Budget 2026: India’s insolvency law faces its biggest upgrade in a decade
The Amendment Bill was first introduced in the last session of the Lok Sabha on 12 August 2025 and was subsequently referred to a select committee of the Lok Sabha (“Select Committee”).
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After a comprehensive review of stakeholder consultations and proposed amendments to the Amendment Bill, the Select Committee submitted its report to the Lok Sabha on December 17, 2025.
The revised Amendment Bill is likely to be tabled in the upcoming budget session and the insolvency ecosystem therefore expects the reforms proposed in the Amendment Bill to be implemented, as supported by the findings in the Select Committee report.
The changes proposed in the Amendment Bill are both corrective and structural. Firstly, recognizing the need for periodic updates to an economic legislation such as the Code, various amendments are proposed to correct the inefficiencies that plague current insolvency processes, such as clarifications/clarifications to certain provisions to clarify the original intent of the legislature and correct interpretive deviations.
Get the latest on Budget 2026 and related developments here.Secondly, the Amendment Bill, inspired by developments in global legislation and best practices, aims to address the deficiencies in the Law by introducing some new frameworks. The former ensures that existing frameworks are streamlined to reduce delays, maximize value and improve governance, while the latter paves the way for a structural shift in the restructuring pathways available to stakeholders.
Correcting inefficienciesAccelerating the Acceptance Process
Although bankruptcy applications must be accepted within fourteen days, in practice, acceptance of bankruptcy extends well beyond the stipulated periods and erodes asset value even before resolution begins.
Moreover, the Hon’ble Supreme Court’s decision in Vidarbha Industries Power Limited v. Axis Bank Limited has led NCLTs to generally consider factors other than default at the acceptance stage.
The Amendment Bill proposes to make it mandatory for NCLTs to accept bankruptcy petition after a default is proven; This strengthens an objective criterion for acceptance and reduces discretionary delays.
Disclosure regarding security interest
The Amendment Bill deprioritises statutory dues in the waterfall mechanism under Section 53 by expressly stipulating that a security interest cannot arise merely by operation of law.
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The purpose of this is to clarify the status of government dues in the light of the decision of the Supreme Court in the Rainbow Papers Limited case, which held that security interest created by application of the law (Gujarat Value Added Tax) gives the status of ‘secured creditor’ to the tax authorities, thereby entitling them to payment on par with other secured creditors under Section 53(1)(b)(ii).
Coding the Clean Slate Policy
The ‘clean slate’ principle put forward by the Hon’ble Supreme Court in Essar Steel v. Ghanashyam Mishra case, which enables resolution applicants to take over the corporate debtor on a fresh slate by eliminating all claims not expressly mentioned in an approved resolution plan, is legally recognized in the Amendment Bill.
The purpose of expressly incorporating this principle into the Rules is to prevent post-resolution litigation and to provide certainty to persons seeking resolution.
to complete the deficiencies
Creditor Initiated Insolvency Resolution Process (“CIIRP”)
The Amendment Bill proposes to introduce the CIIRP as a hybrid restructuring framework, combining the benefits of formal court-supervised restructuring with the timeliness of informal out-of-court restructuring. CIIRP envisages an out-of-court initiation framework under which financial creditors can initiate the insolvency resolution process without the need for NCLT approval.
However, to ensure balancing of rights, CIIRP also has established legal safeguards that require intervention of NCLT at certain stages. for example, granting the moratorium and approving the resolution plan.
The CIIRP allows the corporate debtor to retain control over operations (under the supervision of the creditor-appointed resolution professional), arranging incentives in a way that ensures that existing management ‘stays in the game’ and is motivated to prepare a workable plan at the earliest to avoid disqualification under Section 29A. CIIRP aims to not only reduce the burden on NCLTs but also reduce resolution costs and preserve value by enabling early intervention.
Cross-Border Bankruptcy
The absence of a cross-border insolvency framework has long plagued India’s insolvency regime, leading to fragmented and ad hoc judicial decisions in cases involving foreign assets. Drawing on globally recognized principles, the Amendment Bill includes provisions to enable the Central Government to notify rules regarding cross-border insolvency.
Group Bankruptcy
The ad hoc approach in practice, due to the reliance on judicial discretion for commercial solutions in group insolvency cases, has made the group insolvency regime uncertain and unpredictable and has led to inconsistent results.
The Amendment Bill aims to provide legal recognition of group insolvency and to establish a framework that allows the Government to determine the method for conducting insolvency proceedings against more than one group entity.
If implemented effectively, these reforms could mark the beginning of the Code’s second decade as a more efficient, predictable and consistent insolvency law. The Amendment Bill reflects a maturing insolvency regime that is increasingly responsive to market realities and global best practice.
As we prepare for the upcoming budget, the insolvency ecosystem looks forward to a decisive reform phase; The expectation is not only the passage of the Amendment Bill, but also a broader policy commitment to reinforce the core objectives of the Rules.
This article was written by Anoop Rawat, Partner and National Practice Head – Insolvency and Restructuring, Shreya Gupta, Partner and Shardul Amarchand Mangaldas & Co. Written by Senior Partner Ahkam Khan.
