Reforming the Reform: Why India's Insolvency Regime Needs a 'Universal' Overhaul

The Main Explanatory

The Insolvency and Bankruptcy Code (Amendment) Act, 2026, represents the most significant evolution of India's insolvency framework since its inception a decade ago. While it aims to address procedural delays and introduce a more flexible resolution tool, a core aspect of the amendment—its exclusivity—has ignited a debate on fairness, constitutional validity, and economic prudence.

### What is the core change in the 2026 IBC Amendment?

The amendment introduces two fundamental changes. First, it creates a new, less disruptive resolution pathway called the Creditor-Initiated Insolvency Resolution Process (CIIRP), codified in Sections 54C to 54P of the amended Code. Unlike the traditional CIRP where a company's board is suspended, the CIIRP is a hybrid 'debtor-in-possession' model. It allows existing management to remain in charge under the supervision of a resolution specialist appointed by the initiating creditor. The stated goal is to provide a swift restructuring tool for companies facing temporary liquidity issues without the disruption of a full CIRP.

Second, the amendment legislatively overturns the Supreme Court's 2022 ruling in Vidarbha Industries. It amends Section 7(5)(a) of the IBC, replacing the word "may" with "shall". This makes it mandatory for the National Company Law Tribunal (NCLT) to admit an insolvency application if debt and default are proven through the records of an Information Utility. This change removes the NCLT's discretion, which had become a source of litigation and delay, thereby restoring certainty to the admission process.

### Why has the CIIRP's initiation mechanism become controversial?

The controversy lies not in the CIIRP's existence, but in who is permitted to use it. The 2026 amendment restricts the right to initiate a CIIRP exclusively to "notified financial institutions". This creates a privileged sub-category within the broader class of financial creditors, which includes banks, non-banking financial companies, asset reconstruction companies, and investment funds. All other financial creditors, along with operational creditors, are barred from accessing this less disruptive resolution process.