Lok Sabha clears major insolvency reforms to speed up company resolutions

The Lok Sabha on Monday approved the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 , introducing major reforms aimed at resolving stressed companies faster, protecting stakeholders, and aligning India’s insolvency framework with global best practices.

The new bill brings in a creditor-initiated insolvency framework , out-of-court resolution options , stricter timelines, and a framework for cross-border insolvency . It replaces the old fast-track process , which was underutilized and often delayed due to extensive litigation. Under the previous system, companies seeking insolvency resolution had limited out-of-court options, slower timelines, and cumbersome procedures that often left stakeholders waiting.

Piloting the bill, Finance and Corporate Affairs Minister Nirmala Sitharaman said the 12 amendments will help maximize value for stakeholders , address practical challenges, and improve governance. She noted that the IBC , first enacted in 2016, has already played a key role in strengthening the banking sector.

The new framework allows management to stay with existing boards while introducing safeguards for stakeholders. Key changes include insolvency applications to be admitted within 14 days , appeals to the National Company Law Appellate Tribunal (NCLAT) resolved within three months, and Adjudicating Authorities (AA) approving or rejecting plans within 30 days. The creditor-initiated out-of-court resolution will follow a 150-day timeline , and penalties of Rs 1 lakh to Rs 2 crore will deter frivolous litigation.

Sitharaman highlighted the law’s impact, noting that companies resolved under the IBC saw market capitalization rise from Rs 2.8 lakh crore to Rs 9 lakh crore over five years. Scheduled Commercial Banks (SCBs) recovered Rs 1,04,099 crore, with IBC alone contributing over 52% of total recoveries .

The minister also stressed that workmen’s dues are prioritized , above unsecured financial and government creditors, ensuring employees are not shortchanged during insolvency proceedings.

With these reforms, India is set to have a faster, more efficient, and globally aligned insolvency framework , boosting investor confidence and safeguarding stakeholder interests while strengthening the banking sector.