NEW DELHI: The Lok Sabha has passed a bill amending the insolvency law to introduce strict timelines, an out-of-court settlement option, and a framework for cross-border insolvency processes.
Presenting the bill, Finance and Corporate Affairs Minister Nirmala Sitharaman stated that the amendments to the Insolvency and Bankruptcy Code (IBC), which took effect in 2016, aim to maximize stakeholder value and enhance the governing process.
The amendments are intended to bolster the existing insolvency framework while tackling practical challenges and integrating global best practices, which, according to the minister, have significantly improved the health of the banking sector.
The Lower House approved the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, as proposed by the Select Committee.
Introduced in the Lok Sabha on August 12, 2025, the bill proposes changes to expedite the admission process for insolvency resolution applications.
After its referral to a select committee, the report was submitted in December 2025, incorporating all of the committee’s recommendations accepted by Sitharaman.
The IBC has seen seven amendments to date.
This bill replaces the underutilized fast-track process with a new creditor-initiated insolvency framework, featuring out-of-court initiation, debtor-in-possession, and a creditor-in-control model. This structure allows the current Board of Directors or partners to retain management under defined timelines and safeguards.
Furthermore, it introduces a framework for group and cross-border insolvency to boost investor confidence and align domestic practices with global standards, according to Sitharaman.
Stricter timelines will be enforced to ensure timely resolution for distressed companies, accompanied by penalties for frivolous complaints that hinder the process.
Other changes include a stipulation that insolvency resolution applications must be admitted within 14 days once default is established, and that appeals to the National Company Law Appellate Tribunal (NCLAT) must be resolved within three months.
Sitharaman indicated that extensive litigation has been a primary cause of delay, and the bill proposes measures to mitigate this, including new penalties ranging from ₹1 lakh to ₹2 crore for individuals initiating baseless proceedings.
The Adjudicating Authority (AA) is required to approve or reject a resolution plan within 30 days of receipt, and there will also be a new creditor-initiated resolution process allowing for a compressed 150-day timeline.
Addressing concerns regarding the efficiency of the IBC framework, Sitharaman highlighted the positive performance of companies post-resolution, indicating a growth in market capitalization from ₹2.8 lakh crore to ₹9 lakh crore over five years.
She noted the IBC’s significant role in enhancing the health of the banking sector, with Scheduled Commercial Banks (SCBs) recovering a total of ₹1,04,099 crore through various channels; of this, ₹54,528 crore, or 52.3%, came from the IBC channel.
Sitharaman emphasized that the IBC prioritizes workmen’s dues, ensuring they are treated on par with secured creditors, thus highlighting the regime’s commitment to protecting workers’ interests.
