THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2026 - PART XI

Application for bankruptcy

Section 121 of the Code prescribes the method of filing application for bankruptcy.  The amendment Act inserted a new Section in the Code viz, 121(d) which provides the application for bankruptcy may be filed where an order has been passed by an Adjudicating Authority under sub-section (1A) of section 106.

Effect of application

Section 124 of the Code gives the effects on the applications filed under Section 123 and Section 124.  The Act inserted a new Section 124 (4) which provides that the provisions of this section shall not apply where an application is filed for initiating a bankruptcy process in respect of a personal guarantor to a corporate debtor.

Undervalued transactions

The Act inserted a new Section 164A.  Section 164A provides that where the debtor has entered into an undervalued transaction as referred to in sub-section (6) of section 164 and the Adjudicating Authority is satisfied that such transaction was deliberately entered into by such debtor—

• for keeping its assets beyond the reach of any person who is entitled to make a claim against the debtor; or
• in order to adversely affect the interests of such a person in relation to the claim.

The Adjudicating Authority shall make an order-

• restoring the position as it existed before such transaction, as if the transaction had not been entered into; and
• protecting the interests of persons who are victims of such transactions.

The proviso to this section provides that an order under this section shall not affect any interest in property which was acquired from a person other than the debtor or his associate, as the case may be, and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest; and  shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum, unless he was a party to the transaction.

Priority of payment of debts

Section 178 of the Code provides the priority of payment debts.  The Act inserted an explanation to this section.  The explanation clarified that any amount, whether or not a security interest is created to secure such amount by an act of two or more parties or merely by operation of law, due to the Central Government and the State Government, in respect of the whole or any part of the period of 2 years preceding the bankruptcy commencement date, shall be distributed under this clause and any remaining amount, whether or not such security interest is created to secure the amount, due to the Central Government and the State Government, shall be distributed under clause (e).

Penalty for filing frivolous or vexatious proceedings

The Act inserted Section 183A.  This section provides for penalty in cases of filing frivolous or vexatious proceedings under Part III of the Code.  This section provides that if, any person has initiated a frivolous or vexatious proceeding before the Adjudicating Authority under this Part, it may impose upon such person a penalty which shall not be less than Rs. 1 lakh but which may extend to Rs. 2 crores.

Powers of the Board           

Section 196 of the Code provides the powers and functions of the Board.  The Act substituted the words ‘service providers’ for the words ‘insolvency professional agencies, insolvency agencies and information utilities’ and ‘insolvency professionals, insolvency professional agencies and information utilities’, wherever they occur.

The Act inserted an explanation to Section 196(1) (c).  The explanation clarified that the levy of fee or other charges under this clause also includes any fee or other charges levied by the Board in relation to the processes under this Code.

The Act inserted a new section 196(1)(sa).  This section provides that the Board shall specify the standards of conduct for the committee of creditors and its members, including the timelines within which the committee of creditors shall take decisions, while acting under Part II and Part III of this Code, as the case may be.

Submission and authentication of information

Section 215 of the Code provides for the submission and authentication of information to the information utilities.  After incorporation of the amendment section 215(3) provides that an operational creditor shall, before filing an application under section 9 of the Code,submit financial information to the information utility in such form and manner as may be specified.

The Act inserted a new sub-section 215(4) which provides that the corporate debtor or debtor, as the case may be, in respect of whom any information is submitted under this section, shall authenticate the information in such manner and within such period, as may be specified.  The proviso to this section provides that where the corporate debtor or debtor does not respond to the information submitted to the information utility in the manner and period as has been specified, such information shall be deemed to be authenticated.

Complaints against service providers

The Act amended the marginal heading under section as ‘Complaints against service providers’ instead of the words ‘Complaints against insolvency professional agency or its members or information utility’.   Section 217, after incorporating the amendment, provides that any person aggrieved by the functioning of a service provider may file a complaint to the Board in such form, within such time and in such manner as may be specified.

Investigation

The Act amended the marginal heading of Section 218 as ‘Investigation of Service Providers’ for the words ‘Investigation of Professional Agency or its member or Information Utility’.  After incorporating the amendments Section 218(1) provides that where the Board, on receipt of a complaint under section 217 or has reasonable grounds to believe that any ‘service provider’ (before amendment it reads as ‘Investigation of Professional Agency or its member of Information Utility’)has contravened any of the provisions of the Code or the rules or regulations made or directions issued by the Board thereunder, it may, at any time by an order in writing, direct any person or persons to act as an investigating authority to conduct an inspection or investigation of the ‘service provider’ (before amendment it reads as ‘Investigation of Professional Agency or its member of Information Utility’).

Show cause notice to the service provider

The Act substituted a new section to 219 for the existing one which provides that  where the Board, upon completion of an inspection or investigation under section 218 or on the basis of material available on record, is of the prima facie opinion that sufficient cause exists to take action under section 220, it may issue a show cause notice to a service provider in such manner, providing such period for giving reply, as may be specified.

Disciplinary Committee

Section 220 of the Code provides for the appointment of disciplinary Committee.  Many amendments have been carried out in this section.  After incorporating the amendments, the said section will read as below-

220(1) The Board shall constitute one or more disciplinary committees consisting of one or more persons from amongst its Chairperson, whole-time members or officers not below the rank of the Executive Director for the purposes of this section.

(1A) The show cause notice issued under section 219 shall be referred to a disciplinary committee constituted under sub-section (1)

(2)  Where the disciplinary committee, after giving the service provider an opportunity of being heard, is satisfied that sufficient cause exists, it may, impose a penalty as provided in sub-section (3), or suspend or cancel the registration of the service provider, or direct disgorgement under sub-section (4).

(3) Where any service provider has contravened any provisions of this Code or rules or regulations made thereunder, the disciplinary committee may impose penalty which shall be up to—

            (i) three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention; or

              (ii)  three times the amount of the unlawful gain made on account of such contravention, whichever is higher.

The proviso to this section provides that where such loss or unlawful gain is not quantifiable, the total amount of the penalty imposed shall not exceed Rs. 2 crores.

(4) Notwithstanding anything contained in sub-section (3), the disciplinary committeemay direct any person who has made unlawful gain or averted loss by indulging in any activity in contravention of this Code, or the rules or regulations made thereunder, to disgorge an amount equivalent to such unlawful gain or aversion of loss.

(5)  The disciplinary committee may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so disgorged, if the person who suffered such loss is identifiable and the loss so suffered is directly attributable to such person.

(6) The Board may make regulations to specify-

            (a) the procedure for claiming restitution under sub-section (5);

            (b) the period within which such restitution may be claimed; and

            © the manner in which restitution of amount may be made.

(7)  Any person aggrieved by an order of the disciplinary committee, under sub-sections (2) to (5), may prefer an appeal to the National Company Law Appellate Tribunal within a period of 30 days from the date of receipt of the order.

(8) The National Company Law Appellate Tribunal may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within 30 days, allow the appeal to be filed under sub-section (7) within a further period not exceeding 15 days.