IBC Amendment: More clarity, less reform

The IBC Amendment Bill uses the phrase "it is hereby clarified" 17 times.

- M S SAHOO

The IBC Amendment Bill uses the phrase "it is hereby clarified" 17 times. One such clarification restores the original trigger for initiating corporate insolvency resolution: Admission if a default exists, rejection if it does not, and no other grounds. This undoes Vidarbha Industries (2022) and reaffirms what the Bankruptcy Law Reforms Committee, the original notes on clauses, and Innoventive Industries (2017) had already settled.

Another restores the original liquidation waterfall by overturning Rainbow Papers (2022), which had put government dues under the Gujarat Value Added Tax Act, 2003, at the same level as secured creditors. The Bill makes it clear that a security interest must arise from a contractual agreement, not merely by operation of law, and that Central and state dues, secured or otherwise, rank lower in priority.

Other clarifications, though not so labelled, include the clean slate principle: A resolution plan binds all stakeholders, extinguishes unpreserved claims, and protects existing licences and permits for their remaining term, curbing post-approval demands and litigation.

The IBC seeks early commencement and swift closure of rescues. While it imposes strict timelines on market participants for individual tasks and the overall process, it has been less prescriptive for the Adjudicating Authority (AA) and appellate bodies. The Bill narrows this gap: The AA must admit or reject Cirp (corporate insolvency resolution process) applications within 14 days, and decide withdrawal requests, approve or reject resolution plans, issue liquidation orders, and pass dissolution orders within 30 days, stating reasons if these timelines are not met.