Environmental Insolvency - Integrating ESG Risk Assessment In The Corporate Restructuring

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T19:40:51.144Z

Updated: 2026-08-30T07:09:10.414Z

ENVIRONMENTAL INSOLVENCY: INTEGRATING ESG

RISK ASSESSMENT IN THE CORPORATE RESTRUCTURING Mohan Kumar N, LLM, Amity Law School, Amity University, Bengaluru. Jyotirmoy Banerjee, Assistant Professor, Amity Law School, Amity University, Bengaluru.

ABSTRACT

This research explores the intersection of environmental concerns and insolvency proceedings within India's legal framework. Corporate restructuring processes often overlook environmental liabilities. This oversight creates significant risks for creditors, communities, and ecosystems. The Insolvency and Bankruptcy Code, 2016 (IBC) lacks explicit provisions for environmental liability assessment. Companies undergoing restructuring frequently escape environmental obligations. The resulting “environmental insolvency” threatens sustainable development goals. This paper examines how Environmental, Social, and Governance (ESG) risk metrics can be integrated into insolvency proceedings. ESG considerations remain peripheral in India's bankruptcy regime despite growing global emphasis. The National Green Tribunal has attempted to address this gap through judicial interventions.

However, systematic frameworks remain absent. This research analyzes comparative approaches from jurisdictions like the EU and US. It proposes legislative amendments to the IBC for mandatory ESG risk assessments. The paper recommends regulatory guidelines for valuation of environmental liabilities. It advocates for institutional capacity building among resolution professionals and adjudicating authorities. The findings contribute to developing an environmentally conscious insolvency regime that balances economic recovery with ecological protection. Keywords: Environmental Insolvency, ESG Integration, Corporate Restructuring, Environmental Liability, Corporate Governance, Sustainable Restructuring.

INTRODUCTION

A. Background and Context India's corporate restructuring landscape is undergoing a profound shift. Environmental concerns now intersect with insolvency proceedings in complex ways. The Insolvency and Bankruptcy Code, 2016 (IBC) represents a watershed moment in India's financial ecosystem. However, this legislation remains largely silent on environmental matters. Corporate entities often escape environmental obligations during insolvency proceedings. This gap creates a regulatory blindspot in India's environmental governance framework. 1 Environmental insolvency emerges as a critical challenge in India's sustainable development journey. Industrial operations frequently generate substantial environmental liabilities. These liabilities include contaminated land, water pollution, and ecological damages.

Corporate debtors frequently view these obligations as dispensable during financial distress. Such perspectives contradict India's constitutional mandate under Article 21, which guarantees citizens the right to a clean environment. 2 The integration of Environmental, Social, and Governance (ESG) metrics in corporate restructuring remains peripheral in practice. Resolution professionals often lack specialized expertise in environmental risk assessment. Financial creditors prioritize immediate economic recovery over long-term environmental sustainability. This approach creates an artificial dichotomy between economic viability and ecological responsibility. Recent judgements by the National Green Tribunal highlight this tension between insolvency laws and environmental regulations. Global best practices increasingly advocate for systematic ESG integration in insolvency proceedings.

The European Union's Circular Economy Action Plan explicitly addresses environmental liabilities in corporate restructuring. Similarly, the United States' Comprehensive Environmental Response, Compensation, and Liability Act provides frameworks for environmental liability during bankruptcy. Indian legal framework, despte robust environmental legislations, faces implementation challenges during insolvency

1 Ministry of Corporate Affairs, “Report of the Insolvency Law Committee” (2018).

2 National Green Tribunal, Principal Bench, Delhi in Krishan Kant Singh v. National Ganga River Basin Authority, Application No. 299/2013 (2014) proceedings. The Public Liability Insurance Act, 1991 offers potential pathways for harmonizing environmental concerns with insolvency processes. 3 The absence of mandated environmental due diligence during corporate insolvency resolution processes has severe implications. Environmental liabilities often remain unaccounted in resolution plans. This creates a potential externality where ecological costs are socialized while economic benefits remain privatized. Recent amendments to the IBC focus primarily on procedural efficiencies rather than substantive environmental considerations. The Committee of Creditors seldom includes environmental stakeholders, creating an asymmetric decisionmaking process that marginalizes ecological concerns. B.

Research Objectives

1. To analyze the conceptual framework of environmental insolvency within the Indian

legal landscape

2. To examine existing gaps in the Insolvency and Bankruptcy Code regarding

environmental liability recognition

3. To propose legislative and regulatory reforms for environmentally responsible

restructuring mechanisms C. Research Questions

1. How does the current Indian insolvency regime address environmental liabilities during

corporate restructuring?

2. What legal barriers exist in incorporating ESG risk assessments within the insolvency

resolution process?

3. What lessons can be drawn from international best practices in environmental

insolvency regulation?

3 Environmental Claims in Insolvency in India, Oxford Law Blogs (2023).

D. Research Methodology

This research employs doctrinal methodology to examine the legal framework governing environmental considerations in corporate restructuring. The study analyzes primary legal sources including the Insolvency and Bankruptcy Code, 2016, Environmental Protection Act, 1986, and other relevant statutes. The research examines judicial pronouncements of the National Green Tribunal, Supreme Court of India, and National Company Law Tribunal on environmental liability during insolvency. The study utilizes secondary sources such as scholarly articles, research papers, and policy documents to develop reform proposals. The methodology incorporates case studies of corporate restructuring scenarios involving significant environmental liabilities. CONCEPTUAL FRAMEWORK A.

Understanding Environmental Insolvency Environmental insolvency represents a critical intersection between corporate financial distress and ecological obligations. This phenomenon occurs when financially troubled entities escape environmental liabilities through insolvency proceedings. Corporate debtors frequently leverage bankruptcy processes to evade costly environmental remediation obligations. Such strategic maneuvering creates a problematic paradigm where environmental cleanup costs become subordinated to financial claims. 4 The conceptual underpinning of environmental insolvency emerges from the inherent conflict between two legal domains. Insolvency laws primarily aim to provide debtors with fresh economic starts. Environmental regulations conversely seek to ensure polluters bear responsibility for ecological damages.

These opposing objectives create fundamental tension within India's legal ecosystem. The moratorium period under IBC further compounds this complex interplay by suspending environmental enforcement actions. 5 Environmental claims typically fall into the residuary basket of unsecured creditors under the IBC. This unfavorable classification severely diminishes their chances for meaningful recovery. Secured financial creditors receive statutory priority over environmental obligations

4 Id at 3.

5 William Fry, “Environmental Claims in Insolvency Scenarios” (Oct. 25, 2022).

during distribution proceedings. Consequently, environmental liabilities frequently remain unaddressed after insolvency resolution. This structural disadvantage contributes substantially to regulatory circumvention through strategic corporate restructuring. 6 Indian jurisprudence lacks comprehensive frameworks for balancing environmental duties with insolvency mechanisms. The waterfall mechanism prescribed under Section 53 of IBC inadvertently relegates environmental claims to subordinate positions. The absence of explicit recognition for environmental liabilities creates interpretative challenges for adjudicating authorities. National Green Tribunal judgments occasionally conflict with NCLT decisions regarding environmental priorities during insolvency. This jurisdictional overlap generates procedural uncertanties for stakeholders. 7 B.

ESG Risk Assessment: Theoretical Underpinnings ESG risk assessment provides theoretical foundation for integrating environmental considerations into corporate insolvency processes. This analytical framework evaluates corporate exposure to environmental, social, and governance factors. Effective ESG integration helps identify material risks beyond conventional financial metrics. The approach represents evolutionary progress in corporate accountability systems that recognize multidimensional risk landscapes. 8 Environmental components within ESG frameworks encompass climate risks, resource depletion, pollution liabilities. Social elements evaluate community impacts, labor conditions, and stakeholder relationships. Governance metrics assess corporate structures, transparency mechanisms, and ethical compliance standards.

The holistic methodology enables comprehensive evaluation of sustainability risks during corporate restructuring. Material ESG considerations directly impact enterprise valuation during insolvency proceedings. 9 ESG risk assessment utilizes quantitative and qualitative methodologies to evaluate environmental liability exposure. Rating agencies assign numerical scores based on predefined sustainability criteria. The evaluation relies on industry-specific materiality assessments tailored to sectoral risk profiles. Cutting-edge methodologies incorporate double materiality 6 Holland & Knight, “When Considering Bankruptcy, Don't Forget About Environmental Obligations” (2020).

7 Cornell Law School

Legal Information Institute, “Insolvency” (2020).

8 Greenly, “ESG Risks

Definition, Examples and Assessment Method” (2023).

9 Morningstar Sustainalytics, “ESG Risk Ratings” (2024).

principles that consider both financial impacts and environmental effects. This dual perspective offers valuable insights for resolution professionals handling environmentally sensitvie insolvency cases. 10 The theoretical underpinnings of ESG risk assessment derive from sustainable finance principles. These principles emphasize long-term value creation through responsible environmental stewardship. ESG integration challenges the artificial dichotomy between profitability and sustainability imperatives. Forward-looking insolvency regimes increasingly recognize that environmental compliance enhances rather than diminishes enterprise value. Global movements toward green finance futher reinforce the adoption of ESG metrics in insolvency contexts. 11 C.

Corporate Restructuring in the Indian Legal Landscape India's corporate restructuring framework underwent paradigmatic transformation through the Insolvency and Bankruptcy Code, 2016. This landmark legislation consolidated fragmented insolvency laws into cohesive framework. The IBC established time-bound resolution processes with creditor-in-control philosophy. The National Company Law Tribunal serves as designated adjudicating authority for corporate insolvency matters. However the code contains minimal provisions addressing environmental considerations during restructuring. The statutory waterfall mechanism under IBC creates inherent hierarchy among creditor classes. Financial creditors with secured interests receive preferential treatment over operational creditors. Environmental claimants struggle to establish priority within this distribution scheme.

This structural inequity frequently relegates ecological concerns to peripheral consideration during restructuring deliberations. Committee of Creditors rarely includes environmental stakeholders in decision-making processes. 12 Corporate restructuring in India reflects growing tension between commercial expediency and environmental responsibility. Resolution plans frequently undervalue or entirely disregard environmental liabilities. The information memorandum prepared by resolution professionals seldom includes comprehensive environmental risk assessments. This procedural gap

10 S&P Global, “ESG Scores

rating company ESG performance” (2024).

11 OnBoard, “What is ESG Risk? (Overview, Definition, and Examples)” (2022).

12 Id at 1.

perpetuates systematic underestimation of environmental remediation costs. Potential acquirers consequently receive incomplete risk profiles of target entities undergoing insolvency. 13 Legal Framework in India D. Insolvency and Bankruptcy Code, 2016: Overview The Insolvency and Bankruptcy Code, 2016 (IBC) represents a watershed moment in India's economic legislation. This comprehensive legislation consolidates multiple fragmented insolvency laws that previously existed. Prior legal frameworks suffered from excessive delays and inefficiencies in resolving corporate distress. The Code emerged from recommendations of the Bankruptcy Legislative Reforms Committee headed by T. K. Viswanathan. 14 IBC fundamentally shifts the insolvency paradigm from a debtor-in-possession to a creditorin-control model. This transformation represents a significant departure from earlier regimes.

The Code establishes specialized institutional infrastructure for efficient insolvency resolution. The National Company Law Tribunal (NCLT) serves as the adjudicating authority for corporate insolvency. Debt Recovery Tribunals handle individual insolvency cases with similar authority. 15 The Corporate Insolvency Resolution Process (CIRP) forms the cornerstone of the Code's rescue mechanism. This process must be completed within a strict timeframe of 180 days. Extensions are permissible up to 90 days with creditor approval. The Insolvency and Bankruptcy Code (Amendment) Act, 2019 imposed a maximum time limit of 330 days. This includes time spent in legal proceedings related to the insolvency process. 16 The Committee of Creditors (CoC) wields substantial powers under the IBC framework.

This committee comprises financial creditors who exercise proportional voting rights based on debt exposure. The CoC evaluates resolution plans submitted by prospective applicants. Resolution plans require approval by 66% majority vote of the committee. This supermajority threshold

13 PwC, “ESG Risk Assessment” (2024).

14 T.K. Viswanathan Committee, “Report of the Bankruptcy Law Reforms Committee” (2015).

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

16 Ministry of Corporate Affairs, “Overview of the Insolvency and Bankruptcy Code, 2016” (2016).

ensures broad consensus among financial stakeholders. IBC creates a waterfall mechanism for distribution of proceeds during liquidation proceedings. Insolvency resolution costs receive highest priority in this distribution hierarchy. Government dues rank below secured creditors but above unsecured claims. This statutory prioritization significantly impacts environmental liabilities which often remain unclassified. The Code remains silent on specific treatment of environmental claims during insolvency. 17 E. Environmental Laws and Corporate Liability India's environmental legal framework comprises a complex web of specialized legislations. The Environment (Protection) Act, 1986 serves as the umbrella legislation for environmental protection. This law empowers the central government to take measures for protecting and improving environmental quality.

The Act imposes stringent penalties on corporate entities violating environmental standards. Maximum imprisonment extends to five years with substantial financial penalties. 18 Corporate environmental liability operates primarily through the “polluter pays” principle in India. This principle has received judicial recognition through numerous Supreme Court judgments. The landmark case M. C. Mehta v. Union of India (1987) established absolute liability doctrine for hazardous industries. This doctrine eliminates traditional exceptions available under the strict liability rule. Companies engaged in inherently dangerous activities bear absolute responsibility for resulting damage. 19 Public Liability Insurance Act, 1991 mandates hazardous substance handlers to obtain insurance coverage. This insurance specifically protects against accidents involving hazardous chemicals.

The Act creates a mechanism for immediate relief to affected parties. Determination of liability follows no-fault principle requiring minimal evidentiary burden. District Collectors adjudicate compensation claims in a quasi-judicial capacity under this legislation. 20 The National Green Tribunal Act, 2010 established a specialized environmental court system. This tribunal possesses jurisdiction over civil cases involving substantial environmental

17 NITI Aayog, “Is IBC 2016 Effective?” (2020).

18 Ministry of Environment, Forest and Climate Change, “Environmental Legislation in India” (2018).

19 M.C. Mehta v. Union of India, AIR 1987 SC 1086 (Supreme Court of India)

20 Public Liability Insurance Act, 1991, No. 6, Acts of Parliament, 1991 (India)

questions. The NGT applies principles of sustainable development and precautionary approach in its adjudication. It awards compensation for environmental damages through expedited proceedings. The tribunal exercises both original and appellate jurisdiction in environmental matters. 21 Corporate environmental liability encompasses both civil and criminal dimensions in India. Civil liability manifests through compensation, remediation orders, and compliance directives. Criminal liability includes prosecution of corporate entities and responsible officers. The concept of “piercing corporate veil” allows attribution of liability to directors and officers. This prevents companies from hiding behind corporate structure to evade environmental responsibility. 22 Environmental Impact Assessment mandates environmental clearance for specified industrial activities.

The notification of 2006 categorizes projects based on potential environmental impact. Corporate entities must conduct comprehensive environmental impact studies before commencing operations. Non-compliance with clearance conditions triggers penalties including project cancellation. Environmental audits periodically assess ongoing compliance with statutory requirements throughout corporate lifecycle. 23 F. Intersection of Environmental Regulations and Insolvency Process A fundamental tension exists between environmental laws and insolvency proceedings in India.

Environmental regulations operate on “polluter pays” principle emphasizing ecological restoration. Insolvency framework conversely prioritizes creditor interests and business rescue. These competing objectives create complex jurisdictional questions during corporate insolvency. The legal system lacks clear guidance on resolving these conflicting policy goals.24 The moratorium provision under Section 14 of IBC presents particular challenges for environmental enforcement. Environmental claims technically fall within the moratorium's broad prohibition against legal proceedings. This effectively suspends enforcement actions by pollution control boards during CIRP. Environmental agencies cannot impose penalties or issue

21 National Green Tribunal Act, 2010, No. 19, Acts of Parliament, 2010 (India).

22 India-Briefing, “Environmental Compliance for Companies in India

Key Legislation and ESG Guidelines” (2024).

23 Ministry of Environment and Forests, “Environmental Impact Assessment Notification” (2006).

24 M.P. Ram Mohan & Sriram Prasad, “Environmental Claims under Indian Insolvency Law

Concepts and Challenges” (2023), Texas International Law Journal, Vol. 59, Issue 1. closure notices during this period. The statutory freeze potentially enables pollution continuation without immediate regulatory consequences. 25 Classification of environmental claims within IBC's priority framework remains problematic. Environmental liabilities often represent unliquidated claims difficult to quantify with precision. Resolution professionals struggle to incorporate these contingent liabilities into insolvency calculations. Environmental claims typically fall into residuary category of “remaining debts and dues”. This subordinate position significantly diminishes recovery prospects for environmental remediation costs. 26 The concept of “fresh start” under IBC potentially conflicts with environmental liability principles.

Successful resolution plans discharge pre-existing liabilities against corporate debtors. Environmental obligations might be inadvertently extinguished through this process. This creates moral hazard by incentivizing strategic bankruptcies to evade cleanup responsibilities. Environmentally damaged sites may remain unremediated due to this loophole in the insolvency framework. 27 JUDICIAL APPROACHES: INDIAN CASE STUDIES G. Swiss Ribbons v. Union of India: Primacy of Financial Creditors The Supreme Court judgment in Swiss Ribbons v. Union of India represents a significant milestone for environmental insolvency. The apex court upheld the constitutional validity of the Insolvency and Bankruptcy Code, 2016. This judgment established the primacy of financial creditors in insolvency proceedings.

The Court explicitly held that unsecured creditors can only legally claim amounts equivalent to liquidation value. This judicial pronouncement indirectly impacts environmental claims in insolvency settings. 28 Environmental liabilities typically fall within the category of unsecured creditors under IBC's framework. The Court's affirmation of the waterfall mechanism places such claims at significant disadvantage. Environmental obligations receive lower priority compared to secured financial debts. The Supreme Court did not specifically address environmental

25 Id at 3.

26 IRCCL, “Redefining Insolvency

A Case for Prioritizing Ecological Concerns.”

27 Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17 (Supreme Court of India)

28 Ibid.

concerns in this judgment. However, its implications for environmental liability resolution remain profound and far-reaching. 29 The judgment creates practical barriers for recovering environmental remediation costs during insolvency. Environmental agencies frequently find their claims subordinated to other creditors' interests. This judicial interpretation reinforces financial recovery over environmental restoration imperatives. Resolution plans often allocate minimal amounts for environmental remediation following this precedent. Consequently, polluted sites remain unremediated when corporate debtors undergo insolvency resolution. 30 H. Dhanvantri Jute and Industries Ltd. v. Pollution Control Board, Kalyani The National Company Law Tribunal confronted direct conflict between insolvency and environmental regulations.

This case involved textile manufacturer operating without environmental compliance. The West Bengal Pollution Control Board issued closure notice to the facility during moratorium period. NCLT held that moratorium protects corporate debtor from regulatory closure directives. Environmental enforcement actions were deemed suspended during insolvency resolution process. 31 The Tribunal reasoned that allowing environmental closure would defeat IBC's primary objective. The decision privileged corporate rescue and creditor interests over environmental compliance. NCLT directed continuation of operations despite documented pollution violations. This ruling establishes concerning precedent for environmental regulation during insolvency. Pollution control boards consequently face significant limitations in enforcement capabilities against insolvent entities. I. Bhushan Power and Steel Ltd.

: Environmental Liabilities in Resolution Plan The Bhushan Power and Steel case addressed treatment of environmental penalties in resolution plans. The corporate debtor had accumulated substantial pollution-related fines before insolvency. Resolution applicant sought to extinguish pre-existing environmental liabilities through resolution plan. Environmental agencies contested this approach, asserting

29 Id at 3.

30 Id at 24.

31 Dhanvantri Jute and Industries Ltd. v. Pollution Control Board, Kalyani, IBC Case No. CP(IB) No.

348/KB/2018 (NCLT Kolkata)

statutory non-waivability of penalties. The adjudicating authority permitted substantial reduction in environmental liabilities. 32 NCLT approved resolution plan with significantly diminished environmental obligations. The tribunal reasoned that company's revival outweighed environmental compliance concerns. This decision effectively transferred environmental costs from corporate entity to public domain. Environmental agencies lost significant recovery rights through judicial interpretation. The case exemplifies how insolvency proceedings can shield corporate polluters from accountability. 33 The ruling creates problematic precedent for environmental liability discharge in insolvency. It demonstrates vulnerability of environmental claims despite statutory protection. Resolution plans increasingly incorporate environmental liability haircuts based on this case.

This judicial approach shifts environmental remediation costs from private sector to public funds. Polluted sites ultimately require government intervention due to insufficient corporate accountability. 34 J. National Green Tribunal's Compensatory Approach The National Green Tribunal has adopted distinctive approach toward corporate environmental liability. It implements “polluter pays” principle through substantial compensation orders. Environmental damage assessment follows scientifically rigorous methodology. This approach focuses on restoring ecological balance rather than punitive measures. Compensation amounts typically reflect actual remediation costs rather than arbitrary penalties. 35 Notable cases demonstrate NGT's commitment to environmental accountability during financial distress. In Samit Mehta v. Union of India, NGT held respondents liable for marine ecosystem damage.

The tribunal imposed substantial compensation despite financial constraints of the polluter. NGT utilizes “absolute liability” standard derived from Oleum Gas case jurisprudence. This standard eliminates traditional exceptions available to companies handling hazardous substances. 36

32 Bhushan Power and Steel Ltd., CP(IB) No. 04/AH/2017 (NCLT Hyderabad)

33 LiveLaw, “Top 10 Insolvency Law Judgements [April to September 2023].”

34 India-Briefing, “Environmental Compliance for Companies in India

Key Legislation and ESG Guidelines.”

35 National Green Tribunal of India, “Environmental Justice

Principles and Practices” (2023).

36 Samit Mehta v. Union of India, Application No. 31/2020 (National Green Tribunal)

However, NGT's jurisdiction remains constrained by IBC provisions during formal insolvency. The moratorium creates jurisdictional barriers for direct NGT intervention. Environmental tribunals cannot directly enforce orders against companies undergoing CIRP. This institutional limitation creates regulatory blind spot for environmental enforcement. The result is fragmented environmental governance during corporate insolvency proceedings. 37 K. Committee of Creditors of Essar Steel v. Satish Kumar Gupta The Supreme Court's landmark judgment in Essar Steel case significantly impacts environmental claims. The Court emphasized commercial wisdom of Committee of Creditors in designing resolution plans. Adjudicating authorities cannot interfere with business decisions of creditors committee. Resolution plans approved by supermajority of financial creditors receive robust judicial deference.

This judgment reinforces financial creditors' authority in determining claim settlements. 38 Environmental liabilities face particular vulnerability under this precedential framework. The judgment supports extinguishment of contingent claims through resolution plans. Environmental claims frequently constitute contingent or unliquidated obligations. Committee of Creditors rarely includes environmental stakeholders in decision-making processes. Consequently, environmental interests receive minimal consideration during plan formulation. 39 The Court's emphasis on commercial wisdom creates significant barriers for environmental priorities. Environmental agencies possess limited mechanisms to influence resolution outcomes. Corporate environmental obligations become subordinated to financial recovery objectives.

This jurisprudential approach weakens environmental policy objectives during insolvency. The case effectively reinforces institutional bias against environmental claims in restructuring scenarios. 40

37 ipleaders, “A comparative approach by NGT and Judiciary in dealing with environmental cases.”

38 Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2019) SCC Online SC 1478 (Supreme Court of India)

39 Global Restructuring Review, “Cramdown under Indian insolvency law” (2024).

40 ICLG, “Restructuring & Insolvency Laws and Regulations Report 2025 India.”

L. M. C. Mehta v. Union of India: Environmental Principles in Corporate Liability The Supreme Court's jurisprudence in M. C. Mehta cases provides countervailing environmental principles. These landmark judgments established absolute liability standard for hazardous industries. The Court emphasized non-delegable duty of environmental protection for corporate entities. Financial constraints cannot justify environmental non-compliance under this doctrine. These principles theoretically apply regardless of company's financial status. 41 The Oleum Gas Leak case formulated “deep pocket” theory for corporate environmental liability. Companies engaging in inherently dangerous activities bear enhanced responsibility. The doctrine eliminates traditional defenses available under strict liability rule.

This jurisprudential framework potentially conflicts with insolvency principles during corporate distress. However, insolvency proceedings have increasingly limited application of these environmental principles. 42 The Supreme Court's environmental jurisprudence has not been effectively integrated into insolvency framework. Absolute liability standards frequently yield to financial recovery imperatives in insolvency context. Environmental obligations face practical subordination despite theoretical legal protection. This disconnect demonstrates need for harmonizing environmental and insolvency jurisprudence. The Court has not directly addressed reconciliation of these competing legal domains. 43

COMPARATIVE

ANALYSIS

M.

United States Model: Comprehensive Environmental Response Framework The United States adopts robust approach towards environmental liabilities during corporate insolvency. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) creates powerful framework. It imposes strict liability for environmental contamination on property owners. This liability persists regardless of fault and continues despite bankruptcy proceedings. The US Supreme Court established significant precedent in

41 M.C. Mehta v. Union of India, AIR 1987 SC 1086 (Supreme Court of India)

42 LawBhoomi, “Important Case Laws on Environmental Law.”

43 CMS Law-Now, “Environment law in India - an overview.”

Midlantic National Bank case. 44 Environmental cleanup obligations generally remain non-dischargeable in Chapter 11 proceedings. This reflects fundamental policy choice prioritizing environmental remediation over debt relief. US bankruptcy courts categorize ongoing environmental remediation as administrative expenses. This classification grants such claims priority over general unsecured creditors. Corporate restructuring plans must incorporate funding for environmental compliance to receive approval. 45 US bankruptcy regime distinguishes between past pollution and ongoing contamination. Claims related to past pollution that poses no ongoing threat may be dischargeable. However remediation obligations for continuing environmental hazards remain enforceable. The distinction creates balanced framework for addressing environmental liabilities.

Corporate debtors cannot utilize bankruptcy to escape current environmental responsibilities. 46 Section 363 sales in US bankruptcy proceedings present noteworthy limitation. Environmental claims based on prior conduct typically don't follow property in bankruptcy sales. However contaminated real property cannot be purchased “free and clear” of CERCLA liability. This creates persistent environmental liability for successor companies acquiring assets. Potential purchasers consequently conduct rigorous environmental due diligence before acquisitions. 47 N. European Union: Environmental Liability Directive and Insolvency Framework The European Union approaches intersection of environmental and insolvency laws more administratively. The Environmental Liability Directive (ELD) establishes comprehensive liability regime for environmental damage.

This framework operates on “polluter pays” principle similar to US model. Environmental authorities oversee assessment of ecological damage and remediation measures. This creates procedural channel outside insolvency frameworks. 48

44 Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494 (1986)

45 Morgan Lewis, “What to Know About Environmental Liabilities in Bankruptcy.”

46 Id at 6.

47 LexisNexis, “Environmental issues | Property insolvency | Restructuring & Insolvency” (2024).

48 European Commission, “Environmental Liability” (2023).

Unlike US model, EU lacks uniform approach across member states for environmental claims. Member states possess significant flexibility in environmental liability enforcement during insolvency. The ELD focuses primarily on administrative enforcement rather than creditor claims structure. This creates varied treatment of environmental liabilities across EU jurisdictions. Harmonization efforts remain ongoing but incomplete. 49 The EU Restructuring and Second Chance Directive represents significant development for insolvency framework. This directive facilitates early corporate restructuring before formal insolvency. However environmental considerations receive limited explicit attention within directive. Member states retain discretion regarding treatment of environmental liabilities. This creates divergent approaches to environmental claims during insolvency proceedings.

50 The European Commission's 2021-2024 Multi-Annual Work Programme acknowledges environmental insolvency gap. It specifically targets “sufficient availability of financial security” for environmental liabilities. The programme emphasizes necessity of securing environmental obligations during corporate insolvency. This signals recognition of current framework's limitations regarding environmental claims. Implementation remains primarily at member state level with significant variation. 51 O. United Kingdom: Balancing Administrative and Judicial Approaches The United Kingdom adopted distinctive hybrid approach combining administrative and judicial elements. Environmental liabilities continue when company becomes insolvent until dissolution. Insolvency practitioners face potential personal liability for breaches during administration.

This creates significant incentive for environmental compliance during reorganization proceedings. 52 UK insolvency framework distinguishes between different categories of environmental obligations. Regulatory notices issued by environmental agencies receive differential treatment. Remediation notices addressing immediate environmental hazards generally cannot be disclaimed. This approach reflects balancing environmental protection with business rescue

49 European Commission, “Implementation Commission” (2023).

50 EUR-Lex, “Restructuring, insolvency and discharge of debt” (2022).

51 European Commission, “Insolvency proceedings” (2023).

52 GOV.UK, “Cross-border insolvencies

Recognition and enforcement in EU Member States.”

objectives

The system creates pragmatic hierarchy of environmental claims. 53 Post-Brexit UK insolvency regime lost automatic recognition across EU member states. This change impacts cross-border environmental liability resolution within European context. UK's adoption of UNCITRAL Model Law provides alternative mechanism for recognition. However environmental liability enforcement across borders faces increased complexity. This development demonstrates interconnection between restructuring frameworks and environmental governance. 54 P. Indian Perspective: Developing Integrated Framework India's approach to environmental liability during insolvency reflects emerging economy perspective. The nascent jurisprudence demonstrates tension between development priorities and environmental protection. IBC's silence on environmental claims creates significant regulatory uncertainty.

Environmental liabilities typically receive subordinate treatment in waterfall mechanism. This reflects policy emphasis on economic recovery over environmental considerations. 55 Unlike US model, Indian system lacks clear statutory framework for environmental claims in insolvency. The Public Liability Insurance Act potentially offers harmonizing mechanism with IBC. However integration remains incomplete and primarily theoretical. This gap creates opportunity for more comprehensive policy intervention. Legislative reforms could explicitly address environmental claims within IBC framework. 56 India's environmental liability framework during insolvency lags international best practices. Other emerging economies have increasingly adopted more robust environmental protections. China recently incorporated environmental liability in Enterprise Bankruptcy Law.

Brazil similarly enhanced environmental protections in corporate insolvencies. India's comparative underdevelopment creates space for significant legal evolution. 57

53 Herbert Smith Freehills, “Cross-border insolvencies in the UK and EU – A post-Brexit guide.”

54 UK Insolvency Service, “Cross Border Insolvency Concerning Countries Outside the UK” (2022).

55 Id at 3.

56 Id at 24.

57 Id at

39 CONCLUSION

The intersection of environmental law and insolvency proceedings in India requires urgent legislative attention. Current frameworks create asymmetrical treatment of environmental liabilities during corporate restructuring processes. The Insolvency and Bankruptcy Code remains conspicuously silent on environmental obligations. This statutory gap permits subordination of ecological responsibilities to financial claims. Resolution professionals routinely undervalue environmental liabilities during insolvency resolution processes. Corporate debtors strategically leverage insolvency proceedings to evade environmental compliance costs. 58 Environmental insolvency represents profound market failure requiring regulatory intervention. The moratorium provisions under IBC inadvertently obstruct environmental enforcement mechanisms.

Environmental agencies face procedural barriers when pursuing claims against corporate debtors under IBC protection. National Green Tribunal orders frequently remain unenforceable against companies undergoing CIRP. This regulatory fragmentation creates perverse incentives favoring non-compliance with environmental regulations. 59 Integrating ESG risk assessment within corporate restructuring offers viable pathway forward. Mandatory environmental due diligence should precede resolution plan approval. Committee of Creditors should include environmental agency representatives with voting rights. Resolution plans must earmark adequate funds for remediation of environmental damages. Such reforms would harmonize competing policy objectives without compromising IBC's efficacy. 60 International best practices demonstrate feasibility of balanced approaches.

The US model's non-dischargeable environmental obligations provide instructive framework. EU's Environmental Liability Directive creates robust administrative enforcement mechanisms despite insolvency. These comparative approaches reveal integration possibilities within Indian

58 Ministry of Corporate Affairs, “Report of the Insolvency Law Committee” (November 2019).

59 Id at 24.

60 Insolvency and Bankruptcy Board of India, “Report of the Working Group on Tracking Outcomes under the Insolvency and Bankruptcy Code” (2019). context. Legislative amendments could explicitly bring environmental claims within IBC purview. 61 A tiered approach to environmental claims classification appears most promising. Critical environmental liabilities threatening public health should receive administrative expense priority. Medium-term remediation obligations could receive secured creditor treatment. Longterm ecological restoration costs might remain as unsecured claims. This graduated framework balances environmental protection with economic recovery imperatives. 62 India's aspiration toward sustainable development necessitates coherent environmental insolvency regime. Current fragmentary approach undermines both environmental protection and economic certainty.

Corporate entities deserve clear regulatory guidance regarding environmental responsibilities during financial distress Stakeholders require predictable framework for resolution of competing claims. The proposed integration represents crucial step toward environmentally responsible corporate governance. 63

61 Id at 3.

62 National Green Tribunal, Krishan Kant Singh v. National Ganga River Basin Authority, Application No. 299/2013 (2014)

63 Supreme Court of India, Id at

27 BIBLIOGRAPHY

1. Amiranty, Domenico. “Environmental Courts in Comparative Perspective.” Pace

Envtl. L. Rev. 29 (2012): 441-469.

2 Bhushan, Prashant. “National Green Tribunal

New Beginning for Environmental Cases?” CSE (2018).

3. Committee of Creditors of Essar Steel v. Satish Kumar Gupta, (2019) SCC Online SC

1478.

4. Dhanvantri Jute v. Pollution Control Board, IBC Case No. CP(IB) No. 348/KB/2018.

5. European Commission. “Environmental Liability.” (2023).

https://environment.ec.europa.eu/law-and-governance/environmental-liability_en

6. European Commission. “Insolvency Proceedings.” (2023).

https://commission.europa.eu/strategy-and-policy/policies/justice-and-fundamentalrights/civil-justice/insolvency-proceedings_en

7 Gill, Gitanjali. “Environmental Justice in India

The NGT.” Trans. Envtl. L. 5, no. 1 (2016): 175-205.

8. Holland & Knight. “Environmental Obligations in Bankruptcy.” (2020).

https://www.hklaw.com/en/insights/publications/2020/09/when-consideringbankruptcy-dont-forget-about-environmental

9. IBBI. “Discussion Paper on CIRP.” (December 2022).

https://ibbi.gov.in/uploads/whatsnew/2022-12-19-234037-loafdfd5fa45aaffcb6c1f4a60b73e7bb4ee9.pdf

10 IRCCL. “Redefining Insolvency

Prioritizing Ecological Concerns.” (2024). https://www.irccl.in/post/redefining-insolvency-a-case-for-prioritizing-ecologicalconcerns

11. M.C. Mehta v. Union of India, AIR 1987 SC 1086.

12. Midlantic National Bank v. New Jersey Dept. of Envtl. Prot., 474 U.S. 494 (1986).

13. Ministry of Corporate Affairs. “Report of Insolvency Law Committee.” (2019).

https://www.mca.gov.in/Ministry/pdf/ICLReport_05032020.pdf

14. Morgan Lewis. “Environmental Liabilities in Bankruptcy.” (2023).

https://www.morganlewis.com/pubs/2023/12/what-to-know-about-environmentalliabilities-in-bankruptcy

15. Oxford Law Blog. “Environmental Claims in Insolvency in India.” (2023).

https://blogs.law.ox.ac.uk/oblb/blog-post/2023/05/environmental-claims-insolvencyindia

16. Ram Mohan, M.P. & Prasad, Sriram. “Environmental Claims under Indian Insolvency

Law.” 59 Tex. Int'l L.J. 101 (2023).

17. Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17.

18. UK Insolvency Service. “Cross Border Insolvency.” (2022).

https://www.insolvencydirect.bis.gov.uk/technical/ch42/Part1.htm