Select Committee on IBC 2.0 recommends decriminalising technical lapses, and imposing 3-month timeline for NCLAT

The new draft of the IBC Amendment Bill will likely be tabled in Budget Session

The Parliament’s Select Committee, examining the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, has suggested de-criminalising certain offences, such breach of the terms of resolution plan by the corporate debtor and non-disclosure of debt re-payment status by operational creditors, in the new insolvency bill. This is a key change recommended, which was absent in the original code (2016) and the new draft, as the Committee feels that such violations may not always be attributable to "malafide intent".

"…continuing to retain criminal penalties for such technical or good-faith lapses creates unnecessary fear among stakeholders, contributes to increased litigation, and ultimately hampers the efficiency and predictability of the resolution process," the Committee has said in its report, tabled in the Lok Sabha today.

Moneycontrol had reported on December 11 that the Select Committee on the IBC Amendment Bill is expected to present its report in Parliament towards of the end of the current winter session (scheduled to end of December 19), and the new draft of the Bill will likely be tabled in the Budget session.

The 24-member Select Committee, formed in October, under the Chairmanship of BJP Member of the Parliament (MP) Baijayant Panda, has examined 68 amendments introduced in the Principal Act of 2016, through the new Bill – introduced in the Parliament on August 12, 2025.

Further, the Committee has suggested imposing a three-month timeline on the National Company Law Appellate Tribunal (NCLAT) for disposing of appeals. It says the IBC presently does not prescribe any statutory timelines for the disposal of appeals by the NCLAT, "which has resulted in delays, particularly in appeals challenging the rejection of claims during the corporate insolvency resolution process (CIRP) or liquidation processes, as well as appeals concerning the approval or rejection of resolution plans."

"The Committee feel given that 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," the report said.

In a bid 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 the Parliament. "This will provide further flexibility to the stakeholders to deal with stressed corporate debtors," said Dhananjay Kumar, Partner, Cyril Amarchand Mangaldas.

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 has ascertained that 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 cross border insolvency framework, introduced by in the new Bill, the Committee feels that "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".

"Furthermore, the Committee identify the need to clarify the term 'corporate debtor' in Section 240C (cross border insolvency) to explicitly include any person incorporated with limited liability outside India to ensure the cross-border provisions legally apply to and govern insolvency proceedings that involve a foreign company with assets, creditors, or operations connected to India," said the committee.

Overall, the changes suggested by the Committee are welcome and will go on to strengthen the IBC process further," added Kumar.

Ketan Mukhija, Partner at Kochhar & Co says that these changes are significant because they directly tackle the causes of delay and unpredictability that undermine recoveries under the current regime. "By curbing forum-driven delays, resolving interpretational disputes that fuel litigation, and aligning Indian insolvency law with global best practices, the Committee’s recommendations aim to preserve enterprise value, improve creditor confidence and ensure that insolvency functions as a resolution tool rather than a prolonged recovery process," he added.