Failure To Coordinate Enforcement With Restructuring Efforts

This is one of the biggest reasons restructuring fails in India. It happens when one creditor tries to enforce its security - SARFAESI sale, recovery suit, winding up - while the debtor is already in a consensual restructuring, CDR, S4A, or CIRP negotiation.

Law calls it "Disruptive Pre-insolvency Enforcement". The effectiveness of restructuring will depend upon preventing disruptive pre-insolvency enforcement that frustrates restructuring efforts.

1. The Core Conflict

Restructuring requires:

• Standstill - all creditors freeze enforcement
• Preservation of enterprise value as going concern
• Collective decision by CoC

Enforcement requires:

• Individual creditor maximizing recovery via sale of secured asset

Without coordination, you get race to the bottom, fire sale of assets, and resolution value destroyed.

2. Legal Framework in India

A. IBC Moratorium is Absolute - Section 14 + Section 238

Once a company enters Corporate Insolvency Resolution Process (CIRP), a moratorium is declared to protect its assets and maintain it as a going concern.

Section 14(1)(c) prohibits:

• Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor

Section 238 gives IBC overriding effect over any other law, including SARFAESI.

B. Supreme Court Case Laws

1. Indian Overseas Bank v M/s RCM Infrastructure Ltd. & Anr. [Civil Appeal No. 4750 of 2021] - 18 May 2022 - Landmark

Supreme Court reiterated that in terms of Section 14(1)(c) and Section 238, any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act is not permissible.

Facts: Bank started SARFAESI auction, in middle debtor admitted to CIRP. Bank argued sale was already initiated, should be allowed to complete.

Held: Proceedings under SARFAESI Act cannot be continued against corporate debtor once CIRP is initiated and moratorium is ordered. Any sale after moratorium is void.

2. Innoventive Industries Ltd. v ICICI Bank (2018) 1 SCC 407

First SC ruling that Section 14 moratorium places a blanket bar on any action against the debtor during moratorium period including enforcement under SARFAESI. Established IBC > State laws.

3. Omkara Assets Reconstruction Pvt Ltd v Amit Chaturvedi & Ors. - Supreme Court 24-02-2026

Court held there was no justification to stall CIRP merely because a Scheme of Arrangement under Companies Act, 1956 was pending before High Court, particularly where SOA was effectively defunct due to non-compliance.

Principle: You cannot use old restructuring mechanism to block IBC. IBC overrides defunct scheme.

4. Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss ARC (2021) 9 SCC 657

Once resolution plan approved, all dues not part of plan get extinguished. If creditor continued enforcement parallelly and did not file claim, its claim dies. This forces coordination - file in CoC, don't enforce outside.

5. Power Trust v Bhuvan Madan (Hiranmaye Energy Ltd.) - 2026 INSC 166

SC held unimplemented restructuring does NOT reset default or attract Section 10A protection. If you promised restructuring but did not implement, creditor can still file Section 7. Promoter cannot say "we were in talks, so default is cured".

C. The New Gap - CIIRP Amendment 2026

India's CIIRP framework creates a mandatory thirty-day notice period that lacks any concurrent legal protection.

Problem: During 30-day notice before filing for pre-pack, there is NO moratorium. Creditors can still enforce SARFAESI. This is classic failure to coordinate. IBBI is trying to bridge this by voluntary standstill.

3. US & UK Position - For Comparison

US - Chapter 11 Automatic Stay - 11 USC §362
Any enforcement after filing Chapter 11 is void. In In re: Energy Future Holdings, court punished lender who seized collateral during restructuring talks after being part of RSA (Restructuring Support Agreement) - held to be breach of good faith.

UK - Part 26A Restructuring Plan
If 75% creditors agree to plan, court can cram-down dissenting creditor who tries to enforce separately.

4. Consequences of Failure to Coordinate

1. Sale Void: Any SARFAESI sale during moratorium is null and void - Indian Overseas Bank v RCM
2. Abuse of Process: When IBC proceedings are used as recovery mechanism, it amounts to abuse of insolvency process
3. Contempt / Cost: Creditor continuing enforcement can be held in contempt of NCLT
4. Loss of Claim: As per Ghanashyam Mishra, if you don't join restructuring, you lose money after plan approval
5. IP Registration Cancelled: IBBI cancelled IP registration for failing to exercise adequate professional diligence while acting as Resolution Professional

5. How to Coordinate Properly - Legal Best Practice

For Debtor:

• File Section 10A declaration early, get moratorium
• Seek interim moratorium under Section 14
• Get all secured creditors to sign Inter-Creditor Agreement with standstill clause

For Creditor:

• Do NOT issue SARFAESI 13(4) after you have knowledge of CIRP admission
• File claim with IRP within time, participate in CoC
• If you have enforceable security before moratorium, complete sale before moratorium - in Haldiram Incorporation v Amrit Hatcheries (2023), SC allowed sale that closed before moratorium started

For Resolution Professional:

• Publish moratorium in newspaper + inform all security interest registries (CERSAI)
• File application under Section 14(3) for police help if creditor tries physical possession