Displacement, Not Resolution: Insolvency of Private Nuclear Operators under the SHANTI Act, 2025

Deepak Tiwari*

Introduction

India is making a significant policy shift by opening the nuclear sector to private participation. This policy shift significantly renews India's push towards expanding nuclear energy production. Nuclear power projects are among the most capital-intensive undertakings in the energy sector, as it includes long-gestation periods, high regulatory compliance costs, and substantial exposure to technological and operational risk. Private participation inevitably brings the possibility of financial distress and insolvency, a domain primarily governed by the Insolvency and Bankruptcy Code, 2016 (“IBC”).

However, nuclear enterprises are not ordinary commercial entities. Operating them involves exceptional risks, strategic considerations, and a pervasive sovereign control to ensure the safety of citizens from any nuclear hazard. This raises a serious question: what will happen with a privately operated nuclear enterprise if it gets insolvent under the ‘Creditor-driven insolvency regime’?

The enactment of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India Act, 2025 (“the SHANTI Act”) appears, at the surface level to address this concern by empowering the state to cancel the license of the operator and take control over the nuclear facilities in case of financial distress of private entities, which on the face of it renders the concerns regarding insolvency irrelevant. This article advances a contrary position by demonstrating that while the SHANTI Act mandates a sovereign takeover in situations of financial distress, it fails to meaningfully integrate principles of insolvency resolution or creditor protection within the newly established nuclear regulatory framework. By retaining the SHANTI Act as the central statutory focus, and juxtaposing it with the conceptual foundations of the IBC, along with a comparative analysis of the United States’ approach, the article highlights India’s lack of a strategically designed insolvency-resolution architecture for private nuclear enterprises. This structural deficiency is likely to undermine creditor confidence, deter investor participation, and consequently impede the long-term viability of private sector involvement in India’s nuclear energy sector.

Why Nuclear Enterprises Do Not Fit the IBC?

The IBC is built upon a set of commercial principles that cannot be applied in the case of nuclear companies. At its very core, the aim of IBC is value maximisation achieved through a creditor-driven resolution process that addresses corporate failures as recognised by the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India. The IBC rests on three foundational pillars making it a very distinctive law, i.e., firstly, transferability of assets from corporate debtors to creditors etc., secondly, collective decision making by creditors, which forms the basis for the Committee of Creditors (“COC”) which is established under Section 21 of the IBC, and lastly, limited judicial supervision by the National Company Law Tribunal under Sections 30 and 31 of the Code and considering liquidation as the last resort under Section 33 of the Code.

The Companies engaged in nuclear energy are fundamentally distinct, making it difficult to fit them within this framework. Firstly, nuclear facilities do not consist of freely transferable assets, making their liquidation unfeasible, as nuclear installations, materials used (often including waste/used nuclear fuel, which is very toxic in nature and needs to be stored for years) and technologies required for a nuclear plant to function are subject to strict licenses and regulatory control under the Atomic Energy Act, 1962, along with the oversight by the Atomic Energy Regulatory Board, international safeguards and huge national security considerations. Therefore, solely depending on the creditor’s commercial wisdom for the sale or transfer of such crucial assets is not a viable option and can raise serious safety concerns both for the public and the sovereign.

Second, the IBC’s heavy reliance on the Commercial Wisdom of Creditors for a viable resolution plan is impractical for the resolution of a distressed nuclear entity. Under the IBC framework, the COC is the decision-making authority which plays a crucial role in making and approving plans regarding resolution or liquidation, as affirmed by the Supreme Court in K. Sasidhar v. Indian Overseas Bank, (2019) and later was reiterated in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2019). We cannot try to fit the commercial wisdom of COC in the private nuclear entities' scenario, as generally, creditors lack both the technical expertise and the legal mandate to manage nuclear safety risks. Nuclear safety is a sovereign and non-delegable function, and compromising it by creditor-driven control can pose serious concerns regarding the future operational safety of the entity.

Third, IBC presumes liquidation to be the safety net in case the resolution plan under the CIRP fails for an insolvent company. But if we look specifically in the context of nuclear entities, a successful liquidation seems a far-fetched presumption. A nuclear plant cannot be dismantled, sold or abandoned like any other industrial entity, as there exist serious long-term environmental, safety and security concerns which are very important to be taken into consideration, particularly in light of statutory liabilities under the Civil Liability for Nuclear Damage Act, 2010, which imposes strict liability upon the operator of a Nuclear installation.

Due to these structural incompatibilities, a deeper problem surfaces, which is that the IBC favours a market-based resolution logic, reinforced by Section 238 of the IBC, giving it an overriding effect over inconsistent laws (as discussed in Innoventive Industries Ltd. v. ICICI Bank, (2018)), whereas nuclear regulation explicitly rests upon sovereign control and non-commercial public safety considerations in India. As a result, these newly allowed private nuclear enterprises do not completely fit in India’s insolvency framework, therefore creating serious issues when insolvency of such companies arises.

SHANTI ACT, 2025: Displacement, Not Resolution

While the SHANTI Act,   prima facie, provides measures towards filling the void, a closer examination, however, reveals that it merely addresses the consequences of financial distress without engaging with the process of insolvency resolution.

Firstly, the Act under Section 22 gives absolute powers to the Central Government to cancel a license if, in any case, the financial position of the license holder has deteriorated to such an extent that it can no longer operate the nuclear facility safely or reliably. Therefore, instead of treating financial distress as a commercial failure requiring restructuring, it is labelled as a regulatory risk factor, which effectively shifts the matter from prospects of insolvency before courts (where resolution was possible) to the discretion of the executive. This directly bypasses the IBC framework and sets the stage for creditor exclusion, as once the insolvency is nationalised, the creditors lose their rights to participate, and the discretion of the Central Government prevails.

Secondly, under Section 24 of the Act, upon cancellation of the license, the Bill gives the Central Government the power to take control of the nuclear facility. This is mainly done to ensure safety, security and continuity of operations. This Bill vests full acquisition rights with the government “free from all encumbrances” in cases of abandonment. Looking at all of this from a creditors’ perspective, this has numerous implications. This Bill does provide compensation for acquisition, but the important thing to note here is that nowhere in the Bill is this compensation linked to outstanding debt. Creditors, instead of being treated as stakeholders with enforceable rights, are treated as peripheral interests subject to executive discretion.

Thirdly, throughout the whole Act, there is only a single reference to lenders/creditors. It states that the Government “will consider” measures for protecting its interests before cancelling the license of the private nuclear plant operator. The Act does not contain any standing, substantive protection, or participation rights for the creditors.

Even the “Notes on clauses”, which is often used to understand the legislative intent behind the clauses, does not mention anything about creditor treatment and the insolvency of such a distressed company. This, in turn, might suggest that the insolvency resolution was not one of the key considerations of the legislature while drafting this Bill.

Considering all this together, it is quite evident that these provisions do not address insolvency but rather bypass it. Financial failure of such companies is not met with resolution or restructuring processes, but with sovereign takeover. The control is shifted from the market and judiciary to the executive, and most importantly, the creditors are effectively sidelined from the process. In crux, insolvency is not addressed; it is nationalised.

Comparative perspective

The US nuclear regime is a clear demonstration of how insolvency proceedings can continue while ensuring nuclear safety without any conflict. In the US, many private nuclear operators have undergone bankruptcy proceedings, which are governed under Chapter 11 of the Bankruptcy Code, and all of these happened without triggering any automatic state takeover or license termination.

One of the evident reasons for this co-existence lies in the institutional separation present in the USA’s Insolvency framework. The bankruptcy courts deal with the primary issue of insolvency, while the issue of nuclear safety and licensing is regulated by the US Nuclear Regulatory Commission (“NRC”). Mere triggering of insolvency doesn't automatically invalidate the license of the licensee. Instead, during this period, any transfer of ownership or change in control requires NRC’s approval. This mainly ensures that the safety considerations override decisions that are purely commercial in nature. The continuation of the license, therefore, helps in the continuation of nuclear operations while debts are being restructured by the bankruptcy court. The US insolvency regime, combined with regulatory oversight of the NRC, also protects creditors' rights. At the core of it, the main objective of Chapter 11 of the USA’s Insolvency Code is not nationalisation but revamping insolvent businesses while maintaining strict regulatory oversight. This approach, therefore, not only maintains investor confidence and upholds the rule of law but also allows specialised regulators to safeguard public safety.

Because of this well-defined insolvency structure, creditors retain their standing and participate in the restructuring process. Considering the strategic importance of such nuclear companies, assets may be sold, debts may be restructured, and the whole enterprise may also be reorganised, subject to regulatory oversight. The objective of the USA’s insolvency regime here is continuity of safe operations alongside financial resolution, and not outright nationalisation.

There is a stark contrast between the USA and India’s approach. While the US model integrates insolvency law with sectoral regulation, the Indian approach under the SHANTI Bill displaces insolvency altogether. In the Indian approach, creditors are excluded, courts are marginalised, and most importantly, resolution is replaced by executive control.

Conclusion

The SHANTI Bill 2025 brings insolvency concerns sharply into focus. By allowing the state to cancel the licenses of the operator in cases of financial distress, the Bill, in a way, tries to respond to the immediate risk of failure, but it ignores the deeper legal and economic fallout of insolvency. As a result, the insolvency framework under the IBC sits uneasily alongside nuclear regulation, with the Bill offering little guidance on how the two are meant to interact.

Instead of providing a clear pathway for resolving financial failure, the existing approach effectively pushes insolvency into an uncertain legal space, one where creditor rights are diluted, and decision-making is dominated by executive authority. The United States’ example shows that it is possible to balance nuclear safety with structured insolvency resolution. If India genuinely seeks to draw private investment into its nuclear sector, it must look beyond sovereign takeover as the default response to financial distress and work towards a well-defined insolvency resolution framework tailored to the nuclear enterprises.

*The author is a Second-year B.A., LL.B. (Hons.) student at Maharashtra National Law University, Mumbai.