Many MSME borrowers in default cannot use this route, and the reason is built into the law. Pre-packaged insolvency is open only to a company or LLP that is classified as a micro, small or medium enterprise. A sole proprietor or an ordinary partnership firm is outside it. For those who do qualify, it offers something the standard insolvency process does not: a statutory clock of 120 days and a business that stays under its own management while creditors decide.

The pre-packaged insolvency resolution process, known as PPIRP, sits in Chapter III-A of the Insolvency and Bankruptcy Code, 2016 (Sections 54A to 54P). It has been available since April 2021. It was changed in 2026. The sections below cover who can use it, what the 2026 changes did, how the process runs, and where it fits among NPA resolution routes India 2026.

What PPIRP is, in plain terms

In an ordinary corporate insolvency resolution process (CIRP), a creditor or the company applies to the National Company Law Tribunal (NCLT). Once the application is admitted, the board’s powers are suspended and a resolution professional runs the company. That is the usual picture of corporate insolvency India 2026.

PPIRP reverses the order. The company prepares a base resolution plan first and shows it to its financial creditors. Only when enough unrelated financial creditors have approved the proposal does the company apply to the NCLT. If the application is admitted, the existing board or partners keep running the business under the supervision of a resolution professional, and the creditors’ committee tests the plan. The Code sets the outer limit at 120 days from the date the process starts (Section 54D).

It is a form of IBC debt restructuring, and an IBC NPA resolution route, because the creditors who must approve it are usually the banks holding the NPA. The borrower leads and the lenders decide whether it proceeds. It does not replace a negotiated settlement. It is the formal alternative when a bilateral deal will not hold all the creditors together.

Who can use it: the conditions in Section 54A

A distressed company India wide may qualify on paper and still fail one of the entry conditions in Section 54A and the notification under Section 4. Each is a gate, and missing one means the application fails. PPIRP is stricter than most IBC debt restructuring routes about what must be in place before filing.

• The debtor is a corporate debtor and an MSME. Section 54A(1) applies to a corporate debtor classified as a micro, small or medium enterprise under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 2006. A “corporate debtor” is a company or LLP. Proprietorships and ordinary partnership firms are not corporate persons under the IBC.
• The classification is current. The MSME limits were revised from 1 April 2025 (Ministry of MSME notification S.O. 1364(E) of 21 March 2025). The limits on investment and turnover are Rs 2.5 crore and Rs 10 crore for micro, Rs 25 crore and Rs 100 crore for small, and Rs 125 crore and Rs 500 crore for medium. Check both.
• The default is at least Rs 10 lakh. The Central Government notified Rs 10 lakh as the minimum default for this process in April 2021 (S.O. 1543(E)). The Section 4 proviso allows a figure up to Rs 1 crore, so confirm the current notified amount.
• No recent insolvency history. Under Section 54A(2), the debtor must not have gone through a PPIRP or a completed CIRP in the three years before the start date. It must not be in a CIRP now, and no liquidation order may have been made against it.
• The debtor must be eligible under Section 29A. Section 29A lists persons who cannot submit a resolution plan, and Section 54A(2)(d) imports it. Promoters whose accounts have been NPA for long periods should have this examined before anything else is done.
• Approval from unrelated financial creditors. Covered in the next section.
• Internal approvals. A majority of directors or partners must declare that the application will be filed within a stated period of up to 90 days and that the process is not meant to defraud anyone. A special resolution (or a three-fourths partners’ resolution) must approve the filing.

Udyam registration MSME status matters in practice. It is how most enterprises evidence their classification. The statute asks whether the debtor is classified as an MSME under the 2006 Act, so check the certificate’s category and date against the thresholds above and the date of filing. Which document the NCLT will accept is a point for your counsel. An enterprise that registered long ago should refresh its Udyam registration MSME details first.

The creditor approval: 51% after the 2026 amendment, 66% before

Most explainers now have this number wrong. Until May 2026, the corporate debtor had to obtain approval of its proposal from financial creditors, not being its related parties, holding at least 66% of the financial debt by value. The IBC (Amendment) Act, 2026 reduced that threshold to 51% for starting the process. The IBBI’s Third Amendment Regulations of 1 June 2026 now list “proof of approval from financial creditors, not being related parties, representing not less than fifty-one per cent. in value of the financial debt” among the documents filed with the application.

Three points follow for an MSME with bank debt:

• The approval comes before the application. The NCLT does not help you get it. If the banks will not sign, there is no PPIRP.
• Related parties do not count. Loans from promoters, directors and group companies are left out.
• One large lender may decide the outcome. In many MSME cases, one bank holds most of the debt, and the pre-packaged insolvency route lives or dies with that bank. If that bank holds 51% or more of the unrelated financial debt, its consent alone clears the threshold. If it holds more than 49%, the other lenders cannot reach the threshold without it.

The 2021 text also required 66% of the creditors’ committee’s voting shares to approve a resolution plan. The sources available when this article was prepared do not show whether the 2026 Act changed that vote, so check the current Section 54K before relying on it.

What goes into the application

The Act replaced the old list of documents in Section 54C(3) with a general requirement to furnish “such information as may be specified.” The detail moved to Regulation 18 of the PPIRP Regulations, as rewritten in June 2026. It now asks for a declaration by a majority of the directors or partners; the resolution to start the process; proof of the unrelated financial creditors’ approval; details of the proposed insolvency professional, with consent and the report under Section 54B(1)(a); audited financial statements for the last two financial years; and provisional statements for the current year up to the date of the declaration. Board-notified formats apply.

The IBBI’s discussion paper proposed dropping the declaration on avoidable transactions at the filing stage, and Regulation 18 as rewritten does not list it.

How the process runs, and the clock

Stage	What happens	Time limit
Pre-filing	Debtor prepares the base plan and obtains unrelated financial creditors’ approval	Filing within the declared period, not more than 90 days
Application	NCLT admits or rejects; if the application is incomplete, it gives 7 days to fix defects before rejecting	14 days (Section 54C)
Commencement	The process starts on the date of admission. A moratorium applies and a resolution professional is appointed	On admission
Committee and base plan	Committee formed by the resolution professional; debtor submits the base plan	Short fixed periods in the 2021 text; check the current rules
Plan approval	Committee approves the base plan, or invites rival plans if the base plan impairs operational creditors or is not approved	Plan to NCLT within 90 days of commencement (Section 54D)
Whole process	Completion of the process	120 days from commencement (Section 54D)
Tribunal order	NCLT approves a plan that meets Section 30(2)	30 days after receiving the plan

If no plan is approved within 90 days, the resolution professional must apply to terminate the process. The committee can also vote to convert to a CIRP, provided the debtor is eligible for one. Conversion moves the case into a CIRP, which runs under the Code’s ordinary rules.

Commentary calls the rival plan mechanism a “Swiss challenge”, a phrase the statute does not use. Rival plans are invited where the committee does not approve the base plan or the base plan impairs operational creditors’ claims. A promoter who wants to keep the business should note that paying operational creditors in full removes one trigger for competition.

Who runs the business, and what the bank can do meanwhile

Management stays with the board or partners, who must protect the assets and run the company as a going concern. It can be vested in the resolution professional only on a committee vote and a finding of fraud or gross mismanagement.

A moratorium starts on admission. Section 14 of the IBC, applied to this Chapter, bars suits against the company and any action to enforce a security interest, including action under the SARFAESI Act. Two limits matter:

• The moratorium starts at admission, not at creditor approval. Between the day the banks agree to the proposal and the day the NCLT admits the application, up to 90 days can pass. Recovery steps already under way, such as a SARFAESI notice, are not paused by the proposal. Align the bank’s written approval with the filing date. For the SARFAESI side, see Hectogon’s SARFAESI consulting services.
• Guarantors are not protected. The Supreme Court held in State Bank of India v. V. Ramakrishnan (2018) that the Section 14 moratorium does not stop action against a guarantor of the corporate debtor. A promoter who has given a personal guarantee remains exposed under Part III of the Code and under the guarantee itself, unless the bank agrees otherwise.

PPIRP compared with CIRP and a settlement

	PPIRP	CIRP	Bilateral settlement with the bank
Who starts it	The corporate debtor, with creditor approval first	A creditor, or the debtor	The borrower proposes, the bank decides
Who can use it	MSME corporate debtors only	Corporate debtors generally	Any borrower
Management during the process	Board or partners, under supervision	Resolution professional	Not applicable
Statutory clock	120 days	Longer, set by Section 12 of the IBC	None
What ends it	An NCLT-approved plan	An NCLT-approved plan	A signed settlement and payment

For an MSME with one main lender, MSME loan settlement India through a negotiated deal is often quicker and cheaper, and needs no tribunal. The Reserve Bank of India (Commercial Banks) Resolution of Stressed Assets Directions, 2025 (RBI/DOR/2025-26/165) say compromise settlement is not a matter of right, and a settlement paid over more than three months is treated as a restructuring. PPIRP is the alternative when several lenders must be brought through one process or the business needs a moratorium.

Among NPA resolution routes India 2026, the two are steps rather than rivals: a borrower can try a settlement and keep PPIRP ready. Hectogon’s pieces on the MSME one time settlement bank process and on the three paths out of an NPA cover the settlement side. A MSME loan settlement advisor can map which lenders would have to sign for each route, and that map matters most in any MSME NPA settlement 2026 plan.

What the numbers say about use

The IBBI’s April to June 2026 newsletter reports that, as on 30 June 2026, 18 PPIRP applications had been admitted. One was withdrawn, resolution plans were approved in 11 cases, and 6 were ongoing. For a regime available since April 2021, that is a small number. Published commentary gives several reasons: MSME eligibility is narrow, creditor consent is needed before filing, the paperwork is heavy, and awareness is low. The 2026 change to 51% addresses the second, and it is too early to say whether use will rise. A low number may also mean the route suits few cases, and a sample this small cannot say which.

When PPIRP fits and when it does not

As an IBC NPA resolution route, PPIRP is worth a serious look in an MSME NPA settlement 2026 discussion when:

• the borrower is a company or LLP with a valid MSME classification;
• the business is viable and the problem is the debt structure;
• the main lenders are open to a plan, and their combined share clears 51% of unrelated financial debt;
• the promoters can show they are eligible under Section 29A;
• operational creditors can be paid, or the promoters are ready to face rival plans.

It is the wrong tool when:

• the borrower is a proprietorship or an ordinary partnership firm;
• the lead lender will not sign before filing;
• the default is below the notified minimum, or the account has one bank and an MSME one time settlement bank offer is realistic;
• a CIRP or PPIRP closed in the last three years;
• the main aim is to escape the promoter’s personal guarantee, which this process does not do.

Where the law is still moving

The 2026 Act also creates a creditor-initiated process (CIIRP), which depends on notifications that had not been issued when this article was prepared, and it bars that process for a debtor that went through a PPIRP in the preceding three years. The IBBI also amended the PPIRP valuation rules in May 2026: per its newsletter, the resolution professional must appoint a set of registered valuers within three days of appointment, and the committee may, with written reasons, require a second set. Anyone tracking corporate insolvency India 2026 should expect further notifications. Before filing, ask your counsel or MSME loan settlement advisor to check the current text of the Code, the Regulations and the formats the Board has notified.

Frequently asked questions

What is a pre-packaged insolvency resolution process (PPIRP) under the IBC?

It is a process under Chapter III-A of the IBC (Sections 54A to 54P) that lets an MSME company or LLP restructure its debts through a base resolution plan agreed with its unrelated financial creditors before it applies to the NCLT. The existing board or partners keep running the business under a resolution professional’s supervision. Proprietorships and ordinary partnership firms cannot use it.

How long does a PPIRP take?

Section 54D sets 120 days from the date the process starts, and the creditors’ committee must submit its approved plan to the NCLT within 90 days. The NCLT then has 30 days to decide on a plan, and 14 days to admit or reject the first application. If no plan is approved in time, the professional must apply to end the process.

How much creditor approval is needed to start a PPIRP?

After the IBC (Amendment) Act, 2026, the debtor needs approval from unrelated financial creditors holding at least 51% of the financial debt by value. Earlier it was 66%. The approval must be in hand before the application is filed. Check the current text of Section 54A and Regulation 18 before relying on the figure.

Do promoters keep control of the company during PPIRP?

Usually yes. The board or partners continue to manage the business under the resolution professional’s supervision, with limits on asset sales and related-party dealings. Management can be vested in the professional only on a creditors’ committee vote and only where the NCLT finds fraud or gross mismanagement. Rival plans can still change who controls the company after the process.

Does PPIRP stop bank recovery action and protect guarantors?

A moratorium starts when the NCLT admits the application and bars suits and enforcement of security, including SARFAESI action. It does not start earlier, so steps taken before admission are not paused. It also does not stop action against a personal guarantor, as the Supreme Court held in State Bank of India v. V. Ramakrishnan (2018).