The parliamentary standing committee on finance has urged the government to establish special fast-track courts temporarily while also increasing the capacity of the National Company Law Tribunal (NCLT) to address extensive case backlogs and facilitate the rescue of insolvent companies.
Led by senior BJP leader Bhartruhari Mahtab, the panel has proposed an advance ruling mechanism akin to that used in the goods and services tax framework. This would provide greater certainty and help prevent disputes after litigation under the Insolvency and Bankruptcy Code (IBC).
The committee presented a report titled “Review of Working of Insolvency and Bankruptcy Code and Emerging Issues” in Parliament on Tuesday. As of March 2025, around 30,600 insolvency cases were pending before the NCLT, and the existing 30 benches are inadequate for timely resolution.
The report indicates that the Insolvency and Bankruptcy Board of India (IBBI) has recommended the creation of 50 additional benches for a five-year term to help clear the backlog. This initiative could result in an additional ₹3-5 lakh crore recovery for creditors by preserving the value of stressed assets, according to the regulator.
Due to delays in admission and other complications, the average time required to rescue a distressed firm has risen to 713 days, significantly above the mandated 330-day timeframe.
To deter frivolous lawsuits, the committee suggested that the insolvency regulator impose a mandatory upfront deposit for unsuccessful resolution applicants filing appeals, along with substantial penalties for frivolous claims.
The committee acknowledged that many of the challenges affecting the insolvency resolution landscape could be addressed through effective implementation of proposed amendments to the IBC, a bill that was referred to a select Parliamentary committee following its introduction in August.
Review of the Waterfall Mechanism
It also called for a review of the waterfall mechanism that governs the distribution of resolution proceeds among creditors. This should protect the interests of small and medium enterprises, which often serve as operational creditors to distressed firms, ensuring they are not disadvantaged by the decisions of financial creditors who typically approve resolution plans. The committee recommended easing eligibility requirements for homebuyer associations wishing to propose resolution plans for struggling real estate developers.
Furthermore, they urged the corporate affairs ministry to collaborate with other relevant ministries and departments, such as the housing and urban affairs ministry and the Real Estate Regulatory Authority, to integrate essential provisions for homebuyers and address regulatory overlaps with other laws.
Additionally, the committee proposed that India adopt a UN-style cross-border insolvency framework, with modifications to suit domestic conditions.
