IBC Amendment Bill Likely in Budget Session with Key Changes

According to a senior government official who spoke to Moneycontrol, the administration is likely to adopt all of the recommendations made by Parliament’s select committee on the IBC (Amendment) Bill and will present it during the budget session.

IBC Amendment Bill Likely to Be Tabled During Budget Session

The new Insolvency and Bankruptcy Code (Amendment) bill, which proposes 68 amendments to the Principal Act of 2016, has 11 significant changes that the select committee, led by senior BJP leader Baijayant Panda, recommended. “Many of the committee’s recommendations, such as on the clean state principle, distribution of assets, definition of resolution plan, etc., are reiterations of basic fundamentals of the code.”

Government Plans to Remove Ambiguity in Insolvency Framework

“The government will introduce the redesigned IBC (Amendment) Bill in Parliament in February during the Budget session,” the official stated. “The proposals aim to remove any form of uncertainty, and hence they will be incorporated in the final draft.”

According to some reports, the panel’s request to “codify the clean slate principle as ‘declaratory’ and ‘retrospectively applicable’ from the enactment of the code” resulted in the removal of the “clean-state principle” suggestion from the final draft.

Clean Slate Principle Clarified

But according to the official, the idea has been in place since IBC’s introduction in 2016. “The committee’s statements only restate the fundamental aspect of IBC. The official continued, “They are not making any fresh statements.

A legally recognized concept known as the “clean slate principle” guarantees that the new owner of a company (corporate debtor) would begin with a “blank slate” following a successful sale or revival through a resolution plan. Any unexpected obligations or claims that existed before to the takeover but were left out of the final approved plan cannot be imposed on the new management.

The Panda stated “sadly, it has been witnessed that many claimants, including government agencies, remain pursuing their due even after the resolution plan has been authorized” in an interview with Moneycontrol last week.

Judicial Backing for Clean Slate Principle

“The Supreme Court of India and other courts have ruled numerous times in favor of the clean slate principle…but we have seen it has not been implemented,” Panda stated, adding that the committee has attempted to make sense of this “ambiguity.”

Panda presided over the 24-person select committee that was tasked with reviewing the 68 changes made to the Principle Act of 2016 by the new law, which was presented on August 12.

Time-Bound Insolvency Resolution Process

The most important recommendation was to give the National Company Law Appellate Tribunal (NCLAT) three months to decide IBC appeals.

NCLAT does not currently have a timeframe. According to the committee, “undue appellate delays risk weakening the efficiency and certainty of the bankruptcy resolution process because the efficacy of the Code rests on a stringent time-bound structure.”

The committee has advised the debtor to permit the presentation of “one or more plans offered by one or more resolution applicants” to the committee of creditors (CoC) in order to maximize the value of the corporate debtor undergoing resolution.

Additionally, it has suggested that IBBI prepare and present to Parliament the required regulations outlining the terms for selling one or more assets.

Government Dues and Cross-Border Insolvency

The committee stated that government dues (such as GST or other taxes) will have a lower priority than other creditors under the liquidation distribution waterfall method, which is a hierarchy that gives priority to secured creditors over unsecured ones. Even if the government and the debtor have a contractual responsibility to pay dues, this will still be the case.

“It is necessary to codify the main concepts of the cross-border insolvency framework immediately inside the Code itself to give clear legislative guidance for the Central Government,” the committee stated in reference to the new bill’s introduction of the framework.

Siddharth Srivastava, a partner at Khaitan & Co., stated, “The committee’s recommendation on the necessity of defining the process of cross-border insolvency is a much required step as it prevents undue delegation of power.

However, the proposed IBC amendments do not outline the contours of project-wise-insolvency, which is currently being explored by multiple NCLT and NCLATs in complicated real estate insolvencies with sub-projects.” Therefore, the modifications should include a suitable framework for managing project-wise insolvency.

Frequently asked questions

1. What is the IBC (Amendment) Bill, and when will it be introduced?

The Insolvency and Bankruptcy Code (Amendment) Bill suggests 68 changes to the 2016 IBC Act. The updated measure is probably going to be introduced by the government during the February Budget Session of Parliament.

2. What are the Select Committee’s main recommendations?

Eleven significant amendments were suggested by the Select Committee, including codification of cross-border insolvency principles, flexibility to offer multiple resolution plans, a three-month timetable for NCLAT appeals, and clarification of the clean slate principle.

3. Describe the “clean slate principle” and explain its significance.

The clean slate principle guarantees that the corporate debtor’s new owner will not be held accountable for unreported obligations or prior claims when a resolution plan is accepted. This gives investors assurance and promotes involvement in the process of resolving insolvency.

4. How will the revised IBC handle government dues?

Even if there are contractual commitments, government obligations like taxes and GST would still have a lower priority in the liquidation waterfall than secured and other creditors.

5. What modifications are suggested for international insolvency?

To provide clarity and prevent abuse of power, the committee suggested that fundamental concepts of cross-border insolvency be incorporated directly into the IBC rather than relying solely on delegated law.

Conclusion

The government’s choice to adopt the Select Committee’s recommendations shows a significant desire to eliminate legal anomalies and improve the IBC framework.

The proposed revisions seek to improve certainty, speed, and investor confidence by reiterating the clean slate principle, enforcing time-bound appellate procedures, safeguarding creditor hierarchy, and elucidating cross-border bankruptcy regulations.

The revised IBC might greatly increase the efficiency of India’s bankruptcy resolution ecosystem and strengthen its primary goal—time-bound value maximization—if it is carried out as intended during the Budget Session.

Disclaimer

This content is for informational purposes only and does not constitute legal, financial, or professional advice. Readers are advised to consult qualified experts before making any decisions based on this information.