{"id":24069,"date":"2026-05-11T11:57:16","date_gmt":"2026-05-11T11:57:16","guid":{"rendered":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/?p=24069"},"modified":"2026-05-11T12:00:52","modified_gmt":"2026-05-11T12:00:52","slug":"where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole","status":"publish","type":"post","link":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/","title":{"rendered":"Where the Polluter Pays Nothing: Fixing IBC\u2019s Environmental Black Hole"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\" id=\"introduction\"><span class=\"ez-toc-section\" id=\"Introduction\"><\/span>Introduction<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The world is pushing towards green technologies and sustainability, &amp; India has also declared its commitment to achieve net-zero carbon emissions by 2070. And this goal demands a legal framework that does not allow companies to evade their environmental responsibility.<\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #0c0c0c;color:#0c0c0c\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #0c0c0c;color:#0c0c0c\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Introduction\" >Introduction<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Impact_Of_Insolvency_On_Environmental_Liability\" >Impact Of Insolvency On Environmental Liability<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Key_Legal_Issues_Under_The_Insolvency_And_Bankruptcy_Code\" >Key Legal Issues Under The Insolvency And Bankruptcy Code<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Global_Perspective_On_Environmental_Liability_And_Insolvency\" >Global Perspective On Environmental Liability And Insolvency<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Why_Environmental_Liability_Should_Survive_Insolvency\" >Why Environmental Liability Should Survive Insolvency<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Key_Takeaways\" >Key Takeaways<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Indias_IBC_A_Silent_Code_on_Environmental_Debt\" >India\u2019s IBC: A Silent Code on Environmental Debt<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Environmental_Claims_Under_the_IBC\" >Environmental Claims Under the IBC<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Valuation_of_Contingent_Claims\" >Valuation of Contingent Claims<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Clean_Slate_Principle_and_Environmental_Liability\" >Clean Slate Principle and Environmental Liability<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Position_of_Decree_Holders_Under_IBC\" >Position of Decree Holders Under IBC<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Environmental_Liabilities_After_Insolvency\" >Environmental Liabilities After Insolvency<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Key_Concerns_in_Environmental_Debt_Under_IBC\" >Key Concerns in Environmental Debt Under IBC<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Closing_the_Green_Loophole_in_IBC_What_Needs_to_Change\" >Closing the Green Loophole in IBC: What Needs to Change<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Need_to_Perfect_Environmental_Claims\" >Need to Perfect Environmental Claims<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Why_the_Green_Creditor_Principle_Is_Important\" >Why the Green Creditor Principle Is Important<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Impact_on_Credit_and_Investment_Market\" >Impact on Credit and Investment Market<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Expected_Long-Term_Benefits\" >Expected Long-Term Benefits<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Public_Interest_and_Environmental_Exceptions\" >Public Interest and Environmental Exceptions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Conclusion\" >Conclusion<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/where-the-polluter-pays-nothing-fixing-ibcs-environmental-black-hole\/#Recommended_Reforms\" >Recommended Reforms<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<p>However, the Insolvency and Bankruptcy Code, 2016 (\u201cCode\u201d) does not address this issue, allowing corporate debtors to slip through the cracks. The code focuses on value maximisation for creditors and revival of the entity, but this framework inadvertently overlooked the environmental concerns arising at this stage, when accountability matters the most.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"impact-of-insolvency-on-environmental-liability\"><span class=\"ez-toc-section\" id=\"Impact_Of_Insolvency_On_Environmental_Liability\"><\/span>Impact Of Insolvency On Environmental Liability<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When an entity enters the Corporate Insolvency Resolution Process (\u201cinsolvency\u201d), the moratorium under section 14 protects it against any legal claim \u2013 including environmental claims \u2013 and afterwards, the doctrine of a \u201cclean slate\u201d under section 31 protects the entity from any past liability, thereby relieving it from paying any environmental debt whatsoever.<\/p>\n\n\n\n<p>Since the environmental dues are not separately recognised in the waterfall mechanism under section 53, they consequently end up being treated like any other operational debt, having no chance of repayment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"key-legal-issues-under-the-insolvency-and-bankruptcy-code\"><span class=\"ez-toc-section\" id=\"Key_Legal_Issues_Under_The_Insolvency_And_Bankruptcy_Code\"><\/span>Key Legal Issues Under The Insolvency And Bankruptcy Code<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Legal Provision<\/th><th>Issue Created<\/th><th>Impact On Environmental Liability<\/th><\/tr><\/thead><tbody><tr><td>Section 14 \u2013 Moratorium<\/td><td>Protection from legal proceedings<\/td><td>Environmental claims cannot be effectively enforced during insolvency<\/td><\/tr><tr><td>Section 31 \u2013 Clean Slate Doctrine<\/td><td>Extinguishes past liabilities after resolution<\/td><td>A corporate debtor may escape environmental obligations<\/td><\/tr><tr><td>Section 53 \u2013 Waterfall Mechanism<\/td><td>No separate recognition of environmental dues<\/td><td>Environmental claims treated as operational debt with minimal recovery chances<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"global-perspective-on-environmental-liability-and-insolvency\"><span class=\"ez-toc-section\" id=\"Global_Perspective_On_Environmental_Liability_And_Insolvency\"><\/span>Global Perspective On Environmental Liability And Insolvency<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>India is not the only jurisdiction facing this challenge. Similar concerns have also emerged in countries such as the United States (\u201cUS\u201d) and the United Kingdom (\u201cUK\u201d).<\/p>\n\n\n\n<p>However, certain jurisdictions have developed mechanisms to address this issue. For instance, under the CERCLA framework in the United States, environmental liabilities can survive even after insolvency or liquidation proceedings.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"why-environmental-liability-should-survive-insolvency\"><span class=\"ez-toc-section\" id=\"Why_Environmental_Liability_Should_Survive_Insolvency\"><\/span>Why Environmental Liability Should Survive Insolvency<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Against this backdrop, this blog argues that the liability of corporate entities for environmental damage should remain independent of the outcome of proceedings under the Insolvency and Bankruptcy Code and must continue to survive despite the conclusion of the insolvency process.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"key-takeaways\"><span class=\"ez-toc-section\" id=\"Key_Takeaways\"><\/span>Key Takeaways<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India aims to achieve net-zero carbon emissions by 2070.<\/li>\n\n\n\n<li>The Insolvency and Bankruptcy Code, 2016, currently lacks a dedicated framework for environmental liabilities.<\/li>\n\n\n\n<li>Sections 14 and 31 may indirectly shield corporate debtors from environmental accountability.<\/li>\n\n\n\n<li>Environmental dues are treated as operational debt under section 53.<\/li>\n\n\n\n<li>International frameworks such as CERCLA in the US provide stronger protection for environmental claims.<\/li>\n\n\n\n<li>Environmental liability should survive insolvency proceedings to ensure sustainable corporate accountability.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"indias-ibc-silent-code-on-environmental-debt\"><span class=\"ez-toc-section\" id=\"Indias_IBC_A_Silent_Code_on_Environmental_Debt\"><\/span>India\u2019s IBC: A Silent Code on Environmental Debt<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When an entity is sound and flourishing, the chances of it following environmental norms are high. But as the company accumulates financial stress, the focus of stakeholders shifts from environmental responsibility to their own private concerns, &amp; with the initiation of insolvency or liquidation, the environment takes a back seat, thereby causing environmental apathy.<\/p>\n\n\n\n<p>It is specifically in these situations that the question of ownership of environmental harm repayment becomes complicated due to the absence of any substantial guidelines on this aspect, conferring the fate of Mother Earth to a few players primarily concerned with the recovery of their own dues.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"environmental-claims-under-ibc\"><span class=\"ez-toc-section\" id=\"Environmental_Claims_Under_the_IBC\"><\/span>Environmental Claims Under the IBC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Even if environmental authorities attempt to pursue claims or litigate the dispute, all proceedings against the debtor come to a halt due to the moratorium under section 14 of the IBC.<\/p>\n\n\n\n<p>Environmental claimants are left with the only option to file their claims before the Resolution Professional (RP) under the category of \u201ccontingent claims&#8221;, whose duty under regulation 13 of the Insolvency Resolution Process Regulations 2016 is to ascertain the true value of these claims.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"valuation-of-contingent-claims\"><span class=\"ez-toc-section\" id=\"Valuation_of_Contingent_Claims\"><\/span>Valuation of Contingent Claims<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>However, in practice these claims have often been assigned a very nominal value by the RP\u2014even as little as one rupee, as in the case of Essar Steel India Ltd, and were upheld by the Supreme Court in the interest of the revival of the entity.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Issue<\/th><th>Position Under IBC<\/th><th>Impact on Environmental Claims<\/th><\/tr><\/thead><tbody><tr><td>Moratorium under Section 14<\/td><td>All proceedings against the debtor were halted<\/td><td>Environmental litigation cannot continue<\/td><\/tr><tr><td>Contingent Claims<\/td><td>Filed before Resolution Professional<\/td><td>Often assigned nominal value<\/td><\/tr><tr><td>Resolution Process<\/td><td>Focus on revival of corporate debtors.<\/td><td>Environmental liabilities sidelined<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"clean-slate-principle-and-environmental-liability\"><span class=\"ez-toc-section\" id=\"Clean_Slate_Principle_and_Environmental_Liability\"><\/span>Clean Slate Principle and Environmental Liability<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Moreover, these claims lose all enforceability once the insolvency is successfully resolved due to the principle of clean slate, which extinguishes all previous liabilities of the Corporate Debtor (CD).<\/p>\n\n\n\n<p>The only exception is when such a contingent claim forms part of the resolution plan\u2014but data reported from previous insolvencies suggests that these liabilities are rarely included in the resolution plans.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"position-of-decree-holders-under-ibc\"><span class=\"ez-toc-section\" id=\"Position_of_Decree_Holders_Under_IBC\"><\/span>Position of Decree Holders Under IBC<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Additionally, environmental claimants who have obtained any judicial decree in their favour do not qualify as \u201ccreditors\u201d u\/s 3(10) of the Code under the Code and instead form a separate category of \u201cdecree holders&#8221;.<\/p>\n\n\n\n<p>And the decree holders fall far below in the waterfall mechanism, alongside contingent claimants, thereby deriving no added benefit from their decree.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Category<\/th><th>Status Under IBC<\/th><th>Priority in Waterfall Mechanism<\/th><\/tr><\/thead><tbody><tr><td>Financial Creditors<\/td><td>Recognized creditors<\/td><td>Higher priority<\/td><\/tr><tr><td>Operational Creditors<\/td><td>Recognized creditors<\/td><td>Moderate priority<\/td><\/tr><tr><td>Decree Holders<\/td><td>Separate category<\/td><td>Low priority<\/td><\/tr><tr><td>Contingent Claimants<\/td><td>Limited recognition<\/td><td>Low priority<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"environmental-liabilities-after-insolvency\"><span class=\"ez-toc-section\" id=\"Environmental_Liabilities_After_Insolvency\"><\/span>Environmental Liabilities After Insolvency<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although the primary objective of the IBC is value maximisation and recovery for creditors, the framework does not sufficiently address environmental liabilities that continue to exist even after insolvency proceedings.<\/p>\n\n\n\n<p>Unlike the position in the United States under the CERCLA framework, environmental claims in India often remain inadequately represented during the CIRP process, resulting in weak enforcement and unresolved environmental obligations.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"key-concerns-in-environmental-debt-under-ibc\"><span class=\"ez-toc-section\" id=\"Key_Concerns_in_Environmental_Debt_Under_IBC\"><\/span>Key Concerns in Environmental Debt Under IBC<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Absence of clear statutory guidance on environmental liabilities.<\/li>\n\n\n\n<li>Environmental claims treated as contingent claims.<\/li>\n\n\n\n<li>Nominal valuation of environmental damage claims.<\/li>\n\n\n\n<li>Moratorium restricting legal enforcement.<\/li>\n\n\n\n<li>Clean slate principle extinguishing prior liabilities.<\/li>\n\n\n\n<li>Low priority status of decree holders in the waterfall mechanism.<\/li>\n\n\n\n<li>Lack of inclusion of environmental liabilities in resolution plans.<\/li>\n\n\n\n<li>Weak environmental accountability during CIRP.<\/li>\n<\/ul>\n\n\n\n<p>India\u2019s Insolvency and Bankruptcy Code prioritises revival and creditor recovery but remains largely silent on environmental debt. The current framework creates a legal vacuum where environmental liabilities are often undervalued, delayed, or extinguished altogether. As insolvency proceedings continue to grow in India, there is an increasing need for a balanced framework that protects economic interests while also safeguarding environmental accountability and sustainable governance.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"closing-the-green-loophole-in-ibc\"><span class=\"ez-toc-section\" id=\"Closing_the_Green_Loophole_in_IBC_What_Needs_to_Change\"><\/span>Closing the Green Loophole in IBC: What Needs to Change<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A major reform needed in the Code is to allow environmental claimants to \u201cperfect their claims\u201d, even after the imposition of a moratorium. Perfecting claims allows the valuation process to conclude and enables a definitive amount to be recognised, thereby avoiding classification as mere \u201ccontingent claims\u201d. While it does not permit immediate enforcement, these perfected claims should be given binding status, making it mandatory for the prospective resolution professional to include their treatment in the resolution plan.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"need-to-perfect-environmental-claims\"><span class=\"ez-toc-section\" id=\"Need_to_Perfect_Environmental_Claims\"><\/span>Need to Perfect Environmental Claims<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>India should also incorporate the principle of \u201cGreen Creditor\u201d, which advocates prioritising environmental claims over other creditors, even if that requires allocating payments from the creditors\u2019 share.<\/p>\n\n\n\n<p>Creditors, particularly financial creditors, are well-informed about the debtor\u2019s business and often enjoy substantial influence over the debtor\u2019s policies and business operations. Even at the stage of loan disbursement, financial lenders assess the feasibility of the business in great detail and have access to all key records throughout the debtor\u2019s operational lifecycle.<\/p>\n\n\n\n<p>Therefore, if they choose to remain silent and inactive despite knowing about the debtor\u2019s environmental violations, they should bear the consequences of their ignorance, and environmental debts should be paid in priority over financial creditors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"why-green-creditor-principle-is-important\"><span class=\"ez-toc-section\" id=\"Why_the_Green_Creditor_Principle_Is_Important\"><\/span>Why the Green Creditor Principle Is Important<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Ensures accountability of financial creditors.<\/li>\n\n\n\n<li>Encourages environmentally responsible lending practices.<\/li>\n\n\n\n<li>Promotes sustainable industrial and business operations.<\/li>\n\n\n\n<li>Discourages companies from ignoring environmental compliance.<\/li>\n\n\n\n<li>Protects public resources from bearing pollution cleanup costs.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"impact-on-credit-and-investment-market\"><span class=\"ez-toc-section\" id=\"Impact_on_Credit_and_Investment_Market\"><\/span>Impact on Credit and Investment Market<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This practice would benefit the credit market in the long run, as it would set an example for companies intentionally remaining ignorant towards environmental concerns.<\/p>\n\n\n\n<p>It would also lead to a substantial change in the credit dispensation market, wherein creditors would ensure that their investment goes into companies better equipped and genuinely committed to following environmental norms.<\/p>\n\n\n\n<p>Moreover, creditors would remain vigilant in ensuring that the debtor complies with all environmental standards throughout its operations.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"expected-long-term-benefits\"><span class=\"ez-toc-section\" id=\"Expected_Long-Term_Benefits\"><\/span>Expected Long-Term Benefits<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Area<\/th><th>Expected Benefit<\/th><\/tr><\/thead><tbody><tr><td>Credit Market<\/td><td>Encourages responsible lending and environmental due diligence.<\/td><\/tr><tr><td>Corporate Governance<\/td><td>Promotes stronger compliance with environmental laws.<\/td><\/tr><tr><td>Investment Practices<\/td><td>Directs funding towards sustainable businesses.<\/td><\/tr><tr><td>Public Interest<\/td><td>Reduces burden on taxpayers for environmental cleanup.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"public-interest-and-environmental-exceptions\"><span class=\"ez-toc-section\" id=\"Public_Interest_and_Environmental_Exceptions\"><\/span>Public Interest and Environmental Exceptions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There have been instances where certain provisions of insolvency and bankruptcy law have not been implemented on the grounds of public interest, particularly in relation to larger environmental concerns.<\/p>\n\n\n\n<p>Courts in these foreign jurisdictions have not allowed companies to take refuge under insolvency law to shield themselves from paying damages caused to the environment by their violations.<\/p>\n\n\n\n<p>India should similarly specify certain exceptional circumstances in which a company cannot use the Code to shed its environmental liability and would be bound to pay environmental costs in priority over insolvency obligations.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"conclusion\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As the world progresses towards a green economy, insolvency laws across the globe have presented a novel challenge\u2014undermining environmental concerns by absolving polluters of their liabilities once admitted under insolvency or bankruptcy.<\/p>\n\n\n\n<p>Once a moratorium is imposed, environmental claimants are left with no choice but to file their claims before the Resolution Professional (RP) under the category of contingent claims or as decree holders\u2014both of which fall way below in the waterfall mechanism and rarely result in compensation, leaving no other option but to use taxpayers\u2019 money to clean up the liability of a single entity.<\/p>\n\n\n\n<p>Additionally, insolvency has increasingly become a mechanism for companies to shield themselves when faced with substantial environmental debts.<\/p>\n\n\n\n<p>The PLI Act, too, remains very limited in its scope, protecting only persons and their property and not covering other aspects of environmental pollution caused by these entities.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"recommended-reforms\"><span class=\"ez-toc-section\" id=\"Recommended_Reforms\"><\/span>Recommended Reforms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Amend the Code to recognise perfected environmental claims.<\/li>\n\n\n\n<li>Introduce the \u201cGreen Creditor\u201d principle within insolvency proceedings.<\/li>\n\n\n\n<li>Create exceptional circumstances where environmental liabilities survive insolvency.<\/li>\n\n\n\n<li>Strengthen the PLI Act to address modern environmental challenges.<\/li>\n\n\n\n<li>Ensure balance between economic growth and environmental protection.<\/li>\n<\/ul>\n\n\n\n<p>Therefore, the Code should be amended to introduce extraordinary circumstances wherein creditors would be held responsible for paying environmental damages.<\/p>\n\n\n\n<p>The PLI Act must also be amended to incorporate necessary changes, making it fully functional for present-day needs and to offer creative solutions that balance both environmental welfare and the objectives of the Code.<\/p>\n\n\n\n<p>India, being a developing nation, has its own limitations when it comes to balancing business and the environment\u2014two interests that are often perceived to be in conflict.<\/p>\n\n\n\n<p>Nevertheless, India must strive to promote environmentally friendly technologies and sustainable business practices, harmonising environmental protection with economic growth.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction The world is pushing towards green technologies and sustainability, &amp; India has also declared its commitment to achieve net-zero carbon emissions by 2070. And this goal demands a legal framework that does not allow companies to evade their environmental responsibility. However, the Insolvency and Bankruptcy Code, 2016 (\u201cCode\u201d) does not address this issue, allowing<\/p>\n","protected":false},"author":1472,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"two_page_speed":[],"_jetpack_memberships_contains_paid_content":false,"_joinchat":[],"footnotes":""},"categories":[7],"tags":[4765],"class_list":{"0":"post-24069","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-banking-finance-laws","7":"tag-banking-finance-laws"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/24069","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/users\/1472"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/comments?post=24069"}],"version-history":[{"count":2,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/24069\/revisions"}],"predecessor-version":[{"id":24168,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/24069\/revisions\/24168"}],"wp:attachment":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/media?parent=24069"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/categories?post=24069"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/tags?post=24069"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}