The revised Amendment Bill is likely to be tabled in the forthcoming budget session and therefore, the insolvency ecosystem expects the introduction of the reforms proposed in the Amendment Bill, as supported by the findings in the report of the Select Committee.

The changes proposed in the Amendment Bill are both corrective and structural. Firstly, recognising the need for periodic updates to an economic legislation like the Code, several amendments are proposed to rectify the inefficiencies plaguing the current insolvency processes – such as explanations/clarifications to certain provisions with a view to clarify the original intent of the legislature and correct interpretive aberrations.

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Secondly, taking cue from global legislative developments and best practices, the Amendment Bill seeks to introduce some new frameworks, thereby plugging the deficiencies in the Code. While the former ensures that the current frameworks are streamlined to reduce delays, maximise value, and improve governance, the latter paves the way for a structural shift in the restructuring avenues available to the stakeholders.

Rectifying the inefficiencies

Expediting the Admission Process

Even though insolvency applications are required to be admitted within fourteen days, practically, the insolvency admission takes far beyond prescribed timelines, eroding asset value even before the resolution begins.

Further, the Hon’ble Supreme Court’s ruling in Vidarbha Industries Power Limited v. Axis Bank Limited, led to the NCLTs often considering factors other than default at the admission stage.

The Amendment Bill proposes to make it mandatory for the NCLTs to admit an insolvency application once a default is proven, which reinforces an objective criterion for admission and reduces discretionary delays.

Clarification on security interest

By expressly stipulating that a security interest cannot merely arise by operation of law, the Amendment Bill deprioritises statutory dues in the waterfall mechanism under Section 53.

This is intended to clarify the status of government dues in light of the Hon’ble Supreme Court’s judgment in Rainbow Papers Limited, which had held that security interest created by operation of statute (Gujarat Value Added Tax) accorded the status of ‘secured creditor’ to the tax authorities, thereby, entitling them to pari-passu payment with other secured creditors under Section 53(1)(b)(ii).

Codification of the Clean Slate Principle

The ‘clean slate’ principle propounded by the Hon’ble Supreme Court in Essar Steel and Ghanashyam Mishra, which ensures that the resolution applicants take over the corporate debtor on a fresh slate through extinguishment of all claims not expressly provided for in an approved resolution plan, finds statutory recognition in the Amendment Bill.

The express incorporation of this principle into the Code is intended to curb post-resolution litigation and provide certainty to resolution applicants.

Plugging the deficiencies

Creditor Initiated Insolvency Resolution Process (“CIIRP”)

The Amendment Bill proposes to introduce CIIRP as a hybrid restructuring framework, combining the benefits of formal court-supervised restructuring with the timeliness of informal out-of-court restructuring. The CIIRP envisages an out-of-court initiation framework, whereby financial creditors may initiate the process of insolvency resolution without the need of admission by the NCLT.

However, to ensure balancing of rights, the CIIRP also has in-built statutory safeguards, requiring the intervention of the NCLT at certain stages. e.g. grant of moratorium and approval of resolution plan.

The CIIRP permits the corporate debtor to retain control over operations (under the supervision of the creditor-appointed resolution professional) which aligns incentives such that the existing management retains ‘skin in the game’ and are motivated to work out a viable plan at the earliest to avoid disqualification under Section 29A. The CIIRP seeks to not only reduce the burden on NCLTs, but also lower costs of resolution and preserves value by enabling early intervention.

Cross-Border Insolvency

The absence of a cross-border insolvency framework has long plagued the Indian insolvency regime, leading to fragmented and ad hoc judicial resolutions in situations involving foreign assets. Drawing on globally recognized principles, the Amendment Bill incorporates provisions enabling the Central Government to notify rules for cross-border insolvency.

Group Insolvency

The ad hocism in practice due to reliance on judicial discretion for commercial solutions in cases of group insolvency, made the group insolvency regime uncertain and unpredictable and led to inconsistent outcomes.

The Amendment Bill seeks to provide a statutory recognition to group insolvency, creating an enabling framework for the Government to prescribe the manner for conducting insolvency proceedings against multiple group entities.

If implemented effectively, the aforesaid 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, one that is increasingly responsive to market realities and global best practices.

As we prepare for the forthcoming budget, the insolvency ecosystem looks forward to a decisive phase of reform – the expectation is not merely the passage of the Amendment Bill, but a broader policy commitment to reinforce the core objectives of the Code.

This article was originally published in Economic Times on 30 January 2026 Co-written by: Anoop Rawat, Partner, National Practice Head – Insolvency & Restructuring; Ahkam Khan, Senior Associate; Shreya Gupta, Associate. Click here for original article

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