Balancing Creditor Rights And Corporate Settlements - Glas Trust Company LLC Vs. Byju Raveendran

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T18:23:06.810546+00:00

Updated: 2026-08-26T17:11:57.624+00:00

BALANCING CREDITOR RIGHTS AND CORPORATE

SETTLEMENTS: GLAS TRUST COMPANY LLC VS. BYJU

RAVEENDRAN

B. Jai Ganesh, Assistant Professor (Law), SRM School of Law, Chennai

ABSTRACT

The legal dispute between Glas Trust Company LLC and Byju Raveendran highlights the complexities of balancing creditor rights with corporate restructuring and settlement strategies. This paper examines the case in the broader context of insolvency law, creditor protections, and corporate governance, analyzing its implications for financial institutions, distressed debt investors, and corporate debtors. Byju’s, once a high-growth edtech company, faced severe financial distress, triggering conflicts with its lenders. Glas Trust Company LLC, acting as a trustee for creditors, initiated legal action to recover outstanding debt, challenging Byju’s attempts at debt restructuring and settlement.

This case raises critical questions regarding the enforceability of creditor rights, the role of contractual covenants in debt agreements, and the legal frameworks governing out-of-court settlements versus formal insolvency proceedings. The study explores the legal arguments presented by both parties and the broader regulatory environment shaping creditor-debtor relations. A key focus of this paper is the tension between protecting creditors’ interests and allowing financially distressed corporations the flexibility to reorganize. While strict enforcement of creditor rights ensures predictability in financial markets, excessive rigidity can stifle business recoveries and innovation. The paper argues for a balanced approach that accommodates both legal enforcement and pragmatic settlement mechanisms, promoting financial stability and economic resilience.

INTRODUCTION

The rights of the Creditors are an important part of corporate financing arrangements as it helps to safeguard the interests of entities that provide financial support to corporations. These rights ensure repayment entitlements, equitable treatment during financial distress, and the ability to enforce claims against debtors in a just and fair manner. In an era where cross-border financing has become more accessible the protection of creditor rights is crucial for maintaining market confidence and fostering economic stability. These legal and financial rights not only balance the power dynamic between creditors and corporate debtors but also incentivize financial institutions to confidently lend credit. Therefore, it has a significant impact on the broader corporate ecosystem as a whole.

Corporate settlements and restructuring mechanisms play an equally important role in dealing with financial distress. These mechanisms like debt restructuring, insolvency proceedings, and out-of-court settlements allow corporations to effectively deal with financial difficulty during economic downturns without resorting to liquidation1. In India, the Insolvency and Bankruptcy Code2 (IBC) and the Companies Act3 have emerged as the primary legal frameworks for addressing such challenges, offering a structured pathway for corporate debt resolution. Therefore, by balancing the interests of creditors and debtors these legal frameworks aim to ensure the survival of businesses while maximizing creditor recoveries.

The recent dispute between Glas Trust Company LLC, a prominent trustee in global corporate financing, and Byju Raveendran, the founder of India’s largest ed-tech company, has thrown spotlight on the issue of balancing creditor rights and corporate settlements. The case, mainly deals with allegations of repayment defaults and disputes over financial restructuring. This case has highlighted the tensions inherent in balancing creditor rights with corporate survival strategies. Byju’s, with its high valuation and significant global investor backing, presents a unique case study in navigating the complex interplay between corporate restructuring and creditor enforcement in India. 1 Bronwyn H. Hall, Ernst Berndt & Richard C.

Levin, The Impact of Corporate Restructuring on Industrial Research and Development, Brookings Papers on Economic Activity: Microeconomics 1990, at 85 (1990), https://doi. org/10. 2307/2534781.

2 Insolvency and Bankruptcy Code, 2016, No. 31, Acts of Parliament, 2016 (India).

3 Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).

This paper critically analyses the legal challenges underscored by the Glas Trust Company LLC vs. Byju Raveendran case4. It also examines the broader implications for creditor rights and corporate settlements within India’s evolving corporate legal landscape. CORPORATE SETTLEMENTS AND RESTRUCTURING.

(i) Definition and meaning. Corporate settlement and restructuring are important mechanisms in dealing with financial distress within corporations, aiming to balance the interests of creditors, shareholders, and other stakeholders. It ensures the continued viability or facilitates an orderly resolution in cases of insolvency for a corporation in a transparent and fair manner. In simple words corporate settlement refers to the negotiation and finalization of agreements between a financially distressed corporation and its creditors. This mechanism helps to avoid lengthy litigation and conflicts with multiple regulatory authorities5. It involves settlements that may involve out-of-court agreements, partial debt repayment plans, or compromises on interest and repayment timelines. In India, corporate settlements are guided by legal provisions such as Section 230 of the Companies Act6.

which governs compromises and arrangements between a company and its creditors or members, enabling structured settlement frameworks. Moreover, Section 18 of the Insolvency and Bankruptcy Code empowers an interim resolution professional to negotiate settlements during ongoing insolvency proceedings. Corporate restructuring is different from insolvency proceedings as its main objective is to reorganizing or refinancing a company’s debt, equity, or operational framework to enhance financial stability. It also includes steps like mergers, demergers, asset sales, debt refinancing, or operational changes aimed at reducing costs and improving efficiency. The corporate restructuring is provided in Sections 230 to Section 240 of the Companies Act, 2013. This provision regulates the schemes of compromise, arrangement, and reconstruction.

Insolvency proceedings on the other hand is done when corporate restructuring attempts fail and it is the final step wherein the assets of the company are taken and sold to settle the liabilities of the company.

4 GLAS Trust Company LLC v. Byju Raveendran, 2024 INSC 811, Sup. Ct. of India (2024).

5 Arndt, Margarete, and Barbara Bigelow. "Benefits and disadvantages of corporate restructuring: The hospital view." Hospital Topics 74, no. 1 (1996): 21-25.

6 Companies Act, 2013 § 230, No. 18, Acts of Parliament, 2013 (India).

Furthermore, Section 31 of the IBC7 deals with the approval and binding effect of resolution plans for restructuring during the Corporate Insolvency Resolution Process (CIRP). The Reserve Bank of India (RBI) also periodically issues guidelines for restructuring nonperforming assets, establishing frameworks for corporate debt restructuring. The corporate settlements and restructuring mechanisms serve as essential tools to mitigate financial distress, maximize value for stakeholders, and prevent liquidation8. These processes, backed by robust legal provisions, play a critical role in preserving the integrity of the financial and corporate ecosystem. (ii) Benefits and disadvantages of corporate settlements The Corporate settlements and restructuring mechanism have an important role in dealing with financial distress challenges and thereby ensuring business continuity9 in India.

One of the primary benefits is the avoidance of insolvency proceedings as settlements allow companies to negotiate directly with creditors thereby avoiding the lengthy and costly insolvency mechanisms. This process ensures business continuity and protects the company’s reputation, which might otherwise be tarnished by liquidation. It also benefits the stakeholder by preserving their value as restructuring helps stabilize distressed companies thereby maximizing returns for creditors, shareholders, and jobs of employees. All of these factors together have a positive impact on the economy of the country as a whole. Moreover, settlements offer flexibility in debt management, enabling companies to renegotiate repayment terms, reduce interest rates, or convert debt into equity. This time period will allow businesses to regain its financial health.

Further, corporate settlements are faster and timeefficient than formal insolvency proceedings under the IBC. On an average insolvency proceeding takes almost three long years to come to an end. This mechanism contributes to economic stability by preserving jobs and fostering continued operations of distressed companies. However, corporate settlements and restructuring also has its own demerits. A major disadvantage is limited creditor satisfaction as creditors may need to accept concessions such as reduced repayments or extended timelines which can lead to discontent among lenders. Further, these out-of-court settlements often lack the binding force of IBC proceedings relying

7 Insolvency and Bankruptcy Code, 2016 § 31, No. 31, Acts of Parliament, 2016 (India)

8 “id.”

9 Bagaram Tulpule. “Industrial Sickness and Corporate Restructuring.” Economic and Political Weekly 29, no.

15 (1994): 833–34. http://www.jstor.org/stable/4401053.

instead on mutual consent and even a minor disagreement among the relevant stakeholders can stall the entire process and result in wastage of time10. The entire process itself can be complex and costly, requiring financial, legal, and operational expertise. Furthermore, there is also lot of unexpected risk like leadership challenges or inefficiencies which can delay recovery or cause the business to fail. In some cases, restructuring mechanisms may be abused by the companies to delay repayments or evade liabilities11 thereby undermining the creditor trust and creates systemic financial risks. However, even well-intentioned plans can lead to uncertainty in outcomes and remains as a concern as recovery depends on effective execution and favorable market conditions12.

Further, the impact on the employee is another drawback as cost-cutting measures in restructuring often lead to layoffs or wage reductions causing workforce disruptions. Further, the Indian legal system itself is prone to regulatory delays and procedural hurdles, which slow down the implementation of restructuring plans.

OVERVIEW OF FINANCIAL AGREEMENT BETWEEN BYJU’S AND GLASS

TRUST COMPANY.

The financial relationship between Byju’s and Glas Trust Company LLC arises based on a loan agreement made for the purpose of providing funds to support Byju’s ambitious expansion plans, including strategic acquisitions and global market penetration. The Byju’s went on a rapid expansion spree13 after its profits increased during the lockdown imposed during covid-

19. In this case Glas Trust Company LLC acted as a security agent for lenders and facilitated

the loan under a syndicated structure, wherein multiple creditors extended financial support to Byju’s, with Glas Trust overseeing the terms and enforcement of the agreement. This arrangement highlights the legal and operational difficulties which arises in complex crossborder financing deals, involving stringent covenants and repayment obligations designed to protect the interests of the lenders. The loan, reportedly amounting to hundreds of millions of dollars was secured against Byju’s assets including its stakes in subsidiaries and other high-value assets, to provide lenders with 10 Bagaram Tulpule. “Industrial Sickness and Corporate Restructuring.” Economic and Political Weekly 29, no.

15 (1994): 833–34. http://www.jstor.org/stable/4401053.

11 PANDEY, SHRUTI J, VISHAKHA G TILAK, and BIPIN DEOKAR. “Non-Performing Assets of Indian

Banks: Phases and Dimensions.” Economic and Political Weekly 48, no. 24 (2013): 91–93. http://www.jstor.org/stable/23527401.

12 Hoskisson, supra Note 10.

13 Sruthi, P., and Sangeeta Mukherjee. "Byju’s the learning app: An investigative study on the transformation from traditional learning to technology based personalized learning." International Journal of Scientific and Technology Research 9, no. 3 (2020): 5054-5059.

collateral in case of default. The agreement included detailed repayment schedules, interest obligations, and conditions that Byju’s was required to adhere to, ensuring financial transparency and compliance with pre-defined operational metrics. However, financial headwinds and operational challenges led to Byju’s defaulting on certain obligations under the agreement which resulted in Glas Trust Company LLC initiating legal proceedings. The default reportedly stemmed from macroeconomic factors, acquisition-related pressures, and a slowdown in the global ed-tech market after covid 19 lockdown normalization14. The corporate settlement and arrangement attempts of Byjus and the subsequent legal proceedings highlights the intricate balance between the enforcement of creditor rights and the borrower’s attempts to restructure debt to regain financial stability.

It also brings into focus the complexities of cross-border financial arrangements, where differences in legal frameworks, cultural approaches to business, and market conditions can significantly impact the outcome of such disputes. The dispute between Glas Trust Company LLC and Byju Raveendran has emerged as a critical case study from the perspective of creditor rights and corporate settlements particularly in the context of balancing creditors rights and corporate settlements. This case is significant as it highlights the tension between creditor rights and a borrower’s attempts to restructure and recover. The financial difficulties of Byju’s can be attributed to changes in market dynamics, rapid acquisition and expansion coupled with operational inefficiencies which culminated in a complex restructuring process involving negotiations with creditors.

The position of Glas Trust Company LLCs as a secured creditor shows the importance of enforcing creditor rights, ensuring timely repayments, and preserving financial discipline. Simultaneously, the case sheds light on the challenges faced by corporations like Byju’s, which must balance creditor demands with their own need to maintain business continuity and explore restructuring solutions. This dispute has brought to the forefront several critical issues like enforceability of creditor rights under Indian law, the role of corporate governance in addressing financial distress, and the complexities of handling disputes in cross-border financial arrangements. Further, it also shows the interplay between statutory frameworks like the Companies Act, 2013, and the

14 Sathyan, Sigma. "Byju’s Learning App in the COVID-19 Outbreak to Analyze Online Education-A Case

Study." International Journal of Case Studies in Business, IT and Education (IJCSBE) 5, no. 2 (2021): 75-86.

Insolvency and Bankruptcy Code, 2016 both of which governs corporate restructuring and insolvency in India15. The Byju Raveendran case serves as a catalyst for examining broader questions about the adequacy of legal protections for creditors16 in the existing legal framework, the efficiency of out-of-court settlements, and the mechanisms available to balance competing interests in corporate disputes. This case being one of the most high-profile corporate disputes in India in recent years offers valuable insights into the legal, financial, and ethical dimensions of managing creditor-debtor relationships in an increasingly globalized economy.

Brief analysis of the dispute The nature of the dispute between Byju’s and Glas Trust Company LLC revolves around issues of default, restructuring proposals, and conflicting creditor demands, highlighting the challenges in balancing debtor and creditor interests in complex financial arrangements. At the core of the dispute is Byju’s alleged default on its repayment obligations under a multi-milliondollar loan agreement facilitated by Glas Trust Company LLC, acting as the security agent for a consortium of lenders. The default reportedly includes missed payment deadlines, breaches of financial covenants and most importantly failure to comply with terms stipulated in the loan agreement. Such non-compliance triggered the activation of creditor rights, prompting Glas Trust to seek legal remedies to safeguard the interests of the lenders it represents.

In response to the financial distress, Byju’s proposed debt restructuring measures to renegotiate the terms of the agreement, including rescheduling repayment timelines, altering interest obligations, or potentially reducing the debt burden. Byju’s emphasized its intent to stabilize its financial position while continuing operations and maintaining investor confidence. These restructuring proposals are significant to Byju’s strategy to manage the fallout from its financial struggles, stemming from broader economic pressures, a global slowdown in the ed-tech sector, and challenges linked to its aggressive acquisition-driven growth model. On the other hand, Glas Trust and the consortium of lenders have presented creditor demands, which likely include full or partial repayment, additional collateral, and adherence to stricter financial controls.

Creditors are focused on minimizing their exposure to risk and ensuring enforceability of their contractual rights. However, this divergence in priorities has created a 15 Choubey, Adarsh. "Interplay of IBC with Other Relevant Laws. " Issue 4 Indian JL & Legal Rsch. 4 (2022): 1. 16 Saini, Harshita. "Protection of Creditors' Interest with Special Reference to Corporate Insolvency Law in India. " Issue 3 Int'l JL Mgmt. & Human. 6 (2023): 1931.

standoff, as lenders demand immediate action to protect their interests, while Byju’s seeks concessions to regain financial footing. The dispute highlights the broader issues in corporate financing, including the enforcement of creditor rights, the scope for negotiating debt restructuring, and the challenges of balancing these competing interests in a cross-border legal and financial landscape. Judicial Decision The Supreme Court of India, in its decision on the dispute between Glas Trust Company LLC (the appellant) and Think & Learn Pvt. Ltd, the parent company of Byju’s, critically examined the judgment of the National Company Law Appellate Tribunal17 (NCLAT).

The case revolved around the settlement of dues payable by the corporate debtor to the Board of Control for Cricket in India (BCCI), which had led the NCLAT to set aside an earlier order of the National Company Law Tribunal (NCLT) initiating the Corporate Insolvency Resolution Process (CIRP).

Byju Raveendran and Riju Raveendran who were the former directors of Think and Learn, faced insolvency proceedings initiated by the BCCI over an operational debt of ₹158 crore under a Team Sponsor Agreement. Further, Byju’s Alpha Inc which is a subsidiary of Think and Learn, defaulted on a loan guaranteed by the corporate debtor. Thus, Glas Trust Company, representing the creditors, challenged the settlement approved by the NCLAT, citing concerns about fund mismanagement and preferential treatment of BCCI’s claims. The NCLT had admitted the BCCI’s petition under Section 9 of the IBC18, initiating CIRP and imposing a moratorium. The NCLAT had approved a settlement involving Think and Learn Pvt. Ltd. , Byju’s parent company, and the BCCI, overturning the NCLT’s earlier order initiating a corporate insolvency resolution process (CIRP) against Think and Learn.

Further, the NCLAT also reasoned that there is lack of evidence linking settlement funds to Byju’s Alpha’s debt and approved the settlement. Therefore, Glas Trust Company filed an appeal before the Supreme Court of India. The Supreme Court observed that the CIRP is a collective process involving all the creditors once admitted and the appellant, whose claims had been verified, is an affected party under the IBC framework and has the right to challenge the NCLAT decision. The Supreme Court 17 Kumar, K. B. S. , and Indu Perepu. "The Downward Trajectory of Byju's: Is Revival Possible?. " IUP Journal of Entrepreneurship Development 21, no. 1 (2024): 38-54.

18 Insolvency and Bankruptcy Code, 2016 § 9, No. 31, Acts of Parliament, 2016 (India)

criticized the NCLAT for bypassing prescribed procedures for CIRP withdrawal and settlement as there no formal withdrawal application was filed through the Interim Resolution Professional (IRP), nor was the settlement approved by the NCLT. The NCLAT instead invoked Rule 11 to approve the settlement during appellate proceedings, an action the Court deemed improper. The Court found that the NCLAT did not adequately address the appellant’s concerns about potential prejudice due to fund mismanagement and preferential creditor treatment. It emphasized that inherent powers cannot be used to override statutory provisions. The Supreme Court has clearly observed that insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) must adhere strictly to the prescribed legal framework.

In this case the court has further observed that once a petition is admitted under the IBC the proceedings will automatically acquire an in rem character which involves all the creditors rather than remaining limited to the applicant and some handpicked debtors. Moreover, any settlement must follow the procedures given under Section 12A of the IBC19 and Regulation 30A of the CIRP Regulations including approval by the Committee of Creditors (CoC). The Supreme Court also observed that the NCLAT erred in invoking its inherent powers under Rule 11 of the NCLAT Rules to approve the settlement without following the mandatory withdrawal procedure. The settlement proposal bypassed important steps such as submitting an application through the Interim Resolution Professional (IRP) and seeking approval from the NCLT.

These procedures itself are established by law as a safeguard against misuse of these provisions. The bypassing of these important procedures undermines the principles of collective decision making and equitable treatment of creditors. Furthermore, the Court also clarified that Glas Trust is a verified financial creditor and therefore is entitled to submit its objections to the settlement and thereby had the necessary locus standi to challenge the NCLAT’s decision. The appellant (Glas Trust) had expressed concerns about fund prioritization and potential misuse which are serious allegations and requires careful judicial scrutiny. Taking into consideration all these factors a three-judge bench of the Supreme Court led by Chief Justice Dr. D. Y.

Chnadrachud set aside the NCLAT’s judgment and reinstated the CIRP by observing that related issues are still under litigation in various forums including Delaware

19 Insolvency and Bankruptcy Code, 2016 § 60, No. 31, Acts of Parliament, 2016 (India)

courts and investigations by authorities like the Enforcement Directorate20. It directed the Committee of Creditors to maintain the settlement amount in an escrow account and comply with further orders from the NCLT21. The judgment highlights the significance of following the due process of law in insolvency proceedings and also proves the rights of all creditors. Legal Framework Governing Creditor Rights (i) Brief overview. The Insolvency and Bankruptcy Code of 2016 proposes a paradigm shift from the old regime of “Debtor-in-Possession” to “Creditor-in-Control”. The 2016 Code aims at consolidating all the existing insolvency related laws as well as amending multiple legislation including certain provisions of the Companies Act, 2013. Moreover, Section 238 of the 2016 Code22 has provided an overriding effect on all other laws relating to insolvency and bankruptcy.

The insolvency resolution and liquidation of corporate entities. The insolvency resolution and liquidation of corporate entities is provided in Part II of the 2016 Code and most of the work concerning the insolvency resolution and liquidation is dealt by a registered insolvency professionals placed under the supervision of the NCLT23. Once a corporate insolvency process is initiated against a company the insolvency professional will be required to form a Committee of Creditors (COC) and together based on a consensus the COC will be made to bring forth a plan to revive the corporate entity24. The 2016 Code provides a deadline of 180 days to complete the corporate insolvency resolution process which can be further extended for a maximum period of 90 days25. In practice this deadline is not strictly imposed and some proceedings on an average takes 3 years to come to an end.

In the COC all efforts will be made to introduce and pass a resolution plan to revive the ailing entity. However, if all the efforts fail the company will be liquidated and the proceeds will be distributed based on the hierarchy provided under Section 53 of the 2016 Code. The Insolvency & Bankruptcy Board of India is vested under Section 196 (3) of the 2016

20 GLAS Trust Company LLC v. BYJU Raveendran & Ors., 2024 INSC 811

21 “id.”

22 Insolvency and Bankruptcy Code, 2016 § 238, No. 31, Acts of Parliament, 2016 (India)

23 Gowala, Dolimoni. "Role of Insolvency Professionals and Ethical Practices in Insolvency and Bankruptcy Code." Issue 1 Int'l JL Mgmt. & Human. 7 (2024): 1515. 24 Burman, Anirudh. “Conclusion: Reassessing the IBC in the Context of India’s Economic Recovery.” India’s Sustained Economic Recovery Will Require Changes to Its Bankruptcy Law. Carnegie Endowment for International Peace, 2021. http://www.jstor.org/stable/resrep31120.7. “id.”

Code26 with the same powers as are in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of discovery and production of books of accounts at such place and such time as may be specified by the Board, summoning and enforcing the attendance of persons and examining them on oath, inspection of books, registers and other documents of any person at any place; and lastly, issuing commissions for the examination of witnesses or documents. (ii) Corporate Insolvency Resolution Process The CIRP totally consists of six stages with the first stage being submission of a petition before the NCLT.

When a company defaults in making due payments to its creditors they have the right to bring forward a CIRP petition before the Adjudicating Authority and after, the petition has been filed the NCLT will review its merits and decide whether the petition holds a locus standi before the tribunal or not. If the NCLT does not find merits in the petition like for example, the defaulted amount does not meet the minimum threshold of INR 1 Crore as provided under Section 4 of the IBC, 2016 it will reject the petition. However, if the tribunal finds merits in the petition, then it will admit the same under section 7, 9 or 10 of the IBC. The NCLT is required to call for a hearing within 14 days of the filing of the petition. Thereafter the NCLT shall appoint an Interim Resolution Professional (IRP).

They are basically a licensed insolvency professional appointed and nominated by the Committee of Creditors. Until then, the NCLT appoints the IRP. The second stage towards the process is for the IRP to enterprise between carrying out the remainder of the insolvency process and ensuring that the operations of the corporate debtor are a going concern. The next stage of the proceedings after the tribunal has admitted the petition is the imposition of a Moratorium period27 under Section 14 of the IBC. During this period the tribunal prohibits the institution of any fresh suits or continuation of pending suits (in terms of financial debt) against the corporate debtor28. This is mainly done to preserve the value of the assets of the corporate debtor and to prevent hindrances from judicial forums during the Corporate Insolvency Resolution Process (CIRP).

The Moratorium period will remain in existence until the CIRP process is concluded. The Insolvency and Bankruptcy Code, 2016 § 196, No. 31, Acts of Parliament, 2016 (India) 27 Triantis, George G. “The Effects of Insolvency and Bankruptcy on Contract Performance and Adjustment. ” The University of Toronto Law Journal 43, no. 3 (1993): 679–710. https://doi. org/10. 2307/825725. 28 Gattani, Vaibhav, and Dolly Chhabda. "An Analysis of Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code 2016. " Part 2 Indian J. Integrated Rsch. L. 3 (2023): 1.

moratorium can be imposed for a maximum period of 180 days with a possible extension of 90 days under exceptional circumstances. It is the duty of the IRP to categorize the claims made in the petition by the petitioner systematically and make a detailed analysis of the same under Section 18 (b) of the IBC. In case the IRP requires an exposition of a claim made by the petitioner then he can call for a meeting with the petitioner29 concerning the same for the clarification required. The IRP is also required to constitute a Committee of Creditors (COC) by the virtue of Section 18 (c) of the IBC within 30 days of the commencement of the CIRP. Once the COC is formed the committee will appoint a Resolution Professional (RP). The IRP can potentially retain the position or a fresh appointment can be made depending on the decision of the committee.

After the IRP or RP collates and verifies the claims made by the petitioner it must be communicated to the COC in a meeting. The announcement is indicative of the insolvency by declaring that the corporate debtor is undergoing an insolvency process and all interested candidates or bidders are invited to submit a resolution plan that could potentially be implemented. These bidders could be prospective investors or creditors and depending on the number of resolution plans proposed the COC will decide upon the same. The resolution plan that manages to get an approval of over 75 per cent of the COC is secured to be presented before the NCLT as passed. Thereafter the resolution plan approved upon by the COC is presented before the NCLT and if the NCLT sanctions the approved resolution plan then the same is executed and becomes binding on the corporate debtor and all the stakeholders.

However, if the NCLT does not sanction the resolution plan or the COC is unable to finalize a resolution plan30 in the designated period the tribunal can order the liquidation of the corporate debtor and the same has to be concluded within one year of such order. Thus, the IBC has been successful in stabilizing and providing a structure to the insolvency process in pursuance of the aforementioned steps. RIGHTS OF CREDITORS.

(i) Financial Creditors. There are two types of creditors under the Insolvency and Bankruptcy Code, 2016 which are financial creditors and operational creditors. The Financial creditors include institutions like 29 Yadav, Siddharth, and Mayank Sharma. "Critical Analysis of Corporate Insolvency Resolution Process." Int'l JL Mgmt. & Human. 2 (2019): 122.

30 Pahwa, Navin K. “CORPORATE INSOLVENCY: ITS OPERATIONS AND EMERGING PROBLEMS.”

National Law School of India Review 30, no. 2 (2018): 111–18. https://www.jstor.org/stable/26743939.

banks, financial institutions, and bondholders. The financial creditors can initiate Corporate Insolvency Resolution Process (CIRP) against a company in case of a default of 1 Crore Rupees or more under Section 7 of the IBC31. The NCLT plays a crucial role in the insolvency process by forming the Committee of Creditors (CoC) which has voting rights proportional to the debt owed to each creditor32. The financial creditors as members of the CoC can encourage and negotiate with potential resolution applicants to submit a resolution plan aligned with their interests. The COC has the power to approve or reject plans based on their commercial feasibility and viability. The COC makes important decisions like approving the resolution plan, appointing or replacing the Resolution Professional (RP), and liquidating or restructuring the company.

The financial creditors can instruct the RP to extend the deadline for submission of resolution plans or reissue an invitation for fresh plans if the initial submissions are unsatisfactory33. For a resolution plan to be approved at least 66% of the CoC's votes are required. The financial creditors enjoy higher priority during liquidation of a company in the distribution of proceeds based on the hierarchy mechanism provided under Section 53 of the IBC. The financial creditors, through their decisions in the CoC effectively shape the resolution strategy including influencing terms that must be included in any resolution plan submitted34. If any fraud is played upon an individual or group of financial creditors by the COC or the RP they can approach the National Company Law Tribunal (NCLT) and challenge any fraudulent decisions or actions taken by the CoC.

Further, under Section 6035 of the IBC the NCLT has jurisdiction to handle grievances arising out of insolvency proceedings. The financial creditors can approach the NCLT in case they feel that the CoC's actions are unfair, discriminatory or contrary to the provisions of the IBC. The financial creditors can also appeal the matter to the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court if they believe the CoC's fraudulent decisions have been upheld by the NCLT or if fundamental principles of justice are violated. Thus, under Section 65 any fraudulent or malicious initiation of insolvency

31 Insolvency and Bankruptcy Code, 2016 § 7, No. 31, Acts of Parliament, 2016 (India)

32 Hariharan, V. "Financial Creditor, Operational Creditor and an Overview on Home-Buyers under Indian Bankruptcy Code." Supremo Amicus 15 (2020): 106.

33 Shikha, Neeti. "ASSESSING BEHAVIOUR CHANGE OF CREDITORS UNDER IBC." Available at SSRN

5047705 (2022).

34 Burman, Anirudh. “India’s Economic Slowdown and Why the IBC Matters.” India’s Sustained Economic

Recovery Will Require Changes to Its Bankruptcy Law. Carnegie Endowment for International Peace, 2021. http://www.jstor.org/stable/resrep31120.4.

35 Insolvency and Bankruptcy Code, 2016 § 60, No. 31, Acts of Parliament, 2016 (India)

proceedings36 or actions can be penalized. The financial creditors can request the NCLT to take action against CoC members for abusing the insolvency process. If financial creditors suffer losses due to fraudulent actions by the CoC, they may seek compensation through civil suits or by proving the CoC's misconduct in insolvency proceedings. (ii) Operational Creditors The operational creditors basically include the suppliers, vendors, and employees of the company. They can also initiate CIRP under Section 9 if their dues remain unpaid37 after issuing a demand notice. However, their role in the insolvency process is very limited compared to the rights and powers of the financial creditors. They do not have voting rights in the CoC unless their claims exceed 10% of the total debt of the company undergoing insolvency but they can still take part in the meetings without voting.

The operational creditors can submit claims to the IRP or RP and are entitled to receive proceeds under the resolution plan or liquidation process. Though, the operational creditors are ranked lower than secured financial creditors in the hierarchy mechanism under Section 53, they are prioritized above equity shareholders. Key Differences Between Financial and Operational Creditors Aspects Financial Creditors Operational Creditors Initiate CIRP Section 7 Section 9 Role in CoC Voting rights Limited participation, no vote

for goods and services received by the company from the operational creditors and wages of employees. The Insolvency and Bankruptcy Code, 2016 (IBC), has a well-defined hierarchy38 outlined in Section 5339. The highest priority is given to the cost incurred in the insolvency resolution process and liquidation costs which include the fees and expenses of the Resolution Professional (RP) and other operational costs all of which must be paid in full before any other distributions. The second priority is shared between workmen’s dues for the preceding 24 months and secured creditors who have relinquished their security interest. Thereafter, the employees’ dues (other than workmen) for the preceding 12 months. The unsecured financial creditors such as banks or institutions with loans not backed by collateral are in the fourth position.

The fifth priority is given to government dues for the two years preceding the liquidation commencement date, alongside any remaining amounts unpaid to secured creditors. The operational creditors and other unsecured creditors are ranked sixth, followed by preferential shareholders in the seventh position. Lastly, if there is any amount left it will be distributed to equity shareholders or partners. The IBC’s waterfall mechanism ensures a clear and transparent order of distribution which reduces the chances of confusion and preferential treatment among similarly placed parties40. Further, secured creditors have the choice to either relinquish their security interest to participate in the liquidation estate or enforce it outside the liquidation process as per Section

52. This structured approach aims to ensure fairness and transparency in the distribution

process.

CONCLUSION

Balancing the rights of creditors with corporate settlements is a complex issue in corporate insolvency and bankruptcy cases. While creditors seek to recover their dues, companies aim to resolve their financial distress through settlements or restructuring. The challenge lies in ensuring fairness and protecting the interests of all stakeholders involved, including creditors, corporate debtors, and the larger economy. Under laws like the Insolvency and Bankruptcy Code (IBC), creditors have a right to repayment in a prioritized order, with financial creditors typically having higher priority than operational creditors. The Committee of Creditors (CoC) 38 Jain, Ayushi. "An Analysis of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016." PhD diss., National Law School of Indian University, Bangalore, 2021.

39 Insolvency and Bankruptcy Code, 2016 § 53, No. 31, Acts of Parliament, 2016 (India)

40 Gupta, H. (2024) Waterfall Mechanism: Basic structure of the Insolvency and Bankruptcy Code, 2016. Available at: https://ibclaw.in/waterfall-mechanism-basic-structure-of-the-insolvency-and-bankruptcy-code-2016-byharshit-gupta/ (Accessed: 27 January 2025).

plays a crucial role in decision-making during the Corporate Insolvency Resolution Process (CIRP), ensuring that creditors interests are represented collectively. Corporate settlements involve negotiating with creditors to restructure the debt, extend repayment schedules, or reduce outstanding liabilities through schemes like out-of-court settlements or debt restructuring plans. The aim of such settlements is to enable businesses to continue operating while settling debts, preserving jobs, and maintaining value for creditors. Creditors may be offered partial repayments or shares in the restructured entity to encourage settlement and avoid liquidation. However, balancing the interests of all creditors can be challenging, especially when some creditors agree to a settlement that may disadvantage others.

The IBC allows creditors and debtors to negotiate settlements, but tensions arise when certain stakeholders feel excluded from the negotiations or object to terms, they consider unfair. Judicial oversight is crucial in these cases, with the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) responsible for approving settlements. They assess whether settlements are fair and equitable to creditors and comply with the statutory framework of the IBC. Courts often intervene if there is a dispute over the fairness of a settlement, especially when certain creditor groups feel their rights are being undermined in the process. Ultimately, a balanced approach is essential to ensure that corporate settlements do not unfairly diminish creditor rights.

Protecting creditor interests through collective bargaining and judicial oversight is key, while also allowing companies the opportunity to recover and continue operations. Transparency in negotiations, clarity in settlement terms, and equal treatment of creditors are vital in striking this balance effectively, ensuring the interests of all stakeholders are protected while promoting economic recovery and business continuity. In the context of the Byju’s vs. Glass Trust Company case, balancing creditor rights and corporate settlements becomes a central issue, particularly concerning the resolution of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The dispute centers around the settlement of dues between Byju’s (through its corporate debtor, Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI).

Glass Trust Company, a USbased financial creditor, filed an appeal against a decision by the National Company Law Appellate Tribunal (NCLAT), which approved the settlement between Byju’s and BCCI and closed the insolvency proceedings initiated against Byju’s under Section 9 of the IBC.

Glass Trust, which had a financial interest as a creditor in the case, argued that the settlement unfairly prioritized operational creditors, like BCCI, over financial creditors, such as itself. Glass Trust also raised concerns that the settlement involved transactions that could harm its claim or lead to a loss of funds due to potential mismanagement or the round-tripping of money. The appellant claimed it was aggrieved by the settlement, which led to the closure of insolvency proceedings without proper consideration of its rights as a creditor. The Supreme Court, while considering this appeal, emphasized that the process under the IBC is designed to be collective, where all creditors should have a voice in the resolution process, and that the rights of all stakeholders, including financial creditors, should be protected.

In this case, the Supreme Court highlighted the importance of adhering to the prescribed legal framework under the IBC, including following due procedures for withdrawal of the Corporate Insolvency Resolution Process (CIRP) or settlement of claims. The Court observed that the NCLAT had used its inherent powers under Rule 11 of the NCLAT Rules to approve the settlement, bypassing the required procedures. This raised concerns about fairness, especially since there was no formal application for withdrawing the CIRP or settlement approval before the National Company Law Tribunal (NCLT), as per the established guidelines. The ruling emphasized that creditor interests should be safeguarded through a structured, transparent process, where the views of all creditors, especially financial creditors like Glass Trust, are considered before settling or closing insolvency proceedings.

The Supreme Court set aside the NCLAT's judgment, indicating that any settlement or withdrawal of CIRP must follow the proper legal channels to ensure that creditors’ rights are not prejudiced, and the interests of all stakeholders are fairly addressed in the corporate settlement process.