India's bankruptcy law gets another reboot but will it work this time?

Union Minister of Finance and Corporate Affairs Nirmala Sitharaman on Tuesday introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, in the Lok Sabha, paving the way for further improvement in the Insolvency and Bankruptcy Code (IBC). The Bill has been sent to a select committee of Parliament for deliberation. This is the seventh time the IBC is being amended, and the Bill has been awaited for some time. Various stakeholders and policy analysts have criticised the IBC for falling short of expectations, primarily due to delays. The cases that yielded a resolution plan by the end of June took an average of 602 days. A recent Supreme Court judgment that set aside a resolution plan and ordered the liquidation of a corporate debtor raised serious question marks on the entire process. Fortunately, the judgment has been recalled, and the matter is being heard. The objective of the bankruptcy process is to resolve insolvencies quickly to preserve the value of assets. Delays in resolution destroy value, which not only affects creditors but also the overall productive capacity of the economy.

 

To its credit, the government has been constantly working to improve the code, and the latest Bill is a step in the right direction. It aims to improve the code to resolve cases in time. Among the noteworthy proposals, the Bill introduces a creditor-initiated insolvency-resolution process with an out-of-court initiation procedure to facilitate faster and cost-effective resolutions. The process is aimed at minimising business disruption. The goal clearly is to reduce pressure on the judicial process, and it is expected to be completed in 150 days. The adjudicating authority may extend the process for a maximum of 45 days if necessary. Further, the Bill introduces the process for group insolvency and cross-border insolvency. The objective of the group insolvency process is to tackle complex corporate group structures facing insolvency. This will help establish a common Bench and coordinate the insolvency process, which will minimise delays and enable timely resolution. The cross-border insolvency framework aims to protect stakeholder interests in proceedings both domestically and in foreign jurisdictions. The government will be expected to frame rules in this regard.

 

The Bill also proposes to amend the Section dealing with the initiation of the insolvency process by the financial creditor. If the default has been established and the procedural requirements are fulfilled, the adjudicating authority will mandatorily admit the application. The adjudicating authority will not be expected to consider any other grounds for rejecting the application where the requirements of the provision have been met. It will need to decide on the application within 14 days or record the reasons for the delay. This will help the timely admission of cases, with the possibility of timely resolution.

 

Improving the law and strengthening various provisions will be expected to ameliorate outcomes under IBC. However, there is another important aspect that needs attention. One of the reasons for delays in resolution is the lack of capacity at the National Company Law Tribunal and National Company Law Appellate Tribunal. Unless there are adequate human resources available to adjudicate matters, which are often complex and fiercely contested, it will be difficult to address delays. Thus, improving the law is important, but the government must also address the capacity gap. This is also something the select committee must deliberate on.