The Insolvency and Bankruptcy Code and Corporate Governance in India: Accountability Mechanisms as They Stand in 2026

Corporate governance is usually discussed in terms of the Companies Act, 2013, listing regulations and board practice. Yet corporate governance under the IBC becomes particularly significant when a company approaches financial distress. By placing control with creditors once insolvency begins, restricting who may bid for a distressed company, and exposing past transactions to scrutiny, the Insolvency and Bankruptcy Code, 2016 (“IBC”) operates as a powerful governance instrument. The Insolvency and Bankruptcy Code (Amendment) Act, 2026, largely in force from 26 May 2026, has extended several of these mechanisms.

Corporate Governance Under IBC: From Debtor-in-Possession to Creditor-in-Control

On admission of a corporate insolvency resolution process (“CIRP”), Section 17 suspends the powers of the board of directors and vests management of the corporate debtor in the interim resolution professional. This shift from promoter-led management to professional and creditor oversight is a central feature of corporate governance during insolvency. Decisions on the resolution plan rest with the committee of creditors (“CoC”) of financial creditors under Sections 21, 28 and 30. The process must ordinarily be completed within 180 days, extendable once by 90 days, subject to the outer limit of 330 days in Section 12, including time taken in legal proceedings.

The governance consequence is structural: promoters who allow a company to default cannot assume they will retain control while negotiating with lenders. In Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, the Supreme Court explained that, on a financial creditor’s application, the Adjudicating Authority’s inquiry is essentially whether a default has occurred, and that once this is shown the application is to be admitted unless it is incomplete. Although Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352, was read as allowing some discretion at admission, the substituted Section 7(5) now provides that where default, completeness of the application and the absence of disciplinary proceedings against the proposed resolution professional are established, no other ground shall be considered to reject the application.

Duties to Cooperate

Section 19 of the IBC requires the personnel of the corporate debtor, its promoters, and persons associated with the management of the corporate debtor to extend cooperation and assistance to the interim resolution professional or resolution professional and provide access to relevant records and information. This duty is an important part of corporate governance under the IBC because insolvency does not eliminate management’s obligation to assist the CIRP.

Who May Acquire a Distressed Company: Section 29A

Section 29A makes certain persons ineligible to submit a resolution plan, including wilful defaulters, persons with accounts classified as non-performing assets for over a year (subject to a proviso permitting eligibility on clearing overdues), persons disqualified as directors, persons prohibited by SEBI from securities markets, and their connected persons. In ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, the Supreme Court held that the provision must be applied by looking at substance and control, so that ineligible persons cannot return through the back door.

Section 240A exempts applicants in respect of micro, small and medium enterprises from clauses (c) and (h) of Section 29A. The governance message of Section 29A is that financial misconduct or unresolved defaults can cost promoters the opportunity to regain the business.

Scrutiny of Past Transactions

The IBC allows the insolvency estate to be restored by challenging:

• preferential transactions (Section 43);
• undervalued transactions (Section 45) and transactions defrauding creditors (Section 49);
• extortionate credit transactions (Section 50); and
• fraudulent and wrongful trading (Section 66).

Under Section 66(2), a director may be ordered to contribute to the corporate debtor’s assets if, before the insolvency commencement date, the director knew or ought to have known that there was no reasonable prospect of avoiding insolvency and did not exercise due diligence to minimise potential loss to creditors.

Changes from 26 May 2026:

• The look-back periods in Sections 43, 46 and 50 now run from the relevant period preceding the initiation date (the date of filing of the application) up to the insolvency commencement date, covering the gap between filing and admission.
• The substituted Section 47 permits a creditor, alone or jointly, or a member or partner, to apply where the resolution professional or liquidator has not reported such a transaction or trading, and allows the Adjudicating Authority to direct disciplinary proceedings against the professional concerned.
• Section 26 now provides that completion of the CIRP or liquidation does not affect the continuation of proceedings concerning avoidance transactions or fraudulent or wrongful trading.
• Liquidators, and not only resolution professionals, may now pursue fraudulent or wrongful trading under Section 66.

Penalties Rather than Prosecution

The Amendment Act omitted Sections 74 and 76, which had created criminal offences for contravening the moratorium or a resolution plan and for an operational creditor’s non-disclosure of disputes. They are replaced by civil penalties imposed by the Adjudicating Authority:

• Section 67B: penalties for contravening the moratorium, and for contravening an approved resolution plan, of up to ₹2 crore, or in the case of plan contravention up to ₹1 crore or twenty per cent of the amount to be distributed under the plan, whichever is higher.
• Section 67C: penalties for an operational creditor concealing a notified dispute or payment.
• Section 64A: penalties for frivolous or vexatious proceedings.
• Section 235A (substituted): a residual penalty for contraventions of the Code, rules or regulations.

Prosecutions instituted before commencement under the omitted provisions continue under the Explanation to Section 235A. The shift from criminal to civil consequences may make enforcement faster, though its effectiveness will depend on how frequently applications for penalties are pursued.

After Resolution: A Clean Slate for the Company, Not for Individuals

In Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, the Supreme Court held that claims not included in an approved resolution plan stand extinguished. The 2026 amendments codify this in Section 31(6), deemed to apply to plans approved since the Code’s commencement except matters that have attained finality. Explanation I to Section 31(6) makes clear that this does not protect promoters, persons in management or control, or guarantors. Section 32A, upheld in Manish Kumar v. Union of India, (2021) 5 SCC 1, grants the corporate debtor immunity for prior offences on approval of a plan resulting in a change in management, while preserving the liability of those responsible.

The combined effect is to separate the fate of the business from that of the individuals who ran it.

Alternatives to Creditor Control Under the IBC

The IBC also offers routes where existing management remains involved:

• Pre-packaged insolvency resolution process for MSMEs under Chapter III-A, a debtor-in-possession model. From 26 May 2026, the required approval of unrelated financial creditors under Section 54A has been reduced from sixty-six to fifty-one per cent.
• Creditor-initiated insolvency resolution process under a new Chapter IV-A, in which management would continue under supervision. This chapter has been enacted but, as on 16 September 2026, had not been brought into force.

Challenges in IBC Implementation

Delays in admission and approval, capacity at the National Company Law Tribunal, and the conduct of insolvency professionals have been recurring concerns in judicial observations and policy discussions. The 2026 amendments respond with statutory timelines coupled with a duty to record reasons for delay, a three-month target for NCLAT appeals under Section 61(6), and an expanded disciplinary framework for “service providers” under Sections 217 to 220. Whether these measures reduce delay in practice is not yet clear from any data published after the amendments came into force.

Conclusion

The IBC now shapes corporate governance before, during and after financial distress: through loss of control on admission, eligibility bars for those responsible for default, recovery of value from improper transactions, personal exposure for wrongful trading, and civil penalties for non-compliance. For boards and promoters, the governance lesson is that decisions taken in the period leading up to insolvency are increasingly likely to be examined after it. The result is a broader role for the IBC as a framework for corporate governance during insolvency, alongside its core objective of resolving financial distress and maximising value.

Frequently Asked Questions

1. How does the IBC affect corporate governance?

The IBC shifts control from the board to the insolvency professional and creditors once CIRP is admitted, while subjecting past management decisions to scrutiny.

2. Can promoters regain control of a company under the IBC?

Section 29A restricts certain persons, including specified defaulters and disqualified persons, from submitting resolution plans, subject to statutory exceptions.

3. Can directors be held personally liable under the IBC?

Yes. Section 66 may require directors to contribute to the corporate debtor’s assets where they knew, or ought to have known, that insolvency could not reasonably be avoided and failed to minimise creditor losses.

4. What changed under the IBC Amendment Act, 2026?

The 2026 amendments expand cooperation duties, extend scrutiny of certain transactions, introduce civil penalties for specified contraventions, and make other changes to insolvency governance.

5. Does resolution of a company remove liability of its promoters?

No. The clean-slate protection for the corporate debtor does not extend to promoters, persons in management or control, or guarantors in the circumstances specified by the IBC.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. Insolvency and Bankruptcy Code, 2016 — Sections 7, 12, 17, 19, 21, 26, 29A, 31, 32A, 34, 43–50, 54A, 61, 64A, 66, 67B, 67C, 217–220, 235A, 240A (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, Supreme Court of India, 31 August 2017
4. ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, Supreme Court of India, 4 October 2018
5. Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, Supreme Court of India, 25 January 2019
6. Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, Supreme Court of India, 15 November 2019
7. Manish Kumar v. Union of India, (2021) 5 SCC 1, Supreme Court of India, 19 January 2021
8. Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, Supreme Court of India, 13 April 2021
9. Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352, Supreme Court of India, 12 July 2022