Insolvency and Bankruptcy Code Amendment Bill 2025

 Insolvency and Bankruptcy Code Amendment Bill 2025

Why in News? 

Recently, the Lok Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 to strengthen the insolvency framework and reduce delays, aiming to enhance efficiency and transparency in India’s financial system.

What is Insolvency and Bankruptcy Code (IBC)?

• About: The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive law that consolidates and amends rules related to insolvency resolution of companies, partnerships, and individuals in India. 
  • It is based on the recommendations of the T.K. Vishwanathan’s Bankruptcy Law Reforms Committee (2015), which created a unified, time-bound, and creditor-driven framework.
• Need: Before IBC, India had multiple fragmented laws like SICA, SARFAESI, and DRT Acts, causing delays and low recovery rates. 
  • Rising Non-Performing Assets (NPAs) in banks created urgency for a unified and efficient insolvency framework.
• Objectives: IBC seeks to ensure speedy resolution (180–330 days), improve creditor recovery, promote entrepreneurship, and balance the interests of all stakeholders while maintaining financial discipline.
• Institutional Framework: The Code established institutions such as the Insolvency and Bankruptcy Board of India (IBBI) (regulator), National Company Law Tribunal (NCLT) for companies, and Debt Recovery Tribunal (DRT) for individuals.
  • IBBI is a statutory regulator established in 2016 to oversee insolvency proceedings, comprising members from the Ministry of Finance, Corporate Affairs, and RBI.
  • Committee of Creditors (CoC) is composed of financial creditors, responsible for evaluating, negotiating, and voting on resolution plans.
• IBC Process: IBC process is called Corporate Insolvency Resolution Process (CIRP):
  • Triggering Insolvency: A financial creditor (Sec 7), operational creditor (Sec 9), or corporate debtor (Sec 10) can initiate the CIRP upon default, provided the default amount meets the required threshold.
  • Admission by NCLT: The NCLT evaluates the application within 14 days. Once admitted, a moratorium is declared, pausing all pending lawsuits against the debtor, and an Interim Resolution Professional (IRP) is appointed.
  • Appointment of IRP: The IRP takes control of the company’s management, secures assets, manages operations, and collates creditor claims.
  • Formation of CoC: The IRP forms the CoC, primarily comprising financial creditors. The CoC appoints a permanent Resolution Professional (RP) and decides on the future of the company.
  • Resolution Plan & Approval: The RP invites resolution plans. A plan approved by the CoC with a 66% voting majority is submitted to the NCLT for final approval.
  • Liquidation: If no plan is approved within the prescribed time (usually 180 days, extensible) or if the CoC decides to liquidate, the company moves to the liquidation phase.
• Impact: IBC has significantly improved recovery rates (around 30–45% on average, higher than earlier regimes). It has helped reduce NPAs and strengthened credit discipline among borrowers.
  • Key changes include Section 29A (barring defaulting promoters), introduction of pre-pack insolvency, and recognition of homebuyers as financial creditors, enhancing transparency.
• Challenges: Despite success, challenges include judicial delays, capacity constraints of NCLT, and high haircuts in some cases.
  • NCLT is heavily overloaded, with nearly 30,600 cases pending as of March 2025. Many benches operate below 50% capacity, leading to severe delays.
  • The average resolution time significantly exceeds the 330-day statutory limit, with an average duration of 713 days (and 853 days for cases closed in FY25). 

Key Provisions of Insolvency and Bankruptcy Code (Amendment) Bill 2025

• Creditor-Initiated Insolvency Resolution Process (CIIRP): The Bill replaces the underutilised “fast-track” process with a new creditor-initiated framework. 
  • This model allows creditors to initiate proceedings with out-of-court settlements, enabling a “debtor-in-possession” and “creditor-in-control” approach. 
  • The existing Board of Directors continues to manage the company under defined safeguards and timelines. 
• Mandatory 14-Day Admission Accountability: To curb delays, the Adjudicating Authority (NCLT) must now record reasons in writing if it fails to pass an admission order within 14 days of a complete application. 
  • Admission becomes mandatory once a default is proven via Information Utility records and the application is technically complete. 
• Group Insolvency Framework: A new voluntary group insolvency framework is introduced to facilitate the joint resolution of interconnected companies within a domestic corporate group. This allows for a coordinated approach to resolving stressed entities that share assets or financial liabilities.
• Cross-Border Insolvency Provisions: The Bill establishes an enabling framework for cross-border insolvency, aligning Indian law with international standards like the UNCITRAL Model Law. 
  • This provides creditors with a mechanism to access overseas assets of a corporate debtor, fostering greater investor confidence in the Indian market. 
• Recasting Liquidation Supervision: The Committee of Creditors (CoC) is now empowered to supervise the liquidation process, a role previously held primarily by the liquidator. The CoC can appoint or replace a liquidator with a 66% majority vote, ensuring creditors retain control even when a resolution plan fails.
  • A new requirement mandates that the CoC must record reasons for selecting a particular resolution plan winner. This was added to the Select Committee’s recommendations to boost transparency and accountability.
• Strict Liquidation Timelines: New hard timelines require a liquidation order to be passed within 30 days of an application. The entire liquidation proceeding must be completed within 180 days, with a single extension of 90 days permitted only under specific conditions.
• Penalties for Frivolous Litigation:;To prevent the misuse of the legal system, a new Section 64A introduces penalties for filing frivolous or vexatious proceedings. 
  • Fines for such offences range from ₹1 lakh to ₹2 crore, discouraging stakeholders from using the NCLT as a delay tactic. 
• Restrictions on Withdrawal of Applications: The Bill amends Section 12A to prohibit the withdrawal of an insolvency petition once the CoC is constituted or after the first invitation for expression of interest (IEOI) is issued. This ensures the process remains “in rem” (affecting all stakeholders) and cannot be settled privately to the detriment of other creditors. 
• Clarification of Security Interests: The Bill clarifies the ranking and rights of various creditors, specifically addressing concerns raised by the “Rainbow Papers” judgment. It provides better prioritisation for government dues and strengthens the “clean-slate principle”.