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IBC amendments boost transparency, strengthen insolvency framework: Sitharaman

March 30, 2026 6 min read Economics Polity & Governance GS Paper 2 GS Paper 3
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What Happened

  • The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 — tabled by Finance Minister Nirmala Sitharaman during the Budget Session 2026 — was passed by Lok Sabha, introducing major transparency and efficiency reforms to India's insolvency framework.
  • The most prominent new provision: the Committee of Creditors (CoC) must now record in writing the reasons for selecting the successful resolution applicant, bringing accountability to what was previously an opaque commercial decision.
  • The Bill introduces the Creditor-Initiated Insolvency Resolution Process (CIIRP) — an "out-of-court" mechanism designed to facilitate faster settlements, with the resolution process to be completed within 150 days (significantly shorter than the standard 330-day CIRP deadline).
  • CIIRP operates on a "debtor-in-possession, creditor-in-control" model — the existing management of the distressed company continues to run operations while creditors drive the resolution strategy.
  • The fast-track process under the existing IBC (designed for smaller cases) is replaced by the more streamlined CIIRP framework.
  • Sitharaman noted that the 12 amendments collectively aim to transition IBC from a mistrust-based regime to a framework of institutional trust and coordination among stakeholders.
  • The amendments follow extensive consultations by the Insolvency Law Committee and recommendations by IBBI (Insolvency and Bankruptcy Board of India).

Static Topic Bridges

Insolvency and Bankruptcy Code, 2016: Architecture and Purpose

The Insolvency and Bankruptcy Code (IBC), 2016 is one of India's most transformative economic laws. Enacted to replace a fragmented insolvency framework (SICA, SARFAESI, RDDBFI, Companies Act provisions), it provides a single unified law for resolving corporate and individual insolvency in a time-bound manner. The primary objective is to maximise the value of assets of the insolvent entity and promote entrepreneurship. A key philosophical shift from pre-IBC law: IBC prioritises resolution over liquidation, and speed over prolonged litigation.

  • IBC enacted in May 2016; came fully into force by December 2016.
  • Four adjudicating authorities: National Company Law Tribunal (NCLT) for corporate insolvency, National Company Law Appellate Tribunal (NCLAT) for appeals, Debt Recovery Tribunal (DRT) for individual/partnership insolvency, and Debt Recovery Appellate Tribunal (DRAT).
  • Regulators: Insolvency and Bankruptcy Board of India (IBBI) — established under IBC 2016 — regulates insolvency professionals, information utilities, and insolvency professional agencies.
  • Three pillars of IBC: Corporate Insolvency Resolution Process (CIRP), Pre-packaged Insolvency Resolution Process (PIRP, introduced in 2021 for MSMEs), and Liquidation.
  • CIRP timeline: 180 days (extendable to 270 days by NCLT, and up to 330 days including litigation); violation of this timeline by courts and parties has been a major practical criticism.

Connection to this news: The new CIIRP mechanism with a 150-day deadline is a direct response to the persistent problem of CIRP timelines being routinely breached — CIRP cases on average take over 600 days in practice, far exceeding the statutory 330-day limit.

Committee of Creditors (CoC): Role and New Transparency Mandate

The Committee of Creditors (CoC) is the key commercial decision-making body in the CIRP. It comprises all financial creditors of the corporate debtor (banks, NBFCs, debenture holders, etc.) and votes on critical decisions including approval of the resolution plan, extension of CIRP period, and liquidation. The CoC's approval requires a vote of at least 66% (by value of financial debt). The operational creditors (suppliers, employees) do not vote but must receive minimum payments under any approved resolution plan.

  • Financial creditors (as defined in IBC Section 5(7)): those to whom money is owed against a consideration for time value of money (e.g., banks, bond holders).
  • Operational creditors (Section 5(20)): those owed payment for goods and services, including employees.
  • CoC is chaired by the Resolution Professional (RP) — an IBBI-registered professional who manages the CIRP process and communicates between stakeholders.
  • The prior criticism: CoC decisions on resolution applicant selection lacked transparency; banks could award distressed assets to connected parties without recording their rationale.
  • The new amendment requiring written reasons for resolution applicant selection addresses concerns about accountability, potential conflicts of interest, and judicial reviewability of CoC decisions.

Connection to this news: By mandating recorded reasons, the amendment provides a documentary trail that insolvency courts (NCLT) can scrutinise if a dissatisfied stakeholder challenges the CoC's selection, making the process more defensible and reducing information asymmetry.

Creditor-Initiated Insolvency Resolution Process (CIIRP): A New Paradigm

The new CIIRP introduced by the 2025 Amendment is modelled on "pre-packaged" insolvency frameworks used in the US (Chapter 11 pre-packs) and the UK. In a CIIRP, the resolution plan is substantially negotiated between the debtor and the dominant creditor(s) before formal initiation, allowing the company to exit insolvency faster with a pre-agreed plan. This reduces court time and preserves going-concern value by minimising operational disruption during insolvency proceedings.

  • CIIRP timeline: 150 days (significantly shorter than the 330-day CIRP maximum).
  • Debtor-in-possession model: Unlike regular CIRP (where management is suspended and an RP takes control), in CIIRP the existing management continues to run the business — reducing disruption to employees, customers, and suppliers.
  • The earlier PIRP (Pre-packaged Insolvency Resolution Process) was introduced in April 2021 specifically for MSMEs (defaults up to ₹1 crore); CIIRP extends the pre-pack logic to larger corporate debtors.
  • Domestic creditors (particularly banks) who drive CIIRP have a conflict of interest as both instigators and resolution plan evaluators — the need for recorded reasoning and NCLT oversight addresses this.

Connection to this news: CIIRP represents a structural maturation of IBC — recognising that for many cases, an adversarial, court-heavy process destroys more value than an out-of-court, negotiated resolution. The 150-day target, if adhered to, could significantly reduce the haircuts that banks face on stressed assets.

Insolvency Resolution Outcomes and India's Credit Culture

IBC was designed not just as a resolution tool but as a behavioural change instrument — to shift India's credit culture from one where promoters could use bankruptcy to escape liabilities (loan waivers, asset stripping) to one where default has swift, certain consequences. Since its enactment, IBC has recovered approximately ₹3.16 lakh crore through resolution plans (as of FY25) and has admitted over 8,000 CIRP cases. However, average haircuts for financial creditors remain high (approximately 68% of admitted claims), and the resolution rate is low relative to admission.

  • Total CIRPs initiated under IBC (up to FY25): approximately 8,000+; of these, ~50% closed through liquidation, ~20% through resolution plans, ~30% through withdrawal or appeals.
  • Creditor recovery rate: India improved its ranking on the World Bank's "Resolving Insolvency" indicator post-IBC — recovery rate rose from ~26 cents per dollar (pre-IBC) to ~35–40 cents per dollar under IBC, though this remains below the 80+ cents per dollar in OECD economies.
  • IBC's impact on promoter behaviour: the "fear of IBC" has reportedly increased the willingness of promoters to negotiate settlements voluntarily before formal CIRP admission.
  • IBBI's quarterly newsletter tracks resolution trends; large cases (Essar Steel, Videocon, Jaypee Infratech, DHFL) have yielded landmark Supreme Court rulings on IBC interpretation.

Connection to this news: The 2025 amendments — transparency in CoC decisions, faster CIIRP process, and enhanced creditor control — are specifically designed to improve resolution outcomes, reduce haircuts, and signal to global investors that India's insolvency regime is maturing toward international best practices.

Key Facts & Data

  • IBC enacted: May 2016; fully operational: December 2016
  • CIRP statutory timeline: 180 days (extendable to 330 days maximum including litigation)
  • New CIIRP timeline introduced by Amendment: 150 days
  • CoC voting threshold for resolution plan approval: 66% by value of financial debt
  • Total recoveries through IBC resolution plans (up to FY25): approximately ₹3.16 lakh crore
  • Average creditor haircut under IBC: approximately 68% of admitted claims
  • Total CIRPs initiated (cumulative up to FY25): 8,000+
  • IBBI: regulatory authority for insolvency professionals, established under IBC 2016
  • Pre-packaged insolvency for MSMEs (PIRP) introduced: April 2021 (for defaults up to ₹1 crore)
  • Adjudicating authority for corporate insolvency: NCLT (National Company Law Tribunal)