IBC Amendment Bill, 2025: A Paradigm Shift in India’s Insolvency Landscape
Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC”/ “Code”) 2016 marked a landmark reform in India’s economic journey by introducing a time-bound, creditor-driven, and arguably efficient mechanism for resolving financial distress. Over the past decade, this has fostered a culture of credit discipline and improved recovery rates for creditors, most recently, with a modest improvement in the final quarter of fiscal year 2025, rising from 31.39% in Q3FY25(October-December 2024) to 32.76% in Q4FY25 (January-March 2025)[TLH1] [1]. However, the Code’s practical implementation has also shown its vulnerability, and certain critical gaps, be it legal ambiguities, procedural inefficiency in the systems, or a potentially lacking statutory frameworks for complex corporate structures. In today’s landscape, the Insolvency and Bankruptcy Code(Amendment) Bill, 2025 (“Bill”) represents a comprehensive legislative effort to address these challenges. the Bill is not merely a set of tweaks but a major overhaul, designed to restore the original vision of the IBC by accelerating resolution timelines, empowering creditors, and aligning India's insolvency framework with global best practices. This article analyzes some of the key proposed amendments to the Bill, which primarily aim to further reduce delays, enhance the creditors' control, and align our laws with global standards.
1. Mandatory admission of insolvency Petitions/ Applications
The Bill proposes to amend the existing Section 7[2] and 9[3] of the IBC, by replacing the word “may” with “shall,” making it mandatory for the National Company Law Tribunal (“NCLT”) to admit an insolvency application filed by such Financial/ Operational Creditor(s) once a default is proven, and the application/ Company Petition is complete.
The proposed change effectively reverses the Supreme Court’s ruling in the matter of Vidarbha Industries vs. Axis Bank[4], which granted the NCLT discretion to consider other relevant factors before admitting a case. By removing NCLT’s discretion, this move may drastically reduce the pre-admission litigation and delays. However, a potential risk is that this mandatory admission could lead to a surge in frivolous or vexatious filings, as the cost of initiating such applications is relatively low while the probability of admission becomes significantly higher. The success of this proposed change, therefore, hinges on the robust implementation of accompanying safeguards, particularly the newly introduced, stricter penalties for malicious or fraudulent filings.
2. Reinforcing the ‘Clean Slate’ principle and creditor priority
The Bill clarifies the definition of a “security interest” under Section 3(31)[5] of the Code, specifying that it must arise from an “agreement or arrangement”, and not merely by operation of law. The proposed change effectively deprioritizes government dues in the distribution waterfall under Section 53 of the Code. In effect, the proposed amendment is a departure from the Supreme Court’s ruling in State Tax Officer vs. Rainbow Papers Ltd[6]., which had created significant uncertainty for prospective buyers of distressed assets, who feared that tax authorities could claim secured debt status even after a resolution plan. This step would go a long way in restoring the confidence of resolution applicants while protecting the viability of the acquisition of these assets.
3. Frameworks for group and cross-border insolvency
The Bill empowers the Central Government to frame rules for the administration of Group Insolvency[7] and Cross-Border Insolvency[8], thereby creating a legal framework for consolidated resolution of interconnected companies and for structured cooperation with foreign courts in managing global assets. This addresses the gaps exposed in the Videocon Industries case[9] where the absence of a statutory mechanism forced the NCLT to rely on an ad-hoc approach to consolidated proceedings of group entities. There are several advantages to consider, such as: (a) the insolvency proceedings involving multiple companies within the same group, the NCLT would have an option to consolidate these companies, i.e., corporate debtors, and have these petitions adjudicated by the same bench;(b) joint CoC meetings wherein multiple companies are involved; and (c) a common Resolution Professional can be appointed in some instances. All these aspects iron out the conflicts and delays and potentially prevent inconsistent rulings and streamline the resolution process.
Similarly, the Jet Airways case[10] highlighted the lack of a cross-border framework, necessitating an improvised protocol between the NCLAT and a Dutch court to coordinate the airline's global insolvency proceedings. The proposed amendment is long overdue and aligns India's insolvency law with international best practices, specifically the UNCITRAL Model Law. It provides direct access for foreign representatives to our domestic courts, recognizes foreign insolvency proceedings, and promotes cooperation between the Indian and foreign legal systems. While this represents a progressive development, its effectiveness will ultimately depend on the government's ability to promptly frame detailed subordinate rules and establish a judicial infrastructure with specialized benches to deal with such intricate matters internationally.
4. Introducing a Creditor-Initiated Out-of-Court Resolution (CIIRP)
The proposal to introduce this new mechanism will enable a supermajority of creditors to initiate resolution proceedings outside the formal court system. The proposed mechanism is a hybrid model, which will balance creditors’ autonomy while functioning under a streamlined framework. In fact, this approach is one of innovative solutions arriving between the creditor and Corporate Debtor, aimed at providing a faster and more cost-effective mechanism, and which will also aim at easing the burden on the NCLT while addressing genuine business failures. The proposed change looks promising, however, when it comes to practice, we have to wait and watch how this step will potentially impact the small stakeholders in the scheme of IBC, i.e., operational and minority creditors. For this mechanism to become potent and proven, one needs to consider the: (a) regulations to ensure transparency and fairness; and (b) independent valuation of assets. In an event of the absence of these crucial checks, there is a risk of potential misuse of the process to push through inequitable resolutions across all classes of stakeholders.
5. Enhancing the CoC’s oversight of liquidation
The Bill also proposes to amend Sections 33[11] and 35[12] of the Code to expand the role of the Committee of Creditors (“CoC”) during the liquidation stage. Under the proposed amendments, the CoC will now have supervisory powers to approve key actions, including but not limited to replacing the liquidator. This move will further strengthen the role of CoC and advocate the creditor-driven process under the IBC. However, evaluating the potential pitfalls would reveal that resolution of assets of such Corporate Debtors would pose a challenge wherein the CoC exercises its overreach by abusing its authority, which might potentially slow down the liquidation process.
6. Stricter penalties for frivolous filings
The Bill introduces a new Section 64A[13] to impose a substantial penalty of up to INR 2crore on those who file frivolous or vexatious applications before the adjudicating authority. This directly addresses the misuse of IBC as a weapon. The higher financial penalties serve as a strong deterrent against the misuse of the legal process for personal gain or to delay genuine insolvency proceedings. The introduction of this key provision is crucial to balance the proposed change in regime and strive to ensure that only genuine creditor applications are entertained by the NCLT. However, the true test of the provision would be how seriously NCLT invokes this provision as a deterrent to non-genuine litigations, which will go a long way in creating an efficient and robust ecosystem around insolvency litigations.
7. Extending the reach for avoidance transactions
The look-back period has been a loophole often exploited by the promoters/suspended directors of the Corporate Debtor/ defaulter. The proposed amendment to Sections 43[14], 45[15], 49[16], and 50[17], dealing with preferential, undervalued, and fraudulent transactions, popularly known as ‘PUFE transactions’, will now have a ‘look-back’ period commencing from the date of application, rather than the date of its admission. Furthermore, the NCLT proceedings on such avoidance transactions can now continue even after the dissolution of the Corporate Debtor. Therefore, the amendment to PUFE transactions is a welcome change that addresses a major loophole and ensures a fair and transparent resolution process. This will ultimately result in better recovery rates in the market as far as creditors as concerned.
Conclusion
The Bill represents a decisive and transformative leap in India's insolvency framework. By making CIRP admission mandatory, introducing group and cross-border insolvency, and reinforcing the ‘clean slate’ principle with explicit sectional amendments, the Bill addresses the most pressing gaps of the Code. It seeks to establish a more efficient, predictable, and investor-friendly environment. While its success is contingent on the effective implementation and the strengthening of the adjudicating authority, the Bill sets a clear and commendable direction for a more robust insolvency ecosystem in India.
References
[1] BFSI Research, CIRP Initiations Reduce; Recovery Steady at around 32% (19 June 2025)
https://bfsi.economictimes.indiatimes.com/articles/ibc-recovery-rate-climbs-to-3276-in-q4fy25-yet-legal-delays-challenge-creditors/121964449.
[2] Insolvency and Bankruptcy Code, 2016,§ 7, No. 31, Acts of Parliament, 2016 (India).
[3] Insolvency and Bankruptcy Code, 2016,§ 9, No. 31, Acts of Parliament, 2016 (India).
[4] Vidarbha Industries Power Ltd vs Axis Bank Ltd. (2022) 8 SCC 352.
[5] Insolvency and Bankruptcy Code, 2016,§ 3(31), No. 31, Acts of Parliament, 2016 (India).
[6] State Tax Officer (1) vs Rainbow Papers Ltd., (2022) 8 SCC 352.
[7] Insolvency and bankruptcy Code(Amendment) Bill, 2025, Chapter V-A Bills of Parliament, 2025 (India).
[8] Insolvency and Bankruptcy Code (Amendment)Bill, 2025, § 240C Bills of Parliament, 2025 (India).
[9] Videocon Industries Ltd vs Union of India., 2021 SCC OnLine NCLT 11967.
[10] Jet Airways (India) Ltd vs State Bank of India., MANU/SC/0598/2011.
[11] Insolvency and Bankruptcy Code, 2016,§ 33, No. 31, Acts of Parliament, 2016 (India).
[12] Insolvency and Bankruptcy Code, 2016,§ 35, No. 31, Acts of Parliament, 2016 (India)
[13] Insolvency and Bankruptcy Code(Amendment) Bill, 2025, § 64A, Bills of Parliament, 2025 (India).
[14] Insolvency and Bankruptcy Code, 2016,§ 43, No. 31, Acts of Parliament, 2016 (India).
[15] Insolvency and Bankruptcy Code, 2016,§ 45, No. 31, Acts of Parliament, 2016 (India).
[16] Insolvency and Bankruptcy Code, 2016,§ 49, No. 31, Acts of Parliament, 2016 (India).
[17] Insolvency and Bankruptcy Code, 2016,§ 50, No. 31, Acts of Parliament, 2016 (India).
[TLH1]Incomplete sentence