Lok Sabha Passes Insolvency and Bankruptcy Code (Amendment) Bill 2025
The Lok Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 on March 30, 2026 with a voice vote during the Budget Session.
Finance Minister Nirmala Sitharaman piloted the bill, stating that 12 amendments to the IBC 2016 would help maximise value for stakeholders and improve the resolution process.
The bill was referred to a Select Committee of Parliament before being brought back; the government accepted all Select Committee recommendations.
Key changes include a mandatory 14-day admission timeline at NCLT, a new out-of-court creditor-initiated insolvency framework, project-wise resolution for real estate, cross-border insolvency provisions, and a new requirement for the Committee of Creditors (CoC) to record reasons for selecting a resolution applicant.
Penalties ranging from ₹1 lakh to ₹2 crore will now apply to those initiating frivolous proceedings under IBC.
Sitharaman emphasised that IBC was never meant to be a debt recovery tool — its purpose is to rescue viable businesses and resolve financial stress.
Insolvency and Bankruptcy Code (IBC), 2016: Origin and Architecture
The Insolvency and Bankruptcy Code was enacted in 2016 to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals. Before IBC, debt recovery was fragmented across multiple laws — the SICA (Sick Industrial Companies Act), SARFAESI Act, RDDB Act, Companies Act — with proceedings routinely taking 6–8 years. IBC created a time-bound, creditor-driven process where the fate of a distressed company is determined by the Committee of Creditors (CoC), which represents financial creditors.
The 2026 amendment is the most significant overhaul since IBC's enactment, addressing structural weaknesses — particularly timeline violations, CoC opacity, and the absence of a fast-track non-litigious channel — that the original code left unresolved.
Committee of Creditors (CoC): Role, Powers, and Accountability
The Committee of Creditors is the apex decision-making body within IBC's Corporate Insolvency Resolution Process. It consists entirely of financial creditors (banks, NBFCs, debenture holders, etc.). The CoC appoints the Resolution Professional, evaluates resolution plans submitted by resolution applicants, and approves or rejects plans by a 66% voting threshold. The Supreme Court recognised CoC's "commercial wisdom" as largely non-justiciable — meaning courts typically cannot second-guess CoC's business decisions on which resolution plan to select.
The new CoC recording requirement directly addresses judicial and civil society concerns about opacity in resolution applicant selection, making the process more accountable and legally reviewable.
Out-of-Court Insolvency Resolution: New Framework
The 2026 amendment replaces the underutilised fast-track CIRP process with a new creditor-initiated out-of-court insolvency mechanism. Under this framework, creditors and debtors can agree to restructure outside the NCLT's formal proceedings, with a prescribed 150-day timeline. This is modelled on internationally recognised pre-packaged insolvency models (used in the UK and US). The debtor remains in control of the company during proceedings (debtor-in-possession model), with creditors in a supervisory role.
Key Details
- 150-day timeline for out-of-court creditor-initiated resolution (vs. 330 days under formal CIRP)
- Intended primarily for MSMEs and solvent-but-stressed companies where speed and cost savings matter
- The Pre-Packaged Insolvency Resolution Process (PPIRP) had already been introduced for MSMEs in 2021; the new framework extends the concept further
- Reduces burden on NCLT, which is handling over 7,000 pending insolvency cases
This provision is the most structurally significant change — it creates an alternative, less adversarial pathway that preserves enterprise value and reduces the courtroom delays that have plagued formal CIRP proceedings.
- IBC enacted: 2016
- Bill passed: Lok Sabha, March 30, 2026 (Budget Session, voice vote)
- Number of amendments: 12
- Statutory CIRP timeline: 330 days (actual average: 713 days; FY25 closed cases: 853 days)
- Record creditor recovery in FY25: ₹67,000 crore (42% jump over FY24)
- Total recoveries under IBC (cumulative): ₹3.89 lakh crore
- Recovery rate vs. admitted claims: ~32.8% (vs. 15–20% under pre-IBC regime)
- Recovery rate vs. fair value: ~94%
- New NCLT admission timeline: 14 days (for default established via digital records)
- NCLAT appeal disposal: 3-month mandate
- Resolution plan approval: 30-day NCLT timeline
- Out-of-court resolution framework: 150-day timeline
- Penalty for frivolous proceedings: ₹1 lakh to ₹2 crore
- Project-wise resolution: enabled for real estate (multi-project developers)