Government Presents Draft Legislation for Insolvency Law Modification in Lok Sabha
The Finance Minister, Nirmala Sitharaman, has introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, in the Lok Sabha, aiming to accelerate insolvency resolution, empower creditors, and reduce delays in the process. The bill, which proposes significant reforms, has undergone six legislative interventions since the enactment of the Insolvency and Bankruptcy Code in 2016.
The bill, if passed, will bring about several changes. One of the key reforms is the introduction of a creditor-initiated insolvency resolution process, allowing for an out-of-court initiation mechanism for genuine business failures, aiming to facilitate faster and more cost-effective insolvency resolutions with minimal disruption to business operations.
Another significant change is the introduction of new frameworks for group insolvency and cross-border insolvency, designed to handle complex corporate structures and align Indian insolvency laws with international standards. Procedural reforms are also part of the package, with a mandate to admit insolvency applications within 14 days once a default is established, addressing concerns about prolonged delays in case admission and value erosion during resolution and liquidation.
The amendments also include clarifications and refinements in the definitions and governance processes under the Code to improve transparency, governance, and asset value maximization. For instance, the scope of consensually created securities will be narrowed to protect creditor rights and ensure predictability in the secured credit market.
The bill also strengthens the role of the Committee of Creditors in supervising the liquidation process to improve oversight during liquidation.
Finance Minister Sitharaman emphasized that these amendments will help reduce litigation delays, enhance investor confidence, improve ease of doing business, and make insolvency resolution faster, more cost-effective, and less disruptive, thereby strengthening India’s position as a business-friendly jurisdiction.
Critics, however, note that while the Bill addresses critical pain points, it may represent incremental changes rather than a full overhaul needed to completely resolve systemic delays, especially those caused by institutional bottlenecks in the National Company Law Tribunals (NCLT). Nonetheless, the Bill reflects extensive stakeholder consultations and recommendations developed over the past three years.
Following its introduction, the bill was referred to a select committee of the Lok Sabha for review and recommendations. The last amendment to the Insolvency and Bankruptcy Code was made in 2021. The referral of the bill to a select committee happened following a request from Minister Sitharaman. It is important to note that the Corporate Affairs Ministry, headed by Finance Minister Sitharaman, is responsible for implementing the Insolvency and Bankruptcy Code. The Lok Sabha, the lower house of the Indian Parliament, is where the bill to amend the insolvency law was introduced.
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