The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, recently tabled in the Lok Sabha, marks the most reform of the IBC since its inception in 2018. The Bill spans 68 clauses and revises key areas such as definitions, admission procedures, liquidation, personal guarantors, group insolvency, cross-border cases, penalties, and regulatory powers. It aims to restore legislative intent and correct judicial deviations that have unsettled insolvency resolution.
Clarifying Security Interest
The Bill redefines security interest to mean only those created by agreement between parties. This overturns a Supreme Court ruling that allowed certain statutory dues to be treated as secured debts. The amendment restores the creditor priority order, ensuring secured creditors retain their rightful place. This boosts lender confidence and market predictability by anchoring security interests in contracts rather than laws.
Admission Process Reforms
Section 7 is amended to make insolvency petition admission automatic upon proof of default. This reverses a Supreme Court judgment that allowed discretionary rejection of petitions. The Bill sets a strict 14-day deadline for admission or rejection, with mandatory reasons if missed. This aims to eliminate judicial delays and uphold the Code’s timeline discipline.
Protections for Creditors and Investors
The Bill mandates minimum payouts for dissenting financial creditors, ensuring they receive either their liquidation share or proportional plan share. It also enshrines the clean-slate principle—approved resolution plans extinguish prior claims and protect licences from arbitrary termination. These measures provide clarity and security for investors and creditors.
Personal Guarantors and Asset Transfer
Creditors can transfer personal or corporate guarantors’ assets into the resolution estate once possession is taken. If the guarantor is under insolvency, asset transfer requires two-thirds creditor approval. This curbs fragmented recovery efforts and promotes collective resolution.
Liquidation Process Enhancements
Secured creditors must now declare within 14 days if they will realise security outside liquidation, or lose that right. Enforcement of shared security requires two-thirds creditor consent to prevent holdouts. Liquidation must conclude within 180 days, extendable by 90 days. The Adjudicating Authority may allow a one-time restoration of the resolution process if resolution chances exist, with a 120-day limit. These rules streamline liquidation and reduce delays.
New Insolvency Resolution Process
A creditor-initiated insolvency resolution process (CIIRP) is introduced for notified debtor classes. It offers faster, lower-cost resolution supervised by the committee of creditors. The Adjudicating Authority can convert CIIRP to regular CIRP if needed. Success depends on judicial restraint and careful implementation to avoid duplication and litigation.
Group and Cross-Border Insolvency
The Bill introduces group insolvency provisions, enabling common benches, shared insolvency professionals, and coordinated creditor committees. Definitions for control and group ownership are included. It also empowers the government to regulate cross-border insolvency for notified debtor classes. However, much detail is deferred to delegated legislation, which may affect certainty.
Discouraging Frivolous Litigation
New penalties ranging from ₹1 lakh to ₹2 crore are imposed for frivolous or vexatious insolvency proceedings. While financial deterrence is introduced, the Bill stops short of requiring pre-application deposits that could further deter misuse.
Challenges Ahead
The Bill’s success hinges on strict adherence to timelines by courts and authorities. If deadlines remain directory rather than mandatory, the Code’s discipline will weaken. Leaving group and cross-border insolvency rules to delegated legislation risks uncertainty. The reform is comprehensive but requires disciplined implementation by all stakeholders.
Questions for UPSC:
- Critically discuss the impact of judicial interpretations on the effectiveness of insolvency laws in India and the role of legislative amendments in restoring original intent.
- Examine the significance of creditor hierarchy in insolvency resolution and analyse how changes in security interest definitions affect financial markets and investor confidence.
- Point out the challenges and benefits of introducing group and cross-border insolvency frameworks in a globalised economy and how they influence international trade relations.
- Estimate the importance of strict timelines in judicial processes and how judicial discretion in enforcing statutory deadlines affects governance and economic reforms in India.
