The Insolvency and Bankruptcy Code (Amendment) Bill has proposed a creditor-initiated insolvency resolution process, with out-of-court settlement provision within a 150-day timeline. The aim of the proposal is to improve efficiency and reduce litigation-driven delays in the insolvency process. The bill also proposes penalty provisions ranging from Rs 1 lakh to Rs 2 crore on those initiating baseless cases.
The Lok Sabha on Monday cleared the Insolvency and Bankruptcy Code (Amendment) Bill introducing a new insolvency framework featuring out-of-court initiation, debtor-in-possession and creditor-in-control model, where management continues to vest in the existing Board of Directors or partners with safeguards, and defined timelines.
While presenting the Bill, Finance Minister Nirmala Sitharaman on Monday said extensive litigation by promoters remains the primary reason for delays in insolvency resolution under the Insolvency and Bankruptcy Code (IBC). “Primary cause of delay is extensive litigation. Promoters tend to litigate or attempt settlements, delaying admission. Parallel recovery processes also cause delays,” she said, outlining key provisions of the proposed Amendment Bill.
The Bill also mandates a strict 14-day timeline for admission of insolvency cases once default is established, particularly for financial creditors, with no additional criteria required to be examined.
Sitharaman said authenticated financial information maintained by information utilities will serve as the basis for establishing default, enabling quicker initiation of the insolvency process by the National Company Law Tribunal (NCLT). Adjudicating Authorities will be required to approve or reject resolution plan within 30 days of receipt. However, it has been clarified that wilful defaulters, persons related to NPAs and their connected parties will be prohibited from submitting a resolution plan.
This also extends to sale of liquidated assets & Pre-Packaged Insolvency Resolution Process (PPIRP) as well.
“The introduction of faster and out-of-court led mechanism, enabling provisions for cross-border and group insolvency frameworks represent well-directed steps towards a more liberal, predictable and investor-friendly approach to distress resolution, particularly for international creditors and strategic investors,” said Siddharth Srivastava, Partner at Khaitan & Co.
Special provisions have been introduced under the amended act to ensure fast-track resolution of cases for MSMEs like lowering the voting threshold for entry into Insolvency proceedings and easing of the documentation processes.