Debtor in Possession explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Code's founding choice was to take control away from those who lost it. This is the first framework that lets some of them keep it — conditionally.
The shift to debtor in possession
The panel described the core innovation of the Creditor Initiated Insolvency Resolution Process, introduced under Sections 58A to 58K, as a shift, for a defined and yet-to-be-notified category of corporate debtors, from the creditor-in-possession model that has characterized CIRP since 2016 toward a debtor-in-possession model more closely resembling Chapter 11 of the United States Bankruptcy Code, under which the existing promoter and management continue to run day-to-day operations of the corporate debtor, subject to the oversight and veto powers of a resolution professional answerable to the Committee of Creditors.
The panel was emphatic that this model is intended for a specific fact pattern: companies whose underlying governance has not failed and whose distress is financial and temporary rather than the product of fraud or mismanagement.
And equally emphatic about the converse: where governance itself has broken down, control must pass to the creditors in the conventional manner.
That distinction is the whole design. The creditor-in-possession model exists because, in the typical case, the people who ran the company into insolvency should not continue running it. But that reasoning does not hold for every case — a fundamentally sound business can fail on financing while being competently managed.
The operational argument is practical rather than theoretical. Citing the practical difficulty of a single resolution professional stepping in to run, for example, a manufacturing enterprise with a turnover of Rs. 10,000 crore, the panel observed that continuity of the existing operating team is often essential to preserving enterprise value during the resolution period.
Anyone who has watched a large operating business under an insolvency professional will recognise the point. The professional's expertise is in the process, not in running a plant — and the session's earlier criticism, that resolution professionals function more as process managers than turnaround specialists, is the same observation from another direction.
The panel's framing is that CIIRP formalizes the kind of practical cooperation with incumbent management that experienced resolution professionals have long sought informally within conventional CIRP.
Three safeguards on debtor in possession
The panel underlined that the promoter's continued possession under CIIRP is conditional rather than assured:
- The resolution professional retains veto powers over key decisions;
- The Committee of Creditors continues to guide and monitor the process;
- Where the promoter fails to cooperate or the process does not progress satisfactorily, the matter can be converted into a conventional CIRP, with control passing fully to the creditors.
The third is the disciplining mechanism. Possession is held on terms, and the terms can be withdrawn.
The competitive discipline on a debtor in possession
Even under CIIRP, the promoter's own plan can be tested against competing resolution plans from third parties, so that an existing promoter cannot simply present a low-value plan without the risk of being displaced by a superior bid.
This addresses the obvious objection to a debtor-in-possession model — that a promoter left in control will propose a plan favourable to itself. It can, but it may lose the company to whoever bids more.
The PPIRP comparison
The panel drew a direct contrast with the Pre-Packaged Insolvency Resolution Process introduced for micro, small and medium enterprises, which the panel candidly assessed as having achieved very limited take-up in the years since its introduction, and expressed the hope that CIIRP, by extending a debtor-in-possession option to larger, viable corporates with intact governance, would not suffer the same fate.
What remains outstanding
The panel expressed cautious optimism about the initiative while stressing that its success will depend heavily on the criteria the Government ultimately notifies for eligible companies and on the enabling regulations still awaited under Sections 58A to 58K.
Two things therefore remain unknown: which companies qualify, and how the veto powers are calibrated. The panel's recommendation is that practitioners engage closely with the enabling regulations as they are notified, since the framework's utility depends on the extent to which the resolution professional's veto powers are calibrated in practice to protect creditor interests without undermining the operational continuity that the debtor-in-possession model is designed to preserve.
Before advising on or relying upon the framework, its notification status must be verified.
Common mistakes
- Treating a debtor in possession framework as available before its eligibility criteria are notified.
- Applying the model where governance rather than financing has failed.
- Reading promoter possession as assured rather than conditional.
- Assuming a promoter plan under CIIRP escapes competing bids.