EBITDA DISTRIBUTION DURING CORPORATIVE INSOLVENCY RESOLUTION PROCESS

By Vanga Sai Keerthan Reddy

1. INTRODUCTION

The Indian insolvency framework continues to evolve to address the restructuring and resolution of companies unable to perform their operations due to overwhelming financial debt obligations and financial distress. A pivotal step in this process involves inviting resolution plans from prospective applicants and distributing proceeds as per the approved Resolution Plan. The recent Supreme Court judgment in Kalyani Transco Ltd v. JSW Steel Ltd[1] left open the issue of the distribution of EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) accrued during the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor.

2. THE FRAMEWORK AND FINDINGS IN THE BHUSHAN POWER AND STEEL CASE

In the ‘Kalyani Transco Ltd v. JSW Steel Ltd’ case, arising from the ‘Bhushan Power and Steel Ltd’ resolution process, the Supreme Court remained silent on the issue of EBITDA distribution, noting the absence of any statutory provision or precedent governing it. The creditors contended that they were entitled to the EBITDA, as they provided financial assistance for operations during the CIRP, while the Resolution Applicant argued that ownership and control of the assets and liabilities were transferred to them upon approval of the Resolution Plan by the Adjudicating Authority.

The Court observed that the resolution plan had already been implemented after a significant delay. Entertaining new claims at this stage—described by the Court as “Hydra Heads Popping Up”—would undermine the sanctity and finality of the resolution plan, reiterating principles established in *Essar Steel Ltd v. Satish Kumar Gupta*.

In ‘Essar Steel Ltd’, the Court held that profits or proceeds should be distributed as per the Request for Resolution Plan (RfRP). If the RfRP does not specify the treatment or distribution of such profits, they shall be retained by the Corporate Debtor. However, ‘Essar Steel’ dealt with the distribution of resolution proceeds, not profits generated during the CIRP.

In contrast, ‘Bhushan Power and Steel Ltd’ is concerned with operating profits (EBITDA) generated before plan approval. This distinction reveals a legal lacuna that remains unresolved and open to future litigation.

3. REFLECTIONS ON LAW

Under Section 30 of the Insolvency and Bankruptcy Code, a resolution plan must be approved by (i) the Committee of Creditors (CoC) with at least 66% voting share and (ii) the Adjudicating Authority (NCLT). Once approved, under Section 31, the plan becomes binding and extinguishes prior financial obligations of the Corporate Debtor.

A Successful Resolution Applicant (SRA) does not hold any ownership or control over the assets and liabilities of the Corporate Debtor until the plan is duly approved. Hence, the SRA cannot claim any interest in the Corporate Debtor’s earnings prior to that approval. Conversely, creditors cannot independently claim EBITDA unless it is recognized as part of the Corporate Debtor’s estate or distributed as per the approved plan.

EBITDA represents the operational earnings generated by the Corporate Debtor during CIRP and forms part of the estate managed by the Resolution Professional. In the absence of explicit statutory guidance, the treatment of such earnings should ideally be addressed within the Resolution Plan approved by the COC.

4. EXPERTS’ AND INSOLVENCY PRACTITIONERS’ VIEWS

Upon commencement of the CIRP, the Resolution Professional assumes control over the management of the Corporate Debtor’s assets and liabilities. Creditors, who have extended loans in good faith, often face significant haircuts on their claims. Under Section 53 of the IBC—which governs liquidation distribution but is often referred to by analogy for fairness in CIRP—the interests of secured creditors and financial institutions must be carefully protected. These creditors, entrusted with public funds, play a crucial role in maintaining economic stability, and any losses sustained by them can have broader implications on the financial system. Hence, it is essential that the interests of financial and secured creditors be safeguarded in the distribution of any proceeds, EBITDA, interim profits, or net gains generated during the CIRP, prior to the approval of the Resolution Plan by the CoC.

5. CONCLUSION

The objectives and interests of financial creditors, operational creditors, and secured creditors must be protected to the greatest possible extent to ensure that repayments are recycled into the economy, strengthening financial health and safeguarding depositors’ rights. Legislative or regulatory amendments may be required to clarify the treatment and distribution of EBITDA and interim profits generated during CIRP. Such clarity would promote equitable treatment among stakeholders while upholding the principles of transparency and fairness envisaged under the Insolvency and Bankruptcy Code

[1] 2025 INSC 1165