Interim Profits In CIRP: EBITDA Allocation Dilemma

Another issue that came to the forefront but gained little traction was the consequential question: Who is entitled to the EBITDA generated by the BPSL (or by any other corporate debtor), while the case is being resolved? (EBITDA broadly speaking, is the operating profit a corporate debtor produces before financing costs, taxes, and non-cash charges.) The affidavit submitted by the resolution professional recorded operating profits in excess of ₹1,800 crore over the BPSL CIRP. The Supreme Court didn't settle the substantive question as to whose property such profits were, while it disposed of the lenders' belated claims on procedural grounds. This equivocation has now been addressed by the NCLAT in Manjeet Cotton v. Phoenix ARC, where it has been held that if the resolution plan is silent, then the surplus arising from the CIRP should be distributed to creditors as per Section 53 waterfall. Therefore, this dilemma has not been resolved, but has been reopened.

EBITDA, Going Concern, and the Statutory Silence

EBITDA, or Earnings Before Interest, Tax, Depreciation, and Amortisation, is simply how much money a company makes from its regular business activities. This figure doesn't include the interest which it has paid to the lenders, taxes owed to the State, and the non-cash bookkeeping entries that record the depreciation of plant and machinery or the writing-down of its intangible assets like goodwill (amortisation). If a steel plant makes ₹100 crore from steel sales and spends ₹70 crore on raw materials, wages, and power, its EBITDA is ₹30 crore, irrespective of how much interest is owed to the creditors, how much tax is to be paid, or the rate at which its blast furnace is depreciated on the books of account. Analysts and lenders prefer EBITDA specifically because it removes the financing and accounting aspects and shows how much cash is actually being generated by the core business. In the context of insolvency, what matters is whether the corporate debtor in CIRP keeps on producing substantial operating cash flows even as its capital structure unravels.

During the CIRP, EBITDA is accrued because Section 20 of the Insolvency and Bankruptcy Code, 2016 requires the resolution professional to keep the corporate debtor running as a going concern. The corporate debtor keeps operating, it generates revenue, it meets expenses, and it leaves a surplus. The IBBI's latest quarterly newsletter reports that the average CIRP yielding a plan now takes 603 days, which is well beyond the nominal 330-days outer limit set by the Code. Over such durations, interim profits matter.

While the Code is silent on their ownership, Section 18(1)(f) vests the corporate debtor's assets with the RP. Section 30(2) provides the minimum content required in a resolution plan, including how operational creditors and CIRP expenses will be treated, but is silent on profits earned mid-process. The liquidation waterfall given under Section 53 is relevant only at the liquidation stage. Also, the CIRP Regulations, 2016 do not contain any allocation rule. Due to this gap, the jurisprudence around this issue has oscillated between three views in five years.

Essar Steel: Process-Driven, Often Misread

The first authoritative decision on this issue came in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta. The NCLAT had directed for the equal distribution of Interim profits generated during CIRP amongst the financial and operational creditors. The Supreme Court overturned this by holding that the distribution of these profits “will not go towards payment of debts of any creditor” and this statement is very often quoted out of context. The Court's reasoning was totally procedural because Clause 7 of the first addendum to the Request for Proposal dated 8 February 2018, to which ArcelorMittal and the CoC had agreed, expressly provided for such an arrangement. The Bench coupled this to its now-canonical warning about "hydra heads popping up" post Section 31 approval. Essar Steel did not lay down any substantive rule that the EBITDA should always be owned by the corporate debtor, but rather laid down a subordinate proposition that if the RfRP and the approved plan point towards an express agreement then tribunals can't reopen the distributions thereafter.

CICIL Biochem: The Doctrinal Disquiet

The Essar Steel's lacuna of what governs when the RfRP is silent, arose in Kalyan Janata Sahakari Bank Ltd. v. Arun Kapoor (RP of CICIL Biochem Pvt. Ltd.) in which the NCLT Mumbai Bench in 2023, ordered the payment of CIRP earnings to secured financial creditors. The order's reasoning was justified on two grounds. First, the resolution plan defined “Receivables” as the amount received from the date of approval by the NCLT, implying that the SRA was not contractually entitled to income from CIRP prior to NCLT approval. Second, the income-earning assets were funded by the interest-free money from financial creditors during CIRP, thus supporting their claim for an equitable share. The Tribunal relied on the February 2020 Report of the Insolvency Law Committee, which noted two competing thoughts - creditor entitlement and CD/SRA entitlement. It recommended that this issue must be mandatorily dealt with in the resolution plans. Therefore, CICIL Biochem correctly identified the correct site of the dispute and answered it in favour of the creditors on specific facts.

BPSL: Resolution by Procedural Bar

The NCLT admitted the BPSL CIRP on 26 July 2017 and it approved JSW's plan on 5 September 2019, paragraph 128(j) of which directed EBITDA distribution to creditors, relying on the (then-available) NCLAT decision in Standard Chartered Bank v. Satish Kumar Gupta (Company Appeal (AT) (Ins.) No. 242 of 2019). The NCLAT after reading the Supreme Court's ruling in Essar Steel set aside the previous order on February 17, 2020 and remitted the matter to the Monitoring Committee on the terms of the RfRP, even though the RfRP said nothing about the issue.

Following implementation under Enforcement Directorate attachments and the recall of an earlier 2 May 2025 ruling that had ordered liquidation, on 26 September 2025, the Supreme Court restored the JSW plan. However, the EBITDA issue has been disposed of less definitively than is sometimes asserted. The Court rejected the CoC's claim, on three grounds: the CoC had originally taken the position before the NCLAT that the EBITDA should stay with the corporate debtor, and reversed their stance only on review, a "volte face" which the Court treated as fatal; the RfRP was silent, as was the plan, and Essar Steel's "hydra heads" doctrine barred post-approval claims; and the Court feared that burdening the SRA with such claims would deter future revival. It is crucial to note here that the Court did not adjudicate on the underlying substantive question of ownership of CIRP-generated EBITDA. The disposition was procedural and that distinction has now become important.

Manjeet Cotton: The Pendulum Returns

In Manjeet Cotton Pvt. Ltd. v. Phoenix ARC Pvt. Ltd., which was decided by the NCLAT, towards the end of April 2026 by a Bench of Justice Ashok Bhushan and Indevar Pandey who held that if a resolution plan remains silent on CIRP surplus, then such surplus forms part of the insolvency estate and is subject to distribution by the plan as per Section 53. The Tribunal rejected the contention of the SRA that the surplus was an “accretion” passing with the going-concern transfer and made the observation that the SRA “had no role in generating this surplus, nor had it taken any operational or financial risk during that period”. A clause allowing the surplus to be used for foreclosure of dues was held to be insufficient to give the SRA a proprietary right. Manjeet Cotton effectively revives the CICIL Biochem ruling and constructs a default rule that is diametrically opposite to the SRA-favourable reading of BPSL. The fact that a coordinate forum can reach a different conclusion just after seven months of the Supreme Court ruling is a gauge of the doctrine's instability.

Three Approaches, Three Default Rules

These cases thus reveal that there isn't a single settled rule but rather exists a spectrum. The asset-of-estate approach, which is now established in Manjeet Cotton, treats EBITDA as part of the debtor's assets, and requires it to be conserved for distributing it amongst the stakeholders under Section 53. The creditor-entitlement approach considers the financial creditors as residual risk-bearers whose haircut should be offset by interim profits. The resolution-plan approach, which was initially endorsed in Essar Steel and further substantially in BPSL, defers the question to ex ante allocation in the plan. Each approach is workable and the Code does not choose between them, thus leaving it completely to the discretion of the tribunals who are now visibly oscillating between the first and the third.

Reform: From ILC 2020 to the 2026 Bill

There are two policy interventions that are unimplemented. The Insolvency Law Committee Report, 2020 recommended that the resolution plans should include a mandatory clause on allocation of CIRP profits, and the CIRP Regulations should be amended accordingly. In January 2023, the MCA published a Discussion Paper which went further by suggesting a distinct CIRP-stage waterfall under which the creditors would receive proceeds up to liquidation value as per Section 53 priority and any additional surplus has to be distributed amongst all the creditors pro-rata to their unsatisfied claims, whereas any residue left would flow to shareholders.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has introduced a two-stage approval framework that de-links plan implementation from manner of distribution, such that, first the plan may be approved by the Adjudicating Authority and then the manner of distribution thereafter, within thirty days. None of these instruments resolves the substantive allocation rule for CIRP-generated EBITDA when both the RfRP and the plan are silent. That omission is the operative gap that exists. The IBBI could fill it by amending the CIRP Regulations to require an express EBITDA clause in every RfRP, with a statutory default rule that puts a stop to the present oscillation. The choice of default, asset-of-estate or going-concern transfer, is a policy question on which doctrine alone cannot legislate.

The dilemma of EBITDA allocation highlights a minor but persistent failure of legislative imagination. The Code was designed for resolution, rather than for the slow-motion stewardship that we see now in current CIRPs. Essar Steel gave us a process rule while the BPSL gave us a procedural ruling that has been mistaken by some as a substantive ruling, and Manjeet Cotton has restored the doctrinal ambiguity that CICIL Biochem first exposed. Until the IBBI or Parliament sets a standard rule, the next ₹1,800-Crore-esque dispute will be answered by whichever Bench it reaches first.