A parliamentary panel has proposed setting up of a separate regulatory framework for carrying out major amendments under the Insolvency and Bankruptcy Code (IBC). As per the panel, such a framework would provide for cost-benefit analysis, stakeholder consultation, defined implementation timelines, pre-notification impact assessment, post-implementation review, and mechanisms for inter-regulatory coordination.
“although the IBBI (Mechanism for Issuing) Regulations, 2018 provide for public consultation and limited economic analysis prior to issuance of regulations, no formally institutionalised regulatory impact assessment (RIA) framework currently exists,” it said.
The idea to have a separate framework emerges from the frequent changes in the IBC. Since 2016, IBC has undergone 6 major legislative amendments (with seventh amendment pending) and over 122 amendments to its various regulations.
Moving Beyond Reactive
Experts said that while the changes in the IBC are well-intentioned, they have led to discrepancies, uncertainties and caused multiplicity of litigation. “If implemented, every proposed regulation will require a well-studied assessment of impact and be a structured and evidence-based reform. It takes to fruition the intent and purpose of IBC which is not liquidation but preservation,” said Jasmine Damkewala, senior partner at Circle of Counsels.
It’s expected that such a framework would enable regulators to better understand the operational impact of proposed measures on lenders, insolvency professionals, investors, and other stakeholders involved in the process. Because the framework will take into the stakeholder feedback and review outcomes after implementation, it can further strengthen the effectiveness of the amendments.
Tackling Systematic Hurdles
With the IBC moving into most complex regulatory territory with the proposed inclusion of group insolvency and cross-border insolvency mechanisms, there’s a risk that these sophisticated tools might get stuck by the same implementation hurdles that hindered the initial 2016 roll-out.
“A more consultative and evidence-based approach to regulatory changes would improve predictability and contribute to the long-term stability of the insolvency ecosystem,” said Anisha Jhunjhunwala, senior consultant (IBC) at NPV & Associates LLP.
The need for RIA has been argued for some time since the average timeline for resolution have reached around 713 days as against the statutory cap of 330 days which often defeats the purpose of a swift and effective resolution. According to CareEdge Ratings, the recovery rate under the IBC had fallen marginally to 31.63% in the third quarter of FY26 against 32.44% in the previous quarter.