Withdrawal of CIRP, expansion of CoC role and more: Highlights of IBC Amendment Act 2026

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has received Presidential assent and been published in the Official Gazette. It introduces significant changes to India’s insolvency framework, including stricter limits on withdrawal of proceedings.

A central feature of the amendment is the revision of Section 12A (withdrawal of insolvency proceedings), which now restricts withdrawal of corporate insolvency resolution process (CIRP) proceedings at key stages.

Under the amended provision, withdrawal will not be permitted before the constitution of the Committee of Creditors (CoC) or after the issuance of the first invitation for submission of resolution plans.

This marks a clear shift from the earlier framework under the Insolvency and Bankruptcy Code, 2016. While Section 12A, introduced through a subsequent amendment, required 90 per cent CoC approval for withdrawal, courts had allowed considerable flexibility, permitting settlements and withdrawals at various stages of the process.

The 2026 amendment narrows this flexibility by statutorily defining the stages at which withdrawal is impermissible, thereby limiting late-stage settlements and preventing disruption of the resolution process once it has progressed.

The requirement of approval by 90 per cent of the CoC continues under the amended provision. The law also mandates that the Adjudicating Authority decide withdrawal applications within 30 days and record reasons in case of delay.

Apart from withdrawal, the amendment reinforces the time-bound nature of insolvency proceedings, which was a foundational objective of the 2016 Code but has seen dilution in practice.

Applications under Section 7 (initiation of CIRP by financial creditors), Section 9 (initiation of CIRP by operational creditors) and Section 10 (initiation of CIRP by corporate applicant) must now be admitted or rejected within 14 days, with adjudicating authorities required to record reasons if the timeline is not adhered to.

The amended law also clarifies that once default is established and the application is complete, it cannot be rejected on extraneous grounds.

In a further departure from the 2016 framework, the amendment expands the role of the CoC by allowing it to supervise the liquidation process under Chapter III (liquidation of corporate persons).

Under the original IBC, the CoC’s role was confined to the CIRP and ceased once a resolution plan was approved or the company was pushed into liquidation.

The 2026 amendment now extends creditor oversight to the liquidation stage as well, marking a significant shift in the architecture of the Code.

The law also strengthens protections for dissenting financial creditors by ensuring that they receive at least the minimum amount they would be entitled to under liquidation.

Another notable change is the introduction of a mechanism allowing restoration of CIRP even after grounds for liquidation arise. The Adjudicating Authority may permit such restoration, subject to CoC approval, for a period not exceeding 120 days.

The amendment also codifies several principles that had previously evolved through judicial interpretation. It clarifies that avoidance proceedings and actions relating to fraudulent trading will continue independently of CIRP or liquidation timelines.

Further, once a resolution plan is approved, all prior claims against the corporate debtor stand extinguished and no fresh proceedings can be initiated on such claims, although liabilities of promoters and guarantors remain unaffected.

The amendment also expands definitions under Section 3 and Section 5, including those of “service provider”, “avoidance transaction” and “fraudulent or wrongful trading”.

It clarifies that a “security interest” must arise from an agreement between parties and not merely by operation of law, addressing a long-standing interpretational issue.

Changes to Section 16 (appointment of interim resolution professional) streamline the process of appointing IRPs, including situations where the Adjudicating Authority must seek recommendations from the Insolvency and Bankruptcy Board of India.

Section 18 (duties of interim resolution professional) now expressly empowers IRPs to verify and determine the value of claims, strengthening their role beyond mere collation.

The revised Section 26 (avoidance proceedings) clarifies that applications relating to avoidance transactions or fraudulent trading will continue independently and are not affected by completion of CIRP or liquidation.

A new Section 28A (transfer of guarantor assets) allows creditors to transfer assets of personal or corporate guarantors during CIRP, subject to CoC approval.

Amendments to Section 30 (submission of resolution plans) and Section 31 (approval of resolution plan) mandate minimum payouts to dissenting creditors, require reasons to be recorded for CoC approval and protect licences and permits linked to approved resolution plans.

The law also provides that once a resolution plan is approved under Section 31, all prior claims against the corporate debtor stand extinguished.

[Read Amendment]