Centre backs most panel recommendations on IBC reforms

This paves the way for the Insolvency and Bankruptcy Code (Amendments) Bill, 2025—which was introduced in Parliament in the monsoon session by finance and corporate affairs minister Nirmala Sitharaman—to be passed in the upcoming budget session of Parliament, starting 28 January, the people cited above said on condition of anonymity.

The Centre has backed a wide-ranging set of reforms aimed at speeding up resolutions, reducing litigation, and improving outcomes for creditors—including changes to insolvency timelines, voting thresholds, liquidator appointments, and decriminalisation of certain offences.

What it has not endorsed is a clarification from the committee that granting a “clean slate" to new investors in corporate debt resolution plans—under proposed amendments to section 31 of the bankruptcy code—should apply retrospectively from the inception of the IBC in 2016.

The government’s reasoning for opposing this recommendation is that several bankruptcy cases are currently before the courts, and applying the amendment retrospectively could have “unfathomable consequences" that cannot be anticipated at this stage, the first person cited above said.

However, since the select committee’s recommendation is already incorporated in the amended Bill under parliamentary procedure, the corporate affairs ministry plans to move an amendment in the budget session to remove the explicit reference to retrospective application, one of the two people cited above said.

Queries emailed to the ministry of corporate affairs on Friday seeking comments for the story remained unanswered at the time of publishing.

Clause 19 of the IBC (Amendments) Bill, 2025—dealing with amending section 31 of IBC—seeks to strengthen protections for new investors by wiping out past liabilities of companies rescued under the bankruptcy process, giving incoming owners a “clean slate". Once a resolution plan is approved, existing recovery proceedings cannot continue, and fresh claims related to past dues cannot be initiated.

The select committee proposed that except where courts decide, this provision should apply from “the date of the Principal Act", that is, IBC of 2016, which the government has not endorsed.

“The Bill seeks to clarify that the revived business under new ownership is safeguarded from any recovery effort for past dues, a position which has been upheld in various Supreme Court rulings," said Anoop Rawat, national practice head for insolvency and restructuring at law firm Shardul Amarchand Mangaldas & Co.

The Bill also extinguishes any claims that promoters, guarantors or anyone who controlled the company earlier may raise against the revived entity after a new owner has taken over.

“In addition, the amendments to the section also propose that any guarantor who repays creditors on behalf of the company cannot then turn around and claim to be indemnified by the revived company," Rawat said. “Such claims are extinguished as per the Bill. This seeks to ensure the sanctity of the ‘clean slate’ offered to the new investor. This aspect could be the subject of multiple cases that are sub-judice or on which judgement is awaited."

Rawat explained that the amendments also ensure that promoters, guarantors and those who were in control of the defaulting company cannot escape from their liability.

While making suggestions about section 31 amendment proposals, the House Committee said that cases already settled under the IBC need not be reopened.

Barring the specific reference to the retrospective effect of amendments to section 31, the government has approved all other recommendations made by the select committee.

That includes not allowing the resolution professional of a company to also act as its liquidator in case where the rescue plan fails; arming the regulator Insolvency and Bankruptcy Board of India (IBBI) with the power to recommend the liquidator to be appointed; and prescribing a three-month timeline for National Company Law Appellate Tribunal (NCLAT) to decide on bankruptcy cases.

The Centre has also endorsed lowering the voting threshold for pre-packaged insolvency resolution from 66% to 51%; and decriminalisation of certain offences such as non-compliance with the moratorium on recoveries or the resolution plan and non-disclosure of dispute by operational creditors.

The IBC (Amendments) Bill also proposes a ‘group insolvency’ framework for handling the distress of multiple entities within a business group, and a cross-border insolvency regime for dealing with entities and creditors situated in different jurisdictions.

A creditor-initiated insolvency resolution process (‘CIIRP’) featuring an out-of-court mechanism for resolving cases of genuine business failures with cost-effective resolution is also part of the Bill.