Prem Kumar is a 3 rd – year B.A., LL.B. (Hons.) student at IILM University, Greater Noida. His academic interests lie in corporate law, insolvency law, and commercial dispute resolution. He has authored several research articles published in reputed law journals. He has also interned with leading law firms, where he gained hands-on experience in legal research, drafting, and litigation support. His work is driven by a strong interest in bridging legal scholarship with practical application, particularly in the fields of corporate governance, commercial law, and emerging legal developments.
The concept of separate legal personality has been traditionally considered one of the key principles of corporate law. After the historic judgment in Salomon v. A. Salomon & Co. Ltd[1]., a corporation is now acknowledged as an independent legal entity separate from its owners and directors. The theory leads to the concept of limited liability of shareholders, who are no longer personally liable for the debts of the business entity.
Nevertheless, this kind of protection has never been absolute, as courts would lift or pierce the corporate veil in case of fraud, circumvention of legal obligations or public policy[2]. In the last ten years, the philosophy has been embraced by the Indian insolvency system with regard to holding the promoters and other parties involved in the misconduct.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026, is the most important update of the Indian insolvency law since the adoption of the IBC[3] in 2016. Although the updates aim at enhancing the efficiency of the process, reducing delays and maximising the benefit for the creditors, they pose a serious legal issue: do they diminish the protection offered by the corporate veil?
Understanding the Corporate Veil
The corporate veil is the legal fiction under which a company is distinguished from the individuals who control or own it. This helps promote enterprise because it restricts the liability of investors to business losses. In the absence of limited liability, many people would think twice before investing or forming a business entity.
However, it has always been possible to pierce the veil in cases where a company is used to commit fraud, indulge in sham dealings, tax evasion, and abuse of corporate personality.
The introduction of the IBC was not meant to do away with this doctrine but rather to see to it that corporate personality was not abused[4].
What Has Changed Under the 2026 Amendments?
The 2026 amendments are evolutionary rather than revolutionary. Instead of replacing the existing insolvency framework, they refine it by addressing procedural bottlenecks and strengthening accountability.
1. Creditor-Initiated Insolvency Resolution Process (CIIRP)
One of the notable changes made is the implementation of an insolvency regime that is driven by the creditors. Previously, creditors had to rely on the old admission processes before the effective initiation of CIRP[5].
The new approach is expected to give more control to the creditors and help to minimize delays during the initial stages. It is a shift from the debtor-oriented regime to a more proactive and enterprise valuation-centered insolvency process.
2. Stronger Action Against Fraudulent Transactions
The changes also make it explicit how the provisions dealing with avoidance actions, including fraudulent, preferential, undervalued and wrongful transactions, are being amended and expanded.
Previously, those accused of such actions were receiving some kind of indirect benefit because of procedural delay. In this way, under the new framework, it is stated that the proceedings against fraudulent transactions can be undertaken without being affected by the insolvency process.
3. Greater Focus on Guarantor Liability
It is another important change made in relation to the treatment of guarantor assets during insolvency proceedings. Under certain circumstances, creditor rights regarding guarantor assets are strengthened in order to prevent asset splitting.
This is an essential policy goal because those individuals who have willingly assumed financial obligations must not hide behind the corporate identity of a company[6].
4. Group and Cross-Border Insolvency
Modern businesses usually work via various subsidiaries in different countries. Previously, cases of insolvency related to such related parties would proceed separately, causing delays and inconsistencies.
The amendments create a system for group insolvency and cross-border cooperation, making the Indian system of insolvency regulation more aligned with the international one, especially in case of interconnected companies.
5. Stricter Timelines and Reduced Procedural Delays
The changes also require faster deadlines for admitting, liquidating, appealing the decision, and implementing the approved resolution plan. Many procedural uncertainties that used to give rise to lengthy litigation have been addressed.
It is now quite obvious: insolvency procedure is supposed to help revive the business promptly, not to drag it into more litigation procedures.
Comparing the Position: Before and After the Amendments
Before the amendments, the IBC was focused on protecting creditors, but was characterised by delays, overlapping of proceedings, and uncertainties in relation to fraudulent transactions and corporate structures.
The 2026 amendments strengthen the existing framework by:
offering quicker acceptance of insolvency proceedings;
• giving power to creditors by having a mechanism initiated by creditors;
• maintaining independent continuation of fraud proceedings;
• making arrangements for better handling of guarantor assets;
• including group and cross-border insolvency mechanisms; and
• avoiding loopholes that have made resolution processes lengthy.
It should be mentioned that none of these amendments directly eliminate limited liability provisions. These simply limit the scope of potential abuse by promoters and related parties.
Does the Corporate Veil Stand Weakened?
At first glance, the amendments seem to make it easier for creditors to pierce the corporate veil. Upon closer consideration, it seems that the corporate veil continues to be upheld by the amendments.
The amendments do not provide any provisions where shareholders would be held liable for corporate debts, nor do they revoke the rule of separate legal personality. Rather, the amendments strengthen a well-established legal principle that limited liability should never shield from wrongdoing such as fraud, wrongful trading, or abuse of corporate form.
It can thus be seen that the amendments do not pierce the corporate veil more often, rather that they provide that whenever piercing of the veil is justified, it can be done more quickly and efficiently.
This is an important point, since the purpose of the amendments is not to punish entrepreneurs but to prevent the misuse of corporate forms.
My Perspective
To my mind, the 2026 amendments mark a sophisticated development of the Indian insolvency system instead of a shift away from traditional company law.
The concept of limited liability plays an essential role in promoting economic development. It motivates people to invest and take risks in business, thus stimulating innovations. To undermine it would be unwise since it would stifle the entrepreneurial spirit.
On the other hand, the doctrine of corporate veil should not serve as a cover-up for committing any fraudulent actions or as a way of evading financial liabilities. The amendments make a reasonable decision by maintaining the doctrine of legal personality of companies but providing additional means of dealing with abuse.
The inclusion of creditor-driven insolvency procedure, improved measures to combat abuse, and coordinated management of the affairs of corporate groups proves that the primary purpose of modern insolvency laws is not simply procedural anymore – it is about accountability and efficient value realization.
In the end, what matters most is how the new provisions will be implemented by the judges. If they apply the amendments properly, they may benefit creditors without violating the basic concepts of the company law.
Conclusion
Insolvency and Bankruptcy Code (Amendment) Act, 2026, is no challenge to the corporate veil doctrine in its traditional sense. It simply reiterates the principle that legal personality ought to be protected only when such a legal personality is used responsibly and with integrity.
The amendments make India’s insolvency laws more contemporary, reduce delays in insolvency cases, give more power to the creditors, and tackle complex corporate malpractices. The promoters of the corporations who operate in good faith and in compliance with the relevant regulations and laws would continue to have the protection of limited liability.
However, if a promoter abuses the corporate form, he should be prepared to face scrutiny and even prosecution.
[1] Salomon v A Salomon & Co Ltd [1897] AC 22
[2] State of UP v Renusagar Power Co (1988) 4 SCC 59
[3] The Insolvency and Bankruptcy Code (Amendment) Act 2026 (Act No 6 of 2026)
[4] Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17
[5] Insolvency and Bankruptcy Code 2016, ch II.
[6] Lalit Kumar Jain v Union of India (2021) 9 SCC 321
