Lok Sabha Passes Insolvency Amendments, FM Eyes Higher Stakeholder Value
New Delhi: Lok Sabha on Monday passed a bill to amend the bankruptcy law to provide strict timelines, out-of-court settlement option and enable framework for cross-border insolvency processes.
Piloting the bill in the Lok Sabha, Finance and Corporate Affairs Minister Nirmala Sitharaman said 12 amendments have been made to the Insolvency and Bankruptcy Code (IBC), which came into effect in 2016, which will help maximize value for stakeholders and improve the governance process.
The changes aim to strengthen the existing insolvency framework as well as address practical challenges and incorporate evolving global best practices, the minister said, adding that the law is an important factor in improving the health of the country’s banking sector.
The Lower House has passed the Insolvency and Bankruptcy Law (Amendment) Bill 2025, as reported by the Select Committee.
On August 12, 2025, the government introduced the bill to amend the Insolvency and Bankruptcy Code (IBC) in the Lok Sabha and proposed a number of changes, including provisions to reduce the time required for acceptance of insolvency resolution applications.
The bill has been referred to a select committee of the Lok Sabha, which will submit its report in December 2025.
Sitharaman stated that all the recommendations of the committee have been accepted.
The IBC has been amended seven times so far.
The bill replaces the underutilized fast track process with a new creditor-initiated bankruptcy framework that includes an out-of-court initiation, debtor-in-possession, and under-creditor-control model, where management continues to delegate to the existing Board of Directors or partners with safeguards and defined timelines.
Sitharaman also said that there is a facilitating framework for group insolvency and cross-border insolvency to boost investor confidence and align local practices with best international practices.
Stricter timelines will be introduced to ensure companies under stress are resolved in a timely manner, and penalties will be imposed to deter annoying and frivolous complaints that delay the process.
Among other changes, if a company’s default is detected, an application to initiate insolvency resolution process has to be accepted within 14 days and IBC-related objections before the National Company Law Appellate Tribunal (NCLAT) have to be decided within three months.
Sitharaman said extensive litigation was the main reason for the delay and various steps have been proposed in the bill to address the problem, including new provisions for penalties ranging from Rs 1 lakh to Rs 2 crore on people initiating frivolous proceedings to prevent misuse and delays.
The Minister said the Adjudicating Authority (AA) must approve or reject a resolution plan within 30 days of receipt and there will also be a creditor-initiated resolution process, a new out-of-court initiation mechanism with a compressed timeline of 150 days.
Responding to concerns about the efficiency of the IBC framework, Sitharaman maintained that companies were doing well post-resolution and cited a study stating that the market value of such firms rose from Rs 2.8 lakh crore to Rs 9 lakh crore in five years after resolution.
Noting that IBC is an important and crucial factor in improving the health of the country’s banking sector, the minister said that Scheduled Commercial Banks (SCBs) have recovered a total amount of Rs 1,04,099 crore through various channels and out of the total amount, the IBC channel alone has made a significant contribution of Rs 54,528 crore and constitutes 52.3 per cent of the total recovery.
He also emphasized that under IBC, workers’ dues are not ignored and such dues are given higher priority and are equivalent to secured creditors.
“This (workers’ dues) is above unsecured financial creditors and even government dues. This proves that the IBC regime wants to ensure that workers are not shortchanged,” he said.
