Interim Profits In CIRP: EBITDA Allocation Dilemma

The major headline from the Supreme Court's decision to restore JSW Steel's resolution plan for Bhushan Power and Steel Limited (BPSL) on 26 September 2025, was the rescue of a ₹19,350 crore acquisition that the same court had set aside five months earlier.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 SilenceEBITDA, 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 MisreadThe 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 DisquietThe 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 ...

Interim Profits In CIRP: EBITDA Allocation Dilemma

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Interim Profits In CIRP: EBITDA Allocation Dilemma

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