Insolvency and Bankruptcy Code’s (IBC) 2025 Amendment Bill

Context

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 seeks to address persistent delays, promoter resistance, and judicial ambiguities in India’s insolvency framework while reinforcing creditor-driven, time-bound resolutions.

Challenges Persisting After Adoption

• Delays in Resolution: Despite strict timelines, average resolution takes 600–700 days, due to litigation and NCLT backlogs.
• Promoter Resistance: Suspended promoters often use litigation to delay the process, undermining the Code’s creditor-driven intent.
• Low Recovery Rates: Initial recovery rates were 40–45%, but have since fallen to ~30% of admitted claims, raising concerns over effectiveness.
• Judicial Ambiguity: Conflicting rulings (e.g., Vidarbha Power vs Innoventive Industries) created uncertainty on admission and creditor rights.
• Operational Creditors’ Concerns: MSMEs and suppliers often get sidelined in CoC-led decision-making.
• High Liquidation Rate: Nearly half of admitted cases end in liquidation, going against the “resolution-first” principle.

Major Provisions of IBC Amendment Bill, 2025

• Faster Admission of Insolvency Cases:
  • Mandatory admission: If default is proven and documents are in order, NCLT must admit cases (no more discretion).
  • Proof of default: Records from financial institutions will be treated as conclusive evidence.
  • Timeline: NCLT must decide in 14 days; any delay must be explained.
• Creditor-Initiated Insolvency Resolution Process (CIIRP) – Out-of-Court Route
  • Creditors holding 51% debt can start insolvency directly.
  • Company management continues, but a resolution professional supervises with veto powers.
  • Process must finish in 150 days; if it fails, it converts to the normal CIRP.
• Group Insolvency Framework:
  • Allows joint resolution of companies within the same group.
  • Common resolution professional and committee of creditors (CoC) possible.
  • Prevents value loss from fragmented proceedings (e.g., Videocon case).
• Cross-Border Insolvency:
  • Provides a framework to recognise Indian insolvency abroad.
  • Helps lenders recover overseas assets.
  • Aligns with UNCITRAL Model Law and global practices.
• Other Key Changes:
  • Pre-Packaged Insolvency (PPIRP) expanded, especially for MSMEs, keeping businesses running during restructuring.
  • More NCLT benches and extended claim timelines to speed up cases.

Issues Not Fully Addressed by the Amendment

• Statutory Dues under Other Laws: No clarity on treatment of PMLA and EPFO claims, leading to uncertainty for insolvency professionals.
• NCLT Capacity Constraints: Bill strengthens timelines but doesn’t address infrastructure and manpower shortages in tribunals.
• Cross-Border Insolvency: No progress on adopting a comprehensive cross-border insolvency framework (UNCITRAL model law).
• Operational Creditors’ Rights: Concerns about limited say of MSME suppliers and operational creditors in CoC remain.
• Resolution vs Liquidation Balance: High liquidation rates (over 45% of admitted cases end in liquidation) not adequately tackled.

Way Forward

• Strengthen Institutional Capacity: Expand NCLT benches, hire more judges and insolvency professionals, adopt digital case management systems.
• Comprehensive Clarifications: Address pending ambiguities around PMLA, EPFO dues, and tax authorities’ claims.
• Adopt Cross-Border Insolvency Law: Critical for globalised business operations and foreign investor confidence.
• Empower Operational Creditors: Reform CoC voting structures to ensure balanced treatment of MSME suppliers.
• Encourage Pre-Pack Models: Streamline pre-packaged insolvency for MSMEs and startups to ensure faster resolution.

Strengthen Recovery Framework: Develop industry-specific resolution templates for real estate, NBFCs, and infrastructure.

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