Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC”), represents a pivotal shift in India’s insolvency framework, moving from a debtor-centric to a creditor-centric approach. Central to this transformation is the Committee of Creditors (“CoC”), whose “commercial wisdom” has been reinforced by judicial interpretations, shaping its significance in insolvency proceedings. Despite these strengths, the IBC has faced criticism for its protracted timelines. By the end of 2025, the Insolvency and Bankruptcy Board of India (“IBBI”) reported the average duration of the Corporate Insolvency Resolution Process (“CIRP”) exceeded 600 days, well beyond the stipulated 330 days under Section 12(1).
The 2026 Amendment: Addressing Delays
The Insolvency and Bankruptcy Code (Amendment) Act, 2026, seeks to tackle these delays by introducing innovative procedures, such as the Creditor-Initiated Insolvency Resolution Process (“CIIRP”), a revised two-stage resolution mechanism under Section 31, and extending CoC authority into the liquidation phase. This legislative move aims to expedite the process and prioritize credit resolution.
Judicial Deviations and Statutory Corrections
A key cause of delays has been the disparity between legislative intent and judicial interpretations. The 2026 Act aims to rectify these deviations, particularly those that expanded the discretion of the National Company Law Tribunal (“NCLT”), often exploited by corporate debtors to delay proceedings.
Removing Discretion: The Vidarbha Case
In the case of Vidarbha Industries Power Ltd. v. Axis Bank Ltd., the Supreme Court granted the NCLT discretion to deny insolvency admission under Section 7 even when debt and default were established, leading to admission delays. The 2026 Act amends Section 7(5), replacing “may” with “shall” and mandates that upon verification of default by an information Utility (“IU”) and absence of disciplinary actions against the Resolution Professional (“RP”), the NCLT must admit the application within 14 days or provide reasons for any delays.
Reinstating the Waterfall Mechanism: Rainbow Papers
In State Tax Officer v. Rainbow Papers Ltd., the Supreme Court’s decision allowing statutory dues to qualify as secured debts disrupted the distribution hierarchy under Section 53. The 2026 Act clarifies Sections 3(31) and 53, specifying that secured debt must arise from a commercial agreement, thus removing statutory interests from being deemed secured, reducing litigation, and preserving asset value for commercial lenders.
Two-Stage Resolution Process
The 2026 Act restructures Section 31 for resolution plan approvals, now divided into two stages. Previously, a single order addressed both corporate debtor revival and creditor distributions, which allowed dissenting creditors to stall proceedings. The new structure separates the implementation order, enabling corporate operations to resume, from the distribution order, adjudicating internal creditor disputes within 30 days.
Enlarging CoC’s Role in Liquidation
Traditionally, CoC’s role ended once liquidation began, leaving oversight to the liquidator and a non-binding Stakeholder Consultation Committee (“SCC”). The 2026 Act extends CoC’s supervisory role into liquidation, empowering it to appoint and oversee the liquidator, provided the prior CIRP manager is generally ineligible for the role to prevent conflicts of interest. The CoC also assists the liquidator in market-driven asset sales and managing unresolved issues during dissolution.
The CIIRP: A Pre-Court Solution
The 2026 Act introduces the CIIRP under Chapter IV-A (Sections 58A to 58K), allowing financial institutions holding at least 51% of the outstanding debt to initiate the process out of court. This measure aims to bypass initial NCLT admission delays. Creditors must issue a 30-day notice to corporate debtors for representation or rectification of defaults, with the entire CIIRP concluding within 150 days, extendable by 45 days through a 66% CoC vote. Failure to resolve results in a transition to standard CIRP.
Challenges: Structural and Behavioral Dynamics
While the 2026 Act introduces significant procedural improvements, focusing solely on reducing judicial discretion overlooks inherent CoC dynamics. CoC’s “commercial wisdom” often masks divergent creditor interests, which can stymie internal negotiations, shifting delays from the judiciary to boardrooms. Moreover, while the Act mandates written explanations for procedural delays, infrastructural issues like high vacancy rates and backlogs in NCLT benches remain unresolved, continuing to hinder timely resolutions.
Conclusion
The Insolvency and Bankruptcy Code (Amendment) Act, 2026, presents practical updates to address procedural inefficiencies. By addressing complexities from the Vidarbha and Rainbow Papers cases, dividing the resolution plan process, and establishing CIIRP, the Act removes several litigation drivers. However, achieving true efficiency requires addressing both CoC dynamics and judicial capacity. Without expanding NCLT’s resources, the Act risks merely relocating procedural delays instead of eliminating them.
About the Authors: Shubham Rathod is a Senior Associate, and Ruchika Jain and Arahant Dhotre are Associates at Rishabh Gandhi and Advocates.
Disclaimer: The opinions expressed are those of the authors and do not necessarily reflect the views of Bar & Bench.
