Panel seeks fast-track courts to expedite insolvency cases
The panel, chaired by senior BJP leader Bhartruhari Mahtab, also recommended setting up an advance resolution mechanism similar to that used in the goods and services tax regime to provide certainty under the Insolvency and Bankruptcy Code (IBC) and prevent post-litigation disputes.
The committee presented a report to Parliament on Tuesday titled Study of the Insolvency and Bankruptcy Law and Examination of the Problems Emerging.
As of March 2025, there were approximately 30,600 insolvency cases pending before the NCLT. It was stated that the existing 30 benches were not sufficient to deal with the large backlog over time.
According to the report, the Insolvency and Bankruptcy Board of India (IBBI) has suggested that 50 additional banks may be established over five years to clear the backlog of cases. This could lead to additional income of Rs 3-5 lakh crore by creditors by preventing erosion in stressed asset value, the regulator said.
Due to the delay in acceptance, among other problems, the average time taken to rescue a stressed firm reached 713 days; this far exceeded the mandatory 330-day period.
To deter frivolous litigation, the committee recommended that the insolvency regulator impose a mandatory preliminary deposit on unsuccessful resolution applicants who file an appeal. Heavy penalties were also proposed for frivolous practices.
He acknowledged that many of the issues plaguing the insolvency resolution ecosystem could be resolved by effective implementation of the proposed amendments to the IBC, a bill that was referred to a select committee of Parliament upon its introduction in August.
Waterfall mechanism review
It called for a review of the waterfall mechanism that determines how settlement proceeds will be distributed among creditors. This should ensure that the interests of small and medium-sized businesses, which often act as operational creditors to stressed firms, are not jeopardized by the decisions of financial creditors who often approve resolution plans, the report said. The committee also called for relaxation of eligibility criteria for home buyers’ associations to provide a resolution plan for a stressed property developer.
He also urged the ministry of corporate affairs to coordinate with other key ministries or departments, such as the ministry of housing and urban affairs or the Real Estate Regulatory Authority, to facilitate the inclusion of necessary provisions to assist home buyers and also address regulatory conflicts with other laws.
It was also suggested that India adopt the UN model of cross-border insolvency framework with appropriate modifications to suit domestic realities.
