Samridhi Shrimali

Abstract: This article analyses the Insolvency and Bankruptcy Code (Amendment) Act, 2026, and examines its transition from IBC 1.0 to IBC 2.0. It evaluates the amendments re-engineering the CIRP framework, the newly introduced Creditor-Initiated Insolvency Resolution Process (CIIRP), the recalibration of creditor rights, and identifies structural gaps requiring rectification through subordinate legislation and judicial interpretation.

Introduction

The Insolvency and Bankruptcy Code, 2016 (“IBC” / “Code”), was designed as a time-bound, creditor-driven mechanism underpinned by value maximisation and promotion of entrepreneurship. Its operational reality, however, tells a different story. At the admission stage, proceedings devolve into disputes over debt existence, pre-existing disputes, and debtor solvency. Once the corporate insolvency resolution process (“CIRP”) commences, litigation by erstwhile management, disputes over CoC constitution, claim determination, Section 29A eligibility, and third-party interventions consume statutory timelines. Even post-approval, approximately 383 applications remain pending before National Company Law Tribunal (“NCLT”) benches, with pendency ranging from 48 to 738 days, prompting the Hon’ble Supreme Court (“SC”) to take suo moto cognizance, observing that the state of affairs is grim.

Against this backdrop, the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (“IBC Amendment Act”) marks the transition from an admission-and-resolution focused framework (“IBC 1.0”) to a coordination and implementation framework (“IBC 2.0”), where legislative emphasis shifts decisively from initiating proceedings to preserving enterprise value, reducing procedural fragmentation, and facilitating integrated restructuring outcomes. (the Code, as amended by the IBC Amendment Act, is hereinafter referred to as the “Amended Code”).

The IBC Amendment Act introduces amendments extending beyond the CIRP, encompassing liquidation, personal insolvency, cross-border insolvency, and group insolvency frameworks, while augmenting Insolvency and Bankruptcy Board of India (“IBBI”) powers, establishing appellate mechanisms for disciplinary actions, and integrating technology-driven processes. The present article restricts its analysis to amendments reconfiguring the CIRP and the newly introduced Creditor-Initiated Insolvency Resolution Process (“CIIRP”).  As the Code completes a decade, the IBC Amendment Act arrives at an inflection point. The first ten years were defined by jurisprudential construction, the meaning of default, the moratorium’s scope, Committee of Creditors’ (“CoC”) commercial wisdom, and the clean slate doctrine. The next decade under IBC 2.0 will be defined by coordination of group insolvencies, preservation of enterprise value through integrated restructuring, and calibration of creditor rights within increasingly complex corporate structures.

Re-engineering CIRP: From Admission to Implementation

The amendments to the CIRP framework are best understood as a coordinated intervention across five policy dimensions: (a) eliminating threshold friction at admission, (b) controlling strategic behaviour during the process, (c) preserving enterprise value through asset consolidation and early implementation, (d) recalibrating creditor rights within the liquidation waterfall, and (e) completing the insolvency estate through continuation of avoidance proceedings.

a. Eliminating Threshold Friction (Sections 7 and 10 of the Amended Code)

Under the IBC 1.0, the admission stage was often transformed into a mini-trial shaped by the SC’s ruling in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (“Vidarbha”), which allowed the Adjudicating Authority (“AA”) to defer admission even where debt and default were established. This was a departure from Innoventive Industries Ltd. v. ICICI Bank, where admission was near-automatic upon proving default. The amendment to Section 7 restores this original architecture: once default is proved, the AA must admit within 14 days, with no scope for other considerations. While enhancing procedural efficiency, the extinguishment of case-by-case discretion raises apprehensions regarding inequitable outcomes.

Under Section 10, corporate applicants were previously permitted to propose their preferred interim resolution professional (“IRP”), raising neutrality concerns acknowledged by Hon’ble Madras High Court in K. J. Vinod v. Registrar, NCLT, Chennai Bench and by SC in SBI v. Metenere Ltd. The Amendment omits this nomination right, reducing strategic appointments. Concurrently, new Regulation 2E under the IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2026 (“Amended CIRP Regulations”) requires extensive disclosures alongside Section 10 applications, including bank accounts, asset registers, creditor lists, ongoing litigations, related party transactions, and proceedings under the Prevention of Money Laundering Act, 2002, the Foreign Exchange Management Act, 1999 and other statutes; enabling the IRP to commence with a substantially complete information base. For stakeholders, this enhanced disclosure reduces information asymmetry at the outset, enabling the CoC to make informed decisions earlier in the process and limiting the scope for concealment of material facts by the corporate applicant.

b. Controlling Strategic Behaviour (Sections 12A and 19 of the Amended Code)

In Glas Trust Company LLC v. Byju Raveendran, the SC directed strict compliance with Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations“), requiring ninety percent CoC approval, sparking debate on withdrawals under Rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) and its residual jurisdiction. The Amended Code introduces a singular pathway under Section 12A, confining withdrawal to the window between CoC constitution and issuance of the expression of interest (“EOI”). The implication is that promoters must act immediately as post-EOI tactical withdrawal negotiations stand extinguished. This temporal compression, however, potentially forecloses legitimate later-stage settlements.

The persistent non-cooperation of erstwhile management has historically impeded CIRP efficacy, with the resolution professional (“RP”) dependent upon such cooperation for the Information Memorandum and Form-G. Notwithstanding AA’s orders under Section 19(2), non-cooperation by the erstwhile management and the promoters persisted. This was exacerbated by the AA’s lack of jurisdiction to impose sanctions under Section 70 of the IBC 1.0. The Amended Code replaces the subject-entity – “personnel” with “persons” under Section 19, thereby extending non-cooperation obligations to all persons engaged under a contract of service with the corporate debtor. This closes a structural loophole that enabled information asymmetry, a key enabler of strategic behaviour during CIRP, by ensuring that anyone with a service relationship to the corporate debtor is subject to statutory cooperation duties. Notably, while the Amended Code expands the class of persons subject to cooperation obligations, it does not confer upon the AA the jurisdiction to impose sanctions under Section 70 for non-compliance with Section 19 directions, nor does it introduce any specific penal provisions for such non-compliance by the persons so obligated. The sanctioning power under Section 70 remains confined to the IBBI, leaving the AA reliant upon contempt jurisdiction or reference to the IBBI for enforcement, a gap that may dilute the practical efficacy of the broadened cooperation mandate.

c. Preserving Enterprise Value (Sections 28A, 30(2) and 31 of the Amended Code)

Section 28A of the Code addresses a long-standing lacuna, i.e. the fragmentation of economically interdependent assets across group entities. Complex corporate structures frequently result in operationally critical assets being vested in corporate or personal guarantors rather than the corporate debtor. The absence of a statutory mechanism for consolidating such assets has historically undermined value maximisation, as exemplified by State Bank of India v. Venugopal Dhoot., wherein the National Company Law Appellate Tribunal (“NCLAT“) held that assets vested in subsidiaries of a corporate debtor were not amenable to inclusion within the corporate debtor’s CIRP; that Videocon Industries Limited (“VIL”) and Videocon Oil Ventures Limited constituted distinct legal entities subject to independent CIRPs, and that the subsistence of a corporate guarantee extended by VIL in favour of its lenders did not warrant the incorporation of the principal borrower’s assets into the guarantor’s insolvency estate. To remedy this structural impediment to value maximisation, Section 28A of the Amended Code introduces a dual mechanism: first, a restitutionary pathway enabling the recovery of assets already realised through enforcement under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1999, and second, a transfer pathway facilitating the migration of assets held by guarantors into the corporate debtor’s insolvency estate, contingent upon the attainment of prescribed voting thresholds.

The provision contemplates three factual scenarios:

i) Case 1: where the creditor has enforced its security interest and obtained possession of the guarantor’s asset (whether corporate or personal guarantor), the CoC of the Corporate Debtor may, by a sixty-six percent vote, seek restitution of such asset into the corporate debtor’s estate;

ii) Case 2: where the guarantor is concurrently subject to insolvency proceedings, if a corporate guarantor is undergoing CIRP, dual consent at sixty-six percent from both CoCs is required, and if a personal guarantor is undergoing insolvency, approval from creditors holding three-fourth (75%) in value is required; and

iii) Case 3: where the guarantor’s estate is in liquidation (in the case of a corporate guarantor) or bankruptcy (in the case of a personal guarantor), and the creditor has relinquished its security interest or forfeited its rights in relation to the assets, approval at sixty-six percent from the CoC in liquidation or seventy-five percent from creditors in value in bankruptcy proceedings would be required for the transfer.

The newly introduced financial adjustment mechanism ensures the creditor is made whole while preventing unjust enrichment, with residual amounts restored to guarantors. Critically, the provision operates voluntarily: the creditor is incentivised, not compelled, to relinquish enforced assets where going-concern resolution yields superior recovery. Regulations 28A and 28B of the Amended CIRP Regulations operationalize this framework: the RP may place a proposal before the CoC containing asset description, estimated realisable value as determined by a registered valuer, and creditor consent or proof of guarantor-estate approval. Upon CoC approval, the RP must ensure disclosure in the information memorandum and specify transfer particulars in the request for resolution plans. Regulation 28B addresses coordination where the corporate debtor is itself a corporate guarantor undergoing CIRP, requiring the RP to coordinate with the principal debtor’s RP and obtain its own CoC’s approval. The amended Regulation 36(2) requires the information memorandum to include details of any guarantor asset proposed for transfer under Section 28A of the Amended Code.

Turning to resolution plans, the pre-amendment Section 30(2)(b) of the Code entitled dissenting financial creditors to receive at minimum the amount obtainable upon liquidation under Section 53(1) of the Code. This created a fundamental interpretive schism: whether the statutory languagewas confined to the dissenting creditor’s notional distributional entitlement under the Section 53 waterfall or extended to the realisable value of the underlying security interest. In  India Resurgence Arc Private Limited v.  Amit Metaliks Limited, the SC held that permitting recovery in excess of waterfall entitlement was never the legislative intent; in DBS Bank Limited Singapore v. Ruchi Soya Industries Limited, a divergent position held by SC that minimum value corresponds to realisable security value. The conflict stands referred to a larger Bench.

The Amended Code introduces a “lower of” test: dissenting financial creditors receive the lower of the Section 53(1) priority amount in liquidation, or the amount payable if the plan’s distribution were affected per Section 53(1) priority. This imposes a ceiling on dissenting creditor recoveries, ensuring dissent cannot extract value exceeding what the creditor would receive under either the waterfall or the plan’s distributional logic. The policy rationale is pro-cramdown: previously, a secured creditor holding high-value security was incentivised to dissent for higher payout than assenting creditors. The amendment extinguishes this advantage, aligning individual incentives with collective resolution objectives.

From a practitioner’s standpoint, the amendment does not fully resolve the underlying tension. It leaves unaddressed the distinction between the Section 53 distributional entitlement (notional amount under the priority waterfall as per the liquidation value of the corporate debtor), and the economic value of the secured creditor’s security interest (actual realisable value of specific collateral, which may diverge materially from waterfall entitlement). The “lower of” test presupposes a determinate liquidation value, yet the computation methodology remains unsettled. While the amendment narrows strategic dissent, the deeper valuation conflict will likely resurface before the larger Bench.

The Amended Code bifurcates Section 31 of the Code into two stages: stage one approving the implementation framework to enable early takeover by the resolution applicant, and stage two approving the distribution mechanism within 30 days. The Amendment Act further codifies the clean slate doctrine and continuity of licenses, while mandating the AA to issue rectification notices before rejection.

While offering early assumption of control and higher bid competitiveness, the bifurcation diminishes creditor leverage post-takeover: the resolution applicant’s incentive to resolve distribution disputes is attenuated once operational control is secured at stage one.

d. Recalibrating Creditor Rights (Sections 52 and 53 of the Amended Code)

On inter-se priority among secured creditors, the amendments to Section 52 clarify that contractual priority arrangements shall be respected, resolving the ambiguity from Technology Development Board v. Anil Goel (“Anil Goel”), where NCLAT held that secured creditors participating in the Section 53 waterfall lose contractual ranking. The Amendment expressly preserves contractual priority, restoring the principle from ICICI Bank Ltd. v. SIDCO Leathers Ltd. and aligning the framework with established secured credit principles.

The Amendment reverses the SC’s holding in State Tax Officer v Rainbow Papers Ltd (“Rainbow Papers”), by narrowing “Security Interest” to interests arising through agreement between parties, excluding those created solely by operation of law. Section 53 is recalibrated, where a secured creditor relinquishes security valued lower than its total debt, priority extends only to the security’s value, with the residual ranking as unsecured. An explanation to Section 53(1)(e)(i) of the Code clarifies that government dues, even if secured, do not rank pari passu with secured creditors, and only dues for two years preceding liquidation fall under Section 53(1)(e)(i) of the Code, while older dues are relegated to Section 53(1)(f). The combined effect restores the primacy of consensual security arrangements over statutory charges, i.e., security interests voluntarily created by agreement between a lender and borrower (such as mortgages or pledges) will rank higher in priority than charges imposed automatically by operation of law (such as statutory dues of the government).

e. Completing the Insolvency Estate (Section 26 of the Amended Code)

The Amendment to Section 26 clarifies that CIRP or liquidation completion shall not affect continuation of avoidance proceedings, reinforcing the position of the Delhi High Court (Division Bench) in Tata Steel BSL Limited v. Venus Recruiter Private Limited & Ors. that the RP retains standing to pursue avoidance applications post-approval, relying on Regulation 38 of the CIRP Regulations requiring the resolution plan to specify how such applications will be pursued. However, the amendment does not clarify who may pursue avoidance proceedings post-CIRP or post-liquidation, a missed opportunity.

The Creditor-Initiated Insolvency Resolution Process – A Gamble on Early Intervention

The Creditor-Initiated Insolvency Resolution Process (“CIIRP“) constitutes the most innovative introduction of the IBC Amendment Act. For a decade, creditors faced a binary choice: informal workouts contingent upon debtor cooperation, or formal CIRP. CIIRP occupies the structural vacuum between these extremes, enabling creditor intervention at the early inflection point before value destruction accelerates through evaporation of going-concern surplus, departure of key personnel, withdrawal of supplier credit, and customer migration.  Structurally, unlike CIRP, where the RP assumes administrative control, the RP in CIIRP functions as monitor and facilitator; management remains vested in the board, subject to the RP’s veto power over board resolutions alongside responsibilities to collate claims, convene the CoC, prepare the information memorandum, and invite resolution applicants (Section 58F of the Amended Code). This positions CIIRP closer to the U.S. Chapter 11 debtor-in-possession model than to the UK administration model or Australia’s Voluntary Administration, where an independent practitioner displaces management entirely.

The critical distinction is that in US Chapter 11, the disciplinary backstop against management entrenchment is the credible threat of conversion to Chapter 7 liquidation or trustee appointment mechanisms under section 1104 of the U.S. Bankruptcy Code, that are judicially supervised and promptly enforceable. In CIIRP, the analogous mechanism is conversion into CIRP, but its efficacy depends upon the promptness of conversion triggers, left substantially to subordinate legislation. The UK’s rejection of Debtor-in-possession model and Singapore’s requirement of periodic judicial review reflect this concern, creditor-led mechanisms without adequate judicial oversight systematically under-protect unsecured and operational creditors. The absence of equivalent safeguards in the Amended Code, defined operational creditor rights, mandatory judicial review milestones, and robust disclosure obligations, represents a significant design gap.

The CIIRP framework raises several critical concerns:

The Shifting Litigation Landscape: IBC 2.0

The Amended Code will fundamentally reconfigure insolvency litigation, extinguishing certain dispute categories that consumed significant judicial bandwidth, while generating entirely new categories without precedential guidance and raising constitutional questions of first impression.

On the diminishing side, the Section 7 amendment forecloses Vidarbha type discretionary admission arguments, the singular Section 12A pathway eliminates Rule 11 jurisdictional ambiguity; the narrowed “Security Interest” definition reverses Rainbow Papers; and the Section 52 amendment preserving contractual priority resolves first-versus-second charge disputes following the Anil Goel case.

Conversely, Section 28A will generate asset transfer valuation disputes, concerning the basis for valuing guarantor-held assets, allocation of preservation costs, and computation of surplus amounts, given the absence of prescribed valuation methodology, with competing valuations from respective CoCs generating inter-estate conflicts without established precedent.

The CIIRP presents a structural risk of generating zombie companies, given the “representation timeline” provided to the Corporate Debtor under Section 58B of the Amended Code of “at least thirty days” which may extend further, potentially resulting in indefinite twilight that progressively erodes going-concern surplus and depletes creditor recoveries, without judicial intervention.

Several lacunae are amenable to rectification through subordinate legislation. The Amended CIRP Regulations could prescribe standardised valuation methodology for Section 28A transfers and clarify who shall prosecute avoidance applications post-CIRP. Dedicated CIIRP Regulations could address the framework’s structural deficiencies including prescribing operational creditor information rights, establishing mandatory periodic RP reporting to the AA as judicial review milestones, specifying the voting threshold for moratorium applications under Section 58G of the Amended Code, introducing a curative mechanism for procedural non-compliance prior to mandatory CIRP conversion, and delineating the RP’s veto power scope to prevent management entrenchment while preserving going-concern operations.

Concluding Remarks

The IBC Amendment Act represents the most significant reconfiguration of India’s insolvency architecture since the Code’s enactment. Its achievements are substantial: elimination of threshold friction, containment of strategic behaviour, preservation of enterprise value through asset consolidation, and recalibration of creditor rights. The transition from IBC 1.0 to IBC 2.0 is real and consequential. Yet the CIIRP’s moratorium gap, operational creditor exclusion, and susceptibility to management entrenchment collectively attenuate its transformative potential. The next phase must confront whether a creditor-initiated process can discipline debtor management without adequate conversion triggers, and whether early intervention can preserve enterprise value without defined rights for all stakeholder classes. Until answered through subordinate legislation and judicial interpretation, the IBC Amendment Act will stand as a significant but transitional achievement, a bridge between the Code’s first decade of jurisprudential construction and its second decade of institutional maturation.

Ms. Samridhi Shrimali is an Associate at a law firm in New Delhi. The views and opinions expressed in this article are solely those of the author in her personal capacity and do not represent the views of the organisation with which she is affiliated.