India’s IBC Reforms: Progress Made, Scope for More

India’s latest proposed changes to the Insolvency and Bankruptcy Code seek to address criticisms that the system is slow, litigious, and too dependent on courts.

The 2025 Amendment Bill and the Select Committee’s review, presented in the Winter session of Parliament, have been highlighted as major steps forward. The Bill tightens timelines, improves governance, clarifies disputed interpretations, and introduces ‘novel provisions’ borrowing selectively from international practices.

The Select Committee has reviewed the Bill in form and spirit, considering many stakeholder comments. While their report has improved the Bill’s prospects of passage in the present budget parliamentary session, there are some positives and concerns.

The centrepiece of this effort is the creditor-led resolution process, a hybrid, out-of-court mechanism, alongside the introduction of cross-border insolvency, group resolution, and asset-specific resolution plans. The Bill also settles long-standing judicial interpretation on issues such as government dues and admission discretion. These clarifications will help reduce uncertainty and litigation.

While welcoming the clarifications and the clauses improving the code’s governance, stakeholders had raised concerns about some aspects. These include doubts on its ability to ultimately enhance the code’s functioning, being more clarification-oriented. Further concerns were raised on the cross-border insolvency regulations being positioned as subordinate legislation. 

Further, it was felt in some quarters that much of what is being introduced by way of CLRP merely introduces an alternate mechanism to existing resolution practice. Some stakeholders and commentators had raised concerns that the system remains overwhelmingly focused on post-default intervention. In India’s insolvency ecosystem, delay is structural. By the time many cases reach resolution, assets are depleted, human capital is impacted, and vendors have lost confidence. There is relatively less engagement with early distress upon signs of imminent insolvency, when value can still be protected. 

The CLRP in its present form reflects this dilemma. As a hybrid mechanism, it is said to draw on global experience, yet remains anchored to default as the sole trigger. Default, while a core criteria in IBC, is a backward-looking signal. By then, financial stress has become operational stress, working capital is strained, vendors are unpaid, and credibility is damaged.

Moreover, the CLRP, although to a lesser extent, remains entangled with judicial oversight. Key stages still require court involvement. In practice, it can reproduce familiar bottlenecks in light of capacity constraints. Incentives also remain misaligned. For debtors, cooperation is a gamble. Engage early and risk full insolvency process; delay and hope conditions improve. The system offers limited avenues for early restructuring, crucial for value preservation.

Some Positives
Moving to some positives.

The Bill and the Select Committee recommendations have strengthened IBC in important ways. Statutory timelines for admissions, withdrawals, and liquidation enhance discipline. The recommendation of a three-month limit for NCLAT appeals is particularly valuable, given the link between appellate delays and weak enforcement.

More significantly, the Committee has proposed incorporating cross-border insolvency rules directly into the statute. Leaving them to subordinate legislation would have weakened positioning. Embedding them in the Act signals that cross-border resolution is central, not peripheral. It reassures creditors and gives courts firmer ground in cross-border cases. Extending the definition of corporate debtor to foreign-incorporated companies with assets, creditors, or operations connected to India follows naturally. It has also looked favourably at introducing group insolvency norms while advising customisation of international practices to the domestic environment.

Several governance reforms in the Bill also deserve credit. Preventing self-initiating debtors from appointing interim resolution professionals reduces conflicts of interest. Clarifying the Committee of Creditors’ role across stages limits duplication. Mandating cooperation from former personnel improves information flows. Separating the roles of resolution professional and liquidator curbs incentives to favour liquidation for fee gains.

Support for monitoring committees and selective decriminalisation reflects a more mature regulatory mindset. It shifts emphasis from punishment to compliance and outcomes, strengthening professional standards over time.

On value preservation, allowing multiple resolution plans, longer look-back periods for avoidance transactions, restoration of CIRP as a final recourse, bifurcation of approvals of resolution plan (implementation and distribution) and extension of moratorium into liquidation are all sensible steps. Together, they improve the odds of restructuring viable assets.

Yet, while noting stakeholder concerns about the CLRP’s default-centric design, the Committee has largely accepted the responses of the Ministry of Corporate Affairs. The argument that assessing the likelihood of insolvency is ambiguous and that default is tried and tested may not be economically complete. International experience shows that early-warning systems and negotiated restructurings, though complex, can also promise desirable outcomes. The Supreme Court’s observations in Mansi Brar v. Shubha Sharma highlighted the importance of preventive restructuring mechanisms. Policy, however, has yet to fully implement these insights.

The experimental introduction of CLRP may signify caution. But experimentation without flexibility risks entrenching design.

Way Forward
More broadly, the Committee has preserved the Bill’s core architecture while making selective improvements. It places significant reliance on ministerial assurances (on several stakeholder concerns) on capacity and safeguards.  

The fine print will matter. Cross-border coordination, group insolvency, information-sharing arrangements, and adjudicatory staffing will determine how the amended law works in practice. The IBC has never lacked ambition, but it has faced bottlenecks in enforcement.

One can therefore look forward to further next generation reforms. An insolvency regime must balance lender control with meaningful debtor initiative. Early filings should be encouraged through suitable mechanisms along with softer measures focused on destigmatizing insolvency.

Mediation and negotiated settlements deserve far stronger institutional backing, as was also observed in the recent report of the Standing Committee of Finance. Further, restructuring frameworks internationally show an increasing trend towards preventive hybrid interventions for favourable insolvency outcomes.

The next phase of reform must therefore focus on incentives, behaviour, and institutional depth while continuing focus on improving existing mechanisms and judicial capacity. It must ask not only how cases are processed, but when and why they enter the system.

Additionally, the legislative process has generated valuable stakeholder input on several aspects of the functioning of IBC. This intellectual capital should not be lost once the Bill is passed.

In its present form, the Bill, if presented, will probably clear the present budget session. It fixes several technical flaws, improves governance, timelines and closes old legal loopholes. But the task ahead will be to build durable institutions that intervene while businesses are still salvageable, before considerable value has already been eroded.

*Views are personal