Lok Sabha passes Bill to amend Insolvency and Bankruptcy Code; FM assures ‘interests of workmen are not compromised’

The Lok Sabha on Monday approved amendments to India’s Insolvency and Bankruptcy Code (IBC), allowing fast-track debt resolution without unseating the defaulting management and offering schemes for rescuing multiple companies of a group under one process and dealing with cases where companies and creditors are in different jurisdictions.

Union Finance Minister Nirmala Sitharaman, in her reply to a debate on the reform, said that IBC has been a key and crucial factor in improving the health of India's banking sector, which has helped banks recover ₹54,528 crore of non-performing assets.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, was passed in the Parliament with a voice vote. It seeks to further amend the Insolvency and Bankruptcy Code, 2016.

Piloting the Bill for further amendments in the Lok Sabha, Sitharaman stressed that companies have been doing well and their corporate governance practices have also improved after coming out of the insolvency resolution process.

Why was the amendment introduced?

“Insolvency and Bankruptcy Code (IBC) has been the main factor in improving India's banking sector,” she said. With the amended code, the government aims “to maximise value and improve governance processes”.

Speaking on the Bill before its passing, Sitharaman said that the proposed amendments to IBC provide enabling provisions for group and cross-border insolvency processes. The minister informed the House that the government has approved all 11 recommendations of the select committee led by MP Baijayant Panda, who reviewed an earlier version of the Bill introduced last year in the Lok Sabha. In addition, the government has introduced one more amendment. The House approved the Bill with all the amendments.

Sitharaman explained that the current Bill replaces an under-utilised fast-track debt resolution process with a new creditor-initiated insolvency framework featuring ‘out of court settlements’ and ‘debtor-in-possession and creditor-in-control’ models.

₹4.11 lakh crore recovered: Sitharaman

Speaking further on the Bill, Sitharaman said more than half of the Non-Performing Assets (NPAs) have been recovered by banks through the IBC resolution process. “As of December 2025, the Insolvency and Bankruptcy Code (IBC) has facilitated the resolution of 1,376 companies, enabling creditors to recover ₹4.11 lakh crore,” she said.

The Insolvency and Bankruptcy Code has led to better credit ratings for companies, Sitharaman said, adding that it was never intended to be a debt-recovery tool.

Surendra Raj Gang, Partner, Deals-Debt & Special Situations, Grant Thornton Bharat, said that ‘creditor- initiated insolvency resolution process’ is a significant development.

“This is a very unique process for India Inc. and for its success, regulations to implement such amended provisions should be drafted carefully. Debtor in control, overseen by financial creditors and NCLT’s limited involvement are the key attributes of this new process, which would certainly boost the confidence of the stakeholders to resolve stress,” said Gang.

“Under this scheme, the resolution process can be initiated upon approval of 51% of the financial creditors, but management of the company will continue to be vested with the existing board of directors of the company under the supervision of the resolution professional appointed by the financial creditors,” Gang pointed out.

Group insolvency, cross-border schemes enabled

Sitharaman also said that the Bill offers enabling frameworks for group insolvency and cross-border insolvency schemes to promote investor confidence and also to align domestic practices with the global best practices.

The latest set of amendments marks the most comprehensive overhaul of IBC, which came into force in 2016, replacing the previous Sick Industrial Companies Act.

Sitharaman said that as per the latest amendments, the panel of creditors, which controls the insolvent company, has to record the reasons for selecting a successful bidder for the company. “This will improve transparency,” the minister added.

Sitharaman also clarified on the clean slate mechanism under IBC, meant to protect new investors from fresh recovery bids after a debt resolution plan has been cleared by a tribunal.

“The original intent of IBC has been reinstated, applying from the date of the principal Act’s (IBC’s) commencement,” the minister said. Sitharaman also explained that the government will not withdraw any permit, quota or licence supporting the main operation of companies when they go bankrupt that could prevent them from getting nursed back to life under the debt resolution process.

All claims of creditors prior to the debt resolution approval date shall be extinguished, the minister said, adding that it has been observed that even after resolution approval, fresh claims are raised.

Sitharaman addresses IBC resolution delays

Speaking on the controversial delays that the Opposition flagged, Sitharaman said that the primary reason for IBC resolution delays is extensive litigation.

She said that the new Bill proposes penalties to prevent abuse of process.

Sitharaman further noted that the IBC amendment Bill provides for mandatory admission of an insolvency application within 14 days once the company's default is established.

The Centre had introduced the Bill in the Lok Sabha to amend the Insolvency and Bankruptcy Code (IBC) on 12 August 2025, proposing a slew of changes, including provisions to reduce the time taken for admission of insolvency resolution applications.

The Bill was referred to a select committee of the Lok Sabha, which submitted its report in December 2025. It was introduced to address the delays and bring procedural amendments to the insolvency and bankruptcy of a company or individual.

IBC has been amended seven times so far. The government has been trying to resolve several challenges including timelines of resolutions and liquidations, resulting in value deterioration, low realisations to creditors and capacity constraints at NCLT.

During the discussion at the Lok Sabha earlier on Wednesday, the Opposition slammed the Bill, arguing it has failed to deliver timely resolutions due to tribunals' limited capacity overburdened with cases. Meanwhile, BJP MPs defended the 2016 law and accused the Opposition of clinging to “licence raj” mindsets from the Nehruvian and Indira Gandhi eras.