Lok Sabha Passes IBC Amendment Bill, FISME Presses For Inclusion of Proprietorships

Among the key new provisions, the Bill has provided for a “creditor-initiated insolvency resolution process” with an out-of-court initiation mechanism for genuine business failures. Once implemented, this will help ease the burden on judicial systems, promote ease of doing business and improve access to credit. The Bill has also proposed to introduce provisions for “group insolvency” and “cross-border insolvency”. Replying to the discussion on the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 in Lok Sabha, Union Minister for Finance and Corporate Affairs Minister Nirmala Sitharaman listed out various measures being taken through the Bill to cut litigations in insolvency cases. She also said that the Pre-Packaged Insolvency Resolution Process (PPIRP) is being made easier for the micro, small and medium enterprises (MSMEs) by lowering the voting threshold for entry into Insolvency proceedings. Through the sixth amendment (2021) to the (Insolvency and Bankruptcy) Code, the Pre-Packaged Insolvency Resolution Process (PPIRP) was introduced for corporate MSMEs to fast-track resolution of cases for MSMEs. Further, the process of Prepackaged Insolvency is being made easier for the MSMEs by lowering the voting threshold for entry into Insolvency proceedings and also, the documentation processes would be reduced, she said. The Minister highlighted that there are special provisions for MSMEs under Section 240A of the insolvency bankruptcy law which is designed to protect small players. MSMEs are exempted from disqualification under Section 29A(c) and 29A(h) of the IBC, which facilitates existing promoters to participate in rescuing their business, Sitharaman said. While appreciating the government for taking measures to make IBC law more effective, Dinesh Singhal, Member of Central Executive Committee (CEC) of Federation of Indian Micro and Small Medium Enterprises (FISME) said that proprietorships and partnership firms should be included in the IBC framework to benefit the MSME sector. In India, bulk of the MSMEs are proprietorships or partnerships. So, unless they are covered under IBC the intended benefit of the bankruptcy law remains elusive to nearly 97 of the firms, he said, noting that it is a long-pending demand of FISME. In her reply to the discussion on the amendment bill, the finance minister said that IBC is a framework for rescuing viable businesses and resolving financial stress while preserving enterprise value. As per official data, IBC has facilitated the resolution of 1,376 companies as of December 2025, enabling creditors to recover over Rs 4 lakh crore. Introduced in Lok Sabha last year, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 had been referred to a Select Committee under the chairpersonship of MP Baijayant Panda. The report of the Select Committee made 11 major recommendations and all of which have been accepted by the government. In addition to the 11 recommendations, we have brought in one other, under which the Committee of Creditors shall record the reasons for selection of the successful Resolution Applicant, which will improve transparency, Sitharaman said. The finance minister stated that the Bill replaces the underutilised fast-track process (essentially CIRP with reduced timeline for small companies) with a new creditor-initiated insolvency framework featuring out-of-court initiation, debtor-in-possession and creditor-in-control model where management continues to vest in the existing Board of Directors or partners with safeguards, and defined timelines. (KNN Bureau)