Balancing Interests of Stakeholders Under The Insolvency and Bankruptcy Code, 2016

by Samiksha Agarwal


Insolvency and Bankruptcy Code, 2016 (“IBC”) has two main sets of stakeholders i.e. Shareholders and Creditors. In a scenario, where the business is running smoothly without any fault, the equity owners are in charge, and there is no authority with the creditors to contribute to anything. In another scenario, where the corporate defaults in discharging its liabilities on time, the creditors come in the mainframe and the equity owners are side-lined. These are the two kinds of stakeholders. In the latter scenario, where the equity owners fail to fulfill their duty efficiently, the creditors after forming a committee, sit together to chalk out a resolution plan. This is the time when the committee is required to aim its priority towards upholding the interests of all the stakeholders equitably.

The present article will discuss how the interests of all the stakeholders are balanced in an insolvency scenario and lay down relevant case laws and precedents to reinforce this objective of the IBC, 2016, and further, analyse the same.

Ways of Balancing the Interests of the Stakeholders

In the case of corporate insolvency, there can be two processes, i.e. Corporate Insolvency Resolution Process (hereinafter mentioned as ‘CIRP’) or Liquidation Process.[1] There is a vast difference between conducting both the CIRP and the Liquidation process, which serves the interests of different stakeholders in different ways. IBC aims to strike a balance between the same. In the case of a Resolution process, it provides the creditors with more amount than they would ever realize in liquidation but for that, the value of the corporate should be considerably higher than its liquidation value.

It helps in keeping the business as a going concern and deriving benefits out of it, to serve its creditors. Here the stakeholders are dependent on the destiny of the business, where they might gain or lose in this process. It keeps the stakeholders at an equal footing. In the case of a Liquidation process, it realizes the value of assets and fulfills the claims of one after the other set of stakeholders. In case there is surplus money realized by the liquidation, the next set of stakeholders is considered for fulfilling the claims.

The CIRP is a necessary tool, as it helps in maximizing the value of the assets, balancing the interests of stakeholders, handing over authority in the hands of the Insolvency Professional, and the Committee of Creditors (hereinafter mentioned as ‘CoC’). CoC is the committee consisting of all the financial creditors who are in charge of making the decisions regarding the resolution process.It is responsible for chalking out a resolution plan to keep the business ongoing.

There is a certain set of stakeholders that holds a right in these processes. The Financial Creditors are empowered to activate a CIRP and then join the CoC. On the other hand, Operational Creditors can attend the meetings of the CoC and hold a right over their rightful payment which cannot be less than the amount realized from a liquidation process.

There are several other ways in which, the balancing of the interests of stakeholders is facilitated by the provisions of IBC. The resolution plan created by the CoC is required to showcase, through a statement, how the interests of the stakeholders have been ratified, including the interests of the Financial and the Operational Creditors. The CIRP provides leniency to the Financial Creditors who are not in favour of the liquidation and allows them to leave the process, to safeguard their interests. There is a limitation in this step, that these creditors are intentionally surpassing the corporate value which would be realized by the Liquidation, but at the same time, it careens the direction to a Resolution Process, instead of Liquidation.

After a viable Resolution plan is created by the CoC, it goes to the adjudicating authority for approval. The authority, before issuing any decision, has to keep in mind the stakes and has to be satisfactorily ensured that the interests of all the stakeholders are taken care of and balanced proportionately. In case such assurity is not provided to the adjudicating authority, the resolution plan may even be rejected.

The decision shall be binding on the corporate debtors, creditors, members of the company, and other stakeholders. This will lead to the step of the liquidation process by the Corporate Debtor. Therefore, it is necessary and prudent on the part of the CoC, to admit and attend to the claims of all the stakeholders, even of those who outrightly do not possess the rights, so that the interests of all the potential stakeholders are balanced and the objectives of the IBC are achieved harmoniously.

Analysis and Precedents

IBC was introduced to surpass the clashes amongst other legislations dealing in the same field (for instance, Board for Industrial and Financial Reconstruction & Sick Industrial Companies Act) and it has reorganized and recreated the laws to maximize the value of the corporates in the case of insolvency, on time, so that its creditors do not have to suffer on their financial claims. This is given effect to put the interests of all the stakeholders on a single plate and then balance them to provide them with the maximum amount of benefits possible.

The NCLT on several occasions has stressed the pre-requisite of being satisfied that whether the claims of all the stakeholders have been balanced out, and then finalize the financial resolution plan. All the categories of Creditors are equally entitled to file their claim in front of the Insolvency Resolution Professional, through the channel of an advertisement in the newspaper for the CIRP. The provisions of the IBC in this regard shall be obliged conscientiously. The fact that CoC is comprised of Financial Creditors is indicative that the Operational Creditors have not been aligned with the status of Financial Creditors but the way IBC is regulated and structured does not allow any dissimilar treatment between the both of them, balancing the interest of all the stakeholders.

Even after such implementation, there has been vagueness and dubiousness in the interpretation of the framework which has ultimately resulted in undue delays in the insolvency process. This is why the creditors should be aware of their rights provided by this legislation, so that they can utilize the same, in cases of default by their Corporate Debtors.


The IBC aims at protecting all the different kinds of stakeholders and not give any blanket preference to anyone, by giving the curator power to the CoC under the CIRP. Several checks and balances have been prescribed to ensure that the resolution process yields fair and equitable outcomes for the various stakeholders – financial creditors, operational creditors, secured and unsecured creditors. The IBC moved from the debtor-in-possession model to the creditor-in-control model, balancing the rights and powers of all the stakeholders vis-a-vis a company. Thus, it can be seen that the intention behind the enactment of IBC is to follow the principles of equity and equality, simultaneously to balance the interests of all the stakeholders.

Views are personal.

Image credits: Investopedia


Samiksha Agarwal is currently pursuing law at Symbiosis Law School, Pune.


[1]Taxmann, Insolvency and Bankruptcy Code, 2016 (12th ed. 2020).

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