The Intersection between M&A and IBC in India: A Critical Analysis

Introduction

Mergers and Acquisitions (M&A) represent one of the most significant instruments of corporate restructuring across the globe. Broadly, M&A refers to voluntary corporate combinations, usually inspired by commercial, financial, or strategic objectives. Corporations often pursue mergers or acquisitions to achieve economies of scale, access new technology, diversify product portfolios, improve their market presence, or generate operational synergies. Globally, M&A transactions have been central to corporate growth, allowing entities to realign business objectives and survive competitive pressures.

In India, however, M&A activity historically faced multiple challenges owing to a fragmented legal framework, delays in regulatory approvals, and lack of a transparent system for resolving distressed businesses. Until the mid-2010s, India relied on a patchwork of laws, including the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI), and provisions of the Companies Act, to manage insolvency and corporate distress. These frameworks often led to protracted litigations, loss of asset value, and reluctance of investors to participate in turnaround opportunities.

The enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) was a watershed moment in this context. The IBC introduced a time-bound mechanism for the resolution of corporate insolvencies, empowered financial creditors through the Committee of Creditors (CoC), and established a specialized adjudicatory framework under the National Company Law Tribunal (NCLT). By streamlining insolvency resolution, the IBC not only enhanced creditor confidence but also opened new avenues for M&A, particularly in the domain of distressed acquisitions.

At first glance, M&A and IBC may appear to belong to distinct domains—the former being a voluntary business strategy and the latter a statutory framework for resolving insolvencies. However, the practical operation of IBC has revealed a strong intersection between the two. Distressed M&A has emerged as a prominent feature of India’s insolvency landscape, creating both opportunities and challenges for investors, creditors, and regulators. This paper critically examines the convergence of M&A and IBC, evaluates judicial and regulatory developments, and explores whether the current framework effectively balances efficiency with fairness.

The IBC as a Catalyst for Distressed M&A

The Companies Act, the Healthy Industrial Companies (Special Provisions) Act (SICA), and the Rehabilitation of Debts Due to Banks and Financial Institutions Act (RDDBFI) were some of the several laws which made up India’s financial institution system prior to the establishment of the IBC.  Investors were reluctant to take part in turnaround transactions, clearance procedures were sluggish, and the value of financially unstable businesses quickly declined.  By putting together, the legislation, mandating stringent deadlines (180–330 days for the Corporate Insolvency Resolution Process, or CIRP), along with granting the Standing Committee of Creditors (CoC) the ability to make decisions concerning the company, the IBC altered this.

As a result, challenging M&A now has a regulatory platform.  With a confidence that the resolution plan, if authorized by the National Company Law Tribunal (NCLT), will offer them a “clean slate” by deleting previous obligations, disposition applicants—whether strategic potential buyers or financial shareholders— may now bid on organizations going through insolvency.  The Indian M&A industry has been transformed by this, which prompted overseas businesses like ArcelorMittal and Nippon Steel to purchase Essar Steel and Vedanta to acquire Electrosteel.

Points of Intersection between M&A and IBC

Timelines for Moratoriums and Deals

 After CIRP is admitted, a moratorium is imposed by Section 14 of the IBC.  During this time, legal action, asset sales, and recovery proceedings are prohibited.  This affects M&A in two ways.  On the one hand, it stops money laundering and stabilizes the company.  However, it forces purchasers to arrange their transactions with the dispute settlement process by prohibiting ordinary acquisition structures that go beyond CIRP.

Risk Control and Due Diligence

 Distressed agreements under IBC have an added danger than regular M&A transactions: the likelihood for the target’s prior transactions to be considered argued as more advantageous, undervalued, or fraudulent.  Resolution specialist are authorized to reverse those transactions under Sections 43 to 66.  Due diligence becomes more complicated because purchasers need to look at the target corporation’s past transactions besides to its the current state of affairs

 Creditors’ versus shareholders’ roles

 The main parties connected to talks in a typical M&A transaction are management and stakeholders.  However, the CoC controls the process under IBC, and shareholders are frequently stripped of power.  As a consequence, financial creditors become the acquirers’ actual opponents, substantially altering the nature of negotiating.

Valuation and Haircut

 Under IBC, valuation is calculated not just by the market but also by creditors’ willingness to take “haircuts.”  The distinct distinction between the liquidation value and fair market value is often disputed.  Investors must consider value instabilities as well as dissident bankers’ objections.

Regulatory approvals

 Even when the NCLT authorizes a resolution plan, supplementary regulatory frameworks SEBI Takeover Code, Competition Act (CCI filings), FEMA/RBI permissions, and sectoral clearances may apply.  This creates an conflict between the IBC’s strict deadlines and the less rapid pace of regulatory the proceeding.

Judicial and Policy Developments

Courts have clarified the overlap amongst M&A and IBC. For example, in Swiss Ribbons v. Union of India (2019), the IBC was affirmed as theoretically legitimate, ensuring debt primacy and investor trust.

The Essar Steel case (2019) established that the CoC’s business judgment is fundamental, and courts should not intervene with distribution decisions under recovery plans.  This confirmed that agreement applicants may deal honestly with creditors without fear of excessive interference from courts.

Jaypee Infratech and other real estate insolvencies shown how M&A in IBC circumstances can impact consumers and home buyers, raising concerns about balancing the rights of financial and operational borrowers.

These instances suggest that, while IBC has produced new M&A opportunities, the framework itself is still maturing, particularly in terms of integrating speed and equality.

Challenges at the Intersection

Despite its successes, several challenges persist:

• Time constraints: The 330-day cap often proves inadequate for comprehensive due diligence, creditor negotiations, and regulatory clearances.
• Residual liabilities: Despite the “clean slate” doctrine, acquirers remain apprehensive about unforeseen liabilities—particularly tax, environmental, or criminal liabilities not extinguished by resolution.
• Cross-border complexities: India lacks a robust framework for cross-border insolvency, deterring foreign investors where targets have overseas assets or subsidiaries.
• Regulatory coordination gaps: Poor synchronization between IBC and SEBI, RBI, or CCI processes leads to inefficiencies.
• Creditor-centric design: Operational creditors and minority shareholders often remain marginalized, raising concerns of distributive justice.
• Judicial delays: Despite statutory deadlines, overburdened NCLTs frequently miss timelines, undermining certainty.

Critical Reflections

An amalgam between M&A with IBC is both interesting and troublesome.  On the one aspect, IBC has established a lively distressed asset market within India, attracting worldwide investors and encouraging creditors to gather at least a portion of their debts.  On the negative side, the structure remains creditor-centric, usually excluding minority owners and operational creditors.  Moreover, the strong dependability of NCLTs has resulted in delays, which are negatively impacting the process’s responsiveness.

From an essential standpoint, one could contend that even though IBC encourages acquisitions, it reduces M&A to a revenue-generating mechanism opposed to a strategic growth strategy.  Additionally, the “haircuts” allowed in various prominent circumstances raise questions about whether creditors are in reality achieving maximum revenue or just reducing losses.  A dearth of post-resolution monitoring also implies the majority of purchased enterprises may return toward turmoil, resulting in a loop that instead of a solution.

Recommendations

• Flexible due diligence timelines: While CIRP should remain time-bound, limited extensions for complex transactions may be permitted to ensure quality due diligence.
• Clear liability protections: Statutory provisions should expressly shield acquirers from legacy tax and environmental liabilities, enhancing investor confidence.
• Integrated regulatory framework: A “single-window” mechanism should harmonize IBC outcomes with SEBI, RBI, FEMA, and CCI approvals.
• Stakeholder balance: Operational creditors and minority shareholders should be given stronger roles in resolution, aligning with principles of equity.
• Cross-border insolvency reforms: Adoption of the UNCITRAL Model Law on Cross-Border Insolvency would enhance India’s attractiveness to global investors.
• Post-resolution monitoring: Institutional mechanisms should track the performance of resolved companies to ensure long-term viability and prevent repeated insolvencies.

Conclusion

The Insolvency and Bankruptcy Code, 2016, has redefined both insolvency resolution and M&A in India. By providing a structured and time-bound process, IBC has transformed distressed acquisitions from a legal quagmire into a viable investment opportunity. Global investors have entered the Indian market with confidence, and creditors have achieved better recoveries than under previous frameworks.

Yet, challenges persist. The framework remains heavily creditor-driven, regulatory overlaps slow down transactions, and judicial backlogs undermine timelines. Most critically, the focus on recovery often overshadows long-term business revival, raising questions about the sustainability of outcomes.

Ultimately, the intersection of M&A and IBC embodies both promise and peril. If India can implement reforms to enhance regulatory integration, balance stakeholder rights, and adopt global best practices, the amalgamation of M&A and IBC may emerge as a uniquely Indian model—one that marries financial rescue with corporate opportunity. Such a model would not only strengthen India’s insolvency regime but also contribute to its aspiration of becoming a global hub for corporate restructuring.