Lok Sabha clears Insolvency Reform Bill to accelerate resolutions, boost investor confidence

The Lok Sabha on Monday passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, marking a significant overhaul of India’s insolvency resolution framework with a focus on faster processes, enhanced creditor control and alignment with global best practices. The legislation was approved following detailed scrutiny by a Select Committee.

Introduced on August 12, 2025, the Bill seeks to amend the Insolvency and Bankruptcy Code, 2016, which established a unified, time-bound mechanism for resolving insolvency among companies, partnership firms and individuals. Insolvency—where an entity is unable to meet its debt obligations—has been a cornerstone of India’s financial reform architecture since the Code’s inception.

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Explaining the rationale behind the amendments, Finance Minister Nirmala Sitharaman said the reforms are aimed at improving the effectiveness of the Code. She emphasised the need to minimise delays while maximising value for stakeholders, noting that periodic updates are essential for keeping pace with evolving market realities.

Responding to the debate in the House, Sitharaman reiterated that the Code is a resolution framework rather than a recovery mechanism. It is designed to rescue viable businesses, resolve financial stress, preserve enterprise value, and safeguard jobs—not merely recover dues.

The Bill introduces 12 key amendments encompassing both structural and procedural changes. A major highlight is the introduction of a creditor-initiated insolvency resolution process (CIIRP), an alternative to the existing corporate insolvency resolution process (CIRP).

Under this mechanism, financial creditors holding at least 51 per cent of the debt can initiate proceedings, while allowing the debtor to continue managing operations under the supervision of a resolution professional. The debtor is granted a minimum of 30 days to respond and retains the right to challenge proceedings before the National Company Law Tribunal, which may convert the process into a standard CIRP if required.

The legislation removes the fast-track insolvency process for startups and small firms, while retaining and refining mechanisms such as the pre-packaged insolvency resolution process for MSMEs. It also enforces strict timelines, mandating completion of the CIIRP within 150 days, extendable by 45 days.

In a significant reform step, the Bill empowers the central government to frame rules for group insolvency, enabling coordinated resolution of financially stressed corporate groups. It also introduces provisions for cross-border insolvency, facilitating efficient handling of cases involving assets or creditors across jurisdictions and strengthening investor confidence.

Further, the amendments enhance the role of the Committee of Creditors (CoC), granting it oversight of liquidation proceedings and the authority to replace liquidators. Timelines for liquidation have been tightened, with tribunals required to issue orders within 30 days and complete the process within 180 days, extendable by 90 days. Voluntary liquidation must be concluded within one year.

To curb misuse, the Bill prescribes penalties ranging from Rs 1 lakh to Rs 2 crore for filing frivolous or vexatious applications before adjudicating bodies such as the NCLT and the Debt Recovery Tribunal. It also mandates admission of cases where default is established and procedural requirements are met, with written reasons required for delays beyond 14 days.

The Select Committee recommended several safeguards, including measures to address potential conflicts of interest involving resolution professionals and stronger oversight by the Insolvency and Bankruptcy Board of India. It also called for clearer cross-border rules, defined timelines for appeals before the National Company Law Appellate Tribunal, and lower voting thresholds to expedite resolution processes.

Additionally, the Committee suggested decriminalising certain technical offences under the Code and replacing them with civil penalties to reduce litigation and improve efficiency. It emphasised the need for stronger governance standards and greater transparency in the functioning of the CoC and implementation of resolution plans.

Sitharaman noted that the amendments are the result of extensive consultations over the past three years involving stakeholders and expert committees. She underscored that economic legislation such as the IBC must evolve continuously based on practical experience and changing market needs.

The passage of the Bill is part of the government’s broader effort to strengthen the financial ecosystem, improve credit flow, and enhance ease of doing business. By introducing creditor-led resolution, group insolvency, and cross-border frameworks, the reforms aim to make India’s insolvency regime more efficient, flexible and aligned with the complexities of modern business.