Rajya Sabha on Wednesday passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2026, after Lok Sabha cleared it on Monday.

The IBC was enacted in 2016 to create a time-bound mechanism to deal with companies that default on their loans — by reviving them through resolution or liquidating them if resolution is not possible.

The amendment seeks to speed up the resolution process and introduces provisions for an out-of-court mechanism, group insolvency and cross-border insolvency.

Why were these amendments needed?

Before this amendment, the IBC had already been amended six times to address the pressing issues of the time and incorporate the needs of the stakeholders.

Over the years, the IBC has improved discipline among borrowers and lenders but has also faced criticism over delays, backlog of cases and low recovery rates for banks.

To address some of these concerns, the Bill to amend the IBC was introduced in Lok Sabha on August 12, 2025, and referred to a Select Committee on the same day. The committee submitted its report on December 17, 2025 with 11 recommendations. All 11 have been incorporated, along with one by the Ministry of Corporate Affairs.

Union Finance and Corporate Affairs Minister Nirmala Sitharaman said in the Upper House on Wednesday that the amendments focus on swifter admission of insolvency applications and strict timelines for adjudicating authorities to reduce delays. They also enhance creditor oversight and remove procedural overlaps.

According to the existing code, the National Company Law Tribunal (NCLT), which oversees the corporate insolvency resolution process, has 14 days to decide on admitting an insolvency application.

But it often takes months to initiate insolvency proceedings. The amendment attempts to streamline this hurdle at the very first stage.

The NCLT must now admit applications once the default is proven. There are no other conditions except ensuring that the resolution professional faces no disciplinary proceedings and procedural requirements are met. The Bill makes it clear that an application cannot be rejected on any other ground.

Another major change in the IBC framework is the introduction of the Creditor-initiated Insolvency Resolution Process (CIIRP).

This provides for an out-of-court initiation mechanism which can be done by only “specified financial creditors”. At least 51% of financial creditors will have to agree to initiate this process.

Varun Singh, Founder & Managing Partner, Foresight Law Offices India said that the CIIRP aims to address the problem of unsatisfactory alternatives to insolvency proceedings. The options were either a long, uncertain process under the NCLT with no opportunity for recovery after three years or a weak out-of-court reorganisation process.

“Investors and distressed asset funds could be relieved by the reforms, as they eliminate delays in admission stages (bottlenecks for potential investors), impose a time frame for judicial determination of admission, and reduce the time frames and availability of delays caused by litigation to the resolution process,” said Singh.

The Bill also introduces a framework for group insolvency and cross-border insolvency, aimed at improving investor confidence and aligning domestic processes with international best practices.

The other key changes to the IBC

In its 577-page report, the select committee chaired by BJP MP Baijayant Panda made 11 recommendations (all incorporated in the final Bill) to strengthen the insolvency law. These are some of the major ones.

It proposed removing conflicts of interest by disallowing the resolution professional (RP) of a corporate debtor from becoming the liquidator. The committee observed that the RP may have a potential “perverse incentive” to favour liquidation over resolution to secure additional fees, as the liquidator’s remuneration is often a percentage of the liquidation estate, unlike the RP’s fixed monthly salary.

It recommended a three-month timeline for the National Company Law Appellate Tribunal (NCLAT) to reduce “undue appellate delays”.

It called for clearer rules on cross-border insolvency. The committee said that the rules should detail the process for recognition of proceedings involving specified foreign countries/territories, alongside the process for granting relief, judicial cooperation, assistance, and coordination. This explicit listing of process components within the primary law (the Code) itself serves as the codified basic tenets that prevent undue delegation, said the committee.

The committee recommended adding an explanation to Section 240C to clarify and broaden the term “corporate debtor” to explicitly include any person incorporated with limited liability outside India.

It also recommended lowering the voting threshold for pre-packaged insolvency resolution process (PPIRP) to 51%, and empowering Insolvency and Bankruptcy Board of India (IBBI) to set timelines and conduct standards for the Committee of Creditors.

The committee called for replacing criminal penalties with civil penalties for offences such as contravention of moratorium or resolution plan and non-disclosure of dispute or payment of debt by operational creditor. Its reasoning was that non-implementation or delayed implementation of resolution plans may not always be attributable to malafide intent.

Resolution, not recovery

During the discussion on the Bill in Rajya Sabha, many members raised concerns regarding recovery rates. Responding to these, Sitharaman stated that the IBC was never intended to be a debt recovery tool. “IBC is a framework for rescuing viable businesses and resolving financial stress while preserving enterprise value,” she said.

As of December 2025, IBC has facilitated the resolution of 1,376 companies, helping creditors to recover 4.11 lakh crore. Financial creditors have seen recovery exceeding 34% of their claims.

According to the Insolvency and Bankruptcy Board of India, a total of 8,833 CIRPs had been admitted by December 31, 2025. The resolution process was still on for 1,879 of these cases and liquidation orders had been passed in the remaining 2,952.