Syllabus: GS2/ Governance, GS3/ Economy
Context
- The Parliament has passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2026.
What is Insolvency and Bankruptcy Code (IBC), 2016?
- IBC was introduced in 2016 to address rising Non Performing Assets and ineffective debt recovery mechanisms in India.
- It aims to overhaul the corporate distress resolution system, replacing debtor-controlled regimes with creditor-in-control mechanisms for time-bound resolutions.
- Objectives of the IBC resolution are;
- Business Revival: To save businesses through restructuring, changes in ownership, or mergers,
- Maximization of Asset Value: To preserve and maximize the value of the debtor’s assets,
- Promoting Entrepreneurship and Credit: To encourage entrepreneurship, improve credit availability, and balance the interests of stakeholders, including creditors and debtors.
Key Features of IBC (Amendment) Bill, 2026
- Timelines for liquidation: The Bill adds that NCLT must pass the order for liquidation within 30 days from the date of the application or intimation. It also specifies that liquidation proceedings must be completed in 180 days, extendable by up to 90 days.
- Mandatory Admission of CIRP: The bill mandates that the National Company Law Tribunal (NCLT) must admit an insolvency application within 14 days if the default is proven and the application is complete, removing judicial discretion on this timeline.
- Cross-Border Insolvency: Introduces a framework to deal with insolvency cases involving foreign assets/creditors.
- Clarification on Statutory Dues: The Bill clarifies that statutory dues will not be treated as secured debt. This ensures that government dues do not get priority over secured creditors during insolvency resolution.
- Changes in Liquidation Process: The Bill removes the quasi-judicial powers of the liquidator regarding admission, rejection, and valuation of claims.
- The Committee of Creditors (CoC) is empowered to appoint or remove the liquidator and supervise the liquidation process.
- Introduction of CIIRP (Creditor-Initiated Insolvency Resolution Process): The Bill introduces a mechanism allowing select financial institutions to initiate insolvency proceedings outside the formal court process.
What are the Concerns?
- Dilution of Liquidator’s Role: The Code originally provided quasi-judicial powers to the liquidator to ensure finality of claims during liquidation.
- The removal of these powers may reduce efficiency and increase dependence on the CoC, potentially leading to delays and conflicts.
- Selective Access to CIIRP: The CIIRP mechanism can be initiated only by select financial institutions notified by the government.
- This raises concerns regarding unequal treatment of creditors and lack of clarity on selection criteria.
- Restrictions on Withdrawal of Applications: The Bill restricts withdrawal of insolvency applications before CoC formation and after invitation of resolution plans.
- This may discourage early settlements and out-of-court resolutions.
Concluding remarks
- The 2026 amendments represent a significant evolution of the IBC framework by improving efficiency, enhancing creditor participation, and incorporating global best practices.
- Effective implementation and institutional capacity will be crucial to realise the full potential of these reforms.
Source: AIR
