The Insolvency and Bankruptcy Code (Amendment) Act, 2026 is the most structurally significant reform to Indian insolvency law since the Code's enactment in 2016. Passed by the Lok Sabha on March 30 and the Rajya Sabha on April 1, 2026, the Act introduces an entirely new resolution track, legislatively extinguishes certain judicial doctrines, recalibrates the balance between secured and statutory creditors and lays the groundwork for India's first comprehensive cross-border and group insolvency framework. For practitioners advising on distressed assets, leveraged acquisitions, secured lending, and restructuring, the amendments require an immediate rethink of standard transaction architectures.
Part I of this article examines the reforms to admission mechanics, the new creditor-initiated resolution process, the correction of the government dues priority anomaly and the codification of the clean slate principle. Part II addresses guarantor assets, liquidation reforms, withdrawal restrictions and transactional implications across client categories. The Act's direction of travel is unmistakable: India's insolvency regime has shifted decisively toward creditors at every stage. Counterparties and debtors who have relied on procedural latitude or judicial discretion to buy time should expect a materially tighter environment.
Overturning Vidarbha
Few judicial decisions have generated as much commercial uncertainty in Indian credit markets as Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022). The Supreme Court held that the NCLT possesses residual discretion to decline admission of a financial creditor's application even where default is established, if the corporate debtor can demonstrate mitigating circumstances, including its overall financial health or pendency of regulatory proceedings.
In practice, this became a debtor's tool. Corporate debtors routinely argued before the NCLT that a government tariff revision was pending or a settlement was imminent, as ostensibly good reasons to defer admission. The result was protracted pre-admission litigation, erosion of the IBC's predictability as a creditor enforcement mechanism and value destruction before moratorium protection even commenced. The Act resolves this by substituting 'may' with 'shall' across Sections 7, 9, and 10, with an explicit Explanation that no grounds other than those specified (establishment of default, completeness of application and absence of disciplinary proceedings against the proposed resolution professional) can justify rejection. Vidarbha is therefore legislatively extinguished.
The 14-day clock and information utility records
The Act reinforces the existing 14-day disposal timeline and adds that failure to pass an order within 14 days must be accompanied by written reasons. While the sanction appears soft, it creates a paper trail susceptible to challenge and is likely to operate as a disciplinary nudge on NCLT benches that have historically treated the timeline as aspirational.
Equally significant is the clarification that records from Information Utilities constitute sufficient proof of default. Combined with the amendment to Section 215, which requires operational creditors to file information with an IU before a Section 9 application and treats the debtor's silence as deemed authentication, this shifts the evidentiary centre of admission away from contested affidavit evidence toward standardized registry records. For lenders, registering debt records on the IU infrastructure is now part of the enforcement architecture itself, not a procedural formality. Over time, this has the potential to transform the admission stage from a mini-trial into a largely administrative process.
The most immediate practical consequence of mandatory admission is the compression of the debtor's pre-admission leverage. Lenders should anticipate a spike in collateral litigation, including writ challenges to the mandatory admission mechanism, as debtors adapt.
Architecture of the Process
The introduction of the Creditor-Initiated Insolvency Resolution Process (CIIRP) under new Sections 58A to 58K is the most structurally innovative provision of the Act. It creates, for the first time in Indian law, a debtor-in-possession resolution track that is out-of-court in its initiation, limited in NCLT involvement and premised on creditor consent rather than judicial command. The closest international analogue is the debtor-in-possession model under Chapter 11 of the US Bankruptcy Code, though the comparison should not be overstated: CIIRP operates within a distinctly Indian statutory architecture.
The mechanics are as follows: notified financial creditors holding at least 51% of the debt by value may initiate CIIRP by issuing a 30-day notice to the corporate debtor. If the debtor does not contest within this period, the resolution professional makes a public announcement commencing the process. The board of directors or partners of the corporate debtor remain in management, subject to RP oversight and RP veto rights over board resolutions. CIIRP must conclude within 150 days, extendable by 45 days. If no resolution plan emerges or the debtor's management fails to cooperate, the NCLT converts CIIRP into a full CIRP.
Who can use it and the race-to-process problem
The most commercially uncertain aspect of CIIRP is the requirement that both eligible financial creditors and eligible corporate debtors be notified by the Central government, with no eligibility criteria prescribed in the statute. The class of notified financial creditors will likely be dominated by scheduled commercial banks and major NBFCs, potentially excluding distressed debt funds, ARCs, and foreign creditors who have purchased stressed debt in the secondary market. A non-notified creditor holding 51% of the economic exposure simply cannot access the track. There is also a race-to-process risk: a non-notified creditor can initiate standard CIRP before CIIRP commences, displacing the framework entirely.
Choosing between CIIRP and CIRP
The choice between the two tracks will turn on several factors. CIIRP preserves management, making it attractive where distress is cash-flow driven rather than conduct-related, and management continuity preserves enterprise value. CIRP may paradoxically be preferable where creditor alignment is uncertain, since CIIRP requires 51% consent at initiation in a process publicly announced before NCLT involvement. On moratorium, CIIRP's protection is optional and requires both creditor approval and NCLT involvement, whereas CIRP's moratorium is automatic on admission. For businesses where value depreciates rapidly, the speed premium of CIIRP's 150-day window is significant over CIRP's 330-day outer limit.
The Correction
The Supreme Court's decision in State Tax Officer v. Rainbow Papers Ltd. (2022) held that a State government's claim for sales tax dues secured by a statutory charge, ranked as a secured creditor under Section 53 of the IBC and therefore had to be paid ahead of unsecured financial creditors. For banks and NBFCs extending secured credit, this was alarming: a government tax charge of indeterminate quantum could silently prime their contractually negotiated security interest in the distribution waterfall.
The Act corrects this directly. It inserts an Explanation to the definition of security interest under Section 3(31) clarifying that a security interest must arise from an agreement or arrangement between two or more parties and cannot be created solely by operation of law. Government dues secured by a statutory charge are excluded from the definition of secured creditor under Section 53. Rainbow Papers is therefore legislatively overruled. Government dues now rank at fourth priority in the Section 53 waterfall, limited to a two-year look-back period for the higher-priority component, with remaining dues falling to the residual category.
Significance for secured lending and acquisitions
This single amendment may have a larger near-term impact on secured lending economics than any other provision in the Act. Banks and NBFCs can now underwrite recovery with greater confidence that their contractual security ranks ahead of unquantified statutory charges. For acquisitions of stressed assets, the risk has shifted from priority displacement to residual claim exposure: statutory dues remain payable but no longer displace the acquirer as a secured creditor. Acquirers still need to assess outstanding government dues, because the clean slate principle does not extinguish claims excluded from the resolution plan.
Doctrinal gap filled
The clean slate principle, that an approved resolution plan extinguishes all pre-CIRP claims against the corporate debtor, has been a cornerstone of IBC jurisprudence since the Supreme Court's decision in Ghanshyam Mishra and Sons v. Edelweiss ARC. The principle is essential to the commercial logic of insolvency resolution: no rational acquirer will pay value for a business encumbered by an unknowable tail of historical claims. Yet until the 2026 Act, the principle rested entirely on judicial pronouncement rather than statutory text, leaving it vulnerable to challenge and inconsistent application.
The Act provides the statutory foundation that was missing. Claims not covered by an approved resolution plan now stand extinguished as a matter of black-letter law. The Act also introduces protection for grants, licenses, permits and rights associated with the corporate debtor, ensuring these cannot be suspended, terminated or withheld merely on account of past liabilities addressed in the resolution plan, provided continuing obligations are met. This is particularly significant for regulated businesses such as telecom, power, and aviation, where licence continuity has been a persistent uncertainty for resolution applicants.
Two-stage approval and execution risk
A related innovation is the provision for two-stage approval of resolution plans: the NCLT may first approve the implementation of the plan and separately, within 30 days, approve the distribution mechanism. The rationale is to allow asset transfer and business continuity to commence before full claims reconciliation is complete, particularly where distribution disputes among dissenting financial creditors were delaying entire implementations. For acquirers in businesses where going-concern value depreciates rapidly, such as airlines, retail or hospitality, this is commercially significant. The Act also clarifies the minimum payment threshold for dissenting financial creditors as the lower of their liquidation value share or their Section 53 waterfall entitlement, reducing the scope for minority creditor challenge mechanisms that had been used strategically in several large resolutions.
Part II of this article examines the treatment of guarantor assets under the new Section 28A, reforms to the liquidation process, the group and cross-border insolvency framework, the consequences of the restricted withdrawal window and an integrated transactional advisory perspective across creditor, investor and borrower categories.
About the author: Mallika Kamal is a Senior Associate at Bahuguna Law Associates.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
If you would like your Deals, Columns, Press Releases to be published on Bar & Bench, please fill in the form available here.