How IBC can be helpful to Start-Up?


Status as on- 27/03/2023

The Insolvency and Bankruptcy Code, 2016 (“the Code”) passed by the Parliament is a welcome overhaul of the existing framework dealing with the insolvency of corporations, individuals, partnerships, and other entities. It paves the way for much-needed reforms while focusing on creditors-driven insolvency resolution. One of the main essences of the Code is the Time Bound Resolution Process of the financial assets of the company. The Code gives a timeline of 180 days for the Corporate Insolvency Resolution Process (“CIRP”), which can be extended to 270 days, for completion of the resolution process. However, the Code also provides provisions to expedite the resolution process in the form of the Fast-Track Insolvency Resolution Process. It aims to accelerate the insolvency resolution process of certain categories of corporate debtors with lesser complexities. The fast track process which can be initiated by a creditor or the corporate debtor itself cuts down the time taken to complete an insolvency resolution to almost half as compared to the regular process under the Code.

The Insolvency and Bankruptcy Board of India (“IBBI”), in the exercise of its power conferred by sections 58, 196, and 208 read with section 240 of the Code, has notified the Insolvency and Bankruptcy Board of India (Fast Track Resolution Process for Corporate Persons) Regulations, 2017 (hereinafter referred as “the Regulation”. These Regulations provide the process from initiation of insolvency resolution of eligible corporate debtors till its conclusion with approval of the resolution plan by the Adjudicatory Authority. The time period given for the completion of the Fast Track Resolution Process is 90 days, as against 180 days for CIRP. However, the Insolvency Resolution Professional may apply to Adjudicating Authority for the extension of time for a further period of 45 days in the case of the Fast Track Process and 90 days for CIRP.

An application for a fast-track corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:

  1. A small company, as defined under clause (85) of section 2 of the Companies Act, 2013, or
  2. A Start-up (other than the partnership firm), as defined in the Government of India notification issued by the Ministry of Commerce and Industry
  3. An unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding Rs. 1 Crore.

The Regulations also laid down important definitions and procedures to carry out the resolution process:

  • Regulation 2(1)(j) defines “fast track process period” which means the period of ninety days beginning from the fast track commencement date and ending on the ninetieth day; whereas the Regulation also defines “fast track commencement date” under regulation 2(1)(l) which means the date of admission of an application by the Adjudicating Authority for initiating the fast track process under Chapter IV of Part II of the Code.
  • The Public announcement inviting proof of claims is to be made by the interim resolution professional for a fast-track insolvency resolution process within 3 days of his appointment.
  • If Interim Resolution Professional, after analysing the financial record of the company, comes to the conclusion that the fast-track process is not applicable to the corporate debtor then he can make an application to the Adjudicating Authority to pass converting the fast-track process into CIR.

In light of the above discussion, it is pertinent to discuss one of the types of abovementioned corporate debtors on which the fast-track process is applicable, i.e., Startups.

An entity can be considered a “Start-Up”:

  1. If it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India; and
  2. Up to seven years from the date of its incorporation/ registration; however, in the case of Start-Ups in the biotechnology sector, the period shall be up to ten years from the date of its incorporation/registration; and
  3. If its turnover for any of the financial years since incorporation/ registration has not exceeded Rs. 25crores; and
  4. If it is working towards innovation, development, or improvement of products or processes, or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a “Start-Up”.

The process of recognition as a “Start-up” shall be through an online application made over the mobile app/ portal set by the Department of Industrial Policy and Promotion. Entities will be required to submit the online application along with the Certificate of Incorporation/Registration and other relevant details as may be sought. Start-ups also have to submit a write-up about the nature of the business highlighting how is it working towards innovation, development, or improvement of products or processes, or services or its scalability in terms of employment generation or wealth creation.

The Start-Up ecosystem is gaining attraction due to various initiatives taken by the Government of India. A fast-track insolvency process under the Code is an efficacious way to encourage upcoming and future business as it will provide an easier exit to the creditors in case of failed ventures. A faster resolution will attract investors to start-ups, most of which don’t survive long, as well as small firms. This could be one of the reasons why the Government, as a part of its Start-Up India Initiative, wanted to give start-ups an easy option to exit within 90 days.


The very purpose of introducing Fast Track Regulation is to lower the burden of small companies from following the cumbersome procedure of Resolution Process as specified under the Code for larger companies. However, as reflected in the Regulation, the process is almost the same as that of the resolution process of larger companies, only the moratorium period has been reduced to 90 days and some other procedural time frame has been reduced. Thus, it would be fair to say that 90 days time limit has ensured that the Resolution professional work in an expeditious manner. Moreover, the Fast Track Regulation should make it easier for the Creditors to propose resolutions for smaller companies.


Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at

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