Major Insolvency and Bankruptcy Code overhaul likely before Winter Session? Here's what industry seeks

Are major changes in the Insolvency and Bankruptcy Code (IBC) on the cards? According to sources, the country's bankruptcy law could see a major overhaul during the upcoming Winter Session of Parliament, which typically commences in late November and runs for a month. Among the proposed changes, industry stakeholders have sought the existing rules regarding related parties and blood relations to be revised, in order to ensure the last-mile delivery of the 'ease of doing business'.

The IBC has undergone six major amendments since its enaction in 2016. This time, the 2025 IBC Amendment Bill could bring the biggest set of changes, according to the sources.

This comes at a time when the industry is demanding revisions in certain provisions that are slowing down the IBC process. For instance, Section 29A of the law states that the promoter of a company undergoing insolvency and their blood relatives cannot participate in the insolvency proceedings, even if they have no business relationship with the promoter.

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Industry stakeholders also argue that this section should be modified to allow relatives to take part in the resolution process.

What is IBC's Section 29A all about?

Section 29A determines who is not allowed to bid for or take over a company that has gone bankrupt. The main idea is to stop the old owners who caused the company’s financial trouble from getting it back at a cheaper valuation through the insolvency route.

This section basically lists a group of people who cannot participate in the insolvency resolution or takeover, such as:

• Promoters/owners of the company that is in insolvency (if they were responsible for the default)
• Anyone declared a wilful defaulter
• People banned from securities markets
• Certain related parties, including promoters' close family members and blood relatives

Major overhaul expected in Insolvency and Bankruptcy Code 2025? Here's what experts say

According to experts, before allowing such participation, authorities should verify the source of funds.

If everything is found to be clean, then relatives should be permitted to participate, they add.

"Stakeholders are presenting their views before the Select Committee chaired by Baijayant Panda regarding the IBC amendments. During this consultation, industry bodies are recommending changes to Section 29A," according to GP Madaan, Managing Partner, Madaan Law Offices.

Experts also say that disputes within businesses are a major reason behind many insolvency cases.

In such situations, treating blood relatives automatically as related parties reduces the chances of reviving a company. A blood relative may be a creditor or may simply be involved in business separately, and, therefore, denying participation in IBC proceedings solely due to a family relationship cannot be justified.

The Supreme Court has ruled that someone should be considered a related party only when there is a business relationship, not just a family relationship, say experts.

If Section 29A is amended, several large corporate groups in the country would be able to participate in IBC proceedings for companies run by their family members, according to Pawan Vijay, Founder, Corporate Professionals.

Here are answers to a few frequently asked questions (FAQs) about the IBC:

What is the Insolvency and Bankruptcy Code?

IBC is a law that provides a time-bound process to resolve cases when companies or individuals cannot repay their debts.

It aims to either revive the business or close it in an orderly manner so creditors can recover as much money as possible.

Which court handles IBC cases?

IBC cases are handled by the National Company Law Tribunal (NCLT) for companies, and by Debt Recovery Tribunals (DRTs) for individuals and partnerships.

What is the role of a Resolution Partner in the IBC process?

A Resolution Professional (RP) is a professional who manages a company during the insolvency process.

The RP:

• Evaluates the financial situation
• Invites bids from potential buyers or investors
• Works on a resolution plan to save the company or to formally close it

What happens when a company enters IBC?

A company's board of directors loses control once it enters IBC.

This is when the RP takes charge.

How long does the IBC resolution process take?

IBC aims to complete the resolution process within 180 days, which can be extended to a maximum of 330 days in special cases.

The goal is to avoid long legal delays and ensure a quick fund recovery.