The sceptics were proven wrong. In the past decade, over ₹3.5 lakh crore of distressed debt has been managed under the Code. NPA ratios at scheduled commercial banks have dropped from double digits to under 3%, and a recent IIM study revealed that firms emerging from the IBC process demonstrated significantly better operating margins and employment outcomes compared to similarly distressed firms. By any standard, the IBC has been one of the most impactful financial sector reforms since liberalisation.
Nevertheless, the Code has recently shown signs of strain. Resolution timelines designed to remain within 330 days often exceeded 600. The Supreme Court, through various rulings, introduced subjectivity into what was intended to be a straightforward default-based process. Government entities began asserting secured creditor status through statutory charges, disrupting the creditor hierarchy. Bidders who had invested fair value to acquire distressed firms faced accountability for the actions of the displaced promoters. The system continued to operate, albeit with increasing friction.
In response, Parliament has acted. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025—introduced in the Lok Sabha last August, reviewed by a select committee, and now enacted—is the most substantial revision of the Code since its inception. Four key changes warrant particular attention.
The first is structural: the introduction of a Creditor-Initiated Insolvency Resolution Process (CIIRP). The core idea of CIIRP is that formal insolvency processes may not suit all circumstances. When a business retains value and has a cooperative promoter, lenders should be able to resolve distress directly—outside the NCLT, on mutually agreed terms—while maintaining court-sanctioned process protections. CIIRP allows specified financial institutions to initiate an out-of-court resolution upon default. The promoter stays in control, but a resolution professional is integrated into the board to prevent value-destructive actions. A limited moratorium blocks competing insolvency filings from hindering the process, which is enclosed within 150 days. If the promoter becomes uncooperative at any point, the process transitions to a standard CIRP—thus maintaining a credible threat of displacement. Section 29A still applies, preventing delinquent promoters from manipulating the process to reacquire the business at a lower cost. The NCLT only intervenes for approval once a resolution plan has been negotiated through competitive bidding. This goes beyond mere procedural refinement; it acknowledges that the stark choice between a full CIRP and an ineffective out-of-court process has resulted in regulatory gaps that have diminished creditor value.
The second set of changes aims to curb judicial overreach. In the case of Vidarbha Industries Power v. Axis Bank, the Supreme Court ruled that the NCLT has the discretion to reject an insolvency application even when default is established, opening the possibility for extraneous factors like macroeconomic conditions or force majeure. This amendment closes that loophole: once default is confirmed and the application complete, admission becomes mandatory, with no other criteria applicable. The discretion introduced by Vidarbha is explicitly abolished. In Rainbow Papers, the Supreme Court allowed certain statutory charges and levies to be considered as secured debt, effectively placing government entities on the same level as contractual secured creditors such as banks and bondholders. This reversed the intended subordination of government dues as established in the IBC. The amendment reinstates the original principle: security interests arise solely from voluntary commercial transactions, not from statutory mandates. A third adjustment addresses cases where dissenting secured creditors were required to forfeit the benefit of their exclusive collateral and accept the same haircuts as agreeing majorities. This had inadvertently incentivized liquidation—where collateral priority is respected—over resolution. The amendment clarifies that a secured creditor is regarded as secured up to the value of its collateral, allowing it to retain that specific security value in a resolution plan. Collectively, these corrections have reinstated the interpretation of the Code to align with its original legislative intent.
The third reform codifies the ‘clean slate principle’. This rule stipulates that a successful resolution applicant acquires the corporate debtor free from pre-insolvency liabilities. In practice, government agencies, enforcement entities, and trade counterparts have continually overlooked this, maintaining claims from before insolvency against the new acquirer. The amendment makes this prohibition clear and unequivocal.
The fourth reform is the explicit recognition of a cross-border insolvency and group insolvency framework. Regarding cross-border insolvency, the legislation empowers the government to develop rules matching the UNCITRAL Model Law—which advocates for recognition of foreign proceedings, cooperation between courts, and coordinated resolution of multinational group insolvencies. For a creditor base increasingly engaging with Indian companies having foreign subsidiaries and foreign companies holding Indian assets, this is of immense significance. The law also allows for the creation of subordinate legislation to facilitate a coordinated joint insolvency process for financially distressed group companies. Currently, group insolvencies are managed through judicial innovation without clear legislative support.
Significantly, the thoroughness of the legislative process has been commendable. Three years of stakeholder consultations, a government white paper, and extensive testimonies before the parliamentary select committee set a high standard for transparency and public input in Indian legislation.
(Bahram N. Vakil is Founding Partner, AZB & Partners and Suharsh Sinha is Senior Partner, AZB & Partners. Both were part of the drafting committee of the IBC. The opinions expressed are personal)
