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Informist, Tuesday, Aug. 12, 2025

 

NEW DELHI – Minister of Finance and Corporate Affairs Nirmala Sitharaman on Tuesday introduced a Bill in the Lok Sabha to amend the Insolvency and Bankruptcy Code, 2016. The Bill was referred to a select committee, which will submit its report on the proposed amendments by the first day of the next session of Parliament. Lok Sabha Speaker Om Birla will decide the names of the members of the select committee and its terms and conditions. 

 

The Bill introduces a new section in the 2016 Code to empower the central government to prescribe rules relating to cross-border insolvency proceedings for such classes or classes of debtors and corporate debtors as may be notified by the Centre. These rules may include designating one or more benches of the National Company Law Tribunal for dealing with cross border insolvency proceedings under this section. Further, before the rules framed under this section are issued, a draft of every rule proposed to be issued will be laid down before each House of Parliament as per the procedure provided in the provision. Cross-border insolvency regulates the treatment of financially distressed debtors where such debtors have assets or creditors in more than one country. 

 

Further, the government has brought the concept of group insolvency under the 2016 Code. Group insolvency is a framework where if multiple entities of a single corporate group go insolvent, their resolutions can be consolidated in one court. The new amendment enables the Centre to make rules concerning the manner and conditions for conducting insolvency proceedings and liquidation proceedings where these were initiated against two or more corporate debtors that form part of a group. The group insolvency framework will facilitate improved coordination between insolvency resolution and liquidation processes for corporate debtors that form part of a group to maximise the value, said the government.

 

For quick insolvency admission of debt-ridden companies, the Bill has made changes to Section 7 of the 2016 Code. The Bill amended Section 7 to clarify that the tribunal will mandatorily admit the application to initiate the corporate insolvency resolution process once the occurrence of default is established, no disciplinary proceedings are pending against the proposed resolution professional and other procedural requirements under the section are complied with. Section 7 of the 2016 Code deals with an application filed by a financial creditor to start insolvency proceedings against a corporate debtor.

 

The government has made sure that there were no frivolous insolvency petitions filed against corporate debtors. For this, the government has introduced a penalty for initiating frivolous or vexatious proceedings before the tribunal to deter persons from initiating such proceedings and delay the insolvency resolution and liquidation processes. 

 

In addition, the resolution professional needs to file an application for withdrawal of insolvency case against the corporate debtor. Earlier, financial creditors, operational creditors and corporate debtors could file an application for withdrawal of insolvency cases. This application of the resolution professional may be allowed by the tribunal with the prior approval of 90% of the voting share of the committee of creditors. Further, the Bill clarifies that the tribunal will not allow the application admitted under the 2016 Code to be withdrawn either before the committee of creditors is constituted or after the first invitation to submit a resolution plan by the resolution professional under any circumstances. 

 

Further, the government has divided the approval of a resolution plan into two parts. The Bill enables the tribunal to first approve the implementation of the resolution plan, and then, by a separate order, approve the manner of distribution provided therein within a period of 30 days. This power shall only be exercised by the tribunal on an application made by the resolution professional with the approval of the committee of creditor.

 

The government has also made changes to the Competition Commission of India's approval for a company's resolution plan. If a resolution plan provides for a combination that requires prior approval of the Competition Commission of India under the Competition Act, 2002, then such approval will be obtained by the resolution applicant before the resolution plan is submitted to the tribunal for approval. Earlier, the plan had to be approved by the competition watchdog before it was sent for the committee of committee's approval. However, the competition regulator now needs to give a green signal after the lenders have approved the plan. This amendment came after the Supreme Court in January rejected AGI Greenpac Ltd.'s resolution plan for Hindustan National Glass & Industries Ltd., which was admitted for insolvency in 2021. The apex court called the resolution plan "unsustainable" and ordered for reconsideration as it had not taken the requisite approval of the CCI prior to the nod by the committee of creditors.

 

The government has now provided for restoration of insolvency proceedings against a corporate debtor in exceptional cases, provided that the committee of creditors makes such a request by an application. The tribunal can only restore the process if it is satisfied that no resolution plan has been approved within the period stipulated under the 2016 Code, or the resolution plan approved by the committee of creditors has been rejected under section 31 of the 2016 Code. Additionally, when an application is made for a liquidation order due to the contravention of an approved resolution plan, the tribunal may, in exceptional cases, reinstate the corporate insolvency resolution process instead, if it is viable for maximising the value of the corporate debtor.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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