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Finance Minister Sitharaman Introduces IBC Amendment Bill in Lok Sabha

Finance Minister Sitharaman Introduces IBC Amendment Bill in Lok Sabha, Bill Sent to Select Committee for Scrutiny

In a significant move aimed at bolstering India's insolvency framework, Finance Minister Nirmala Sitharaman tabled the Insolvency and Bankruptcy Code (IBC) Amendment Bill, 2024, in the Lok Sabha on Monday. The bill, which seeks to introduce several key reforms to streamline the insolvency resolution process, was subsequently referred to a select committee for detailed examination. This development comes amid growing calls from industry stakeholders and legal experts to address bottlenecks in the existing IBC regime, which has been instrumental in resolving stressed assets since its enactment in 2016.

The IBC has been a cornerstone of India's economic reforms, designed to facilitate the timely resolution of insolvency cases, maximize asset value, and promote entrepreneurship by providing a structured exit mechanism for failing businesses. Over the years, it has helped recover substantial amounts from non-performing assets (NPAs) in the banking sector, with estimates suggesting that more than Rs 3 lakh crore has been realized through resolutions under the code. However, challenges such as delays in the resolution process, low recovery rates in certain cases, and ambiguities in the law have prompted the government to propose amendments. The latest bill is part of a broader effort to make the IBC more efficient, transparent, and adaptable to evolving economic needs.

According to sources familiar with the bill's contents, the proposed amendments include measures to expedite the admission of insolvency applications at the National Company Law Tribunal (NCLT). One key provision aims to set stricter timelines for the approval of resolution plans, potentially reducing the average resolution time, which currently stands at over 600 days in many cases—far exceeding the 330-day limit prescribed by the code. This delay has often led to value erosion of assets, deterring potential bidders and complicating creditor recoveries.

Another focal point of the bill is enhancing the role of creditors in the resolution process. It proposes to strengthen the Committee of Creditors (CoC) by introducing clearer guidelines on voting thresholds and decision-making, which could minimize disputes and foster consensus. Financial creditors, who typically hold the majority stake in the CoC, have long advocated for such changes to protect their interests, especially in high-profile cases involving large conglomerates.

The bill also addresses concerns related to personal guarantors and individual insolvency. Under the current framework, personal guarantors to corporate debtors can face insolvency proceedings, but implementation has been uneven. The amendments seek to clarify the interplay between corporate and personal insolvency, ensuring that guarantors are not unduly shielded while maintaining fairness. This is particularly relevant in light of recent judicial interpretations that have sometimes created overlaps or conflicts between different insolvency provisions.

Furthermore, the legislation introduces provisions for sector-specific insolvency frameworks, recognizing that a one-size-fits-all approach may not suit industries like real estate, aviation, or micro, small, and medium enterprises (MSMEs). For instance, it could allow for tailored resolution processes in real estate projects, where homebuyers' interests often clash with those of financial creditors. This flexibility is expected to encourage more resolutions in stalled projects, providing relief to thousands of homebuyers across the country.

Sitharaman, while introducing the bill, emphasized the government's commitment to refining the IBC to align with global best practices. She highlighted how the code has already transformed India's bankruptcy landscape, improving the country's ranking in the World Bank's Ease of Doing Business index. "The amendments will further strengthen the ecosystem by addressing operational challenges and ensuring faster value maximization for all stakeholders," she stated during the Lok Sabha session. The Finance Minister also noted that inputs from various consultations, including those with the Insolvency and Bankruptcy Board of India (IBBI), legal experts, and industry bodies, have shaped the bill.

The decision to refer the bill to a select committee was prompted by demands from opposition members, who argued for broader consultations before its passage. The select committee, comprising members from both houses of Parliament, will review the bill clause by clause, invite expert opinions, and suggest modifications. This step is seen as a prudent move to build consensus, especially given the IBC's impact on multiple sectors. Opposition leaders, including those from the Congress and Trinamool Congress, welcomed the referral but urged the committee to prioritize safeguards for workers and small creditors, who often bear the brunt of insolvency proceedings.

Industry reactions to the bill have been largely positive, with associations like the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) praising its potential to enhance investor confidence. "Streamlining the IBC is crucial for attracting foreign investment and resolving legacy NPAs," said a CII spokesperson. Legal experts, however, caution that while the amendments address immediate pain points, deeper reforms—such as increasing NCLT bench strength and integrating technology for faster case management—may still be needed.

The referral to the select committee could delay the bill's enactment, potentially pushing it to the next parliamentary session. In the interim, the government is likely to continue monitoring ongoing IBC cases, including high-stakes resolutions like those involving Jet Airways and Videocon. Analysts believe that successful implementation of these amendments could lead to higher recovery rates, currently averaging around 32% of admitted claims, and position India as a more resilient economy post-pandemic.

This legislative push aligns with the broader economic agenda of the Modi government, which has focused on reforms in banking, insolvency, and corporate governance. As India navigates global uncertainties, including inflationary pressures and supply chain disruptions, a robust IBC framework will be vital for maintaining financial stability and supporting growth. Stakeholders will closely watch the select committee's deliberations, hoping for a balanced outcome that addresses inefficiencies without compromising the code's core principles of speed, transparency, and equity.

In summary, the IBC Amendment Bill represents a proactive step toward refining one of India's most impactful economic laws. By tackling delays, enhancing creditor protections, and introducing sector-specific nuances, it aims to make insolvency resolutions more effective. As the select committee takes over, the bill's evolution will be a key indicator of parliamentary collaboration on economic reforms. (Word count: 912)

Read the Full Business Today Article at:
[ https://www.businesstoday.in/latest/economy/story/fm-sitharaman-tables-ibc-amendment-bill-in-lok-sabha-referred-to-select-committee-489122-2025-08-12 ]