Introduction: A Law Struggles to Keep Pace
In 2016, India’s Parliament introduced the Insolvency and Bankruptcy Code, 2016 (“IBC”), aiming for a swift resolution of corporate insolvencies within 180 days, extendable to 270 days. Yet, a decade later, the average duration for closing a Corporate Insolvency Resolution Process (“CIRP”) had ballooned to 744 days, according to the Insolvency and Bankruptcy Board of India (“IBBI”). The process had transformed from a resolution mechanism into a tool for delay, with promoters exploiting procedural loopholes to postpone creditor recoveries.
Since its enactment, the IBC faced three major structural challenges. Firstly, the Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352 allowed corporate debtors to contest the initiation of CIRP based on financial health and other considerations, thereby weakening the Code’s foundational twin-test principle. Secondly, the Supreme Court’s decision in State Tax Officer v. Rainbow Papers Ltd., (2022) SCC OnLine SC 1162 elevated certain government dues to the status of secured creditors within the Section 53 liquidation hierarchy, contradicting the structured order intended by Parliament. Thirdly, the established “clean slate” doctrine, as seen in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, continued to cause uncertainty concerning unresolved statutory dues and claims post-resolution.
With the enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 on April 6, 2026, Parliament has sought to address these issues through legislative changes. This analysis explores whether these amendments suffice in resolving the identified problems.
Legal Analysis: Significant Reforms
Mandatory Admission of CIRP Applications
The 2026 Amendment introduces a pivotal procedural reform by mandating the admission of complete CIRP applications under Section 7(5)(a) of the Code. This change overturns the precedent set by Vidarbha Industries Power Ltd., where the Supreme Court interpreted “may” in Section 7(5)(a) to grant discretion to the NCLT to deny CIRP application admissions, even when debt and default were evident. The Amendment now requires the NCLT to admit applications upon confirming that (i) a default has occurred, (ii) the application is complete, and (iii) no disciplinary proceedings are pending against the proposed Resolution Professional. This codification aligns with the original parliamentary intent and eliminates the procedural delays previously enabled by the Vidarbha judgment.
The CIIRP: A New Framework
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The 2026 Amendment also introduces the Creditor-Initiated Insolvency Resolution Process (“CIIRP”) under Chapter IV-A (Sections 58A to 58K) of the Code. This pre-insolvency, out-of-court restructuring mechanism allows financial creditors with at least 51% of the total financial debt to initiate the process by serving a 30-day notice to the debtor. Unlike regular CIRP, the debtor’s board retains control under the oversight of a Resolution Professional during the CIIRP. The process lasts for 150 days, extendable by 45 days, and can be converted into a regular CIRP by the NCLT if the debtor fails to cooperate. This mechanism acts as a safeguard against non-cooperation by debtors, which was a significant issue in the previous regime.
Clarifying Statutory Dues and Rainbow Papers
In response to State Tax Officer v. Rainbow Papers Ltd., which disrupted the Section 53 hierarchy by treating government dues as secured interests, the 2026 Amendment clarifies that statutory dues do not constitute “security interests” under Section 3(31) of the IBC. This restoration of the original Section 53 hierarchy places government dues below secured, unsecured, and operational creditors, consistent with the IBC’s objective to prioritize private creditors over government claims.
The changes brought about by the 2026 Amendment are crucial in addressing the delays and uncertainties that plagued the IBC framework. The continuation of this analysis will be provided in Part II.
About the Author: Madhu Sweta is a Partner at Singhania & Partners. Aadrikaa Thakur, an intern, contributed research assistance.
Disclaimer: The views expressed in this article belong solely to the authors and do not necessarily reflect those of Bar & Bench.
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