Govt introduces insolvency law amendment bill in Lok Sabha

The government has introduced a bill in the Lok Sabha to amend the insolvency law, proposing a raft of amendments, including an out-of-court mechanism to address genuine business failures, group and cross-border insolvency frameworks.

Besides, provisions have been proposed to reduce the time taken for admission of insolvency resolution applications, to expand the definition of resolution plan and decriminalisation of certain actions.

Finance and Corporate Affairs Minister Nirmala Sitharaman introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, which was later referred to a select committee of the House, following the request of the minister.

In the Statement of Objects and Reasons for the bill, the minister said the proposed changes aim to reduce delays, maximise value for all stakeholders, and improve governance of all processes under the code.

A senior government official said the amendments aim to facilitate faster admission, resolution, and liquidation processes, maximise asset value, and improve governance.

The much-awaited bill has proposed a "creditor-initiated insolvency resolution process", with an out-of-court initiation mechanism for genuine business failures to facilitate faster and more cost-effective insolvency resolution with minimal business disruption.

"Once implemented, this will help ease the burden on judicial systems, promote ease of doing business and improve access to credit," Sitharaman said.

The official said that under Corporate Insolvency Resolution Process (CIRP), select financial institutions can initiate insolvency outside court with approval from unrelated financial institutions, while the corporate debtor can continue to manage the company with oversight from a resolution professional, who would attend meetings of the Board of Directors and have veto powers.

"The process includes a 30-day objection period for the corporate debtors, and the adjudicating authority can convert the CIRP into the standard CIRP if certain conditions are met, such as failure to reach a resolution within 150 days or rejection of the plan. The adjudicating authority will approve resolution plans with the same effect as under the existing CIRP framework," the official added.

Besides, the government has proposed the group insolvency framework that seeks to efficiently resolve insolvencies, involving complex corporate group structures, minimising value destruction caused by fragmented proceedings and maximising value for creditors through coordinated decision-making.

According to the bill, the cross-border insolvency framework seeks to lay the foundation for protecting stakeholder interests in domestic and foreign proceedings, promoting investor confidence and aligning domestic practices with international best practices. This will also pave the way for improved recognition of Indian insolvency proceedings in other jurisdictions.

Against the backdrop of an average delay of over 434 days in admitting insolvency resolution applications, the government has proposed that an application by the financial creditors should be admitted if a default exists without considering any other grounds.

Such a step will help reduce timelines for admitting applications related to financial debt.

The government official noted that when an application is made by a financial creditor, who is a financial institution, the adjudicating authority should consider records of default from information utilities as sufficient evidence to ascertain the existence of such default.

The code mandates that insolvency resolution applications be admitted within 14 days.

Another proposal is to expand the definition of resolution plans to include the sale of assets, and the right of the corporate applicant to propose the resolution professional is restricted to ensure fairer and more transparent appointments.

"The proposed amendments restrict withdrawal of CIRP applications before the constitution of the committee of creditors and after the first invitation of the resolution plans, and also enable continuation of avoidance transaction proceedings post-CIRP," the official said.

There are also provisions to have a timeline for approval of resolution plans after their receipt by the adjudicating authority, providing an opportunity to the committee of creditors to rectify procedural defects, among other elements.

"Enhancement of recoveries from avoidance transactions, wrongful and fraudulent trading by extending the look back period and allowing creditors to also file for these transactions is included to maximise asset value," the official said.

Also, the bill has proposed changes to enhance efficiency and oversight in the liquidation process by empowering the committee of creditors to supervise liquidation, including a provision for replacing the liquidator by a 66 per cent vote and extending the moratorium available under the CIRP to the liquidation process to speed up company dissolution.

"They allow the adjudicating authority to restore the CIRP once, on the request of the committee of creditors, enabling potential rescue of viable companies. The committee of creditors can also recommend direct dissolution if assets are negligible, and can retain or appoint the Resolution Professional as liquidator.

The amendments remove common activities between CIRP and liquidation, to reduce delays in liquidation," the official noted.

According to the official, the proposed reforms aim to strengthen the insolvency ecosystem by addressing personal guarantor misuse, enhancing institutional capacity and improving regulatory governance.

Other key changes include removing the interim moratorium for personal guarantors and introducing a provision to prevent transactions defrauding creditors, and an enabling provision for facilitating different processes for all stakeholders through an electronic portal is provided to enhance efficiency and transparency.