adjudicating Authority with the liquidation application

Why This Matters

This brings accountability to the CoC and ensures decisions are not arbitrary.
It also helps creditors, investors, and professionals understand the rationale behind liquidation.

6. Overall Impact of the Proposed Safeguards

The proposals aim to create a CIRP environment that is:

✔ More Transparent

Full disclosures → fewer surprises → more accurate resolution plans.

✔ More Inclusive

Homebuyers and operational creditors will have better participation and representation.

✔ More Accountable

CoC decisions will require explanation, especially when deviating from value-maximising options.

✔ More Stable

Improved trust in the insolvency process enhances investor confidence and reduces litigation.

7. What This Means for Stakeholders

For Homebuyers

Better protection, guaranteed inclusion, reduced delays, and improved recovery prospects.

For Creditors

More transparency, better decision-making data, and a more structured CoC environment.

For Resolution Professionals

A need for greater diligence, proper documentation, and meticulous preparation of the Information Memorandum.

For Investors / Resolution Applicants

Clearer information → reduced risk → realistic bids → higher success rate in resolutions.

For the Insolvency Ecosystem

An evolution towards maturity, discipline, and fairness,core goals of the IBC.

8. Closing Perspective (From the desk of a Finance & Tax Professional)

These proposals show that the IBC framework is not static,it is learning, adapting, and strengthening with every case, every judgement, and every challenge.
By mandating transparency and structured reasoning, the IBBI is trying to bridge the gap between law and implementation.

As CA (Dr.) Arpit Yadav often emphasises, “A transparent insolvency process doesn’t just resolve companies,it restores trust in the entire credit system.”

These proposed reforms carry the potential to reduce disputes, revive stalled projects, protect homebuyers, and bring discipline into corporate distress management.

And that is exactly the direction India needs as it moves into more complex, high-value insolvency cases.