IBC Amendments: Positive Steps but Real Estate Concerns Persist

Since its enactment in October 2016, India's Insolvency and Bankruptcy Code (IBC) has emerged as a crucial mechanism for corporate debt resolution. As the code approaches its 9th anniversary in October 2025, legislators are working on substantial reforms and policy changes to address long-standing issues such as low recovery rates and prolonged resolution timelines. Credit rating service firm ICRA has reported that the proposed amendments to the IBC will likely have positive impacts on improving recovery for creditors in non-real estate sectors and reducing the timeframes for debt repayment. However, ICRA has also cautioned that the current set of proposals does not adequately address the unique structural challenges faced by the real estate and construction sector.

The real estate sector has the second-highest share of cases undergoing the Corporate Insolvency Resolution Process (CIRP) as of September 30, 2025. Given the government’s sustained focus on protecting homebuyers and resolving stalled housing projects, ICRA believes that targeted and sector-specific reforms are necessary to address insolvency issues in this segment.

Since its implementation in 2016, the IBC has been India’s most effective institutional mechanism for corporate debt resolution, delivering better realizations for creditors compared to earlier recovery methods. Despite its shortcomings, the framework has enabled cumulative recoveries of approximately ₹4 lakh crore. The Corporate Insolvency Resolution Process (CIRP) has been initiated for a total of 8,658 corporate borrowers as of September 2025. Of these cases, approximately 63% have been closed via a successful resolution plan, withdrawn from the CIRP process, or liquidated. However, the recovery from corporate borrowers has remained low, with an average recovery rate of about 32% of the value of creditors' claims.

Prolonged resolution timelines have been a key factor contributing to value erosion. Data indicates that nearly three-fourths of ongoing CIRP cases had exceeded 270 days from the date of admission by the National Company Law Tribunal (NCLT) as of September 30, 2025, despite the mandated outer limit of 330 days, including litigation.

Recovery trends, which had shown gradual improvement until the fourth quarter of fiscal year 2025, reversed in the first half of fiscal year 2026. ICRA has observed decreases in the volume of recoveries and recovery as a proportion of the volume of admitted claims. This trend affects all sizes of insolvencies, including large insolvencies involving claim amounts greater than ₹1,000 crore. The slowdown in recoveries is attributed to various issues, including delays due to litigation, a limited number of participants bidding for assets, and challenges in determining asset value.

The number of approved resolution plans has also declined. Only 105 resolution plans were approved during the first half of fiscal year 2026, compared to 124 approvals in the same period in fiscal year 2025. Although the number of new insolvencies being admitted has decreased, the lower percentage of resolution approvals indicates ongoing bottlenecks within the IBC system.

The Amendment Bill to the Insolvency and Bankruptcy Code, aimed at addressing structural and procedural inefficiencies, was detailed in the Lok Sabha on August 28, 2025. The Select Committee of the Lok Sabha is currently considering the Amendment Bill, and reports and recommendations by the Ministry of Corporate Affairs (MCA) and the Lok Sabha Select Committee have been submitted. The winter session of Parliament was expected to see the passing of the Amendment Bill, but it is now likely to be considered during the Budget session.

Manushree Saggar, Senior Vice President and Group Head, Structured Finance Ratings at ICRA, commented that while recovery rates improved until Q4 FY2025, the trend reversed in H1 FY2026. She added that based on data as of September 30, 2025, nearly three-fourths of ongoing CIRP cases had exceeded 270 days post-admission by the NCLT. According to her, the Select Committee’s recommendations, if implemented, are expected to improve recovery rates and reduce timelines under the IBC framework.

One of the key recommendations of the Select Committee is the permission for more than one resolution plan for a corporate debtor. This allows for asset-wise or business vertical-wise resolution, which will be particularly helpful for companies operating in multiple business segments. ICRA believes that this flexibility may lead to better resolution outcomes by attracting a larger and more diverse bidder pool.

The Select Committee has also supported the clean slate principle, which guarantees that settled judicial pronouncements will not be reopened, and the legal liability of the corporate debtor will be distinctly separated from that of the former promoters and senior management. This step is likely to provide more certainty to resolution applicants and reduce post-resolution litigation.

Moreover, the Committee has suggested a statutory timeline of three months for the National Company Law Appellate Tribunal (NCLAT). This measure may facilitate the confirmation of appellate proceedings more quickly and minimize the wait for the appeal stage.

ICRA pointed out that while the proposed measures are steps in the right direction, the issue of delays at the NCLT level remains the most significant problem not addressed in the proposals. As of March 2025, there were over 30,000 IBC cases pending before various NCLT benches throughout the country. Given the current capacity, it is estimated that it would take more than ten years to clear the backlog. While the Ministry of Corporate Affairs intends to set up more benches for the NCLT and NCLAT, ICRA expressed the view that a substantial increase in the judicial workforce is essential to reduce the average CIRP duration, which is currently over 700 days—more than double the time stipulated by the law.

ICRA also supported the idea of a creditor-initiated insolvency resolution process with an out-of-court initiation method. Such a system could lead to quicker and less expensive resolutions, causing less disruption to the business and relieving the judicial system. The introduction of group insolvency provisions is likely to have a positive effect on corporate groups with interdependent operations and finances. Similarly, cross-border insolvency provisions would bring India's insolvency framework in line with global standards, particularly for companies with international operations and creditors.

On a related note, the IBBI issued a notification on December 22, 2025, making the disclosure of ultimate beneficial ownership mandatory in resolution plans. ICRA believes that this measure will help address opaque ownership structures and prevent promoters from hiding real control through complex holding structures.

Notwithstanding the broadly based reforms proposed, ICRA has reiterated that the lack of real estate-specific measures is a major gap. Considering the sector's substantial share of ongoing insolvency cases and the government’s focus on protecting homebuyers, ICRA believes that structural reforms specifically designed for the real estate sector are indispensable for improving resolution outcomes.

Overall, ICRA views the proposed IBC amendments as a timely and necessary step toward strengthening India’s insolvency framework. However, their success will depend on swift legislative approval, expansion of judicial capacity, effective implementation of new mechanisms, and targeted interventions for sectors such as real estate, where challenges remain deeply entrenched.