India's IBC gives lenders too much power, sidelines operational creditors

India's insolvency regime is undergoing a significant recalibration, with the Insolvency and Bankruptcy Board of India (IBBI) enacting the Fourth Amendment Regulations in June 2026, aimed at reining in the historically dominant power of financial creditors within the Corporate Insolvency Resolution Process (CIRP). These new rules mandate the Committee of Creditors (CoC) to provide stronger justifications for key decisions and introduce greater transparency, including a compulsory market discovery exercise for bid evaluations, a significant departure from the 'commercial wisdom' doctrine that has largely insulated lenders' choices from scrutiny. This move comes amidst persistent concerns that the Insolvency and Bankruptcy Code (IBC), despite its transformative intent, has disproportionately favored financial creditors, often at the expense of operational creditors—particularly Micro, Small and Medium Enterprises (MSMEs). A 2024-25 analysis revealed financial creditors recovered 38% of admitted claims, while operational creditors secured only 10%, a stark imbalance reinforced by previous Supreme Court rulings that effectively limited review of differential payments. The recently passed IBC (Amendment) Act, 2026, further introduces the Creditor-Initiated Insolvency Resolution Process (CIIRP) and clarifies that government dues do not equate to secured creditor status, seeking to streamline the process while the IBBI amendments attempt to level the playing field. The immediate ripple effects are likely to be felt across the insolvency ecosystem, potentially leading to increased litigation as dissenting creditors and unsuccessful bidders challenge CoC decisions under the new, more stringent justification requirements. Stakeholders will keenly watch how the National Company Law Tribunal (NCLT) interprets and applies these amendments, particularly the mandated inclusion of operational creditor observers in certain CoC meetings and the shift to a two-stage resolution plan approval, which separates operational revival from financial distribution. These reforms signal a legislative and regulatory push to foster a more equitable and transparent resolution framework, but their true impact will depend on consistent implementation and judicial interpretation.