India’s insolvency laws have moved from a complex, debtor-friendly system to a simpler, creditor-focused approach with the Insolvency and Bankruptcy Code (IBC). The 2026 Amendment Act builds on the 2016 IBC to fix problems like delays and misuse, aiming for quicker and more effective resolutions.
The Old Insolvency Regime
Before the IBC came in 2016, India’s insolvency system used several old laws that mainly helped debtors instead of helping creditors recover money. This often led to long delays and lower asset values. Key laws included the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), which allowed the Board for Industrial and Financial Reconstruction (BIFR) to declare companies “sick” and pause legal actions for years, though these efforts rarely succeeded. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) let secured creditors recover assets without going to court, but it only covered certain assets and left out operational creditors. Other laws, like the Companies Act, 1956, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI), and winding-up rules under the Companies Act, created several forums such as civil courts, Debt Recovery Tribunals (DRTs), BIFR, and High Courts. This overlap caused confusion, forum shopping, and average resolution times of over four years.
This fragmented system slowed economic growth by tying up capital in troubled assets and made banks less willing to lend, since they could recover only about 20-30% of their loans. Promoters often used loopholes to keep control. For example, under SICA, they could block creditor actions just by filing a reference, which also let them strip assets. Suppliers, employees, and other operational creditors had little influence, and personal guarantors were treated inconsistently. There was no single approach for cross-border or group insolvencies, so related companies were handled separately, missing out on possible synergies. Overall, before the IBC, the system favoured debtors, was inefficient, did not support creditors, and did not meet global standards. This led to a non-performing assets crisis, with NPAs rising above 11% of advances by 2018.
Challenges of the Original IBC 2016 Act
The IBC, passed in 2016 to unify different laws, introduced the Corporate Insolvency Resolution Process (CIRP). This process is meant to finish within 330 days and lets financial or operational creditors, as well as the company itself, approach the National Company Law Tribunal (NCLT) under Sections 7, 9, or 10. Once a case is accepted, an interim resolution professional (IRP) takes over management, forms a Committee of Creditors (CoC), and invites resolution plans. If no plan is approved, the company is liquidated. During this time, a moratorium stops enforcement actions. The process aims for an average creditor recovery rate of 75%, much higher than before the IBC.
Although the IBC had some major successes, like resolving Essar Steel, several problems remained by 2026. Delays persisted due to repeated 90-day extensions, court backlogs, and ongoing cases at NCLT and NCLAT. Section 12A allowed withdrawals before and after the Committee of Creditors with 90% approval, letting promoters settle even after plans were invited. This led to abuse and forum shopping. The rules for avoidance transactions under Sections 45 to 50 had inconsistent look-back periods of one to two years, making asset recovery in group cases harder. There were no clear laws for group or cross-border insolvencies, so results were often fragmented. The fast-track CIRP for smaller firms under Sections 55 to 58 overlapped with other processes and did not work well. The priority of government dues kept changing, personal guarantors faced unlimited liability, and many frivolous applications crowded the courts without strong penalties. These issues reduced creditor confidence, with average resolution times staying above 600 days and recovery rates dropping below 40% in later years.
Key Changes in the 2026 Amendment Act
The Insolvency and Bankruptcy Code Amendment Act, 2026 fixes these problems by introducing the Creditor-Initiated Insolvency Resolution Process (CIIRP). This new, out-of-court process lets financial creditors, with 51% class approval, start restructuring without needing NCLT admission. Management stays in place but is supervised by the Resolution Professional and Committee of Creditors. Unlike CIRP’s automatic moratorium, CIIRP offers optional NCLT protection and has a strict 150-day timeline, extendable to 195 days. This allows quick resolutions for cases where creditors and debtors agree, while court-driven CIRP is kept for disputes.
Section 12A now restricts withdrawals. They are not allowed before the Committee of Creditors forms, and after the first Expression of Interest, they are banned except in rare situations. Once a plan is approved, rights are set, which helps stop misuse by promoters. Timelines are tighter, with only limited extensions, so backlogs should go down. The rules for avoiding certain transactions now use a standard two-year review period for preferential, undervalued, and fraudulent deals. Wrongful trading is also covered, giving Resolution Professionals more power to recover assets.
Group insolvency now has legal backing, so related companies with shared management or assets can use combined NCLT or IBBI processes to preserve value. Cross-border rules now follow the UNCITRAL Model Law, making it easier to recognize foreign proceedings. The Committee of Creditors can decide on liquidation matters, like asset sales, with less court involvement, and secured creditors’ rights to collateral are clearly protected. The fast-track CIRP is now merged into the main CIRP process for simplicity. In personal guarantor cases, government dues are capped at two years, and if there are delays, the case must move to bankruptcy. There are also new penalties for frivolous applications, including costs, professional bans, and disqualifications, to ensure only genuine cases are filed.
These reforms make the IBC more creditor-focused, strengthen procedures, and add flexibility. They also aim to cut down on court involvement and prevent misuse.
Future Outlook and Way Forward
The 2026 amendments aim to bring India’s insolvency system up to global standards. They could cut resolution times for CIIRP cases to under 200 days and raise recoveries to over 60%. By giving creditors more power through CIIRP and CoC changes, the law encourages early talks before insolvency. This should reduce the NCLT’s workload and help unlock ₹10-15 lakh crore in stuck assets.
Looking ahead, some challenges remain, such as building enough capacity to put these changes into practice. This includes training RPs and the IBBI for group and cross-border cases, digitizing the NCLT, and making sure judges respect CoC decisions. Success will depend on IBBI regulations that clarify CIIRP thresholds, avoidance proofs, and penalties, which are expected by mid-2026. For businesses, these changes will help create a ‘pre-pack’ culture like CIIRP, encouraging early restructuring. For lenders, stronger protection of secured rights should help restore risk appetite as the economy recovers after 2025.
Going forward, stakeholders need to work together. Banks should standardize CoC voting, promoters should accept clean slates without hidden control, and the government should keep dues within set limits. Annual IBBI reports will track progress on case disposal, aiming for 90% resolved on time, and on recovery rates. Aligning with UNCITRAL standards can attract more foreign investment and help India become a top arbitration center in Asia. Still, there is a risk of favouring creditors too much, so Supreme Court guidance will be needed to balance interests. Ongoing reforms, like using AI for case triage and building unified online portals, will help make the IBC a strong growth driver, supporting “Viksit Bharat” by 2047 through better capital recycling.
Author: Mahima Rathor, Associate
Co-Author : Pragati Garg, Intern
