The Insolvency and Bankruptcy Code (Amendment) Bill, 2025

Abstract

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (IBC-2025) represents a significant reform effort by the Ministry of Corporate Affairs. The Bill was introduced in the Lok Sabha, the lower house of India’s Parliament, on August 12, 2025, by Union Finance Minister Nirmala Sitharaman.[1] The IBC-2025 seeks to reform the existing Insolvency and Bankruptcy Code, 2016 (IBC-2016) by addressing procedural delays, reducing unnecessary litigation, aligning Indian insolvency law with global practices, and strengthening the overall governance framework.

The Bill attempts to resolve the ambiguities in the implementation of the original Code and addresses the distinct needs of sole proprietorships, corporate groups, and cross-border enterprises. It also clarifies grey areas that caused uncertainty in practice. Among its notable changes, the Bill shifts liquidation oversight authority from the liquidator to the committee of creditors and introduces strict penalties for errant promoters. By reducing the duration of court proceedings, the Bill seeks to prevent the deterioration of corporate value and goodwill that prolonged insolvency cases have historically caused. It also gives secured creditors, including banks, priority in the recovery of dues over government tax arrears, thereby encouraging more confident lending to businesses of all sizes.

Keywords: Bankruptcy, Insolvency, Cross-Border Insolvency, NCLT, Clean Slate, Amendment.

I. Introduction

India’s original insolvency framework, while conceptually sound, suffered from significant procedural loopholes. The pre-existing bankruptcy legislation was slow and unwieldy, resulting in prolonged resolution timelines that caused companies to lose market value, goodwill, and client trust. The IBC-2016 was introduced to address these systemic failures, but its implementation revealed further gaps that required legislative correction.

The IBC-2025 Bill aims to improve the legal architecture of insolvency proceedings. It empowers banks to recover dues more efficiently and introduces out-of-court settlement mechanisms for Indian businesses, though the conditions and limitations on case withdrawal remain carefully calibrated. In cross-border insolvency matters, the Bill offers a framework for coordination with foreign courts. The overarching objective is to ensure that the resolution system operates swiftly, delivering outcomes before corporate value erodes further.

A particular concern addressed by the Bill is the problem of cross-border companies that hold assets in multiple jurisdictions, where promoters have been known to provide false or misleading information to creditors and financial institutions. The new provisions establish clearer record-keeping obligations for such entities. The Bill also addresses a longstanding creditor concern: when secured lenders such as banks could not recover dues, their capacity to extend credit to other businesses was constrained. By codifying the payment waterfall to prioritize bank loans before government tax dues, the Bill seeks to restore lender confidence.

A central concept introduced by the Bill is the clean slate principle, whereby a new buyer who acquires a business during insolvency resolution is not held responsible for the prior legal liabilities, penalties, or obligations of that business. This promotes business acquisitions and encourages investment in distressed assets. The Indian government’s broader goal is to facilitate the growth of small businesses, large corporations, and cross-border enterprises, thereby strengthening India’s position in global markets.

II. Research Questions

This paper addresses the following research questions:

1. What are the objectives of the Insolvency and Bankruptcy Code (Amendment) Bill, 2025?
2. What are the key changes introduced by the IBC-2025?
3. What is the impact of the Bill on companies, businesses, banks, and the broader legal framework?

III. Objectives of Study

The objectives of this research paper are as follows:

(i) To examine the implications of the IBC-2025 Amendment Bill.
(ii) To review the provisions of the newly introduced Bill.
(iii) To provide accessible information about the Bill’s key provisions.
(iv) To analyze the objectives behind the Bill and how they differ from the existing Code.
(v) To assess the impact of the Bill on relevant stakeholders.
(vi) To promote legal awareness of the new amendments among practitioners, businesses, and students.

IV. Research Methodology

This research paper is primarily grounded in doctrinal legal research, focusing on the study of legislative amendments through official government documents and primary legal sources. The paper also draws on empirical legal research methodology, which involves describing and evaluating the operation of legal policy, rules, and regulations as they exist in practice.

Non-doctrinal resources have been used for supplementary reference, including published research papers, legal news portals, and authoritative online databases. National reports and government publications have been used to analyze the context of the amendments. A comparative approach has been adopted to draw distinctions between the IBC-2016 and the IBC-2025 Bill, enabling a clearer understanding of the nature and purpose of each change.

V. Hypothesis

This paper proceeds on the hypothesis that the IBC-2025 Amendment Bill meaningfully addresses the structural and procedural deficiencies of the IBC-2016. The paper examines whether the Bill’s stated objectives, including accelerated resolution timelines, a creditor-driven process, the clean slate principle for new acquirers, and the introduction of out-of-court mechanisms, are likely to produce substantive improvements in the Indian insolvency ecosystem.

Specifically, the paper tests whether the 14-day mandatory admission timeline for creditor applications will reduce procedural delays in the National Company Law Tribunal (NCLT). It also considers whether the creditor-initiated out-of-court mechanism, which allows banks to initiate debt recovery without a court order, is practically viable. The paper further examines whether the revised payment waterfall, which prioritizes secured creditors over government dues, may have any adverse effects on public revenue. Finally, it explores how the provisions on group insolvency and cross-border insolvency will resolve cases that previously required separate legal proceedings.[2]

VI. Reasons for Reform: Why the IBC-2025 Was Introduced

The following reasons have driven the legislative impetus behind the IBC-2025 Amendment Bill:

1. Persistent Delays in Resolution: The existing legal process under IBC-2016 was slow, resulting in a large backlog of cases at the NCLT. The Amendment aims to resolve cases more efficiently and reduce the average time taken to reach a final decision.

2. Ambiguity in the Original Code: The IBC-2016 created interpretive confusion among practitioners and tribunals. The Amendment provides clearer, more specific provisions to reduce litigation arising from ambiguity.

3. Rationalizing the Payment Waterfall: Under the IBC-2016, government dues were given priority over bank recoveries in certain scenarios. Since banks are typically the primary secured creditors, the Amendment codifies that bank dues are to be paid before government tax arrears, restoring the logical priority of secured lending.

4. Strengthening the Committee of Creditors: The Amendment grants greater authority to the committee of creditors (CoC), including the power to appoint and remove the liquidator, thereby increasing accountability in the resolution process.

5. Reducing Court Burden Through Out-of-Court Options: Given the massive workload of the NCLT, the Amendment introduces out-of-court dispute resolution mechanisms as a faster and less burdensome alternative for eligible cases.

6. Preventing Misuse of the Process: The Amendment addresses situations where parties exploited procedural loopholes and withdrew at the final stage of proceedings. Clear rules on the payment waterfall and withdrawal conditions now prevent such conduct.

7. Inclusion of Small Businesses and Corporate Groups: Small and medium enterprises and group companies previously lacked a coherent framework for collective insolvency proceedings. The Amendment allows these entities to be resolved together, reducing duplication and inconsistency.

VII. New and Amended Definitions Under IBC-2025

“Service Provider” (Section 3(31A)): This new definition encompasses insolvency professionals, insolvency professional agencies, information utilities, and other registered entities as may be prescribed by the government from time to time.

“Security Interest” (Explanation to Section 3(31)): The amended definition clarifies that a security interest must arise from a contractual arrangement and with the party’s consent. Statutory liens are expressly excluded from this definition.

“Avoidance Transaction” (Section 5(2A)): This is a new definition targeting transactions through which companies and promoters attempt to conceal or dissipate assets before the commencement of insolvency proceedings. Such conduct is classified as fraudulent. The three main categories of avoidable transactions are: preferential transactions (Section 43), undervalued transactions (Section 45), and extortionate credit transactions (Section 50).

“Fraudulent or Wrongful Trading” (Section 5(9A)): This provision, read with Section 66, addresses the liability of the company, its management, and its directors where they have engaged in fraudulent conduct that prejudices creditors.

“Resolution Plan” (Amendment to Section 5(26)): The amended definition now includes the sale of one or more assets of the corporate debtor. This allows for partial asset sales, meaning a company need not be sold or liquidated in its entirety as part of the resolution plan.

“Group” (for Group Insolvency Purposes): Two or more debtors are considered a “group” if they are interconnected through “control” (defined as holding 26% or more of voting rights) or through “significant ownership.”

VIII. Key Amendments Introduced by IBC-2025

1. Expanded Service Provider Regime (Clauses 2-3, 55, 59, 60; Sections 3, 5, 196, 217, 218): The Amendment expands the categories of entities regulated by the Insolvency and Bankruptcy Board of India (IBBI) to include insolvency professionals, their agencies, information utilities, and any other categories that the government may notify in the future. This ensures that the regulatory framework remains adaptable to emerging market needs.

2. Mandatory Admission of Applications (Clause 4; Section 7): Where an application by a financial creditor is complete in all material respects, the adjudicating authority (AA) is now required to admit it. The AA may reject an application only on the ground of documentary deficiency, not on subjective discretion. A decision to admit or reject must be made within 14 days; any delay beyond that period must be supported by written reasons. This provision directly addresses the problem of arbitrary or prolonged non-admission of creditor applications.

3. Withdrawal Restrictions (Clause 8; Section 12A): Once the AA has admitted an application and the insolvency resolution process has commenced, a withdrawal of proceedings is permitted only with the approval of 90% of the CoC, and such a request must be made at least 30 days before the scheduled final decision. Withdrawal is not permissible after the expression of interest stage. This prevents parties from using insolvency proceedings as leverage and then withdrawing at a late stage.

4. Two-Stage Approval for Resolution Plans (Clause 19; Section 31): The Amendment introduces a bifurcated approval process for resolution plans to expedite implementation. In the first stage, the AA approves the operational and management aspects of the plan, including questions of who will run the company and how. In the second stage, the AA has a separate 30-day window to approve the financial distribution mechanism. This allows the incoming acquirer to take control of operations quickly, without waiting for the entire distribution framework to be finalized.

5. Liquidation and CIRP Restorative Reform (Clauses 20-25, 33; Sections 33-36, 38-42, 54): Previously, once a court ordered liquidation, the process was irreversible. The Amendment now permits a one-time reversal of the liquidation order and restoration of the Corporate Insolvency Resolution Process (CIRP), provided this is done within 120 days of the liquidation order. This gives stakeholders an opportunity to revive a viable resolution plan that may have been missed.

6. Interim Resolution Professional (IRP) Selection Independence (Section 10): The Amendment removes the debtor’s power to nominate the Interim Resolution Professional, ensuring that the IRP is a neutral and independent outsider with no connection to the company’s management. This change promotes fairness to all creditors, including banks and operational suppliers.

7. Moratorium Clarification: The Amendment clarifies two aspects related to the moratorium period under the CIRP. First, it addresses subrogation rights, providing that a party who discharges the corporate debtor’s obligations during the moratorium acquires the lender’s right to recover that amount from the debtor. Second, it clarifies that no litigation against the corporate debtor may be initiated or continued during the moratorium period, and that creditors whose proceedings are stayed during this period are protected against adverse outcomes.

8. Guarantor Asset Pooling: When a third-party guarantor is involved in securing a corporate debt, the Amendment permits the recovery of dues from that guarantor’s assets, subject to the approval of the CoC. Guarantors may also pursue their own parallel insolvency proceedings. Asset realization from the guarantor proceeds in the order of priority established by the payment waterfall.

9. Dissenting Creditor Safeguards: Creditors who dissent from an approved resolution plan are entitled to a minimum payout equivalent to the higher of the liquidation value attributable to their claim or the amount they would receive under the waterfall mechanism. This ensures that minority creditors are not left with nothing simply because they disagree with the plan approved by the majority of the CoC.

10. Creditor Oversight in Liquidation (Clauses 23-25; Sections 35, 36, 38-42): Upon the commencement of liquidation, the CoC is replaced by a Stakeholder Consultation Committee. The liquidator is required to consult this committee but is not bound by its recommendations. The Amendment sets a target of 180 days for the completion of liquidation proceedings.

11. Liquidation Timelines and Claim Synchronization: The total liquidation process is capped at a maximum period of 270 days, comprising 180 regular days and a one-time extension of 90 additional days. The extension may be granted only once and only where the primary 180-day period has been exhausted.

12. Look-Back Period for Suspect Transactions and Creditor Empowerment: The Amendment introduces look-back provisions to prevent companies from transferring or concealing assets in anticipation of insolvency proceedings. Investigations into avoidable transactions begin from the date of filing. Creditors are also empowered to initiate legal action independently to protect their interests from such conduct.

13. Secured Creditor Asset Realization Rules: Upon the winding-up of a company, a secured creditor has two options: to retain the mortgaged asset or to sell it. Either option must be exercised within 14 days of the commencement of liquidation proceedings. Additionally, 66% of secured lenders may collectively agree to proceed with an out-of-process sale of assets.

14. Security Interest Definition Clarified (Clauses 2-3; Sections 3 and 5): The Amendment makes clear that a security interest must be contractually created with the party’s consent. It is not established by operation of law alone. This clarification bridges a gap between the technical legal position and its practical application in lending transactions.

15. Pre-Packaged Insolvency Harmonization: The Amendment harmonizes the pre-packaged insolvency framework with the standard CIRP process, making it more transparent, predictable, and legally coherent for both corporate debtors and their creditors.

IX. Summary and Conclusion

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 represents a significant and comprehensive overhaul of India’s insolvency regime. It addresses the most persistent structural weaknesses of the IBC-2016, including delays, procedural ambiguity, inadequate creditor protections, and the inability to handle group and cross-border insolvencies in a unified manner. Where the original Code required parent companies and subsidiaries to be resolved through separate proceedings, the Amendment now permits consolidated group insolvency resolution.

The Bill does not merely close gaps; it also lays the foundation for new forms of business protection and restructuring. The clean slate principle encourages investment in distressed businesses. The creditor-initiated out-of-court mechanism reduces judicial backlog while accelerating debt recovery. The strengthened role of the CoC improves governance within the resolution process. Taken together, these changes represent a dynamic and forward-looking reform, positioning India’s insolvency framework as more competitive, investor-friendly, and aligned with international best practices.[8]

References

[1] The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, Insolvency and Bankruptcy Board of India, available at: https://ibbi.gov.in/legal-framework/act.
[2] The Insolvency and Bankruptcy Code, No. 31 of 2016, INDIA CODE (2016), available at: https://ibbi.gov.in/legal-framework/act.
[3] The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, Chambers and Partners (September 15, 2025), available at: https://chambers.com/articles/the-insolvency-and-bankruptcy-code-amendment-bill-2025.
[4] PricewaterhouseCoopers India, Key Changes in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (August 2025), available at: https://www.pwc.in/assets/pdfs/pwc-highlights-ibc-amendment-bill-2025-2.pdf.
[5] The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, PRS Legislative Research, available at: https://prsindia.org/billtrack/the-insolvency-and-bankruptcy-code-amendment-bill-2025.
[6] Cyril Amarchand Mangaldas, Client Alert: The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (August 14, 2025), available at: https://www.cyrilshroff.com/wp-content/uploads/2025/08/Client-Alert-The-Insolvency-and-Bankruptcy-Code-1408.pdf.
[7] Varun Singh, A Discussion of the IBC Amendment Bill 2025, LiveLaw (December 20, 2025), available at: https://www.livelaw.in/law-firms/law-firm-articles-/discussion-ibc-amendment-bill-2025-514017.
[8] IBC Amendment Bill 2025: Select Committee Submits Report to Lok Sabha, News on AIR (December 18, 2025), available at: https://www.newsonair.gov.in/ibc-amendment-bill-2025-select-committee-submits-report-to-lok-sabha/.