The acute issue of financial crunch faced by construction contractors in India being profoundly affected due to the ineffectiveness of public sector undertakings (PSUs) in discharge of their final payments cannot be denied or overlooked. Such delayed payments have severely affected the Indian construction industry  due to its late-payment culture. This culture has inevitably led to inter alia insolvency of organisations under theInsolvency and Bankruptcy Code 2016 (“IBC”). This article analyses some of the prominent cases in the infrastructure sector and attempts to determine the causes behind the logjam of infrastructure insolvency. The said article also discusses the recent introduction of the pre-packaged insolvency resolution process with a view to analyse its impact on the infrastructure/construction sectors in India.


Sinceinfrastructure contracts are long-term, it is likely for a project business to get into financial difficulties during the contract’s duration. Increased building costs or trouble obtaining funding might cause problems during the construction phase, while lower-than-expected profits and subsequent issues repaying lenders can cause problems during the operations phase. If these problems persist, the Project Company may go bankrupt, jeopardising the project’s ability to offer the services it was intended to provide. Contractors are also at risk of going bankrupt for a variety of causes, including those unrelated to the project. While contractor insolvency is unlikely to result in Project Company insolvency, it does jeopardise service delivery, particularly in the short term.

Under the IBC, a creditor may initiate the corporate insolvency resolution process before the adjudicating authority, the national company law tribunal (“NCLT”), in case a default is committed by the company.

This article discusses 2 (two) cases and analyses the extent to which the IBC has played a role in its resolution.

Era Insolvency Case Study

In 2017, the NCLT’s Principal Bench granted Union Bank of India’s (“UBI”) request to initiate bankruptcy proceedings against Era Infra Engineering Ltd (“Era Infra”) for the recovery of Rs 681.04 crore and a $11.97 million overdue foreign commercial borrowing.

This admittance started a 180-dayinsolvency resolution procedure for Era Infra, which could be extended by another 90 days if necessary. As a result, promoters’ management control was transferred to a resolution expert appointed by NCLT.  Pursuant to the IBC, theresolution professional declared the start of the corporate insolvency resolution procedure and requested that claims be submitted. Era Infra has previously objected to the filing of aninsolvency proceedings against it, citing multiple existing company petitions before the Delhi high court demanding the “winding up” of the corporate debtor.

Holding that a winding up petition does not prevent NCLT from filing an insolvencyresolution procedure on any application submitted under Sections 7, 9, or 10 until an official liquidator has been appointed and a winding up order has been issued, the NCLT decided to hear the Union Bank of India’s appeal again. In June 2017, the NCLT was referred the Era Infra case together with 11 others, including Essar Steel, Bhushan Steel, Lanco Infratech, and Jaypee Infra. While all other cases were admitted by NCLT immediately,Era Infra’s bankruptcy proceedings took an additional 11 months to begin due to ongoing winding up petitions against the company at the Delhi High Court.

And now, four years later, it’s one of the 12 major loan default cases referred to the Reserve Bank of India (RBI) in June 2017 for settlement under the then-newly established IBC. While all of the other cases have concluded, either through resolution or liquidation, Era Infra is still in the process. The Committee of Creditors (“CoC”) has yet to decide on the two plans that have been presented.

Era Infra has received two bids, one from Suraksha ARC and another from a small-time engineering, procurement, and construction (“EPC”) contractor.  Both the resolution applicants intend to bid for Era Infra and the six special purpose entities (“SPV”) for contracts awarded by government ministries. Era Infra is an EPC firm, which means it mostly provides services and does not own any assets. When Era receives contact for a project as an EPC business, they typically construct an SPV, which is then funded by the lenders. And because of these inter-linkages, a large part of the value is stuck in SPVs.

Another difficulty that is delaying the resolution is that Era Infra’s entire worth is in disputed receivables, and all of those disputed receivables have been arbitrated. The legal question that CoC currently faces is whether the resolution plans that they have received provide them the legal authority to merge SPVs with the holding company and sell it to either of the bidders.The CoC has now filed an application with the NCLT seeking clarification on the topic. The topic was heard twice or three times by the NCLT earlier this year, but even if the NCLT clarifies the situation, it will take 3-4 months for the CoC to adopt one of the settlement options.

There are other minor difficulties, like as the Enforcement Directorate’s attachment of Era Infra’s properties. The case is still on appeal. As a result, any resolution in the Era Infra case is unlikely to occur until the following calendar year. Era Infra Engineering Ltd.’s insolvency proceedings are a testament to all that is wrong with the Insolvency and Bankruptcy Code, a set of regulations whose principal goal was to resurrect a debt-ridden business.

MBL Infrastructure Ltd

MBL Infrastructures Ltd. (“MBL”) which was incorporated in 1995 and has been primarily engaged in providing integrated engineering, procurement and construction (“EPC”) services relating to civil construction and infrastructure sector projects.

The Corporate Insolvency Resolution Process (“CIRP”) of MBL Infrastructure was initiated by RBL Bank Pvt. Ltd. Adjudicating Authority accepted the application for initiation of CIRP and an Interim Resolution Professional was appointed by the Adjudicating Authority. The Adjudicating Authority directed the CIRP to proceed as per the timeline and imposed a moratorium on the Corporate Debtor. Committee of Creditors (CoC) in its first meeting took a unanimous decision to change the Interim Resolution Professional and appoint another Resolution Professional. On the recommendations of CoC, the Resolution Professional filed an application for extension of 90 days for submission of the Resolution Plan. The application was exclusive of  the time period of the stay order and the period taken for disposal of application from the 270 days fixed for conclusion of the CIRP. Clarification was then sought for determining if the Resolution Applicant is compliant with the provisions ofSection 29A of IBC. The CoC denied acceptance of the resolution plan submitted by the Resolution Applicants on the grounds that the Resolution applicant was the corporate guarantor of the corporate debtor. However, it was noted that the Corporate Guarantee has not been invoked by the Resolution Applicant and the personal guarantor has not committed any default. Therefore, the NCLT, passed anorder concluding that the guarantor cannot be deemed to be defaulter, therefore, is eligible to be a resolution applicant and the present case is not covered under theclause (c) and (h) of section 29A.

The NCLT noted that the resolution plan was submitted only after the expiry of 270 days and was confronted by the question that if the time period consumed in litigation shall be excluded from the timeline of CIRP or not? Keeping in mind that the very object of the Code is to resolve to further the recovery for creditors, the NCLT relied upon the significant proposition of Rule 15 and Rule 153 ofNCLT, Rules 2016 to extend the time in the interest of justice.

It was noted thatexceptional circumstances arose that were beyond the control of the resolution applicant, and that if the time spent in litigation was not excluded, grave injustice would be done to the stakeholders, hence it was decided that the time spent in litigation be excluded from the time limit prescribed by the Code, and that the resolution plan be approved.

But the dissenting financial creditorschallenged the order of NCLT stating objections to the resolution plan submitted by the Resolution Applicant. National Company Law Appellate Tribunal (“NCLAT”) then imposed a stay on the execution of Resolution Plan. It directed the RP and its management not to dispose of any movable or immovable property of the Corporate Debtor without prior permission of NCLAT.

While rejecting the Appellant’s argument,the NCLAT noted that the resolution plan was presented before the establishment of Section 29A of the IBC. Furthermore, the resolution applicant’s ineligibility had already been brought before the NCLT when the plan was first offered, and it had been rejected.

An appeal against the order was subsequently dismissed, and the appellants were not granted permission to raise the same issue again. The NCLAT relied on the Apex Court’s decision inSwiss Ribbons Pvt. Ltd. & Anr v. Union of India & Ors. in determining the viability and practicality of the resolution plan. As a result, the NCLAT determined that the resolution plan was adopted only after a thorough review of the techno-economic report.

Hence, it was concluded that “As the Committee of Creditors, by majority voting share of 78.50%, hasapproved the plan after taking into consideration the techno-economic report relating to viability and feasibility of the resolution plan and of the ‘Corporate Debtor’ that the Appellate Tribunal cannot sit in appeal in absence of any discrimination or unequal treatment of similarly situated ‘Financial Creditors’ or Operational Creditors.”

The Resolution Process against MBL Infrastructures in March, 2017 over a plea filed by RBL Bank could have been concluded on time only in the absence of its pending litigation by dissenting creditors. The time period consumed in litigation although excluded from the CIRP added to the prolonged mechanism.

Recent challenges and changes to address the severe impact resulted by the COVID-19 pandemic and lockdowns on businesses in India, the government of India suspended several proceedings before tribunals across the country. The government had earlier restricted all economic activities other than everyday essentials taking into consideration the rising number of Covid cases in the country. The government had then imposed an initial 21-day lockdown which was then extended in phases based on the active caseload of the  respective states and the overall situation of the country. This further extended thesuspension of insolvency proceedings by another three months until March 25.

This was later introduced as Section 10A in the IBC setting out that no application shall ever be filed to initiate insolvency in case of a default occurring during a period of 1 (one) year from 25 March 2020. Similarly, the minimum threshold for default underSection 4 of the IBC was increased to Rs. 1 crore to minimise insolvency proceedings against Indian corporations from being initiated. While these steps were implemented as a first measure for corporates struggling to cope with the pandemic, the stressed companies in India would only benefit from a long-term policy aiming to provide a stable and dynamic platform for growth. This would primarily include reducing as well as eliminating the late payment culture present in the infrastructure and construction sectors.


India’s Infrastructure plumbing is provided by construction companies. A hostile contracting, financing, payment, and arbitration regime in India have blown these pipes apart. Hundreds of mid-to-large EPC firms have gone bankrupt, several others have been liquidated for less than 1% of their original value, and hundreds of millions of crores in disputed claims are wending their way aimlessly through arbitration.

While initiatives such as pre-packaged insolvency resolution process brought out a mechanism for redressal of corporate debtors which are micro, small, and medium enterprises, it is pertinent that steps specifically aimed to ensure that the timeline set out in the IBC is honoured and unnecessary delays are avoided. Additional NCLTs may be added to deal with the logjam of applications.

Many of India’s building industry giants are going  insolvent. Infrastructure companies that were once worth billions of dollars are now being liquidated for pennies on the dollar. This not being an effect of irresponsible promoters, fraud, or the free market delivering an unavoidable outcome. Rather, it is a result of an antagonistic regulatory framework. The sudden demise of Mumbai airport operator GVK Power and Infrastructure is the latest in a long line of construction and infrastructure enterprises that have been steadily declining and filing for bankruptcy since past many years. Due to a steep fall in market capitalization and diminishing sales and profitability, six of the top ten infrastructure corporations in recent years have either gone bankrupt or are battling to stay afloat.

The recently notified Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021 on 30 September 2021 aims to address delays in the corporate insolvency resolution process by capping the number of times the invitation of expression of interest, request for resolution plan (RFRP) and the resolution plan can be modified.  In the end there seems a considerably long way to go for stabilising the stressed economy of infrastructure.

About the Authors

Ms. Athira Palangat is an Associate at Trilegal, New Delhi.

Srishti Tripathi is a Third Year Law Student at Government Law College and an Associate Editor at IJPIEL.

Editorial Team

Managing Editor: Naman Anand

Editors-in-Chief: Aakaansha Arya and Akanksha Goel

Senior Editor: Jhalak Srivastav

Associate Editor: Srishti Tripathi

Junior Editor: Joseph Antony Paddikala

Preferred Method of Citation

Athira Palangat and Srishti Tripathi “Analysis of Insolvency in the Infrastructure Regime”


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