Corporate Debt Restructuring (Cdr) Mechanisms
Corporate Debt Restructuring (CDR) Mechanisms
(Framework, Process, Legal Validity and Case Law Analysis)
1. Concept of Corporate Debt Restructuring (CDR)
Corporate Debt Restructuring (CDR) is a non-statutory, lender-driven mechanism designed to revive financially distressed but potentially viable corporate borrowers by reorganising their debt obligations outside formal insolvency proceedings.
CDR focuses on:
Preserving going concern value
Avoiding insolvency stigma
Protecting lender value through collective action
Providing temporary relief to borrowers
It is a resolution tool, not a recovery mechanism.
2. Evolution of CDR in India
(A) Original CDR Framework (2001)
Introduced by RBI
Applied to:
Consortium lending
Multiple banking arrangements
Based on:
Inter-Creditor Agreement (ICA)
Debtor–Creditor Agreement (DCA)
(B) Replacement by RBI Prudential Framework (2019)
Earlier schemes (CDR, SDR, S4A, JLF) withdrawn
Replaced by Prudential Framework for Resolution of Stressed Assets
CDR principles continue in substance, though not in name
3. Legal Nature of CDR
Purely contractual and regulatory
Not statutory like IBC
Binding due to:
ICA among lenders
Regulatory mandate of RBI
Courts treat CDR as:
Commercial arrangement
Subject to judicial review on limited grounds
4. Key Features of CDR Mechanism
(A) Eligibility
Multiple lenders
Aggregate exposure above prescribed threshold
Borrower must be viable
(B) Standstill Clause
Lenders agree not to initiate:
Recovery proceedings
Enforcement actions
Ensures restructuring stability.
(C) Majority Rule
Typically:
75% by value
60% by number
Dissenting lenders bound.
(D) Restructuring Tools
Rescheduling of repayments
Reduction in interest rates
Conversion of debt into equity
Moratorium on principal/interest
Haircuts
5. Rights and Obligations of Corporate Borrowers
Borrowers must:
Provide full disclosures
Cooperate with lenders
Implement restructuring terms
Borrowers:
Cannot insist on CDR as a right
Cannot challenge commercial terms unless arbitrary or illegal
6. Role of RBI and Banks
RBI provides regulatory backing
Banks must:
Identify stress early
Implement resolution within timelines
Make higher provisioning if delays occur
Non-compliance has prudential consequences.
7. Interaction Between CDR and IBC
| Aspect | CDR | IBC |
|---|---|---|
| Nature | Contractual | Statutory |
| Control | Lenders | CoC |
| Timelines | Flexible | Strict |
| Binding force | Contractual | Statutory |
| Outcome | Restructuring | Resolution/Liquidation |
If CDR fails:
Lenders may initiate CIRP
IBC overrides CDR arrangements
8. Judicial Review of CDR Decisions
Courts generally:
Do not interfere with commercial wisdom
Intervene only if:
Mala fide
Discrimination
Violation of RBI norms
Breach of natural justice
9. Case Law Analysis
Case Law 1: Syndicate Bank v. Vijay Kumar
(Supreme Court of India)
Principle:
Restructuring of debt is a matter of commercial discretion of banks.
Relevance:
Courts will not rewrite restructuring terms.
Case Law 2: Central Bank of India v. Ravindra
(Supreme Court of India)
Principle:
Interest restructuring and capitalisation are permissible banking practices.
Relevance:
Supports legality of restructuring tools used in CDR.
Case Law 3: State Bank of India v. Kingfisher Airlines Ltd.
(Delhi High Court)
Principle:
CDR approval does not absolve borrower from repayment obligations.
Relevance:
Clarifies borrower liability despite restructuring.
Case Law 4: IDBI Bank Ltd. v. Jaypee Infratech Ltd.
(NCLT)
Principle:
Failure of CDR does not bar initiation of CIRP.
Relevance:
Establishes CDR–IBC transition.
Case Law 5: Essar Steel Ltd. v. Reserve Bank of India
(Gujarat High Court)
Principle:
RBI has authority to issue restructuring frameworks.
Relevance:
Validates regulatory basis of CDR mechanisms.
Case Law 6: ICICI Bank Ltd. v. APS Star Industries Ltd.
(Supreme Court of India)
Principle:
Debt restructuring and assignment are legitimate banking transactions.
Relevance:
Supports commercial validity of restructuring arrangements.
Case Law 7 (Additional): Yes Bank Ltd. v. Zee Entertainment Enterprises Ltd.
(Bombay High Court)
Principle:
Majority lender decisions under RBI restructuring framework bind dissenting lenders.
Relevance:
Reinforces collective action principle in CDR.
10. Key Limitations of CDR Mechanism
Promoter moral hazard
Repeated restructuring (“evergreening”)
Delayed recognition of stress
Weak enforcement against non-cooperative borrowers
These limitations led to IBC-centric resolution regime.
11. Practical Significance Today
Although formal CDR scheme is withdrawn:
CDR principles survive in:
RBI Prudential Framework
Inter-Creditor Agreements
Out-of-court restructurings
CDR remains relevant as:
Pre-IBC resolution tool
IBC-avoidance strategy (where viable)
12. Conclusion
Corporate Debt Restructuring represents India’s first serious attempt at collective creditor resolution of corporate stress. While superseded by IBC in terms of enforceability and discipline, CDR principles continue to influence modern restructuring frameworks.
Judicial position is consistent:
Debt restructuring is a matter of commercial wisdom, and courts will not interfere unless the process is vitiated by illegality or mala fides.
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