For nearly a decade, the Insolvency and Bankruptcy Code,2016 (“IBC”) had suffered from a contradiction. On paper, it is built around speed, in practice, however, insolvency litigation in India has been slow because of admission-stage delay, prolonged disputes by suspended management, litigation over distribution mechanism, and a growing body of jurisprudence that sometimes pulled the Code away from its original architecture. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 appears to be Parliament’s answer to that dichotomy (the “2026 Amendment”).
It is a serious attempt to push IBC back towards creditor control and institutional clarity. The 2026 Amendment marks the most important reworking of the Code since the early years of its operation and a few of the changes brought in are likely to be contested almost immediately.
I. ACCOUNTABILITY IN ADMISSION PROCESS
The first shift is at the admission stage. Amendments to sections 7, 9 and 10 now lay down that if the Adjudicating Authority does not admit or reject an insolvency application within 14 days of filing, it shall record reasons for the delay in writing. The point of this amendment is that by the time a matter limps into CIRP, the prospect of a real resolution narrows down significantly.
Whether the 14-day rule works in practice is another matter. One cannot legislate away the infrastructural and docket pressure. If the institutional capacity of the Adjudicating Authorities does not improve, the 2026 Amendment will end up creating a formal mandate.
II. CREDITOR INITIATED INSOLVENCY RESOLUTION PROCESS
The most conceptually interesting reform is the introduction of the creditor-initiated insolvency resolution process, or CIIRP. This is a notable departure from the traditional model. It creates a pathway that can be triggered by specified financial creditors outside the familiar architecture of sections 7, 9 and 10, and with the consent of at least 51% of such creditors by value. It also retains the corporate debtor in management, subject to the supervision of the resolution professional, rather than displacing management at the outset. CIIRP is not open to all creditors. It is confined to specified financial creditors, because certain institutional creditors may be better placed to use a faster, supervisory model. However, it may invite a challenge that similarly placed creditors are being treated differently without sufficient justification.
III. UNDOING RAINBOW PAPERS
One of the clearest legislative corrections in the amendment is the response to Rainbow Papers. The 2026 Amendment specifically provides as follows, “security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force.” By clarifying that a security interest does not arise merely by operation of law, Parliament has tried to restore the original ordering of priorities under IBC.
IV. LIQUIDATION, CREDITOR OVERSIGHT, AND RESTORATION OF CIRP
The reforms in liquidation process are equally striking. The Committee of Creditors has been given a role in appointment, replacement and oversight of the liquidator. This is consistent with the broader principle that creditors are central to IBC. Whether that improves efficiency or merely creates another field of contest between liquidators and creditor bodies will depend on the regulations and the Adjudicating Authority’s approach.
The power to restore CIRP in exceptional circumstances is another notable intervention. Post-approval developments, failed implementation, or unexpected complications may justify reopening CIRP rather than forcing stakeholders to litigate.
V. RESOLUTION PLAN APPROVAL
Section 31 now contemplates a bifurcated approval process. The Adjudicating Authority will first approve the resolution plan for implementation and management of the corporate debtor, enabling immediate resumption of operations. Within 30 days thereafter, a second order will be passed approving the distribution of proceeds to creditors.
VI. AVOIDANCE TRANSACTIONS
The amendments to Sections 43-49 effect two significant changes. First, creditors are now empowered to file applications for avoidance of preferential, undervalued, extortionate or fraudulent transactions if the Resolution Professional or liquidator fails to act. This addresses situations where RPs or liquidators, for whatever reason, decline to pursue avoidance applications despite prima facie grounds. Second, the look-back periods for identifying such transactions have been revised.
VII. PERSONAL GUARANTORS: REMOVAL OF INTERIM MORATORIUM
The amendments to Sections 96 and 124 remove the benefit of interim moratorium for personal guarantors to corporate debtors when insolvency or bankruptcy proceedings are initiated by a creditor or the debtor. This ensures that creditors can proceed against personal guarantors simultaneously with CIRP or liquidation of the corporate debtor, thereby preventing guarantors from seeking refuge behind procedural stays.
The Amendment also permits creditors of the corporate debtor who have taken possession of a guarantor’s assets to transfer or sell such assets, with proceeds forming part of the CIRP or liquidation estate. Where the guarantor is also under CIRP, liquidation or personal insolvency, the CoC of the guarantor must grant approval, except during liquidation where approval is not needed if the creditor has not relinquished the asset under Section 52.
VIII. MANDATORY MINIMUM FOR DISSENTING CREDITORS
Section 30 now provides that dissenting financial creditors shall receive an amount not less than the liquidation value or what they would receive under the plan if proceeds were distributed in accordance with Section 53, whichever is lower. This codifies the principle of safeguarding dissenting creditors’ interests while preserving the commercial wisdom of the majority.
IX. WITHDRAWAL OF APPLICATIONS: NARROWING THE WINDOW
The Amendment Act narrows the window for withdrawal of insolvency applications. Withdrawal is now permitted only after the CoC has been constituted and before the first invitation for resolution plans is issued. Additionally, the consent of 90% of the CoC is required for such withdrawals.
This tightening is aimed at preventing strategic withdrawals that undermine the resolution process. However, it also reduces the scope for out-of-court settlements during the early stages of CIRP, which could work against the objective of value maximisation in certain cases.
X. PENALTY FOR VEXATIOUS PROCEEDINGS
A new Section 64A introduces penalties for initiating frivolous or vexatious proceedings before the Adjudicating Authority. The provision seeks to deter litigation aimed at delaying or derailing genuine insolvency proceedings.
XI. ENFORCEMENT AND REGULATORY ARCHITECTURE
The IBBI can now issue show cause notices to any service provider on prima facie grounds. Multiple disciplinary committees are now permissible, and their powers have been clarified to include penalties, suspension, disgorgement, and restitution. Significantly, the penalty cap has been doubled from Rs. 1 crore to Rs. 2 crores, and appeals to the NCLAT are now permitted.
Section 235A introduces a new mechanism enabling the Adjudicating Authority to impose proportional penalties on application by IBBI, the Central Government, or an authorised person. The definition of “service provider” has been expanded to include registered valuers as well.
XII. INFORMATION UTILITIES AND AUTHENTICATION
Sections 214 and 215 introduce a new authentication framework. The IBBI is to prescribe procedures and timelines for debtors to authenticate information. Operational creditors must now submit information to an Information Utility before filing a Section 9 application. Debtors must authenticate or dispute the information, with silence deemed to constitute authentication.
This mechanism seeks to reduce pre-admission litigation by creating a presumption of correctness for authenticated information, though its effectiveness will depend on the robustness of the information utility infrastructure.
XIII. GROUP INSOLVENCY AND CROSS-BORDER INSOLVENCY
The Amendment introduces enabling provisions in Section 59A for group insolvency, empowering the Central Government to prescribe rules for designation of a common bench, consolidation of proceedings, and governance arrangements for multiple corporate debtors forming part of a group.
Similarly, the Act empowers the Central Government to frame rules for cross-border insolvency proceedings. While this falls short of a comprehensive framework along the lines of the UNCITRAL Model Law, it provides the legislative foundation for such rules to be notified. The effectiveness of this provision will depend entirely on the quality of subordinate legislation that follows.
XIV. INELIGIBILITY OF RP AS LIQUIDATOR
Acting on the recommendations of the Select Committee, the Amendment provides that a Resolution Professional who has conducted the CIRP or pre-packaged insolvency resolution for a corporate debtor shall be ineligible to be appointed as liquidator.
XV. PRE-PACKAGED INSOLVENCY: HARMONISATION
Sections 54C, 54F, 54L and 54N have been amended to harmonise the pre-packaged insolvency resolution framework with the revised CIRP rules.
XVI. CONCLUDING OBSERVATIONS
The Amendment represents a significant legislative effort to address the accumulated learning of nearly a decade of IBC implementation. The 14-day admission mandate, the introduction of CIIRP, the empowerment of the CoC in liquidation, the clarification on security interests, and the enabling provisions for group and cross-border insolvency together constitute a substantial recalibration of the insolvency framework.
However, the success of these reforms’ hinges on factors beyond legislative text. The 14-day mandate assumes that NCLTs possess the infrastructure and manpower to dispose of applications at that pace. The CIIRP framework assumes that debtor-in-possession models will work in an environment where management displacement has become the norm. The cross-border insolvency provisions assume that rules of requisite sophistication will follow. The amendments are a step forward, but as with all reforms, the proof will lie in how well they are implemented.
*Anuja Pethia, Partner, Swarnim Legal