Insolvency and Bankruptcy Code (Amendment) Bill, 2025

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introducing 12 key amendments to the IBC, 2016.

• The amendments aim to maximize stakeholder value, enforce strict resolution timelines, and align Indian insolvency law with global best practices, including cross-border insolvency frameworks.

Insolvency and Bankruptcy Code (IBC), 2016

The IBC, enacted in 2016, provides a time-bound framework to resolve the insolvency of companies, partnerships, and individuals.

Objectives

1. Revival of Distressed Firms: Enable financially troubled companies to revive through a resolution plan, ensuring continuity as a going concern.

2. Orderly Liquidation: If revival is not feasible, facilitate systematic liquidation of assets to maximize value for creditors.

3. Creditor-Driven Process: The law empowers creditors to initiate proceedings, marking a shift from earlier debtor-focused frameworks.

4. Strict Timelines: Ensures insolvency resolution within pre-defined periods, improving efficiency and predictability.

Key Features

• Consolidation of multiple fragmented laws into a single framework.

• Encourages early detection of financial distress and timely intervention.

• Promotes transparency and accountability in insolvency proceedings.

• Provides a legal safeguard to protect creditors’ interests while maintaining the business as a going concern.

Issues in Implementation

Despite its transformative nature, the IBC has faced several operational challenges:

1. Delays in Case Admission: Slow admission of cases has weakened the time-bound intent of the law.

2. Tribunal Backlogs: Overloaded NCLT benches have extended resolution timelines beyond prescribed limits.

3. Modest Recovery Rates: Banks and financial institutions often recover less than optimal amounts, reducing incentives.

4. Effectiveness Concerns: These challenges have diluted the impact of the IBC, highlighting the need for reforms to strengthen the framework.

Key Provisions of the IBC (Amendment) Bill, 2025

1. New Resolution Models

• The Bill replaces the fast-track process with a creditor-initiated insolvency framework.

• Introduces an out-of-court settlement option to reduce court intervention.

• Adopts a "debtor-in-possession, creditor-in-control" model, allowing businesses to continue operations while resolution plans are implemented.

2. Strict Timelines

• Liquidation must be completed within 180 days, extendable up to 90 days in exceptional cases.

• Insolvency applications must be admitted within 14 days once default is established.

• The Adjudicating Authority (AA) must approve or reject resolution plans within 30 days.

• Appeals to NCLAT must be decided within 3 months.

3. Compressed Out-of-Court Process

• A new out-of-court initiation mechanism has a 150-day timeline, ensuring faster resolution and quicker recovery.

4. Cross-Border and Group Insolvency

• The Bill enables cross-border insolvency to handle global corporate assets and claims.

• Introduces a framework for group insolvency, important for complex corporate structures and international investor confidence.

5. Deterrents for Litigation

• To prevent frivolous or vexatious litigation, individuals initiating such proceedings may face penalties ranging from ?1 lakh to ?2 crore.

6. Protection of Workmen

• Workmen’s dues are given high priority under the IBC hierarchy.

• They are placed on par with secured creditors and ranked above unsecured financial creditors and government dues.

7. Post-Resolution Success

• The market capitalization of firms resolved under the IBC reportedly grew from ?2.8 lakh crore to ?9 lakh crore within 5 years, demonstrating the efficacy and value of the framework.

Overview of the Insolvency and Bankruptcy Code (IBC), 2016

The IBC, 2016 is a landmark legislation in India designed to consolidate and simplify the insolvency and bankruptcy framework for companies, partnership firms, and individuals.

• Prior to 2016, insolvency cases were fragmented across multiple laws such as the SARFAESI Act, 2002 and the Companies Act, 2013, leading to long delays and low recovery rates for creditors.

• The IBC provides a time-bound resolution process to balance the interests of debtors and creditors while preserving the going concern value of the business.

Core Objectives of IBC, 2016

1. Timely Resolution: Complete insolvency proceedings within a strict timeframe (180 days as per the 2025 amendment, extendable up to 90 days).

2. Preservation of Assets: Maintain the debtor’s business as a going concern rather than immediate liquidation.

3. Clean Exit: Facilitate an orderly exit for failed businesses, encouraging entrepreneurship and ensuring continued credit flow to the economy.

Institutional Framework

The IBC relies on four key pillars to ensure effective implementation:

1. Insolvency Professionals (IPs): Licensed experts who manage the debtor’s affairs during resolution.

2. Insolvency Professional Agencies (IPAs): Regulatory bodies that enroll and monitor IPs.

3. Information Utilities (IUs): Central databases that provide authenticated financial information to quickly establish defaults.

4. Adjudicating Authorities:

   • NCLT (National Company Law Tribunal) handles corporate insolvency cases.

   • DRT (Debt Recovery Tribunal) handles individual and partnership insolvency cases.

Corporate Insolvency Resolution Process (CIRP)

1. Triggering the Process: Default by a debtor allows creditors or the debtor to initiate CIRP.

2. Moratorium: Once admitted, all legal actions against the company are stayed, protecting assets from seizure.

3. Committee of Creditors (CoC): Formed to approve or reject resolution plans.

4. Resolution or Liquidation:

   • If a viable resolution plan is approved, the business continues under new terms.

   • If no plan is feasible, the company proceeds to liquidation.

Key Achievements of IBC

• Recoveries: By late 2025, IBC facilitated recovery of ?4.1 lakh crore for creditors.

• Company Rescue: Over 1,300 companies were successfully resolved.

• Pre-admission Settlements: More than 30,310 cases involving ?13.78 lakh crore were settled before CIRP admission, showing a behavioral shift among promoters.

• Recovery Efficiency: Average recovery of 170% of liquidation value has helped reduce bank NPAs to 2.3%, improving financial sector health.

• Banking Sector Impact: IBC accounted for 52.3% of total recoveries by Scheduled Commercial Banks, amounting to ?54,528 crore out of ?1.04 lakh crore recovered.

Critical Challenges Facing IBC

1. Prolonged Resolution Delays: Despite the 330-day CIRP mandate, average resolution exceeds 700 days due to overburdened NCLT benches and litigation.

2. Erosion of Asset Value: Delays reduce asset value, resulting in suboptimal recoveries (32–36%) and high haircuts (up to 80–95%) for creditors.

3. Judicial and Infrastructure Constraints:

   • Frivolous litigation by promoters delays CoC decisions.

   • Shortage of technical members at NCLT leads to admission delays.

4. Underutilization of Specialized Schemes: Pre-packaged Insolvency Resolution Process (PIRP) for MSMEs is largely ineffective.

5. Preference for Liquidation Over Resolution: Many companies are liquidated prematurely, reducing their going concern value.

6. Inter-Creditor Disputes: Conflicts between secured and unsecured creditors or operational creditors prolong litigation.

7. Waterfall Mechanism Issues: Though it dictates the priority of proceeds distribution, delays and disputes often hinder timely distribution to stakeholders.

Conclusion

The IBC, 2016 is a transformative law that has strengthened credit discipline, improved bank recovery rates, and enhanced business rescue mechanisms.
However, challenges like delays, litigation, and underutilized resolution schemes must be addressed to realize its full potential in improving the financial ecosystem and supporting economic growth.