Insolvency in India is no longer a distant legal concept reserved for courtrooms and accountants — it directly impacts creditors, promoters, homebuyers, and businesses every single day. Since the Insolvency and Bankruptcy Code (IBC) was enacted in 2016, thousands of corporate insolvency cases have been filed before the NCLT. Yet most stakeholders are unaware of critical facts that could protect their financial interests or dramatically improve recovery outcomes.
Whether you are a bank looking to recover an NPA, a homebuyer stuck in a stalled real estate project, or a business owner navigating financial distress — understanding how insolvency works under the IBC framework is no longer optional.
In this article, RNC Valuecon LLP — India’s IBBI-registered valuation experts — share 9 little-known insolvency facts that every creditor, business owner, and homebuyer must understand before it is too late.
For a broader overview, also read: Key Things to Know About Insolvency in India.
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Fact 1: Insolvency Can Be Invoked by the Company Itself — Not Just Its Creditors
Most stakeholders assume that insolvency proceedings can only be started by a bank or creditor chasing unpaid debt. This is a widespread misconception. Under the IBC, an insolvency petition can be filed by the corporate debtor (the company itself), its financial creditors, or its operational creditors.
This means that a company facing severe financial distress has the legal right to proactively initiate insolvency proceedings before its assets erode further — a strategy that often leads to higher creditor recovery rates and more viable resolution plans.
Learn how the full insolvency process works: Valuation Under IBC — Complete Process Guide.
Fact 2: A Separate Creditor Category Was Created Specifically for Homebuyers
Before key IBC amendments, homebuyers did not fit neatly into either the ‘financial creditor’ or ‘operational creditor’ category. Recognizing the scale of the problem — particularly in collapsed real estate projects — the legislature introduced a dedicated classification for homebuyers under the IBC framework.
This amendment gave homebuyers a formal legal standing in insolvency proceedings, including the right to vote in the Committee of Creditors (CoC). It was a landmark step that changed the power dynamics in real estate insolvency cases involving developers like Jaypee Infratech and Amrapali.
Fact 3: Homebuyers With Assured Returns Are Classified as Financial Creditors
If a homebuyer was promised assured returns on their investment by the developer, they are legally classified as a financial creditor under the IBC. This is a powerful distinction — it entitles them to invoke insolvency proceedings directly against the defaulting developer.
The government introduced Form F specifically for homebuyers to formally submit their claims as financial creditors in the resolution process. This was a direct response to widespread cases of real estate fraud and delays that left thousands of homebuyers without possession or returns.
For a complete breakdown of creditor rights under IBC, read: Things to Know About Insolvency in India.
Fact 4: Even Without Assured Returns, Promised Interest Income Is Protected
In cases where no assured return was promised but the developer committed to interest income on the investment amount, the homebuyer’s interest is still legally protected under the IBC. Many homebuyers are unaware of this protection and fail to assert their rights during the insolvency process.
This is why engaging with a qualified insolvency professional and legal advisor early in the process is critical — missed deadlines for claim submission can permanently reduce your recovery.
Fact 5: A 270-Day Moratorium Freezes All Legal Actions Against the Insolvent Company
One of the most powerful — and most misunderstood — features of the IBC is the moratorium period. Once insolvency proceedings commence (whether CIRP or liquidation), the insolvent company receives statutory protection: all legal proceedings, asset transfers, enforcement actions, and debt recovery suits against it are completely paused.
This moratorium lasts up to 270 days. It gives the Resolution Professional (RP) time to conduct valuations, assess viability, invite resolution plans from applicants, and present the approved plan to NCLT — without individual creditors racing to grab assets.
Understand how assets are valued during this critical window: Valuation Under IBC 2025 — How Assets Are Priced During Insolvency.
Fact 6: Every Resolution Plan Must Disclose How Stakeholder Interests Are Protected
Transparency is a non-negotiable requirement under the IBC. Every company undergoing insolvency resolution must disclose its proposed resolution plan and explicitly state how it considers the interests of ALL stakeholders — secured financial creditors, unsecured creditors, operational creditors, employees, and workmen.
NCLT approval of any resolution plan is directly contingent on meeting this disclosure standard. Plans that are found to discriminate against specific creditor classes or fail to adequately address workmen dues have been rejected by NCLT benches across India.
Fact 7: Both Fair Value AND Liquidation Value Are Mandatory — and Must Be Determined by IBBI-Registered Valuers Only
This is the most critical fact for any creditor, Resolution Professional, or resolution applicant to understand. Under IBC regulations, BOTH the Fair Value and the Liquidation Value of the company’s assets must be mandatorily determined during CIRP. These two figures form the absolute reference baseline for the Committee of Creditors when evaluating any resolution plan.
Fair Value represents what assets are worth under normal market conditions. Liquidation Value is what they could realistically fetch in a distress sale within a tight timeframe. The Committee of Creditors cannot approve a resolution plan that offers recovery below the Liquidation Value — making this figure the de facto floor for all bids.
Critically, ONLY IBBI-registered valuers are legally authorized to determine these values. Engaging an uncertified or unqualified valuer can expose the entire resolution process to NCLT challenge, delay, or invalidation.
Read the complete methodology: A Comprehensive Guide to Valuation Under IBC.
Explore RNC’s IBBI-registered IBC valuation services: Valuation Under IBC — RNC Valuecon LLP.
Fact 8: Fair Value and Liquidation Value Are Strictly Confidential During CIRP
Under IBC regulations, both the fair value and the liquidation value determined by IBBI-registered valuers are kept strictly confidential. Only the members of the Committee of Creditors are entitled to receive these numbers. All parties involved — the Resolution Professional, the registered valuers, and the CoC members — are bound by confidentiality obligations.
This confidentiality is by design: it protects the integrity of the bidding process and prevents resolution applicants from tailoring lowball bids that exactly match the liquidation value threshold.
Confused about the difference between financial distress and insolvency? Read: Illiquidity vs Insolvency — Meaning, Differences & Examples
Fact 9: Resolution Applicants Have Only 30 Days to Submit Resolution Plans
Once the Resolution Professional sends out invitations to prospective resolution applicants, each applicant has a maximum of 30 days to submit their complete resolution plan. This is an extremely tight window — especially for large, multi-asset companies with complex debt structures.
A compliant resolution plan must include: measures to maximize asset value, a detailed creditor repayment schedule following the IBC waterfall structure, operational continuity provisions, and evidence of financial feasibility. Plans that are incomplete or non-compliant are rejected outright by the CoC.
This tight timeline makes pre-bid valuation engagement absolutely critical. Resolution applicants who work with experienced IBBI-registered valuers before receiving the invitation are in a significantly stronger position to submit competitive, compliant, and winning resolution plans.
See how RNC approached a real CIRP valuation: Steel Plant Insolvency Valuation Case Study.
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FAQs
1. What are the most important facts about insolvency under IBC in India?
Under India’s Insolvency and Bankruptcy Code (IBC) 2016, key facts include: insolvency can be triggered by the company itself or its creditors; homebuyers are a recognized creditor class; a 270-day moratorium protects the company during CIRP; both fair value and liquidation value must be determined by IBBI-registered valuers; resolution plans must address all stakeholder interests; and resolution applicants have only 30 days to submit plans after receiving the RP’s invitation.
2. Can homebuyers file an insolvency case against a developer in India?
Yes. Homebuyers who were promised assured returns are classified as financial creditors under the IBC and can invoke insolvency proceedings against a defaulting developer. The government introduced Form F to formally protect homebuyer rights. Even without assured returns, homebuyers with promised interest income have protected legal rights under the IBC framework.
3. How long does the moratorium last in Indian insolvency proceedings?
Under the IBC, the moratorium period is up to 270 days from the commencement of insolvency proceedings. During this window, all legal proceedings, debt enforcement actions, and asset transfers against the company are completely frozen — giving the Resolution Professional time to conduct valuations and invite resolution plans.
4. Who is authorized to conduct insolvency valuations under IBC in India?
Only IBBI-registered valuers are legally authorized to conduct Fair Value and Liquidation Value assessments under IBC. RNC Valuecon LLP is a Registered Valuer Entity (RVE) with IBBI for all three asset classes — Land & Building, Plant & Machinery, and Securities or Financial Assets. Using an uncertified valuer can invalidate the entire resolution process.
5. What is the difference between fair value and liquidation value under IBC?
Fair Value under IBC represents the estimated value of assets under normal market conditions — what a willing buyer would pay a willing seller in a structured transaction. Liquidation Value, on the other hand, represents what assets would realistically fetch in a forced sale within a limited timeframe during distress. The CoC cannot approve a resolution plan that offers recovery below the Liquidation Value, making it the legal floor for all bids in any CIRP.
6. What happens if no resolution plan is approved during CIRP?
If the Committee of Creditors does not approve a viable resolution plan within the 270-day CIRP window, the company is mandatorily sent into liquidation by the NCLT. During liquidation, assets are sold and proceeds are distributed among stakeholders in the priority order defined under Section 53 of the IBC — the IBC waterfall mechanism.
Conclusion
The Insolvency and Bankruptcy Code has fundamentally transformed how financial distress is handled in India — replacing years of litigation with a time-bound, creditor-friendly process. But the IBC only protects those who understand it.
Whether you are a lender trying to recover an NPA, a homebuyer seeking possession from a defaulting developer, an operational creditor chasing unpaid dues, or a resolution applicant evaluating a stressed company — the 9 facts in this article are your starting point.
For a complete technical deep-dive, read our: Comprehensive Guide to Valuation Under IBC 2025.
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RNC Valuecon LLP brings 30+ years of experience and deep IBC expertise to every mandate. We have been appointed as registered valuers in RBI’s first list of 12 large NPA accounts, Reliance Communications (₹53,700 Cr), and hundreds of other CIRP and liquidation cases across India. Our IBBI registration covers all three asset classes — ensuring a single-window facility for all your insolvency valuation needs.
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