Lok Sabha passes the Insolvency and Bankruptcy Code Amendment Bill 2025
The bill mandates 150-day resolution and out-of-court route; 12 reforms to boost transparency and bank recoveries
By Samreen Wani
Last Updated: Mar 30, 2026, 18:44 IST4 min
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The Lok Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 on Monday, incorporating reforms aimed at improving resolution timelines, enhancing transparency, and balancing the interests of debtors, creditors, and employees.
Finance Minister Nirmala Sitharaman informed Parliament that apart from the several amendments since 2016, “jurisprudence laid out by the tribunal and the courts has been taken on board so that we can maximise the value for stakeholders and improve the process itself.” While addressing the Lok Sabha on Monday, the Minister defended the IBC’s track record while acknowledging the concerns raised by the Opposition.
The Bill accepts all 11 recommendations of the Select Committee headed by Baijayant Panda and adds a 12th: Requiring creditors to record reasons for selecting winners, a move aimed at enhancing transparency in the resolution processes.
A new out-of-court route for creditors
The Bill introduces a Creditor-Initiated Insolvency Resolution Process (CIIRP). This new mechanism replaces the largely underutilised “fast-track” process with an out-of-court initiation model.
CIIRP can be triggered by financial creditors holding at least 51 percent of the debt. Crucially, the debtor is not left out of the equation. The creditor initiating CIIRP must notify the debtor and allow a minimum 30-day window for representation. The debtor may also file objections before the National Company Law Tribunal (NCLT).
Noting a shift in the existing framework, the Finance Minister described that the Bill was moving from a purely “creditor in control” model to a “debtor in possession and creditor in control model.” “So, the management continues to be vested in the existing board of directors or partners but with safeguards and defined timelines.,” she said.
The process carries a 150-day timeline, extendable by up to 45 days. If a resolution plan is not received, is rejected, or the debtor fails to cooperate, the NCLT may convert CIIRP to a full CIRP.
“CIIRP will address all known inefficiencies by providing a quicker, creditor-initiated, and less “adversarial” mechanism to resolve legitimate business struggles than before,” says Varun Singh, founder & managing partner, Foresight Law Offices India.
He adds that the CIIRP aims to address the problem of unsatisfactory alternatives to insolvency proceedings, where the options were either a long, uncertain process under the NCLT with no opportunity for recovery after three years, or a very weak out-of-court reorganisation process.
Plugging the delays
To address persistent delays, the Bill mandates CIRP admission upon proof of default, provided the application is complete and the Resolution Professional is cleared. By barring all other grounds for rejection, the amendment closes loopholes often used to stall proceedings.
Records from financial institutions now serve as sufficient proof, and the NCLT must provide written justifications if it fails to pass an order within 14 days. Furthermore, the tribunal is required to approve or reject a resolution plan within 30 days of receipt.
Group and Cross-Border Insolvency
In a move aimed at aligning India with international best practices, the Bill empowers the central government to frame rules for group insolvency, covering entities that are part of the same corporate group, with provisions for a common NCLT bench, a common Resolution Professional, and a joint Committee of Creditors.
Similarly, the Bill creates an enabling framework for cross-border insolvency, addressing situations where a debtor holds assets or has creditors across multiple jurisdictions. Cross-border insolvency refers to a debtor having assets or creditors in multiple countries.
Curbing frivolous litigation
To deter the rampant misuse of proceedings that has been a primary driver of delays, the Bill introduces financial penalties of between Rs1 lakh and Rs2 crore for filing “frivolous or vexatious applications” before the adjudicating authority, Sitharaman said.
Liquidation proceedings must now be completed within 180 days, extendable by 90 days, while voluntary liquidation must conclude within one year.
IBC and the banking sector
The Finance Minister informed the Lok Sabha that the IBC has delivered tangible results for the Indian banking sector. Scheduled commercial banks have recovered Rs1.04 lakh crore through various resolution channels, of which the IBC alone contributed Rs54,528 crore—a 52.3 percent share of all the assets recovered. Financial creditors, she added, have seen recovery exceeding 34 percent of their total claims.
As of December 2025, the Code has facilitated the resolution of 1,376 companies, enabling creditors to recover Rs4.11 lakh crore. Moreover, the ratio of companies resolved versus those entering liquidation has improved dramatically, from 1:5 in 2017-18 to near 1:1 in 2024-25, reflecting a maturing ecosystem increasingly oriented towards rescue rather than wind-down.
Sitharaman also noted that 78 percent of the CIRPs ending in liquidation involved companies that were either with BIFR or already defunct, meaning the economic value in most of these firms had nearly completely eroded before they even entered the process.
Targeted relief for MSMEs
Sitharaman detailed MSME protections, highlighting Section 240A and the Pre-Packaged Insolvency Resolution Process (PPIRP), which allow promoters to rescue their businesses through fast-track resolution. The Bill further eases access by lowering voting thresholds and reducing documentation, streamlining the pre-packaged insolvency process for smaller enterprises.
Workers’ dues
On the question of workers’ dues, a recurring question in parliamentary debates on IBC, Sitharaman said that under the distribution waterfall mechanism, dues owed to workmen are accorded “priority equivalent to secured creditors”, ranking above unsecured financial creditors and even government dues. “This proves that the IBC regime wants to ensure workmen are not shortchanged,” she said.
First Published: Mar 30, 2026, 19:17
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