Introduction – Rising Phoenix Companies in India
When a new company emerges from the ashes of a failed predecessor with the same controllers and operations, this activity is called the phoenixing of companies. The same directors and shareholders who were involved in the failed version of the company participate in the phoenix process, and they are permitted to continue operating under the same name as long as they adhere to the rules. While relatively well-known in Australia and the United Kingdom, it is a new concept in India. While this may seem like a legitimate rescue strategy, it also raises concerns about evading liability, unpaid taxes to authorities, leaving creditors etc. In many countries like the United Kingdom, phoenixing is a serious offence with harsh consequences when found guilty. In India, there is no such comprehensive legislation that talks about the validity of Phoenix companies, nevertheless, Section 74 of the Companies Act, 2013, and Section 29A of the Insolvency and Bankruptcy Code, 2016 make Phoenix companies illegal under fraudulent intention or abuse of law. The NCLAT works in the interest of the creditors and liquidators under the principles of company law and the IBC. The most debated provision of the IBC is Section 29A which outlines circumstances under which an individual loses their eligibility to apply for a resolution plan. In order to accurately read this section and eliminate any irregularities or inaccuracies, it has been addressed numerous times in courts. Although, the Supreme Court of India has extraordinary constitutional jurisdiction under Article 142 of the Indian Constitution to provide justice in any cause or issue that is pending before it, the National Company Law Tribunal (NCLT) handles the majority of IBC cases. Nonetheless, the Supreme Court of India on several occasions has made efforts to address the problems resulting from cases decided under the IBC. We agree that the National Company law Tribunal is a watchdog for illegal activities under insolvency proceedings, but it never puts a bar on any resolution plan by an entity without taking into consideration all the stakeholders and always leaves a scope for alternate exhaustive remedies. This was evident in the matter of Cosmic CRF Limited versus Deepak Maini and others, where the National Company Law Tribunal remanded the issue of eligibility of Cosmic CRF’s resolution plan back to the committee of creditors for the reconsideration of their decision declaring Cosmic as ineligible to bring Resolution Plan under section 29A of IBC, on the grounds of principle of Natural Justice, and stated that –
“In the interest of upholding the principles of natural justice, it is imperative to provide a fair opportunity for the affected party i.e. Applicant in the present matter. The doctrine of audi alteram partem a fundamental tenet of natural justice mandates that no person shall be condemned unheard.”
Moving forward, the NCLAT also assisted in a recent case called Blue Frog Media Private Limited, which established that section 29A of the IBC cannot be applied blindly and that a company’s promoters cannot be merely disqualified because they fall under clauses A to G of the section 29A because in this case, the promoters of the company have already resigned and have not taken part in the resolution plan. In the Blue Frog Media case, NCLAT referenced a 2023 Supreme Court ruling in the Hari Babu Thota v. Sri Ashcharya Infra case, which also held that section 29A cannot bar promoters and directors from submitting a resolution plan until and unless they qualify for any of the clauses from A to G and fall under the purview of section 29A of the IBC.
UK Legal framework on Phoenix of Companies
A director, or a shadow director is prohibited under Section 216 of Insolvency Act 1986 from re-using the same name previously used by the company that has gone into liquidation. Breaching this law is a criminal offence under section 217 where the penalties can be fine or imprisonment. The purpose of this legislation is to stop ‘phoenixism’ where directors will be able to liquidate the company as well as avoid paying creditors, before starting a new company with same or similar name or line of business. Apart from this, section 6 of the Company Directors Disqualification Act, 1986 states that a Director can be disqualified for a period of two to fifteen years if they are engaged in ‘unfit conduct’ in managing an insolvent company, and this also involves phoenixing of companies. The Fraud Act of 2006 is also piecemeal legislation which in certain cases also covers phoenixing of companies by Directors that engage in fraud, misrepresentation, abuse of position and concealment of information.
Australian Legal framework on Phoenixing of Companies
Australia has one of the most developed and comprehensive commercial laws in regulating illegal phoenix activities. The primary legislation governing is the Corporations Act 2001. Section 596AB of the Act, imposes criminal liability on a person who enters into a transaction with an intention to avoid recovery of entitlements of employees as well as of the company, or significantly reduce the entitlements of employees and the company. In addition to criminal penalties, under section 596AC the person may also be liable to civil pecuniary liability. This legislation comprehensively deals with illegal phoenixing of companies. Treasury Laws Amendment (Combating Illegal Phoenixing) Bill, 2019 that amends Corporations Act 2001 to introduce civil and criminal penalties under section 588FDB. This provision combats illegal phoenixing and under these laws, directors and facilitators who engage in ‘creditor defeating disposition’ can face civil and criminal penalties. This collectively enhances director accountability and protect creditors from fraudulent practices. Apart from this Sections 203AA and 203AB put restriction on resignation of director unless company is being wound up as well as imposes personal liability on directors for unpaid creditor amounts. The Director Identification Number (DIN) prevents use of fictitious identities of the director and aids in detecting illegal phoenixing of companies. Australian Securities and Investment Commission (ASIC) conducts surveillance and monitors individuals suspected of engaging in illegal phoenix activities. It collaborates with government agencies like, Australian Taxation Office (ATO) to detect and deter illegal phoenixing activities.
Indian Approach to Phoenixing of Companies: Reforms and Challenges
Essar Group – Case
The Essar Group controversy is part of a bigger problem that has hamstrung the corporate world. Loan defaults and Non-Performing Assets (NPA) are daunting issues in India. In 2017, Essar Steel went into Insolvency proceedings, and during its insolvency proceedings, it tried to buy back its assets by forming another Phoenix company. This incident sparked a huge debate – Should buying back your company’s assets be allowed to evade insolvency? Essar Steel’s management put itself into resolution or liquidation, solely to buy the same company and form a phoenix company, shorn of the debts of their original company. In the backdrop of this controversy, in 2018 Section 29A was inserted in the Insolvency and Bankruptcy Code, 2016.
Laws and Regulations
Section 29A bars a company from submitting a resolution plan for liquidation, if it has been legally classified as an NPA and further has failed to repay within one year of that classification. The company shall be eligible to submit a resolution plan when all the overdue accounts have been cleared before the submission. In cases where the company’s Promoters give a personal guarantee to the creditors for the company’s debts, Section 29A will ex-ante exclude such promoters from phoenixing. Apart from this, section 35(1)(f) of the IBC, 2016 prohibits the liquidator from selling the assets of corporate debtor to any person liable under Section 29A. This ensures that defaulting promoters cannot repurchase assets at discounted rates during liquidation. In a reportable case, ArcelorMittal India Private Limited v. Satish Kumar Gupta the Supreme Court gave an interpretation of Section 29A. The court emphasized on the importance of in preventing defaulting promoters from regaining control of their companies, thereby upholding the integrity of insolvency process. In this case, the court adopted a purposive approach in interpreting ‘controller’ and ‘promoter’ to include both de jure and de facto control. This seeks to prevent individuals who have significant influence over a company, who don’t have any formal titles to circumvent disqualification provision. This provision also ensures that in cases where individuals hide behind complex corporate mechanisms, the corporate veil can be lifted.
Conclusion
The concept of phoenixing of embodies a practice of resuscitating failed enterprises, however, its misuse will not only jeopardize the financial and legal system but also put the creditors at significant risk. Section 29A of the IBC 2016 was a prominent regulatory framework that is crucial to curb fraudulent and malicious phoenixing, yet it is not comprehensive enough to tackle it. Several loopholes still exist and they must be addressed on a priority basis with a robust and transparent mechanism such as a tailor-made pre-pack pool. This mechanism must incorporate enhanced scrutiny of transactions, strict disclosure norms to ensure accountability, and extended oversight of post-insolvency operations. The UK and the Australian legislations can be used as a model for drafting this pre-emptive mechanism. Developing a comprehensive regulatory framework that addresses this daunting issue, will balance entrepreneurial revival with creditor protection. With this, India can pave the way for an equitable and efficient insolvency regime, that safeguards it’s economic and legal welfare. With the exception of the Essar case, there are few well-defined instances of phoenixing in India, as this concept is relatively new. In addition, there’s a chance that these kinds of crimes went unreported because scams and frauds are common in India. Since Section 29A of the IBC only prohibits directors, promoters, and other related parties from participating in the liquidation process, there is still room for improvement. A company that plans to engage in phoenixing can always buy back its own assets in some way, either directly or indirectly. Phoenixing is unavoidable, but it can be a helpful strategy for corporate revival—only if creditors are given confidence or involved in the entire process. Instead of avoiding this process, policymakers should embrace it, as such avoidance would only encourage more organized and systematic fraud.
(This post has been authored by Arjun Pandey and Ridhi Shree Nair, fourth-year students at DNLU, Jabalpur)
CITE AS: Arjun Pandey and Ridhi Shree Nair ‘COMBATING ILLEGAL PHOENIXING: INDIAN LAWS AND REFORMS’ (The Contemporary Law Forum, 18 October 2025) <https://tclf.in/2025/10/18/combating-illegal-phoenixing-indian-laws-and-reforms/> date of access.