MC EXCLUSIVE Govt likely to go with select committee amendments, IBC bill to be tabled during budget session

The government will table the revamped IBC (Amendment) Bill in the Parliament during the Budget session.

• Govt likely to accept all Select Committee recommendations on IBC Bill 2025
• Revamped IBC Bill to be tabled in Parliament during Budget session in February
• Key changes: stricter timelines, asset sale rules, lower priority for govt dues

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The government is likely to accept all the recommendations of Parliament's select committee on the IBC (Amendment) Bill and will be table it during the Budget session, a senior government official has told Moneycontrol.

The select committee, chaired by senior BJP leader Baijayant Panda, recommended 11 key changes to the new Insolvency and Bankruptcy Code (Amendment) bill, which proposes 68 amendments to the Principal Act of 2016.

"Many suggestions of the committee such as on the clean state principal, distribution of assets, definition of resolution plan etc. are reiterations of basic fundamentals of the code. The recommendations aim to remove any kind of ambiguity, and hence they will be incorporated in the final draft," the official said.

"The government will table the revamped IBC (Amendment) Bill in Parliament in February during the Budget session," the person added.

Clean-state principle

Some reports claimed that the “clean-state principle” recommendation would be dropped in the final draft after the panel asked for "codifying the clean slate principle as 'declaratory' and 'retrospectively applicable' from the enactment of the code."

The official, however, said the principle has existed since the day IBC was introduced in 2016. "The committee’s words are a mere reiteration of the basic feature of IBC. They are not saying anything new," the official added.

The clean slate principle is a judicially recognised doctrine which ensures that once a company (corporate debtor) is successfully sold or revived through a resolution plan, the new owner starts with a "fresh slate". The new management cannot be burdened with any surprise liabilities or claims that originated before the takeover but were not included in the final approved plan.

In an  interview to Moneycontrol last week, the Panda said "unfortunately, it has been seen that many claimants, including government agencies, keep seeking their due even after the resolution plan has been approved".

"The Supreme Court of India and other courts have ruled many times in favour of the clean slate principle…but we have seen it has not been followed," Panda said, adding the committee has tried to clarify this "ambiguity".

Panda chaired the 24-member select committee to examine 68 amendments introduced in the Principle Act of 2016 through the new bill, which was introduced on August 12.

The most crucial suggestion was to impose a three-month timeline on the National Company Law Appellate Tribunal (NCLAT) for disposing IBC appeals.

At present, there is no timeline for NCLAT. The committee said the "effectiveness of the Code rests on a strict time-bound framework, the Committee therefore emphasize that undue appellate delays risk undermining the efficiency and certainty of the insolvency resolution process".

Other key suggestions

To maximise the value of corporate debtor undergoing resolution, the committee has recommended the debtor to allow for presentation of "one or more plans proposed by one or more resolution applicants", to the committee of creditors (CoC).

It has also recommended that necessary regulations to specify the conditions for sale of one or more assets be drafted by IBBI and laid before Parliament.

On the order of priority for government dues with respect to liquidation distribution waterfall mechanism (the hierarchy which prioritises secured creditor over unsecured ones), the committee said government dues (such as GST, or other taxes) will be given a lower priority than other creditors. This will remain the case, even if a contractual obligation exists for the payment of dues between the government and the debtor.

On the cross-border insolvency framework, introduced by in the new bill, the committee said, "It is imperative to codify the basic tenets of the cross-border insolvency framework directly within the Code itself to provide clear legislative guidance for the Central Government".

"The recommendation of the committee on the requirement of specifying the process of cross- border insolvency is a much required step as it prevents undue delegation of power," said Siddharth Srivastava, Partner at Khaitan & Co.

"The proposed IBC amendments, however, do not detail out the contours of project-wise-insolvency which currently is being explored by multiple NCLT and NCLATs in complicated real estate insolvencies with sub-projects. A proper framework of handling project wise insolvency should hence be provided in the amendments."