India's insolvency law just had its most significant rewrite in years, and the direction is unambiguous: power is shifting back toward creditors, and away from the discretion tribunals used to have to protect a struggling but arguably viable company from being pushed into insolvency. Whether that's genuinely good policy depends on which side of a default you expect to be standing on.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received Presidential assent in April 2026 and is now settling into practice. To understand why it matters, it helps to know what it's undoing. In Vidarbha Industries Power Ltd. v. Axis Bank (2022), the Supreme Court held that even where a financial creditor proves a default has occurred, the National Company Law Tribunal retains discretion on whether to actually admit the company into insolvency proceedings — it isn't bound to do so automatically. In Rainbow Papers (2022), the Court gave certain government dues a form of priority that unsettled the Code's otherwise clear creditor-priority waterfall. Both judgments, in different ways, gave adjudicating authorities and certain stakeholders more room to resist or reshape an insolvency filing than the Code's original drafters had intended.
What the 2026 Amendment Actually Changes
The Amendment statutorily reverses both positions. Once a financial creditor proves a default has occurred, admission into the Corporate Insolvency Resolution Process becomes effectively mandatory — the Tribunal's discretion to decline admission on equitable grounds is removed. It also restores the original creditor-priority waterfall, superseding the government-dues priority Rainbow Papers had introduced. Beyond reversing those two judgments, the Act introduces a genuinely new mechanism: the Creditor-Initiated Insolvency Resolution Process, or CIIRP, an out-of-court process allowing creditors to initiate resolution without going through the NCLT for every step, intended to reduce the tribunal-capacity bottleneck that has plagued IBC cases for years. It also extends the look-back window during which past transactions can be scrutinised and potentially unwound as fraudulent or preferential, giving resolution professionals more room to claw back value that was moved out of a company shortly before insolvency.
The Honest Case for This, and the Honest Case Against It
We think both sides of this deserve a real hearing rather than a reflexive verdict. The case for mandatory admission is about predictability, and predictability has genuine economic value: a credit market where a lender can't reliably predict whether proof of default will actually result in insolvency proceedings is a market where lending to anything but the safest borrowers becomes more expensive for everyone, because the lender has to price in the risk of unpredictable judicial discretion on top of the risk of the borrower itself. Removing that discretion, on this view, should make credit somewhat cheaper and more available across the market, even if it produces harsher outcomes in individual cases.
The case against it is just as real: Vidarbha Industries' discretion existed precisely because a company can default on one loan while remaining fundamentally viable and capable of paying its other creditors and its workers, and a tribunal that could weigh that context was a genuine safeguard against a single aggressive creditor forcing an otherwise sound business into a process that can be effectively irreversible once started. Removing that discretion doesn't just speed up insolvency for genuinely failed companies — it also removes a check that was protecting fundamentally solvent but temporarily cash-strapped businesses, disproportionately smaller ones with less negotiating leverage over an aggressive single creditor, from an all-or-nothing insolvency filing over what might have been a resolvable, isolated default.
Our View
On balance, we lean toward thinking the predictability gain is real and valuable for the credit market as a whole — but we don't think that should be read as the amendment being costless. The businesses most exposed to the downside of mandatory admission are exactly the ones with the least ability to negotiate their way out of a single default before it escalates: smaller, less diversified companies without deep enough banking relationships to get a default renegotiated informally before a creditor decides to file. If you run a business of that profile, the practical takeaway is blunt — the margin for letting any single default drift unresolved has shrunk considerably, and proactive renegotiation with a creditor at the first sign of stress is now meaningfully more valuable insurance than it used to be.