Parliamentary panel calls for sweeping reforms to rescue India’s insolvency & bankruptcy ecosystem

The Parliamentary Standing Committee on Finance, led by Bhartruhari Mahtab, has urged the Government to implement comprehensive and urgent reforms to the Insolvency and Bankruptcy Code (IBC), 2016, to address persistent “systemic challenges” that undermine its core objective of time-bound resolution and value maximization.

The Committee’s Twenty-Eighth Report on the ‘Review of Working of Insolvency and Bankruptcy Code and Emerging Issues,’ presented to Parliament on December 2, 2025, acknowledges the IBC’s success, citing the resolution of 1,194 companies and creditor recoveries exceeding $170\%$ of the liquidation value. However, the report expresses profound concern over critical operational failures, primarily delays and low net recoveries against total claims.

The Committee noted that many of the suggested changes are addressed in the government’s upcoming Insolvency and Bankruptcy Code (Amendment) Bill, 2025, and emphasized the need for its effective implementation.

Key concerns and challenges highlighted

Challenge	Detail	Impact Noted by Committee
Protracted Delays	The average time for closing the Corporate Insolvency Resolution Process (CIRP) is 713 days, far exceeding the mandated 330-day timeline. For 2024-2025, this average spiked to 853 days.	Leads to rapid asset deterioration, value erosion, and diminished recoveries.
Inadequate Judicial Capacity	A severe shortage of National Company Law Tribunal (NCLT) benches and a backlog of 30,600 pending cases as of March 2025. It would take an estimated decade to clear the backlog at the current pace.	Slow admission of insolvency applications impedes rapid value realization.
Low Net Recovery	While recoveries are $170.1\%$ of liquidation value, the overall recovery is only $32.8\%$ of the total admitted claims.	Indicates firms are entering the IBC process too late, after significant asset value erosion, and valuation is often based on liquidation potential rather than true enterprise value.
Frivolous Litigation	Widespread vexatious appeals and litigation, often initiated by promoters or unsuccessful resolution applicants, significantly erode asset value and stall the process.	Undermines the efficiency of NCLT/NCLAT and causes avoidable delays.
Clean Slate/PMLA Conflict	Statutory overlap between the IBC and the Prevention of Money Laundering Act (PMLA), where asset attachment by the Enforcement Directorate undermines the “clean slate” immunity granted to new management under Section 32A of the IBC.	Pushes away potential Resolution Applicants, defeating the purpose of revival.
Limited PPIRP Uptake	The Pre-packaged Insolvency Resolution Process (PPIRP) for Micro, Small, and Medium Enterprises (MSMEs) shows low adoption due to complex procedures and lack of financial creditor buy-in.	Prevents distressed but viable MSMEs from accessing a faster, cheaper resolution route.

Committee’s key recommendations for reform

The report presents strong, targeted recommendations aimed at fixing infrastructural bottlenecks, enhancing transparency, and improving stakeholder accountability.

1. Strengthening judicial capacity and deterring delays

• Expedited Bench Establishment: Strongly recommended the expeditious establishment of additional NCLT benches and filling all vacant judicial and administrative posts to reduce the massive case backlog.
• Fast-Track Mechanism: Suggested setting up special designated fast-track courts for a fixed period to expedite the disposal of high-value or backlog cases.
• Deterrents for Litigation: Recommended that the Insolvency and Bankruptcy Board of India (IBBI) prescribe a mandatory upfront threshold deposit for unsuccessful resolution applicants filing appeals, and substantially raising the minimum penalty for frivolous applications.
• Technological Integration: Urged the Ministry of Corporate Affairs (MCA) to accelerate the operationalisation of the proposed Integrated Technology Platform (iPIE) for centralised case management to improve NCLT and NCLAT efficiency.
• Procedural Clarity: Recommended immediate action to notify dedicated Rules of Procedure specifically for IBC matters to reduce procedural ambiguity and judicial inefficiency.

2. Enhancing creditor recovery and asset valuation

• Enterprise Value over Liquidation: Recommended evolving the asset valuation system to primarily consider the enterprise value of the corporate debtor rather than merely its liquidation potential, to ensure the value reflects the company’s true potential.
• Competitive Bidding: To reduce ‘haircuts,’ the process for competitive bidding should be expanded through global outreach to increase the pool of quality resolution applicants.
• Valuer Accountability: The role of liquidators and registered valuers must be strengthened with clear Standard Operating Procedures (SOPs), audit trails, and post-resolution valuation reviews.

3. Streamlining post-resolution processes

• The “Clean Slate” Assurance: Recommended the establishment of a transparent, online mechanism for issuing “no dues” certificates and statutory clearances immediately upon completion of a resolution plan. This ensures revitalised companies truly start with a clean slate and can access fresh financing.
• Conflict Resolution: Suggested adopting a mechanism for Advance Ruling, similar to the GST regime, to provide stakeholders with clarity on key legal or factual issues before the initiation of an insolvency petition, thus avoiding subsequent litigation.
• Mediation Integration: Backed integrating mediation as an alternative dispute resolution mechanism to ease the pressure on adjudicating authorities.

4. Legislative and framework updates

• Cross-Border Insolvency: Highlighted the establishment of a Cross-border insolvency framework as the “need of the hour” and recommended selective adoption of the UNCITRAL Model with modifications suited for India’s financial and legal environment.
• Homebuyer Rights: Recommended reconsidering the eligibility criteria for homebuyer associations to submit a resolution plan by making the granted concessions meaningful.
• Waterfall Mechanism: Called for a review of the waterfall mechanism to ensure the interests of vulnerable stakeholders, particularly MSMEs (as operational creditors), are not unduly compromised.

IBC Amendment Bill, 2025: Government’s Response

The Committee acknowledged that the proposed Insolvency and Bankruptcy Code (Amendment) Bill, 2025, attempts to address many of the structural weaknesses. Key provisions in the Bill include:

• Expedited Admission: NCLT is mandated to admit an insolvency application filed by a financial creditor within 14 days upon proof of default.
• Creditor-Initiated Resolution: Introduction of a Creditor-Initiated Insolvency Resolution Process (CIIRP), which is an out-of-court mechanism aimed at faster, cost-effective resolutions.
• Group and Cross-Border Frameworks: Enabling provisions to frame rules for both Group Insolvency and Cross-Border Insolvency proceedings.
• Liquidation Timelines: Stipulates that NCLT must pass the liquidation order within 30 days of the application/intimation.
• Enhanced RPs Accountability: Strengthens the accountability of Resolution Professionals (RPs) through higher penalties and clearer disciplinary processes.

The Committee ultimately urged the MCA to ensure the “expeditious implementation” of these reforms, concluding that a sustained, integrated, and time-bound approach is essential to maximize enterprise value and reinforce India’s position as a favourable business destination.

Also See: Insolvency regulator moves to protect homebuyers, boosts transparency in bankruptcy process