The Union Cabinet on Tuesday approved changes in the Insolvency and Bankruptcy Code (IBC), 2015 that will significantly reduce the resolution timelines, and pave the way for structural reforms in the decade-old law. An official told FE that the cabinet approved all 11 observations and suggestions proposed by the select committee on the IBC (Amendment) Bill.
The revised Bill will likely be presented in Parliament in the ongoing session.
IBC Bill proposes faster creditor-led insolvency route
Among the major changes in the IBC law, the Bill allows creditors to initiate insolvency for genuine business failures under creditor-initiated insolvency resolution process (CIIRP). This out-of-the-court mechanism will need support of financial creditors with 51% approval to trigger insolvency. Post initiation, the process has to be concluded within 150 days with a possible extension of 45 days.
“As a debtor-in-possession model, CIIRP provides promoters with greater confidence to pursue revival while avoiding a full-scale formal insolvency process,” said Siddharth Srivastava, partner at Khaitan & Co.
Further, the Bill empowers the government to draft rules pertaining to group insolvency and cross-border insolvency cases. In case of group insolvency, the Bill has proposed a framework for coordinating the insolvency proceedings of multiple related companies within a large corporate group, rather than dealing with them separately. The idea is to minimise the value erosion, maximise asset value and reduce conflicting outcomes in related entities.
Addressing the delays in the insolvency and liquidation proceedings, the amendments have introduced various timelines for authorities such as National Company Law Tribunal (NCLT) who will be required to dispose of liquidation orders in 30 days. NCLT will also have to mandatorily admit or reject insolvency applications within 14 days. Additionally, the select committee added a 3-month upper limit for the National Company Law Appellate Tribunal (NCLAT) to pass its orders.
“Also, dispensing with NCLT discretion at the admission stage could be a turning point in addressing delays in the corporate insolvency resolution process, long seen as a key weakness in India’s insolvency framework,” said Srivastava. Taking cue from the UNCITRAL Model Law principles, the Bill has introduced cross-border insolvency framework that will give powers to the government to make rules, designate special benches and adapt laws. A formal mechanism like this will facilitate faster and more efficient recovery of overseas assets.
New Section 164A targets fraudulent fund diversion by promoters
According to a new provision – Section 164A – introduced in the Bill, the government has plans to curb the instances of company promoters diverting funds fraudulently before filing for personal insolvency. Through the amendments, the resolution professionals (RPs) can approach NCLT to bring all kinds of “avoidance transactions” carried out by the promoters in the past into the pool.
Another crucial change in the IBC includes making the past employees and service providers accountable to share information during insolvency. This will ease fraud detection, and ensure timely completion of resolution processes.
“The changes are expected to reflect stakeholder feedback and practical challenges observed since the implementation of the IBC. If implemented effectively, the reforms could help reduce litigation delays, preserve asset value, and enhance creditor confidence in India’s insolvency ecosystem,” said Amit Maheshwari, managing partner at AKM Global. So far, the IBC has undergone six rounds of legislative changes – and more than 100 regulatory reforms – with the last change being made in 2021.
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