Insolvency and Bankruptcy Code (IBC) Amendment, 2026

The proposed Insolvency and Bankruptcy Code (IBC) Amendment, 2026 seeks to introduce a new mechanism known as the Creditor-Initiated Insolvency Resolution Process (CIIRP). The objective of this reform is to ensure faster resolution of stressed assets, preserve the value of viable businesses, and reduce delays that have emerged under the existing insolvency framework. However, the proposal has generated considerable debate because it allows only certain “notified financial institutions” to initiate the process, raising concerns about fairness, constitutionality, and creditor equality.

Evolution of India's Insolvency Framework

Pre-IBC Era

Before the introduction of the IBC, India relied on the Sick Industrial Companies Act (SICA), 1985, which followed a debtor-in-possession model through the Board for Industrial and Financial Reconstruction (BIFR). Under this framework, existing management retained control of the company even after financial distress emerged.

Although the system was intended to revive sick industries, it eventually became associated with prolonged delays, excessive litigation, and misuse by promoters, who often used legal protections to avoid repayment obligations. As a result, many distressed firms remained trapped in lengthy proceedings without meaningful restructuring.

Subsequently, mechanisms such as the SARFAESI Act, 2002 and the Debt Recovery Tribunals (DRTs) improved debt recovery by empowering lenders to enforce security interests. However, these mechanisms focused primarily on recovery rather than comprehensive business resolution and restructuring.

Introduction of the IBC, 2016

The enactment of the Insolvency and Bankruptcy Code (IBC), 2016 marked a transformative shift in India's insolvency regime. The Code introduced a creditor-in-control model, under which financial creditors gained control over the insolvency resolution process.

The IBC established a time-bound resolution framework supervised by the National Company Law Tribunal (NCLT). Its primary objectives were maximisation of asset value, timely recovery for creditors, promotion of entrepreneurship, and improvement in the ease of doing business. The Code has since been recognised globally as one of India's most significant economic reforms.

Why Was the IBC Amendment, 2026 Needed?

Despite its achievements, the IBC has faced several operational challenges over the past decade. Resolution processes have frequently exceeded statutory timelines, resulting in substantial erosion of enterprise value. Excessive judicial intervention, repeated litigation, and delays in NCLT proceedings have often reduced the chances of successful revival of stressed companies.

Key Features of the IBC Amendment, 2026

Introduction of CIIRP

The most significant feature of the amendment is the creation of the Creditor-Initiated Insolvency Resolution Process (CIIRP) through proposed Sections 54C to 54P.

The CIIRP represents a hybrid model, combining elements of both the debtor-in-possession and creditor-in-control approaches. Under this framework, the existing management is allowed to continue running the company, while creditors exercise oversight through a Resolution Professional.

This arrangement seeks to balance operational continuity with creditor protection.

Preservation of Enterprise Value

A major advantage of the CIIRP is its focus on preserving the enterprise value of distressed firms. Unlike traditional insolvency proceedings, which often involve abrupt displacement of management and disruption of business operations, the new mechanism allows companies to continue functioning during restructuring.

By ensuring continuity of operations, the framework seeks to protect jobs, maintain customer confidence, and prevent destruction of economic value.

Reduction of Procedural Delays

The amendment is designed to encourage restructuring before financial distress deteriorates into insolvency. Early intervention is expected to reduce the need for lengthy litigation and minimise unnecessary judicial intervention.

As a result, businesses may be able to resolve financial difficulties more efficiently and at a lower economic cost.

Greater Certainty in Admission

The amendment also seeks to improve certainty in insolvency proceedings by replacing the discretionary term "may" with "shall" in the admission provisions.

Consequently, once debt and default are established through Information Utility (IU) records, admission of the insolvency application would become mandatory. This change aims to enhance predictability and reduce delays caused by judicial discretion.

Restricted Eligibility

The most debated provision is the restriction that only "notified financial institutions" will be permitted to initiate the CIIRP process.

While the government argues that this will ensure responsible use of the mechanism, critics contend that it creates an unequal framework within the category of financial creditors.

Major Concerns Regarding the Amendment

Constitutional Concerns under Article 14

One of the foremost concerns relates to Article 14 of the Constitution, which guarantees equality before the law.

The Supreme Court has previously upheld differential treatment between financial creditors and operational creditors on the basis of an intelligible differentia. However, the proposed amendment introduces a further distinction between notified and non-notified financial creditors.

Critics argue that it may be difficult to justify why certain financial institutions are granted special rights while others are denied access to the same restructuring mechanism.

Concentration of Power

The amendment may result in a concentration of bargaining power in the hands of a limited number of large financial institutions.

Smaller banks, NBFCs, foreign lenders, and alternative investment funds could find themselves excluded from meaningful participation in the restructuring process, thereby weakening the principle of collective decision-making.

Disadvantage to Operational Creditors

Operational creditors already occupy a weaker position under the existing IBC framework because they rank lower in the repayment waterfall.

The introduction of CIIRP could further marginalise their interests by reducing their influence during negotiations and restructuring decisions.

Risk of Strategic Behaviour

Since non-notified creditors would not be able to access CIIRP, they may instead choose to initiate the traditional Corporate Insolvency Resolution Process (CIRP).

Such strategic behaviour could increase disputes and litigation, ultimately undermining the objective of creating a consensual and cooperative restructuring mechanism.

Continuing Structural Challenges

The amendment also does not fully address broader issues affecting the insolvency ecosystem. Challenges such as NCLT capacity constraints, shortage of insolvency professionals, low recovery rates in certain sectors, and excessive litigation continue to impede effective resolution.

Without addressing these institutional weaknesses, procedural reforms alone may not achieve the desired outcomes.

Global Best Practices and Lessons for India

United States

The United States follows a strong debtor-in-possession framework under Chapter 11 bankruptcy law. Existing management generally remains in control of the company, while creditors participate through structured negotiations.

Importantly, eligibility is based on financial distress rather than the identity of the creditor.

United Kingdom

The United Kingdom places significant emphasis on rescuing viable businesses through flexible restructuring mechanisms. The system encourages participation by different classes of creditors and relies on objective financial criteria rather than regulatory classifications.

India's Divergence

India's proposed CIIRP differs from these international models because it restricts initiation rights to a select category of financial institutions.

Such restrictions may create perceptions of regulatory favouritism, discourage participation by non-traditional lenders, and potentially reduce investor confidence in India's insolvency framework.

Way Forward

A more balanced approach would involve allowing all financial creditors to initiate CIIRP, subject to approval by creditors representing a substantial proportion of total financial debt. Such a system would ensure broad legitimacy while preventing frivolous filings.

Eligibility should be based on objective financial exposure rather than institutional identity. This would strengthen the constitutional validity of the framework and enhance fairness.

Simultaneously, India must strengthen the capacity of NCLTs, improve the functioning of Information Utilities, and promote pre-packaged insolvency and early restructuring mechanisms. Greater transparency and safeguards are also necessary to protect the interests of minority and operational creditors.

Conclusion

The proposed IBC Amendment, 2026 reflects an important effort to modernise India's insolvency regime by introducing a faster and less disruptive restructuring framework through the Creditor-Initiated Insolvency Resolution Process (CIIRP). The emphasis on preserving enterprise value, ensuring business continuity, and reducing procedural delays is a significant step forward.

However, the decision to restrict initiation rights to selected notified financial institutions raises important concerns regarding constitutional equality, creditor participation, and market fairness. For the reform to achieve its intended objectives, India must adopt a more inclusive and transparent framework while simultaneously addressing institutional bottlenecks within the broader insolvency ecosystem.