Distressed Asset Advisory India: Who Needs It and Who Does Not
Whether Distressed Asset Advisory India applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Distressed Asset Advisory India page.
What is the Insolvency and Bankruptcy Code (IBC) and how does it work at a high level?
The IBC, enacted in 2016, is India's unified insolvency law. It was substantially amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which received assent on 6 April 2026; provisions are being brought into force by notification, so confirm which changes apply to a given case. When a company defaults on a debt above the prescribed threshold, a creditor (or the company itself) can apply to the National Company Law Tribunal (NCLT) to initiate the Corporate Insolvency Resolution Process (CIRP). Once admitted, a moratorium under Section 14 freezes most legal proceedings and asset transfers, a Resolution Professional takes over day-to-day management oversight, and a Committee of Creditors evaluates resolution plans submitted by prospective resolution applicants. If a plan is approved by the requisite creditor majority and sanctioned by NCLT, it becomes binding on all stakeholders. If no viable plan emerges, the company proceeds to liquidation.
In practice: Clients often assume IBC is only a legal process. In practice, the financial modelling — realistic valuation, funding structure, and feasibility of the resolution plan — is what determines whether a plan actually gets creditor votes. The legal drafting supports a financial case that has to stand on its own.
What is Section 29A and why does it matter so much for prospective acquirers?
Section 29A of the IBC bars specified categories of persons from submitting a resolution plan — including wilful defaulters, persons whose accounts have been classified as non-performing assets for a prescribed period and who have not remedied the default, undischarged insolvents, persons disqualified as directors under the Companies Act, and persons connected to any of the above through specified relationships. The intent is to prevent defaulting promoters from regaining control of the same company through the back door at a discount, and to keep genuinely ineligible bidders out of the process.
In practice: We run Section 29A screening as the very first step of any bid mandate — before any diligence spend. A bidder can discover an eligibility issue only after due diligence work is under way if a connected entity's default history was never checked upfront.
How is a company selected for CIRP admission — what triggers it?
CIRP can be initiated by a financial creditor (a lender), an operational creditor (a supplier or service provider owed money), or the corporate debtor itself, once a default above the prescribed minimum threshold has occurred. The applicant files before the NCLT bench with jurisdiction over the company's registered office. If the NCLT is satisfied the application is complete and a default exists, it admits the application and CIRP formally begins, with a moratorium taking immediate effect.
In practice: The minimum default threshold for CIRP initiation has been amended by government notification over time — we always confirm the currently applicable threshold at the start of an engagement rather than relying on a remembered figure, since acting on a stale threshold can misdirect an entire strategy.
What is SARFAESI enforcement and how is it different from IBC?
The SARFAESI Act 2002 allows a secured creditor — typically a bank or NBFC — to enforce its security interest directly, without going through a court process, once a loan account is classified as a non-performing asset per RBI norms. The lender can take possession of the secured asset under Section 13(4) and sell it, often through auction, to recover the outstanding debt. Unlike IBC, SARFAESI action targets a specific secured asset rather than the entire company, does not impose a moratorium on the company's other proceedings, and does not require Tribunal sanction for most enforcement steps (though the borrower retains statutory rights to approach the Debts Recovery Tribunal).
In practice: Lenders often ask whether SARFAESI or IBC is 'better'. The honest answer depends on whether the lender wants a specific asset quickly or the entire enterprise value through a structured process — these are different tools for different objectives, not a strictly better-or-worse choice.
What is the Pre-Packaged Insolvency Resolution Process (PPIRP) and who is eligible?
PPIRP, introduced in 2021 under Sections 54A onward of the IBC, is a faster, less disruptive insolvency resolution route available only to Micro, Small and Medium Enterprises (MSMEs) as classified under the MSME Development Act. It is initiated by the corporate debtor itself with the approval of not less than 66% of its financial creditors (by value) who are unrelated to the debtor, before a formal application is filed. Unlike full CIRP, the debtor typically remains in possession and management control during the process, with a base resolution plan submitted by the promoter as a starting point that competing resolution applicants can improve upon.
In practice: An eligible MSME may assume that its only option once distressed is a full, disruptive CIRP. PPIRP eligibility is worth assessing early for any MSME showing distress signals, since management continuity and a shorter statutory timeline can be advantages, depending on the case.
Can existing promoters bid to reacquire their own company through IBC?
Only if they are not disqualified under Section 29A. A promoter whose account with the corporate debtor (or a connected entity) has been an NPA for the prescribed period and who has not paid overdue amounts with interest before submitting a resolution plan is generally barred, along with several other disqualifying categories under the section. The provision was specifically designed to prevent promoters who drove a company into default from regaining control at a discounted resolution value without first curing their default.
In practice: Promoters often ask this question early, and the answer can be disappointing. Eligibility should be assessed honestly and, where a genuine cure path exists (clearing the specific overdue amounts before plan submission), we lay out exactly what that would require and by when.
What is the RBI's Prudential Framework for Resolution of Stressed Assets?
Issued by the RBI through its June 7, 2019 circular (which replaced the earlier February 12, 2018 framework that was struck down by the Supreme Court) and since carried into RBI's consolidated 2025 directions (for commercial banks, the Resolution of Stressed Assets Directions, 2025 issued on 28 November 2025; other lender categories have their own directions, so confirm which applies), the Prudential Framework requires lenders to identify stress early — classifying accounts into Special Mention Account (SMA) categories before formal NPA classification — and gives lenders a defined window to implement a resolution plan for large borrowers before mandatory additional provisioning kicks in. It is the backbone framework governing how banks approach restructuring negotiations with a stressed borrower before matters escalate to SARFAESI or IBC.
In practice: Understanding where a borrower sits in the SMA classification (SMA-0, SMA-1, SMA-2) tells us how much runway realistically remains before the lender's own regulatory clock forces a decision — this materially affects negotiating leverage in any restructuring conversation.
What is the liquidation waterfall under Section 53 and where do different creditors rank?
Section 53 of the IBC prescribes a strict priority order for distribution of liquidation proceeds, summarised below (the 2026 Amendment Act also revised parts of the liquidation framework, so confirm the current text): first, insolvency resolution and liquidation process costs; then workmen's dues (for a specified period) ranking equally with secured creditors who have relinquished their security; then other employee dues; then unsecured financial creditors; then government dues and remaining secured creditor claims where security was not relinquished; then other debts; then preference shareholders; and finally equity shareholders or partners, who rank last and typically recover nothing in a genuine liquidation scenario.
In practice: Promoters and equity holders sometimes underestimate how far down the waterfall they sit. We use this waterfall explicitly when advising promoter clients on whether pursuing a negotiated restructuring before formal insolvency is worth the effort — the answer is almost always yes, because equity's position in liquidation is genuinely last.
Is there a minimum default amount required to initiate CIRP?
Yes, the IBC prescribes a minimum default threshold for initiating CIRP, and this threshold has been revised by government notification at different points, including a significant increase during 2020. Because the applicable threshold can change by notification without amending the Code itself, we always verify the currently applicable minimum default amount at the outset of any engagement rather than relying on a previously known figure.
In practice: This is one of the few IBC parameters that has moved by executive notification rather than legislative amendment — we treat it as a fact to confirm fresh for every mandate, not a fixed number to remember.
Where this sits in the wider engagement
Distressed Asset Advisory India rarely arrives on its own. The statutory basis and the current requirements are set out on the Distressed Asset Advisory India service page, and the related services are grouped under Corporate Finance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Distressed Asset Advisory India we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.