INTRODUCTION:

On 12th August 2025, Finance Minister Nirmala Sitharaman tabled the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“Amendment Bill”), in the Lok Sabha. These amendments are the result of three years of stakeholders’ consultations and recommendations from the Insolvency Law Committees and the discussion papers released by the Government aimed at resolving concerns that have emerged under the Insolvency and Bankruptcy Code, 2016 (“IBC”) primarily over prolonged delays in admission of cases, asset value erosion, lacunas while dealing with instances of non-implementation of approved resolution plans and other emergent subjects such as the insolvency of a group of companies and cross-border insolvency framework.

These amendments are the result of three years of stakeholders’ consultations and recommendations from the Insolvency Law Committees and the discussion papers released by the Government. They are aimed at resolving concerns that have emerged under the Insolvency and Bankruptcy Code, 2016 (“IBC”), primarily over prolonged delays in admission of cases, asset value erosion, lacunas while dealing with instances of non-implementation of approved resolution plans, and other emergent subjects such as the insolvency of a group of companies and cross-border insolvency framework.

KEY PROPOSED AMENDMENTS:

The Amendment Bill proposes to introduce the following notable amendments to streamline the corporate insolvency resolution process and liquidation of the corporate debtors, to address delays and maximise asset value:

  • Under the earlier definition, “security interest” was framed broadly enough to potentially include both consensual securities (like mortgages, pledges, and hypothecation) and non-consensual, statutory charges created automatically by law. This led to disputes particularly after the Supreme Court’s Rainbow Papers decision[1] where government authorities claimed secured creditor status based on statutory charges. Such interpretations risked upsetting the IBC’s priority framework under Section 53 of IBC by putting involuntary statutory claims at par with negotiated financial securities, undermining credit certainty. The amendment adds an explanation narrowing the scope to only consensually created securities, thereby protecting the predictability of creditor rights, aligning with global insolvency norms, and preventing statutory dues from disrupting the secured credit market.
  • Avoidance Transaction: A new clause 2A has been inserted under Section 5 before the existing clause 2A defining the term “avoidance transactions” as referred to under Sections 43, 45, 49 and 50 of the IBC relating to the preferential transactions, undervalued transactions, extortionate credit transactions and transactions involving defrauding creditors. After clause (9), a new clause (9A) has been inserted to define “fraudulent or wrongful trading” as referred to in section 66 of the Code. Further, a new clause 9A introduces the definition of fraudulent or wrongful trading to be as per Section 66 of IBC. By introducing an explicit definition, the legislature seems to have removed the ambiguity in identifying such transactions.
  • Clarification of Initiation Date in Multiple Application Scenarios: A proviso to Clause (11) under Section 5 now stipulates, that, where multiple applications for initiating the Corporate Insolvency Resolution Process (“CIRP”) against the same corporate debtor are pending before the Adjudicating Authority, the initiation date shall be deemed to be the date of the filing of the first such application. This amendment directly addresses the tactical delays caused by the debtors and the rival applicants in cases of filing multiple proceedings to create procedural uncertainty. Further, this amendment could also bring uniformity in computing the “insolvency commencement date” for statutory timelines for moratorium periods, avoidance transactions, look back periods.
  • Expansion on the Scope of Resolution Plan: Clause (26) of Section 5, which earlier confined the restructuring methods to merger, amalgamation, and demerger, have now been broadened to expressly include the sale of one of more assets of the corporate debtor. This amendment introduced greater flexibility in resolution strategies, enabling the piecemeal or asset level resolutions.
  • Amendments to initiation of CIRP by Financial Creditors (Section 7): The earlier proviso to sub-section (4) required the Adjudicating Authority (“AA”) to record reasons if it could not ascertain the existence of default and pass an order within the prescribed period. This has now been omitted, streamlining the provision and shifting the obligation to the revised sub-section (5). Now, the amended sub-section (5) reads as a mandatory directive rather than a discretionary one, wherein the Adjudicating Authority within 14 days of receipt of the application under Section 7(2) admit/reject the application on the basis of occurrence of default, completion of application and if there are any disciplinary proceedings pending against the proposed resolution professional.Further, in case the application is not complete, the Adjudicating Authority must give the applicant 7 days to rectify the defects, and the Adjudicating Authority does not pass an order within 14 days, it must record reasons in writing. The explanations to Section 7 explicitly include that no other ground can be used to reject the Section 7 application. Further, For applications by financial institutions, a record of default from an Information Utility is sufficient proof of default for admission purposes.
  • Amendments to initiation of CIRP by Operational Creditors: In Section 9 of IBC, a new proviso has been inserted mandating that if the Adjudicating Authority does not pass an order under this sub-section within 14 days from the date of receipt of the application under Section 9(2), it must record the reasons for such delay in writing. It is now proposed to make it mandatory for the operational creditors also (as already mandated under IBC for financial creditors) to submit financial information to the information utility, before filing an application under section 9 of the Code. A similar mandate is provided in IU Regulations.
  • Persons to assist the IRP (Section 19): The amendment to Section 19 of the Insolvency and Bankruptcy Code broadens its scope from covering only “personnel” to “persons”, thereby including not just employees and management but also any individual engaged on a contractual basis with the corporate debtor. The substituted sub-section (1) now requires any person whether current or former personnel, promoter, management associate, or contractual service provider to extend assistance and cooperation to the Interim Resolution Professional (IRP) for managing the corporate debtor’s affairs. Consequential changes in sub-sections (2) and (3) replace references to “personnel” and “promoter” with “person referred to in sub-section (1)” and replace “resolution professional” with “interim resolution professional.”
  • Reduced Timelines for Completion of the Liquidation Process (Section 54 of IBC): Section 54 is sought to be revised. The timeline is proposed to be further reduced (from the earlier timeline of 1 year) mandating the liquidator to completely liquidate the assets of the CD and make an application for its dissolution within a period of 180 days from the liquidation commencement. Extension of 90 days is permitted on an application by the liquidator along with sufficient reasons, which may be difficult to implement in practice, considering the delays in the liquidation process.
  • Removal of Fast Track CIRP (Section 55-58)- Chapter IV of Part II comprising of sections 55 to 58, which deal with fast track CIRP has been proposed to be completely omitted, which may be due to the fact that there haven’t been any fast track CIRP’s which have concluded successfully thus far.
  • Creditor Initiated Insolvency (Chapter IV A)- A new Chapter IV A has been inserted for a creditor initiated insolvency resolution process comprising of Sections 58A to 58K. Creditors holding at least 51% of financial debt may initiate insolvency, after giving a 30 days’ time to the CD for representation. RP is appointed by the creditor itself. There is a process for appeal, but the initiation of the insolvency may be declared void ab initio only if there was no default; if default was there and there is a process breach, the creditor-led process may be converted into regular CIRP. In this situation, the moratorium as provided under Section 14 of IBC is not automatic but an RP may in terms of Section 58G, make an application before the Adjudicating Authority for a moratorium Section 14 after obtaining COC Approval.
  • Group Insolvency: New chapter VA is sought to be introduced to enable the Central Government to make rules concerning the manner and conditions for conducting insolvency proceedings and liquidation proceedings where these proceedings are initiated against two or more corporate debtors forming a part of the group. The term ‘group’ shall mean and include ‘two or more corporate debtors that are interconnected by way of control or significant ownership, and shall include a holding company, subsidiary company, or associate company of a corporate debtor, as such terms are defined under the Companies Act, 2013.’
  • Voluntary Liquidation not irreversible: Section 59(5A) allows a CD to pass a special resolution to terminate voluntary liquidation, subject to the approval of creditors.
  • Penalty for frivolous initiation of proceedings: The Bill proposes to insert a penalty for initiating frivolous or vexatious proceedings before the Adjudicating Authority aimed at deterring persons from initiating such proceedings and delay the insolvency resolution and liquidation processes. Such a penalty has been introduced for Insolvency resolution and liquidation for Corporate Persons(Section 64A) as well as for Insolvency Resolution and bankruptcy for individuals and partnership firms (Section 183A).
  • Personal Insolvency Provisions: Interim moratorium is sought to be inapplicable involving personal guarantor to CD: Bankruptcy shall follow in the absence of resolution plan, if no repayment plan is submitted within 21 days from the date of submission of claims, AA shall pass an order terminating the insolvency resolution process of the debtor and the debtor or the creditors shall be entitled to file an application for bankruptcy. If repayment plan is in respect of the debtor who is a personal guarantor to a corporate debtor, the resolution professional shall summon the meeting of the creditors. In other cases, the same shall be at the discretion of the RP whether meeting of CoC is required or not. Similar clarification as is proposed in section 53(1)(e), concerning government dues have been proposed in case of personal insolvency as well. Any amount due to CG or SG that amount due for in respect of the whole or any part of the period of two years preceding the bankruptcy commencement date whether or not a security interest is created to secure such amount shall be paid at the 4th priority. Remaining dues shall be covered under the residual debts provided in clause (e). Where the debtor has entered into an undervalued transaction and the AA is satisfied that such transaction was deliberately entered into by such debtor for keeping its assets beyond the reach of any person who is entitled to make a claim against the debtor; or in order to adversely affect the interests of such a person in relation to the claim
  • Rule-making powers with the Central Government and IBBI : An expanded list of rule and regulation making powers have been proposed to be provided to the Central Government and IBBI including, access to information stored in IU, circumstances in which supply of critical goods and services may be terminated and suspended during moratorium, composition of COC, conditions for providing basis for evaluation of resolution plan.
  • Technology and cross-border insolvency provisions : On the international front, Sections 240B and 240C have been proposed to be added. In terms of Section 240B, government has been proposed to be empowered to provide an electronic portal for the procedures related to the insolvency and bankruptcy processes. Section 240C proposes to empower the Central Government to frame rules for cross-border insolvency, designate special benches, and adapt other laws. This is a step beyond the current bilateral arrangement under Section 234 and 235 IBC and moves towards the principles of the UNCITRAL Model Law on Cross-Border Insolvency.

CONCLUSION:

Finance Minister presenting the bill highlighted that the Amendment Bill will “facilitate faster, cost-effective insolvency resolution with minimal business disruption, improve investor confidence, and strengthen India’s position as a business-friendly jurisdiction.”

The Amendment Bill proposes bold and sweeping reforms to address issues of procedural delays and maximizing asset value by empowering creditors to initiate insolvency resolution process, as also the framework for dealing with group insolvencies. These reforms are critical to address the bottlenecks faced by stakeholders due to the recent diverging judicial pronouncements, as highlighted above. Notably, the provisions suggesting imposition of strict penalties for filing of vexatious proceedings under IBC is a welcome step, to unclog the NCLTs and deter frivolous filings.

The suggestion to reduce timelines for completing the liquidation process, mandating the liquidator file an application for dissolution within 180 days from the liquidation commencement, may be difficult to implement in practice, considering that there are delays of more two years in a majority of the cases in liquidation in IBC according to the annual figures published by IBBI. Similarly, the suggestion of the creditor-initiated insolvency process is experimental, with the possibility of being misused by the creditors.

While these reforms may boost foreign investors’ confidence, these proposals need to examined in further detail to understand if they can be implemented in practice. The bill has been referred to a select committee for further examination where its practical feasibility by taking into consideration the suggestions of various stakeholders.

AUTHORS:

Abhishek Sharma, Partner

Raghav Mittal, Senior Associate

Shruti Poddar, Associate

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[1] State Tax Officer (1) v. Rainbow Papers Ltd., 2022 SCC OnLine SC 1162. It is to note that a review petition was filed in pursuance to this judgement by the lenders in which they contested that the earlier decision of Supreme Court was in contravention to the legislative framework and expressed provisions of IBC. However, the Supreme Court rejected these review petition stating that the Review Petitioners have failed to make out any mistake or error apparent on the face of record in the impugned judgement and failed to bring the case within the parameters laid down by this Court.