Drawing The Line Between Malfeasance And Business Failure Under CIRP
- IJLLR Journal
- 22 minutes ago
- 1 min read
Naimisa Madduri, Symbiosis Law School, Hyderabad
ABSTRACT
This paper critically looks at the fine line between malfeasance and actual business failure under the Corporate Insolvency Resolution Process (CIRP) by the Insolvency and Bankruptcy Code, 2016 (IBC). The IBC was not designed as a debt recovery mechanism since its creation was a reformative framework to advance timely resolution, value maximization, and revival of distressed entities. Nevertheless, the increasing tendency to initiate CIRP based on only evidence of default, and without sufficient examination of the true financial situation of the debtor, can be seen as the failure to adhere to the objectives of the Code.
This paper suggests that admission into CIRP should be based on insolvency rather than on default, through a doctrinal examination of statutory provisions, the Bankruptcy Law Reforms Committee Report and landmark judicial pronouncements. It emphasizes the importance of adjudicatory authorities to differentiate between wilful misconduct and bona fide financial distress, which, in particular, applies to temporary or technical default by otherwise viable enterprises.
The paper reiterates that insolvency should not be a decision of first resort but should be to restore the economic well-being of the business and protect the stakeholders, as opposed to finding managers culpably liable and liquidating the business prematurely.
