IBC resolution within regulated sectors in the public interest

By Anoop Rawat, Shardul Amarchand Mangaldas & Co

Sectoral regulation aims to achieve goals such as prevention of anti-competitive practices and market failures, promotion of public interest as well as financial stability and market efficiency. Further, each sector is characterized by unique features and needs that necessitate specific forms of regulations. To this effect, a plethora of regulators has been constituted in India such as the Reserve Bank of India, the Department of Telecommunications and the Insurance Regulatory and Development Authority that regulate specific sectors.

regulated sectors anoop rawat
Anoop Rawat
Shardul Amarchand Mangaldas & Co

The advent of the Insolvency and Bankruptcy Code, 2016 (code), has marked a watershed in the debt resolution process of debt-ridden companies in India. The key objective of the code is “to consolidate and amend the laws relating to the reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders”. The code, however, is a sector agnostic regulation.

Accordingly, a regulated company undergoing the Corporate Insolvency Resolution Process (CIRP) faces unique challenges in the interplay between the code and the sectoral laws and their objectives, the conduct of the CIRP in view of sector specific issues as well as the role of regulators in such CIRP. Recent developments have underscored the importance of harmonization of the objectives of the sectoral regulations with that of the code having regard to the larger objectives of the revival of national assets and the promotion of public interest.

Non-obstante clauses

One of the key ways of dealing with conflict of laws has been set out in section 238 of the code, which asserts that provisions of the code shall have an over-riding effect, notwithstanding anything inconsistent contained in any other law for the time being in force. The Supreme Court, in judgments like Pr Commissioner of Income Tax v Monnet Ispat and Energy and M/S Innoventive Industries v ICICI Bank, has upheld the law with respect to the overriding effect of the code over other statutes such as the Income Tax Act, 1961. Therefore, one may argue that in cases of inconsistency in the provisions of the sectoral laws, the provisions of the code would have an overriding effect.

Telecoms sector

Telecommunication laws in India encompass various statutes, such as the Telecom Regulatory Authority of India Act, 1997, the Indian Telegraph Act, 1885, and the directions of the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT).

A major component of a telecom service provider is spectrum. Right to use of the spectrum can only be transferred by a company pursuant to approval from the DoT.

The CIRP of telecom companies involves various issues such as the treatment of the DoT’s dues, compliance with telecom laws (especially on spectrum and licence) during the CIRP, and transfer of the right to use of spectrum as part of the resolution plan.

In the insolvency of Aircel companies, the National Company Law Tribunal’s (NCLT) Mumbai bench had held that the right to use of spectrum and licence are protected by moratorium during the CIRP.

On 1 September 2020, the Supreme Court of India pronounced judgment in the matter of Union of India v Association of Unified Telecom Service Providers of India, and has framed various questions in respect of telecom companies undergoing insolvency such as treatment of dues of DoT under the code, and permissibility of transfer of spectrum under a resolution plan, and has directed the same to be decided by the NCLT/National Company Law Appellate Tribunal (NCLAT) within two months, which remains currently sub judice. A decision on these issues would clarify various aspects in application of the code to regulated companies.

Real estate sector

The CIRP of corporate debtors in the real estate sector, i.e., in relation to real estate companies/housing projects, has presented certain unique challenges. By virtue of having made payments towards lease premium/sale consideration for purchase from project developers, which has been held to be “financial debt” as per the provisions of the code, homebuyers have been classified as “financial creditors”. The Real Estate Regulatory Authority (RERA), a creation of the Real Estate (Regulation and Development) Act, 2016, as established across various states, is the regulator in charge of ensuring proper development of housing/real estate projects.

A unique concept of the “reverse corporate insolvency resolution process” has evolved, which permits the promoter of the concerned real estate/corporate debtor project undergoing the CIRP, within a time-bound framework and subject to certain conditions, to reinvest in the corporate debtor’s real estate projects. If the projects are completed, the creditors’ dues resolved and requisite completion requirements fulfilled, the CIRP is closed and the unsold flats or apartments in the concerned project handed back to the promoter.

The CIRP of real estate/corporate debtors also encounters significant challenges in terms of ensuring representation of numerous homebuyers through an authorized representative, continued environmental and building permissions/sanctions from regulatory agencies, and managing the affairs and operations within the housing project/establishment during the CIRP period by the resolution professional.

The parallel remedies for seeking a refund of monies and/or ensuring project completion/handover, as available under the Consumer Protection Act, 1986, and the Real Estate (Regulation and Development) Act, 2016, had also thrown open the issue of multiplicity of litigation, irrespective of the ongoing moratorium. The Supreme Court, in Pioneer Urban Land and Infrastructure Limited and Ors v Union of India and Ors, has held that the provisions of the Real Estate (Regulation and Development) Act, 2016, and the code should be read harmoniously, and, in the event of a conflict, the provisions of code shall override the provisions contained in the act.

Aviation sector

The CIRP of Jet Airways has thrown open various issues in respect of insolvency in the aviation sector, which is regulated by the Directorate General of Civil Aviation. The NCLT’s Mumbai bench had held the matter involving Jet Airways was of “national importance”.

The aviation sector is characterized by various unique aspects and challenges including: Complex financing and leasing arrangements; compliance of various sectoral regulations during the CIRP; continuance of the registration under the Aircraft Act, 1934, and the Aircraft Rules, 1937, with employees that require niche skill-sets; and treatment of customer dues. Further, with aircraft equipment being prone to quick deterioration, completion of the CIRP in a time-bound manner is of the essence.

Non-bank financial companies

Non-bank financial companies (NBFCs) – including venture capital funds, merchant banking companies, stock broking companies and insurance companies – are regulated by the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, etc. The CIRP for NBFCs, by virtue of such entities being financial service providers and involving numerous public deposit holders, has been encompassed within the purview of the code by way of a specific mechanism that permits initiation of the CIRP by regulators.


Companies in regulated sectors undergo unique challenges. Various laws still contain gaps and ambiguities, and reconciliation with the provisions of the code becomes a challenging task. It is essential to create synergies among specific regulatory laws with the provisions and the process envisaged under the code, for effective resolution of corporate debtors belonging to specific regulated sectors.

Sectoral laws should also be amended to ensure consistency with the provisions of the code. Ensuring a harmonized interplay of laws, rather than a myopic, unidimensional application of law, is the key to ensuring effective resolution for corporate debtors in terms of the code in regulated sectors, thereby achieving the common goals of revival of national assets and promotion of public interest.

Anoop Rawat is a partner in the insolvency and bankruptcy practice at Shardul Amarchand Mangaldas & Co

Shardul Amarchand Mangaldas & CoShardul Amarchand Mangaldas & Co
Amarchand Towers, 216 Okhla Industrial Estate
Phase III, New Delhi,
110020, India
Contact details:
Tel: +91 11 4159 0700; 4060 6060
Email: anoop.rawat@amsshardul.com