In a significant legal reform aimed at strengthening creditor rights and improving business accountability, the Ministry of Corporate Affairs has announced that provisions of the Insolvency and Bankruptcy Code (IBC), 2016 will now be extended to cover large partnership firms with substantial turnover or borrowing thresholds.

The extension applies to partnership firms with outstanding debts exceeding ₹10 crore, allowing creditors to initiate insolvency proceedings before the National Company Law Tribunal (NCLT). Until now, the IBC framework primarily addressed insolvency cases involving companies and LLPs, with partnership firms largely governed by traditional civil recovery mechanisms or state-level arbitration.

According to the official notification, the move is intended to bring financial discipline to larger unincorporated entities that operate with significant commercial exposure but are outside the ambit of structured corporate insolvency. It will also provide a structured mechanism for resolution, asset liquidation, and debt recovery in high-value partnership disputes.

“This is a critical step to ensure parity in insolvency processes across business structures,” said a senior MCA official. “Large partnership firms often function with corporate-level liabilities and must now be held to comparable standards of financial responsibility and transparency.”

Under the revised framework, creditors can file applications under Section 94 and 95 of the IBC for initiating insolvency proceedings against eligible partnership firms. The adjudicating authority will evaluate the firm’s assets, liabilities, and capacity to repay before appointing a resolution professional to manage the process.

Legal experts say the move will increase accountability among high-value partnerships, particularly in sectors like infrastructure, construction, trading, and services, where firms often take on corporate-sized projects and financing but operate under informal or lightly regulated governance models.

However, small and micro partnership firms remain exempt, with the government clarifying that the extension is aimed specifically at firms with significant financial exposure. A separate framework is under consideration for resolving insolvency for smaller firms through pre-packaged or mediation-based models.

The reform is expected to enhance lender confidence, reduce litigation delays, and promote fair exit opportunities for financially stressed partnership entities, aligning India’s insolvency ecosystem more closely with global best practices.