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The landscape of Indian insolvency is witnessing its most significant transformation since the inception of the Code in 2016. On 12 August 2025, the Insolvency and Bankruptcy Code (Amendment) Bill was introduced in the Lok Sabha to address systemic bottlenecks that have historically hindered the efficiency of the Corporate Insolvency Resolution Process (CIRP). Following a detailed review by a Parliamentary Select Committee, the legislation was passed by the Lok Sabha on 30 March 2026, and cleared by the Rajya Sabha on 1 April 2026. This Bill is not merely a collection of procedural tweaks but a comprehensive legislative effort to recalibrate the balance between creditor rights, corporate survival, and judicial efficiency. By addressing admission delays, clarifying distribution priorities, and introducing flexible restructuring options, the 2026 Bill seeks to align India’s framework with global commercial realities.
At the heart of this reform is the introduction of the Creditor-Initiated Insolvency Resolution Process (CIIRP) under a new Chapter IV-A. This mechanism marks a departure from the traditional “creditor-in-control” model by allowing financial creditors to initiate a 150-day resolution process where the existing board remains in possession under the supervision of a resolution professional. By requiring a 51% voting share for initiation and offering a non-automatic moratorium that must be specifically sought, CIIRP provides a streamlined alternative for debt restructuring while minimizing operational disruption.
The Bill further expands the horizon of the Code by laying the groundwork for Group Insolvency and Cross-Border frameworks. Under Chapter VA and Section 240C, the government is now empowered to frame rules for coordinated proceedings involving interconnected corporate groups and foreign jurisdictions. These structural innovations signal India’s intent to move toward a more sophisticated, globally integrated insolvency regime that can manage complex, multi-jurisdictional corporate failures with greater legal certainty.
A persistent challenge under the original Code has been the delay at the admission stage. To remedy this, the Bill amends Sections 7, 9, and 10 to mandate a strict 14-day timeline for the Adjudicating Authority to admit or reject a CIRP application. Crucially, the legislation replaces discretionary language with mandatory requirements; where a default is established through information utility records and the application is technically complete, admission is now a legal obligation. This “Vidarbha Fix” ensures that the insolvency process is triggered by the objective fact of default rather than a subjective assessment of a company’s financial health.
Recognizing that the path to resolution is rarely linear, the Bill introduces a vital “Second Chance” protocol. Under new sub-sections of Section 33, the Committee of Creditors (CoC) can, with a 66% majority, apply for a one-time restoration of the CIRP if an initial resolution plan is rejected or not received. This restoration is limited to 120 days, providing a final, time-bound opportunity to secure a viable resolution and avoid the value-destructive alternative of liquidation.
To prevent inter-creditor disputes from stalling the operational recovery of a business, the Bill introduces a Two-Stage Approval Framework under Section 31. This allows the Adjudicating Authority to approve the implementation of a resolution plan first, enabling the immediate restructuring of the business, while leaving the specific distribution of proceeds to be determined within a subsequent 30-day window. This ensures that disagreements over “who gets what” do not prevent the company itself from being saved.
The flexibility of the resolution process is further enhanced by amendments to Section 5(26), which now allow for asset-wise sales. Instead of requiring a single plan for the entire entity, resolution applicants can propose plans for specific assets, enabling a more tailored and value-maximizing approach. This is complemented by the formal codification of the “Clean Slate” principle, ensuring that successful resolution applicants are legally protected from the past liabilities of the corporate debtor once a plan is approved.
The Bill brings much-needed clarity to the hierarchy of claims. By specifying that a “security interest” must be created by an agreement between parties, the Bill ensures that statutory government dues do not automatically qualify as secured interests. This clarifies the Section 53 waterfall and preserves the priority of financial creditors. Additionally, the Bill protects dissenting financial creditors by ensuring they receive an amount no less than the lower of their liquidation value or their entitlement under the distribution framework.
To bolster the integrity of the process, the Bill mandates a separation of roles between the Resolution Professional and the Liquidator, ensuring that a professional who handled the CIRP cannot lead the subsequent liquidation for the same debtor. Finally, the shift from criminal to civil penalties for certain contraventions, combined with sanctions for frivolous litigation, aims to foster a culture of compliance while discouraging the use of the Code for obstructive legal tactics.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2026, represents a decisive step toward a more robust and predictable insolvency framework. By harmonizing expedited timelines with flexible restructuring tools and clear creditor entitlements, the legislation restores the original intent of the Code: timely resolution and value maximization. As these amendments take effect, they promise to provide the legal stability necessary to support India’s evolving commercial ecosystem and reinforce its standing as a creditor-friendly jurisdiction.
Expositor(s): Adv. Jahnobi Paul
