Author: Khushi Kohli
College: Maharaja Agrasen institute of management studies
To the Point
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026), which received Presidential assent on 6 April 2026, is the most far-reaching overhaul of India’s insolvency architecture since the parent Code was enacted in 2016. Three features define this reform. First, Parliament has legislatively reversed the Supreme Court’s ruling in Vidarbha Industries Power Ltd. v. Axis Bank Ltd., restoring the position that admission of a financial creditor’s petition under Section 7 is obligatory once debt and default are shown, and is not a matter of adjudicatory discretion. Second, the Amendment overturns the effect of State Tax Officer v. Rainbow Papers Ltd. by clarifying that statutory dues of the Government do not automatically acquire the status of secured debt merely because a State enactment creates a statutory charge, thereby preserving the Section 53 waterfall. Third, the Act inserts an entirely new Chapter IV-A creating the Creditor-Initiated Insolvency Resolution Process (CIIRP), an out-of-court, debtor-in-possession mechanism that allows financial creditors holding a specified threshold of debt to commence a structured resolution process without prior adjudication by the National Company Law Tribunal. Read together, these changes tilt the Code decisively toward creditor primacy, procedural certainty, and speed, while leaving important questions of implementation to subordinate regulations that the Insolvency and Bankruptcy Board of India (“IBBI”) is yet to finalise.
Use of Legal Jargon
A working vocabulary is necessary to appreciate the 2026 Amendment:
● Adjudicating Authority (AA): The National Company Law Tribunal (NCLT), the forum vested with jurisdiction to admit or reject insolvency applications under Sections 7, 9 and 10 of the Code.
● Corporate Insolvency Resolution Process (CIRP): The court-driven process triggered upon admission of an application, during which the board of the corporate debtor is suspended and a Resolution Professional (RP) takes over management.
● Creditor-Initiated Insolvency Resolution Process (CIIRP): The new out-of-court process introduced by Chapter IV-A, in which financial creditors holding a prescribed majority may commence resolution without NCLT admission, and incumbent management continues to run the company subject to RP oversight.
● Committee of Creditors (CoC): The body of financial creditors that takes commercial decisions during CIRP or CIIRP, including approval of a resolution plan.
● Moratorium: The statutory calm period under Section 14 during which no suits, enforcement, or recovery action can be taken against the corporate debtor.
● Waterfall Mechanism: The priority of distribution of sale/liquidation proceeds prescribed under Section 53, ranking insolvency costs, secured creditors, workmen’s dues, unsecured creditors, and Government dues in a defined sequence.
● Avoidance Transactions: Transactions such as preferential, undervalued, fraudulent or extortionate credit transactions (Sections 43–51) that can be unwound by the RP or liquidator to claw back value for the estate.
● Look-back Period: The window preceding the insolvency commencement date within which transactions are scrutinised for avoidance; the 2026 Amendment extends this from one year to two years for related-party and other specified transactions.
● Section 12A Withdrawal: The provision permitting withdrawal of an admitted application with 90% CoC approval, now subject to fresh temporal restrictions.
● Secured Creditor: A creditor in whose favour a security interest has been created over the assets of the corporate debtor, entitled to priority under Section 53.
The Proof
On admission of Section 7 applications
The Amendment restores the mandatory character of admission by clarifying that the Adjudicating Authority “shall” admit an application on being satisfied of the existence of default, removing the discretionary language that the Supreme Court had relied upon in Vidarbha Industries. This follows the consultation paper floated by the Ministry of Corporate Affairs in January 2023, which had itself proposed amending Section 7 to remove any implication of discretion, precisely because the Vidarbha ruling had allowed corporate debtors to resist admission notwithstanding proven default, generating delay and inconsistent outcomes across NCLT benches.
On statutory dues and secured status
The Amendment addresses the difficulty created by Rainbow Papers by reaffirming that priority of distribution is governed exclusively by Section 53, and that a charge created by operation of a State statute does not, without more, convert the Government into a secured creditor ranking pari passu with financial institutions. This restores the waterfall as the sole mechanism of priority, aligning with the reasoning subsequently adopted in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd., which had already confined Rainbow Papers to its own facts.
On CIIRP and allied changes
Chapter IV-A, inserted by the Amendment, permits initiation of CIIRP by specified financial creditors, out of court, upon at least 51% (by value of debt) of notified financial creditors agreeing to invoke the process. The debtor’s board and management continue to function, subject to supervision by the Resolution Professional and oversight of the CoC — a marked departure from the CIRP model in which control shifts to the RP immediately upon admission. The process carries a prescribed timeline of 150 days, extendable to 195 days; if no resolution plan is approved within that period, or the debtor fails to cooperate, or the plan is rejected, the NCLT converts CIIRP into a conventional CIRP, with CIIRP costs and pending avoidance proceedings carried forward. The Amendment also expands the avoidance-transaction look-back period from one year to two years, separates the roles of Resolution Professional and Liquidator, introduces a statutory definition of “registered valuer,” and tightens Section 12A by barring withdrawal of an admitted application before constitution of the CoC and after issuance of the first invitation for expressions of interest, subject to the pre-existing 90% voting threshold. The IBBI has since issued discussion papers to operationalise CIIRP thresholds, avoidance-proof standards and penalty provisions, with the effective date of several provisions to be notified separately by the Central Government.
Abstract
Since its enactment in 2016, the Insolvency and Bankruptcy Code has undergone repeated recalibration through judicial interpretation, and not always in a direction consistent with its creditor-driven, time-bound design. Two decisions in particular introduced friction into the admission and distribution stages of the process: Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022), which read discretion into an otherwise mechanical admission provision, and State Tax Officer v. Rainbow Papers Ltd. (2022), which elevated statutory dues to secured-creditor status outside the Section 53 waterfall. Both rulings, while addressing genuine facts before the Court, produced downstream uncertainty that later benches sought to contain without fully resolving. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 responds to this uncertainty legislatively rather than leaving it to further litigation, restoring the mandatory character of admission under Section 7 and confirming the primacy of the statutory waterfall over ad hoc claims to secured status. Simultaneously, the Amendment introduces a structurally new mechanism, the Creditor-Initiated Insolvency Resolution Process, that departs from the CIRP’s court-gated, debtor-displacing model in favour of an out-of-court, debtor-in-possession framework triggered by creditor consensus. This article examines the doctrinal background that necessitated these changes, situates the 2026 reforms within the broader jurisprudential trajectory of the Code — from InnoventiveIndustries and Swiss Ribbons to Essar Steel and Ghanashyam Mishra — and evaluates whether the new framework achieves its stated objectives of speed, certainty and creditor confidence without compromising the rehabilitative purpose that originally justified the Code.
Case Laws
1. Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407
This early decision established that once the Adjudicating Authority is satisfied that debt and default exist and the application is complete, it must admit the petition; the provision was treated as leaving no residual discretion once the twin conditions were met. This case formed the baseline that Vidarbha Industries later appeared to disturb, and which the 2026 Amendment now restores in express statutory language.
2. Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 32
The Supreme Court held that Section 7(5)(a) confers discretionary power on the NCLT to admit or defer admission of a financial creditor’s application, even where default was not disputed, because the corporate debtor’s own claim of over Rs. 1,730 crore against a state electricity regulator was pending adjudication. Subsequent benches, clarifying that Vidarbha Industries is the exception rather than the rule, confined its application strictly to comparable facts, but the resulting ambiguity across NCLT and NCLAT benches persisted for years and prompted the Ministry of Corporate Affairs to propose a legislative fix as early as January 2023. The 2026 Amendment gives effect to that fix by removing the interpretive space on which Vidarbha Industries rested, restoring the InnoventiveIndustries position as the governing rule for Section 7 admissions.
3. State Tax Officer v. Rainbow Papers Ltd., (2022) SCC OnLine SC 1162
The Court held that where a State statute (here, the Gujarat Value Added Tax Act) creates a first charge on the assets of a dealer for unpaid tax, the State becomes a secured creditor within the meaning of the Code, and a resolution plan disregarding such dues cannot be approved. On review, a differently reasoned bench declined to disturb the outcome, but a later bench in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. confined Rainbow Papers to its specific facts, noting that it had not considered the Section 53 waterfall at all. The 2026 Amendment resolves this doctrinal tension in favour of the waterfall-first approach signalled in PVVNL, ensuring that government dues are treated according to their place in Section 53 rather than acquiring blanket secured status through State legislation.
4. Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17
The Supreme Court held that financial and operational creditors could reasonably be treated differently under the Code, since the law’s real aim was to save as much value as possible for everyone involved — not just to recover debts. This foundational reasoning continues to inform the 2026 Amendment’s creditor-centric recalibration, since the Court had already accepted that a resolution-oriented statute may legitimately favour financial creditors in specified respects.
5. Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531
The Court affirmed the primacy of the commercial wisdom of the Committee of Creditors in approving a resolution plan, holding that such commercial decisions are not ordinarily open to judicial review on merits. This precedent underlies the 2026 Amendment’s expansion of CoC authority, particularly in the CIIRP framework, where creditor consensus at a 51% threshold is sufficient to trigger the process without prior judicial scrutiny.
6. Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657
The Court held that upon approval of a resolution plan, all claims not part of the plan stand extinguished, giving statutory finality to the “clean slate” theory underlying the Code. This principle of finality is reinforced by the 2026 Amendment’s tightening of Section 12A withdrawal rights, which now bars withdrawal after the CoC is constituted and after the first invitation for resolution plans, preventing last-minute disruption of a process moving toward finality.
Conclusion
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 is best understood as a legislative correction of interpretive drift rather than a wholesale re-imagination of the Code’s philosophy. Vidarbha Industries and Rainbow Papers were each defensible on their own facts, but their broader application introduced exactly the kind of delay, discretion and doctrinal uncertainty that the Code was designed to eliminate. By restoring the mandatory character of Section 7 admission and re-anchoring statutory dues within the Section 53 waterfall, Parliament has chosen predictability over case-by-case equity — a trade-off consistent with the time-bound, creditor-driven design endorsed in Swiss Ribbons and Essar Steel. The introduction of CIIRP is the more experimental element of the reform: an out-of-court, debtor-in-possession process is a genuine structural innovation for Indian insolvency law, drawing on international models of consensual restructuring, and could meaningfully reduce NCLT congestion if creditors use it for genuine early-stage distress rather than as a bargaining tool. Its success, however, depends heavily on IBBI regulations that are still awaited — particularly on CIIRP thresholds, the standard for avoidance proceedings within an out-of-court process, and safeguards against creditor overreach in a framework that dilutes judicial gatekeeping. Until those regulations are notified and tested before the NCLT and NCLAT, the 2026 Amendment’s ultimate impact on resolution timelines and recovery rates remains, appropriately, a matter for empirical assessment rather than confident prediction.
